I am cross posting this post of mine from the general bankruptcy discussion sub-forum. It really applies to Chapter 7 cases.
I see a lot of people asking about reaffirming on mortgages.
Why would you want to? If the bank is willing to let you stay in the house while you're making the payments (and all of them will with no exceptions I can think of off hand), then do it, but don't reaffirm. Here's two examples which will illustrate why I tell my clients "DON'T DO IT!"
Client 1 (a client of the firm before I got there): Filed bankruptcy, reaffirmed on mortgage, made payments for two years, came into the office and asked "I can't make the payments anymore, and I owe more on the house than what it's worth. Can I get out of my mortgage?" Our answer: "No, you reaffirmed, you're personally liable on the note as if the bankruptcy never occurred." Client very despondent. Stuck with house. Can't sell it. Can't refinance. Potential deficiency if foreclosed upon. Can't file bankruptcy again at least for another two years.
Client 2: One year ago was calling me up because they were frantic that they didn't receive a reaffirmation agreement for the mortgages on the house after other attorney told them that they would have to sign reaffs. In fact, the time passed when they could not file a reaff. I explained to them that it was ok, don't worry, here's why I don't want you to file a reaff. (blah, blah, blah). Keep making your payments as long as you want to stay in the house, and if you get in trouble, and can't make the payments, you can walk away. Called me up a couple of weeks ago and said "B, remember when you told us not to worry about the reaffs, well, me and hubby can't afford to make payments. Can we just walk away from the house?" Me, "Yes Ma'am. You are not personally liable, the mortgage company can only seek foreclosure, and cannot pursue deficiency. That means you can walk away at any time." Client says, "Thanks B., I didn't understand why at the time you were telling us not to reaffirm, but now I'm getting it." Client happy. Can move out and leave house with no worries and find cheaper lodging they can actually afford. No threat of deficiency. Sunny days.
And yes, those are two real life scenarios which illustrate just why I tell people NOT to reaffirm on their houses.
In essence, after bankruptcy, your mortgage loan is converted from a recourse loan to a non-recourse loan. If you can get a mortgage without being personally liable on the note, and the bank can only foreclose, and not pursue you personally, why wouldn't you take that deal?
I see a lot of people asking about reaffirming on mortgages.
Why would you want to? If the bank is willing to let you stay in the house while you're making the payments (and all of them will with no exceptions I can think of off hand), then do it, but don't reaffirm. Here's two examples which will illustrate why I tell my clients "DON'T DO IT!"
Client 1 (a client of the firm before I got there): Filed bankruptcy, reaffirmed on mortgage, made payments for two years, came into the office and asked "I can't make the payments anymore, and I owe more on the house than what it's worth. Can I get out of my mortgage?" Our answer: "No, you reaffirmed, you're personally liable on the note as if the bankruptcy never occurred." Client very despondent. Stuck with house. Can't sell it. Can't refinance. Potential deficiency if foreclosed upon. Can't file bankruptcy again at least for another two years.
Client 2: One year ago was calling me up because they were frantic that they didn't receive a reaffirmation agreement for the mortgages on the house after other attorney told them that they would have to sign reaffs. In fact, the time passed when they could not file a reaff. I explained to them that it was ok, don't worry, here's why I don't want you to file a reaff. (blah, blah, blah). Keep making your payments as long as you want to stay in the house, and if you get in trouble, and can't make the payments, you can walk away. Called me up a couple of weeks ago and said "B, remember when you told us not to worry about the reaffs, well, me and hubby can't afford to make payments. Can we just walk away from the house?" Me, "Yes Ma'am. You are not personally liable, the mortgage company can only seek foreclosure, and cannot pursue deficiency. That means you can walk away at any time." Client says, "Thanks B., I didn't understand why at the time you were telling us not to reaffirm, but now I'm getting it." Client happy. Can move out and leave house with no worries and find cheaper lodging they can actually afford. No threat of deficiency. Sunny days.
And yes, those are two real life scenarios which illustrate just why I tell people NOT to reaffirm on their houses.
In essence, after bankruptcy, your mortgage loan is converted from a recourse loan to a non-recourse loan. If you can get a mortgage without being personally liable on the note, and the bank can only foreclose, and not pursue you personally, why wouldn't you take that deal?
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