Why reaffirming a mortgage is a very, very bad idea.

[Memphisbelle]

When I asked a lawyer about reaffirming, I hadn't even gotten the question out of my mouth when she said she WOULDN'T let me reaffirm. That's how adamant she is about it. She then smiled and explained why. Since then I heard something and thought I would run it by here. I heard that if you are current on your mortgage and you don't reaffirm, the bank can forclose. I will be one month behind when I file. I don't think so but what do you all think?

I am just in the process of interviewing attorney's or else I would call her back. I really want to hire her. She's only out of law school a few years but she's part of a tough reputable firm that wins hard cases. Mine is not and she has the firm behind her and really seems bright and a hard worker. Of course they are at the high end at $3000.

I am meeting with one more who charges $1,600 next. A big difference but I imagine I get what I pay for here, which is peace of mind. But ouch, I have the $1,600 and I'll need to raise some more $'s to go with her if I chose. We"ll see.....and did I mention, I really like to have a cocktail with her too :~) Trying not to let affect my judgement. However, the firm is really one of the best. I wonder what $1,600 with buy?

I'll be posting my experience with the three I meet when I am done.

[IBroke]

Judges do deny real property reaffirmations. I would be interested in reading cases where the judge denies the real property reaffirmation agreement, but then specifically prohibits creditor action so long as the debtor does not default. This is the sort of case I would be interested in reading about (outside the 4th and 1st).

That would really be interesting..

[debee]

I was refering to the previously discussed situation ...

I understood what you were referring to, but not the fullness of your question. In my response, I only meant you wouldn't be forced to reaffirm. You would have the option of walking away.

So what I found interesting was that you could be in contempt of court by not doing something a judge previously didn't approve.

The hard thing for me to grasp is the hypothetical scenario. I don't think it would ever happen.

I think jb was just saying that if, like the debtors in the case cited in that thread, you left the SOI blank and were then ordered by the judge to either reaffirm or surrender, if you failed to do that, you would be in contempt. The contempt comes from failing to comply with the court order.

I can't imagine a case like the one you are describing ever existing because in the event that you somehow end up in front of a judge in this scenario, the court would not order you to do something that the court would simultaneous prevent you from doing and then punish you for not doing it. The judge hearing the case would have to determine viable options that you could comply with.

I read a case (personal property, but that is the same as real property in your circuit) where the debtor indicated reaffirm, signed the agreement and the judge would not approve the reaffirmation agreement but explicitly said the creditor was free to exercise its rights according to state law. Other cases had the judge explicitly say the creditor could not act.

Judges do deny real property reaffirmations. I would be interested in reading cases where the judge denies the real property reaffirmation agreement, but then specifically prohibits creditor action so long as the debtor does not default. This is the sort of case I would be interested in reading about (outside the 4th and 1st).

[IBroke]

The creditor would have to appeal the decision to a higher authority. The court can never order you to sign a reaffirmation. It's always voluntary.

I was refering to the previously discussed situation where the court could order you later on to either reaffirm or surrender the property if you indicated "reaffirm" on your petition but actually never did. Sure, even then you can't be "forced" to sign the reaffirmation but if you want to stay in your home and don't sign, according to justbroke, you would be in contempt of a court order. So what I found interesting was that you could be in contempt of court by not doing something a judge previously didn't approve.

Of course, if judges don't deny reaffirmations of real estate, this situation doesn't arise. But based on my online-research, they do.

Here's a case from this forum:

http://www.bkforum.com/showthread.php?45026-2nd-mortgage-reaffirmation-denied-s

[debee]

Oh, BTW, what about the 2nd mortgage (which is totally unsecured)? Do I indicate "reaffirm" on that as well and if so, do the same rules apply (lender could force reaffirmation post-discharge) as with the first mortgage? If so, the second mortgage could actually force you back into being liable for a 100% unsecured (and often high) debt.

Yes, 2nd lender could try to force you to surrender or reaffirm. In fact, in the Linderman case from the other thread, it was the 2nd lender who dragged the debtors into court and did it.

I read that some judges/trustees don't approve reaffirmations because they are not in the debtor's best interest.

I'm familiar with cases where the judge would not approve the reaffirmation and also stipulated that the creditor could not go after the property so long as the debtor remained current. These were all personal property cases though. I haven't read anything similar involving real estate. The cases that I've read were in the 4th, 8th and 9th. The 4th and 9th were both ride-through circuits pre-BAPCPA and the 8th circuit had no single position as the lower courts within it were divided. (Edit: If you are aware of any real property cases, please post them or pm me.)

So the court denies your reaffirmation and you are discharged. Can somebody explain to me how it is even possible that later on, a court can ORDER you to sign said agreements you previously WEREN'T ALLOWED to sign?

The creditor would have to appeal the decision to a higher authority. The court can never order you to sign a reaffirmation. It's always voluntary.

[IBroke]

Oh, BTW, what about the 2nd mortgage (which is totally unsecured)? Do I indicate "reaffirm" on that as well and if so, do the same rules apply (lender could force reaffirmation post-discharge) as with the first mortgage? If so, the second mortgage could actually force you back into being liable for a 100% unsecured (and often high) debt.

One aspect is very interesting as well in our case - and probably many other cases: I read that some judges/trustees don't approve reaffirmations because they are not in the debtor's best interest. In our case, a first mortgage with a balance of $560K and a second mortgage at $150K on a property valued at about $300K might very well into that category. So the reaffirmation might be denied and you are discharged. Can somebody explain to me how it is even possible that later on, a court can ORDER you to sign said agreements you previously WEREN'T ALLOWED to enter?

I'm really curious about that...

[IBroke]

I was on the thread with IBroke (above) and I think no matter where you live, if you don't want to reaffirm, then don't.

Indicate that you will reaffirm on the statement of intentions, but then don't sign the actual agreement. I would not write in "stay and pay" if you live in a district/circuit whose bankruptcy courts have ruled against that option. Since the recent ruling in the 11th, chances are other debtors in this circuit at least will have their lawyers telling them to check off one of the allowed options. I wouldn't do anything to make your paperwork stand out. There's no added benefit.

If you live in a circuit that was previously not allowing ride-through (1,5,7, 11 and parts of the 8th) and the lender takes you to court to force you to either reaffirm or surrender (so far this has only happened in the 11th & there were only two cases!), you can decide then what you want to do. Don't be tricked into thinking you HAVE to reaffirm with your initial filing.

(My comments only apply to real property. Personal property (cars, etc) is different. )

That sums it up pretty well and is exactly what we are going to do (indicating "reaffirm" but not signing it unless we a forced to do so).

[debee]

I was on the thread with IBroke (above) and I think no matter where you live, if you don't want to reaffirm, then don't.

Indicate that you will reaffirm on the statement of intentions, but then don't sign the actual agreement. I would not write in "stay and pay" if you live in a district/circuit whose bankruptcy courts have ruled against that option. Since the recent ruling in the 11th, chances are other debtors in this circuit at least will have their lawyers telling them to check off one of the allowed options. I wouldn't do anything to make your paperwork stand out. There's no added benefit.

If you live in a circuit that was previously not allowing ride-through (1,5,7, 11 and parts of the 8th) and the lender takes you to court to force you to either reaffirm or surrender (so far this has only happened in the 11th & there were only two cases!), you can decide then what you want to do. Don't be tricked into thinking you HAVE to reaffirm with your initial filing.

(My comments only apply to real property. Personal property (cars, etc) is different. )

[IBroke]

I think it's appropriate to post a link ti this thread:

http://www.bkforum.com/showthread.php?65327-Is-There-A-Requirement-In-Your-Circuit-To-Reaffirm-A-Mortgage

It can make "a hell of a difference" - depending on your location...

[FlaAdvice]

Where were you and this advice before I filed I WISH WISH WISH I had known the cons about signing a reaffirm. Now it's down the line and I am in a bind...such is life! It was a great read though.

[IBroke]

The only reason that I would want to re-affirm is that we actually have some equity in the house and I wouldn't want to jeopardize letting that go.

I don't see how NOT reaffirming puts ANYTHING in jeopardy for you. Your equity IS and STAYS YOUR equity, no matter if you reaffirm or not. The only thing a reaffirmation of the mortgage is going to give you is LIABILITY - but no additional rights or security.

[ohantonio]

The only reason that I would want to re-affirm is that we actually have some equity in the house and I wouldn't want to jeopardize letting that go.

[keepinitreal]

Currently in the middle of filing for bankrupcty, then a divorce will soon follow. In our intial meeting with our BR atty, he mentioned that one of us would reaffirm to keep the house. So does this mean that she could reaffirm the existing mortgage in her name only and be solely responsible for the mortgage from then on? If so, my name will still be on the deed and the B isn't going to sell the house without giving me half.

Ohantonio, your attorney can't force you to re-affirm your mortgage. Our attorney put the re-affirmation form in front of us and we told him we weren't going to sign it.

Even if you don't re-affirm and your wife does, you both still owe on the mortgage. The only change will be if the payments stop, the lender can only go after the person who DID re-affirm.

If you sell the property, you still have to divide the proceeds the same way you would have previously.

[ohantonio]

Currently in the middle of filing for bankrupcty, then a divorce will soon follow. In our intial meeting with our BR atty, he mentioned that one of us would reaffirm to keep the house. So does this mean that she could reaffirm the existing mortgage in her name only and be solely responsible for the mortgage from then on? If so, my name will still be on the deed and the B isn't going to sell the house without giving me half.

[IBroke]

Thanks for the info, des.!