Loan Modification after Chapter 7 Discharge

[adv1234]

I am trying to work something out with my first (80%) and second (15%) mortgages based on my new, lower income. I am 6 months out of my discharge on a Chapter 7.

The second mortgage holder has agreed to settle for about 10% of the loan, but the first mortgage holder has been downright impossible to deal with. Finally, after 6 months of trying to get through, I got a letter from the Assistant General Counsel of the company that says I am not eligible for a modification because the holder or my loan (Fannie Mae) does not allow a modification of a loan that has not been reaffirmed following a Chapter 7 bankruptcy discharge.

I smell b-s on this one. I have not read anywhere that bankruptcy eliminates consideration for a modification, or the need to reaffirm. Can anyone confirm or deny if this letter is true?

Thanks in Advance

[maddog2112]

Just out of curiosity, how much of your 2nd mortgage was secured by your property value.

[adv1234]

My home is work less than the 1st mtg. I paid 200k for the house in late 2006 with a 160k 1st and 30k 2nd. At best the house is worth 160k.

[adv1234]

Surely someone knows the answer to this question, I hope...

[OhioFiler]

I agree with the Assistant General Counsel. Technically, you don't have a debt that can be modified. There is no debt as it was discharged in the bankruptcy.

[justbroke]

I smell b-s on this one. I have not read anywhere that bankruptcy eliminates consideration for a modification, or the need to reaffirm. Can anyone confirm or deny if this letter is true?

Umm... you didn't reaffirm, so the debt is discharged. You don't owe them any money. So, how can they modify it? I think the General Counsel's office is correct.

(Okay, there are several people who have, somehow, got a modification after discharging the debt. These are questionable if the lender actually had them sign papers and that the lender then recorded the modification. This is a back-door reaffirmation, and those are technically not allowed. But that's another story.)

[shabam]

I agree with the comments above. You either pay it off at the original terms or you walk away, possibly losing any equity you have. It is the risk you take by not reaffirming.

[adv1234]

Thanks for the replies. I guess it's walk-away then. No tears here. I've gotten past all my other bad financial decisions and the house is the last one hanging out there. I'm not attached to it, and moving back to being a renter will be a big relief. I've been living on cash for over 18 months now. The change in lifestyle has been a big relief. I've purchased a brand new 2009 vehicle with cash, lived withing a budget, and have saved a lot. If I can't afford it, I don't buy it, and I don't pay any bank interest anymore. With the way things are going, if I get 6 months to a year out of living in the house for free, then work my butt off for another year or two after that, I will be able to afford a decent house outright. Feels good.

[HHM]

I disagree with Just Broke, nothing in particular about a bankruptcy, or the effects of bankruptcy, would prevent the lender from modifying the terms of the loan. I have asked around about this, there is no rule or regulation (with Fannie Mae) that says you cannot modify a non-reaffirmed mortgage. However, such a position is consistent with many lenders and Fannie Mae's attitude toward bankruptcy.

The mere fact that a debtor discharged their personal guarantee of the mortgage does not prevent the lender from modifying the repayment terms of the security interest.

However, as I have pointed out in many posts, getting a mortgage modification IS NOT A RIGHT. You could be fully eligible for a modification and the bank can still deny you.

[justbroke]

I disagree with Just Broke, nothing in particular about a bankruptcy, or the effects of bankruptcy, would prevent the lender from modify the terms of the loan.

I should have written "why would they", and that probably would have made my position clearer.

My concern is only with the "back-door" reaffirmation. As we both posted, people do in fact get these modifications on their discharged mortgages. My statement was more "why would they"... not that the lenders can't. In this instance the lender decided that they won't modify the mortgage.

[mickeyme]

Does anyone know if the bank modifies the loan after discharge will this automatically reaffirm the loan? I am waiting for approval...if I do get approved is there anything in the small print I should look out for?

[justbroke]

Does anyone know if the bank modifies the loan after discharge will this automatically reaffirm the loan? I am waiting for approval...if I do get approved is there anything in the small print I should look out for?

I don't know what to look for, but the only thing I worry about is the back-door reaffirmation.

[OhioFiler]

I don't know what to look for, but the only thing I worry about is the back-door reaffirmation.

No lender with 1/2 a brain would consider modifying loan terms and leaving a debtor with the option to walk away. I'm sure a modification post-bk would become a new loan.

[justbroke]

No lender with 1/2 a brain would consider modifying loan terms and leaving a debtor with the option to walk away. I'm sure a modification post-bk would become a new loan.

Yet, it has been done in a couple of cases. My major heartburn with it, would be if the debtor actually signed "new terms" thereby creating a "back door" reaffirmation. I think it would be defensible (from the Debtor's standpoint), but still think that's the only area that could get the lender in trouble should they seek an in personam action against the Debtor at a later time.

[adv1234]

Thanks for the discussion. I think it would be a no-brainer for a modification, as now the bank has no enforceable rights against me. But on the other hand, nothing that banks do surprises me. I was just wondering if the part about there being a Fannie Mae regulation forbidding the right to a modification. My personal thoughts is that it was a bunch of horse malarkey.

If anyone here can point me to the Fannie Mae Regulations/Guidelines, then I would be happy to take a meander through them, otherwise, I really can't be bothered. Part of me wants to take the opportunity to start completely fresh and take advantage of all the newly acquired financial smarts gained over the past few years. The other part of me wants to hold on to my home because it will be difficult to purchase a home with a mortgage again in the foreseeable future.

In any event, I am not stressing over the decision - just trying to weigh all options and make a good one...

Much thanks for the discussion and ideas.