To Reaffirm or not to Reaffirm?

[Noangelmom]

My husband and I are likely going to file for Chapt. 7 in May. I am compiling research and I have met with 3 lawyers thus far and have three more appt's. My question is this - should one reaffirm the mortgage or not reaffirm the mortgage if we're upside down in the house? One lawyer suggested that we do not reaffirm the mortgage and continue to make payments to the mortgage lender and let the loan discharge. He says we would then not be liable for the payments and could walk away at anytime, however, we can stay in the house as long as we make the monthly payment to the lender. I am so confused... so, has anyone had experience with a similar scenerio or have any advice?

We are in IL and owe $166k, the house is worth $150k and we want to stay in the house indefinitely.

[keepmine]

Don't reaffirm if a ride through is an option.
Post bk, you don't want to liable for any deficency balance should you not be able to make the payments.

[Noangelmom]

So, what exactly are the options for the mortgage? What is a ride through? Would not reaffirming and staying in the house effect our chances of obtaining a mortgage in the future?

[Noangelmom]

I just did some research on the "ride through" .....

"Under the ride through, a debtor whose real estate mortgage is not in default does not have to reaffirm the debt or surrender the real estate, but can retain the real estate by continuring to make the scheduled mortgage payments." <----very cool.

The ride through was eliminated for personal property but still exists for real estate.

[ToughTimes]

So, what exactly are the options for the mortgage? What is a ride through? Would not reaffirming and staying in the house effect our chances of obtaining a mortgage in the future?

Your options are:
1) Surrender -- You "give" the house to the lender in return for the debt being discharged. You will read a lot of posts here pointing out that the lender must still do the foreclosure proceeding to take title to the house, and they're often not in any rush at all to do this in the current economy. We are encouraged to believe the foreclosure that results only to give the lender title does not "count" separately from the bankruptcy on our credit reports, but is considered "part of" the bankruptcy. My attorney (in Ohio) tells me differently, but I can't say I really care anymore. Done is good.
2) Reaffirm -- You keep the house AND you sign paperwork recommitting yourself to the mortgage. Just say "No". In this case, you are once again fully responsible for the mortgage debt. In other words, your bankruptcy hasn't helped you at all with your home debt situation.
3) "Ride Through" -- Your bankruptcy paperwork states "retain and continue to pay" and you simply continue to make your monthly payments as agreed. You stay in the house until and unless you a) sell it, or b) change your mind (as many of us have) and decide to "walk away" (stop paying). If you walk away post bankruptcy, the lender cannot attempt to collect the mortgage from you, however you are still responsible for HOA incurred subsequent to your bankruptcy filing date, and you will be wise to insure yourself at least for liability until the bank gets around to foreclosing on the home, which they must do in order to take title to it. The lender also cannot sue you for any deficiency once they've sold the property in foreclosure.

With regard to #3, it seems to me that you could also state "reaffirm" on your bankruptcy filing and then simply not sign reaffirmation papers, creating a "ride through" by inaction. Many bankruptcy judges will not permit you to reaffirm real estate anyway as it's generally not perceived to be in the best interest of the debtor to come out the other side of a bankruptcy with the continued financial risk a mortgage in today's real estate market poses.

Future real estate purchases and "ride through": That will depend on what's happened with your ride through up until you go to purchase new or additional real estate. Generally, if you've paid and sold the real estate you've been riding through, no reason to expect a problem. If you're still paying and new lender sees this for some reason, that's an expense for the new lender to consider with regard to granting the new loan. If you've stopped paying the ride through loan long enough for a foreclosure to have shown on your credit reports, I am given to understand (per my attorney) that these show separately from the bankruptcy on one's credit report (because they take place distant in time to the bankruptcy, generally--lenders aren't in a great rush just now to foreclose and add to their REO inventory). You can sell, short sell, deed-in-lieu the property on a ride through, just as you can/could prior to your bankruptcy (which nowadays pretty well means with difficulty, despite your legal entitlement to do so). If you do a short sale or deed-in-lieu, make sure you have a real estate attorney examine the paperwork to be certain you are not creating potential for new liability on this old debt.

Now that I've answered your question to the best of my understanding, I have a question: Does anyone know how in the world a potential lender can, in today's "shadow market", tell whether the property was declared "surrender" or ridden through when the foreclosure on a surrendered property is not performed timely? I am suspecting that while we have this current knowledge of how things have worked up until now, we're going to see some real changes in latitude, changes in attitude in the near future if houses are going to sell at all. It's not going to do for them to be vacant long, and it's not going to serve loan officers to turn down everyone who has a foreclosure that is distant their bankruptcy date because the lender simply didn't want the inventory. Seems to me loan brokers will have to find other ways to determine the creditworthiness of potential borrowers if they are to stay in business.

[fortknox]

Oh, good to know! I didn't even know this was an option!

[Noangelmom]

Thank you so much for the details! That is exactly the information I needed to see!

[Noangelmom]

So, here's another question - if we don't reaffirm and "ride through" - would that severely effect our credit scores? (moreso than if we did reaffirm the loan?)

[blessed]

It's my understanding your credit score will be low after the bankruptcy so I'm not sure I would even worry about it. Besides, *I* don't want access to credit right away. I'll screw it up again lol

The attorney I'm working with strongly advised against any reaffirming, period. He said he would discuss if it we insisted, but it sounded like he could give almost anyone enough reason to decide against it.

[broken64]

Take it from me Do not reaffirm!!

[OHBOY]

Posted on November 29, 2009 by Jonathan Alper
Bankruptcy Court Requires Reaffirmation Agreement For Homestead Mortgage
Chapter 7 bankruptcy debtors often own cars subject to a car loan and lien. The new bankruptcy law states that debtors must reaffirm loans on all personal property in order to maintain the property through their Chapter 7 bankruptcy. So, debtors who want to keep automobiles must sign a reaffirmation agreement making them personally liable to pay the loan until paid in full. The Chapter 7 bankruptcy discharge will not discharge the debt and will not protect the debtors if they cannot pay the loan after the bankruptcy is closed.
Real property is different. The new bankruptcy law does not expressly require reaffirmation of debts secured by real property such as mortgage debt. Therefore, I have advised my clients not to reaffirm home mortgages in bankruptcy because they were not so required. I did not think debtors should obligate themselves personally on mortgage debt if not legally required to do so. That way, if after their bankruptcy the debtors could not pay the mortgage and had to walk away from their house the mortgage lender could not sue them personally.
A new ruling by an Orlando bankruptcy judged ends the option to "ride through" a mortgage debt. The judge said that if a debtor wants to keep real property after bankruptcy the debtor has to reaffirm their personal obligation to pay the mortgage debt just like they have to do with their cars and other personal property. The judge cited a ruling by the Eleventh Circuit Court of Appeals that debtors mus act to either surrender or reaffirm a debt if the debtor desires to retain the collateral. The judge said the Eleventh Circuit made no distinction between real property and personal property and that no distinction is merited.

[Noangelmom]

Posted on November 29, 2009 by Jonathan Alper
A new ruling by an Orlando bankruptcy judged ends the option to "ride through" a mortgage debt. The judge said that if a debtor wants to keep real property after bankruptcy the debtor has to reaffirm their personal obligation to pay the mortgage debt just like they have to do with their cars and other personal property. The judge cited a ruling by the Eleventh Circuit Court of Appeals that debtors mus act to either surrender or reaffirm a debt if the debtor desires to retain the collateral. The judge said the Eleventh Circuit made no distinction between real property and personal property and that no distinction is merited.

Ok, now I am totally confused. Does what a judge rules in FL override federal law and would that ruling apply to my case in IL?