Interesting - Why do so many Chapter 7 filers want to keep an UPSIDE DOWN home loan?

[Fallonedward]

I have a similar situation as another poster. My house is upside down by 75K. When I file Ch 7 I do not intend to re-affirm just keep paying and stay. The reason I am doing a pay and stay is that I have searched rentals in my area (would need 3 bedrooms for my family of 5) and everything is higher then what my mortgage is. By staying I allow my middle son to finish high school with all of his friends and live in an area we feel safe in. Then if need be we can move on our terms not someone else's

[screentest]

Hello All,

I have the same quandry as many on this board reference stay and pay or rent. Currently, I am 350K upside down and our house will NEVER appreciate back to the highs of 2005 again or anywhere near the balance I owe anyway. Once my 7 goes through and I don't reaffirm, I have to make the choice to stay and pay the modified payment or just move on, live rent free for a year and put this all behind me.

We received a loan payment modification at the beginning of this year that is very affordable and maybe even a little less than the going rental rate. This does not however factor in the taxes, insurance and maintenance I must pay every month and the loan mod is only 48 months and then back to the insane payment.

Housing will never in my opinion and that of almost every expert, and I use that term lightly, ever return to the highs of 2005 for many reasons, especially here in SoCal.

Too may factors have changed, lending options, lending rules, demographics of once high-end neighborhoods, high-end incomes and jobs leaving, abandoned foreclosed homes etc etc. Those overinflated manufactured highs were just a fabrication anyway. I am sorry I bought into it.

Putting all this together makes the option clear. It's not if we are going to leave this house it is just when. Should we stay and take advantage of the tax break for a few more years or just leave and get this behind us.

Smart money says just stop paying now and GET OUT!

One thing that has not been mentioned here is the stay and payers must resolve their mortgage issue if they are EVER to get another mortgage and move on. Remember, it is going to be at least 3 years after you dispose of your current house until you can get into another one as an "owner." Doesn't matter if you don't owe the debt, you must still complete the transfer (foreclosure) process and then start the 3 year wait until you are minimally qualified to get a mortgage again. You could stay and pay for 5 more years, have rebuilt strong credit and maybe a solid savings and decide, hey, things are looking good, maybe we should move now and get into that better neighborhood or school district. Fine, but you will move as a renter and NOT an owner because you have not yet resolved the issue with your current stay and pay situation.

If your neighborhood continues to deteriorate, your neighbors foreclose in the future and renters start taking over the place then you may decide its time for you to go. Title transfer back to the bank and then 3 years wait so you become a renter anyway.

Ironically today those that went through the first wave of foreclosures in 2005 and 2006
are now buying homes again at the market bottom. One of our neighbors that left in 2006 and rented for 4 years just closed escrow on a very similar home they left with a mortgage of 690K. Their new mortgage is only 289K and their new mortgage payment is less than my modified payment today.

I stayed here hoping for a turnaround in the market, a new federal program that would have helped, a loan mod or principle reduction I could live with or any other way to save the home I built and loved. Just not going to happen.

I understand those that are only under water a little trying to stay and hope for the best but in my situation this is not an option. I will be a renter this time next year for sure.

Good luck to all.

ST

[IBroke]

I've never heard the term "constructive reaffirmation" nor, I have seen any post on any site where a lender has forclosed on a mortgage that was not reaffirmed years after the fact.
Do you have any caselaw that shows where this has happened?

That is a good point. I'm also very active on loansafe.org and so far, I haven't heard of this case either. If it exists, it might well be a very rare occurance.
I even tried to google it and within 30 minutes of searching, I only found one post of a woman who claimed that "her husband heard of it".

[keepmine]

I think some of the posts in this thread are alarming people unnecessarily.
I filed bk in 05 a few weeks prior to bk reform.
I didn't reaffirm and my mortgage lender {Regions Bank} sends an annual statement along with a coupon book for the next year. The letter clerly states that this is for informational purposes only and is not an attempt to collect a debt discharged in bk. I also get a 1099 showing interest paid for the year that I use for my income tax returns.
I've been on this site since 06 and a few others prior to that. I've never heard the term "constructive reaffirmation" nor, I have seen any post on any site where a lender has forclosed on a mortgage that was not reaffirmed years after the fact.
Do you have any caselaw that shows where this has happened?

[IBroke]

Allergies. Can't live in rentals...

Me neither. I'm allergic to landlords...

[debee]

Allergies. Can't live in rentals because we can't do anything about musty odors, carpets, etc.

[Freddy03]

I just called my mortgage company (annoymously) and they said I would still received a 1098 because they have to report all interest paid.

[ccsjoe]

Candidly - I do not know if they report it or not.

I have read in many places that they no longer send the homeowner (is that the right term? haha) any monthly statements.

Maybe someone with real-life experience can chime in?

I'd just hate for people to solve one problem and potentially create another....Again, better safe than sorry.

If one is going to have only one good crack at a Chapter 7 - you might as well get it right the first time.

Not sending monthly statements is correct, monthly statements contain statements attempting to collect on a debt, which is a violation since the ability to collect on said debt was discharged. That is why they created so called "information only" statements that the homeowner (agree with you, is this the right term?) can request.

Interest though, they as a corporation are required to report it to the IRS under the various categories of income received for appropriate taxation, and in doing so, have to generate a report showing the source (i.e. the so called homeowner).

I agree, I'd like to see someone with experience chime in here, but because we are dealing with two different beasts, I can conceivably understand not being liable for the loan AND receiving the tax benefit on top of it all.

[brokejoker]

We are staying and paying and both mortgages send us monthly statements. They have the total interest paid to date on each statement. They are marked for informational purposes only since we didn't reaffirm.

[gman]

gman, are you certain they do not report to the IRS? I think this might not be right. Regardless of dischargeability, they are still charging, receiving and applying interest, and they still have to report it. The only thing that was discharged was their ability to collect on the debt, not the debt itself, which is why they no longer send statements or report to the bureaus or send information only statements. That is why you can voluntarily make your payments and create the "stay and pay" situation. But reporting to the IRS is a wholly different beast than BK. I understand what you said, but something there doesn't ring right to me.

I know you research a lot, so I'm not questioning you, just want to know your source on this one, as I'm reasonably certain something's off.

Candidly - I do not know if they report it or not.

I have read in many places that they no longer send the homeowner (is that the right term? haha) any monthly statements.

Maybe someone with real-life experience can chime in?

I'd just hate for people to solve one problem and potentially create another....Again, better safe than sorry.

If one is going to have only one good crack at a Chapter 7 - you might as well get it right the first time.

[ccsjoe]

I've seen many people point to the TAX ADVANTAGES of the STAY AND PAY strategy.

From what I have heard, when people do not reaffirm, the lenders will no longer (a) send you monthly mortgage statements and (b) no longer report your interest paid to the IRS.

I WONDER HOW THE STAY AND PAY CROWD IS GOING TO BE ABLE TO PROVE TO THE IRS THAT THEY EVEN PAID INTEREST - LET ALONE HOW MUCH.

Maybe someone has real life experience here who can share????

gman, are you certain they do not report to the IRS? I think this might not be right. Regardless of dischargeability, they are still charging, receiving and applying interest, and they still have to report it. The only thing that was discharged was their ability to collect on the debt, not the debt itself, which is why they no longer send statements or report to the bureaus or send information only statements. That is why you can voluntarily make your payments and create the "stay and pay" situation. But reporting to the IRS is a wholly different beast than BK. I understand what you said, but something there doesn't ring right to me.

I know you research a lot, so I'm not questioning you, just want to know your source on this one, as I'm reasonably certain something's off.

[gman]

I've seen many people point to the TAX ADVANTAGES of the STAY AND PAY strategy.

From what I have heard, when people do not reaffirm, the lenders will no longer (a) send you monthly mortgage statements and (b) no longer report your interest paid to the IRS.

I WONDER HOW THE STAY AND PAY CROWD IS GOING TO BE ABLE TO PROVE TO THE IRS THAT THEY EVEN PAID INTEREST - LET ALONE HOW MUCH.

Maybe someone has real life experience here who can share????

[lfllffl]

I am staying without reaffirming - I have only one mortgage and am upside down to the tune of about $30k... For me - I really enjoy where I live, my mortgage is affordable and in line with what I would be paying in rent. I get a tax advantage by staying. Also, there is the hope that someday I'll be able to recoup something from the property...

[Pandora]

ETA: misunderstood where gman was going with post - sorry gman - thought it was Freddy03 that had the loan mod! My mistake

in most instances a loan mod does not reaffirm the loan - it simply reworks the terms of the loan, and under BK law (or at least its my understanding) that you can still walk away. This is where you need to review your loan mod paperwork carefully to ensure there are no clauses or catches. ;)

FWIW - our house is upside down as well - by 98K - now we're stripping the 2nd - and the house is only about 20K upside down. Well worth staying with a mod of 50% what the 1st was compared to what we're paying now. Couldnt live in a cardboard box for $650 mortgage payment PITI - and its a farm. So...yes, it really does depend.

[gman]

To me I look at it like this -

I am basically renting from Wells Fargo and I'm ok with that. I don't have to deal with a landlord, I don't have to move, I can keep my kids in the same school district and the location is great for work.

If I ever find a dream home to rent that is much cheaper than my mortgage then I would probably just walk away from this house.

Just do yourself and your family a favor - talk to a few lawyers about the possibility that contractually you will be reaffirming the loan SIMPLY BECAUSE YOU CONTINUE TO MAKE PAYMENTS AFTER THE BK.

The law on this will be governed by state - not federal BK law - so I have no idea what the outcome would be in your situation.

Better safe than sorry.