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

[justbroke]

He called me right away which he usually pretty good at getting back to me. right of the bat he told me that he can't go by with what someone wrote in a forum. he said that loan modification is pretty much the same as reaffirming the loan. he admitted he has not done a reaffirmation before and since the trustee told him that would not be a good idea and he would have to agree with the Trustee.

It's not the same in any jurisdiction. As a matter of fact, my "modification" read exactly that it was NOT a reaffirmation of debt. The problem is that a "reaffirmation" has very very very very very very specific language in it. A modification can be a short as ONE sheet of paper. A reaffirmation, with the new required cover sheets, is over 9 pages long on average.

Also, the lender can't do a "back door" reaffirmation by shoving a "modification" in front of you to sign. A modification is a totally different document. A modification does not reaffirm a debt (period). Now, on the other hand, a reaffirmation can modify the underlying terms of the debt! You just need to make sure which one you're dealing with.

I just went through this in April and my creditor (bank) was VERY VERY cautious NOT to call the modification a reaffirmation. They can get into serious stay violation issues, with sanctions, for attempting a back-door reaffirmation.

Question: am I to understand that if only one spouse files bk and does not reaffirm the mortgage for which both signed, that the non filing spouse is 'off the hook' too ??? Curious in FL....

Sorry, I just re-read that you wrote that both "signed" the mortgage. If this was "community" property and you're talking about a "community" creditor, then the discharge stays the collection for the community debt on the community property.

There is some argument as to just what justifies "community" property in a equitable distribution State. I would make sure I had competent legal advice if you have a mix of debts that are joint and individual between the debtor and non-debtor spouse.

[OHBOY]

Just a quick comment that sometimes you don't have a choice either. In our case - the one filing is co-signer on the auto. If co-signer doesn't re-affirm -- it takes both out.... sigh.

I so wish there was a way out of that because the vehicle is way upside down to the tune of about 9-10k! (Have I mentioned I hate the auto industry?)....
But we don't have a choice...........

Question: am I to understand that if only one spouse files bk and does not reaffirm the mortgage for which both signed, that the non filing spouse is 'off the hook' too ??? Curious in FL....

[mrslick]

Des,
i'm not sure if you can do an attachment on this, here's my personal email [email protected]

[despritfreya]

In response to:

"Des, what's your experience on getting court approval? do we really have to go in front of a Judge if yes what are steps to get the process going. my lawyer said that he may have to refer to another attorney. i don't want to keep money to the attorneys if i don't have to, i've already paid him over $4k between ch. 13 and converting to ch.7. "

I have filed about a half dozen of these Motions. All were "approved". More or less it's a formality. I am trying to think of a way to get you a copy of the one I filed this past week. The problem I have is that I will lose my anonymity in doing so. Maybe I can figure a way to cut and paste it and then send it to you by PM but I would have to wait until I am at the office. Can we do attachments? Do you know?

Des.

[mrslick]

Des,
thank you for your answer. i emailled your response and my reasoning of why we will reaffirm if we have to. here's the email i sent, sorry it's a lengthy one:
After we spoke yesterday, i called BofA and i was told that the loan
modification docs is not reaffirmation. I joined BKForum.com after we first
filed and i'll be honest with you, you may find this site very handy when you
come across a case like mine. Below is the question i (mrslick) asked in the
forum and you'll see one answer from an attorney who does not support
reaffirmation, but his answer will get us through this. Base on what he/she said
it seems like you'll have to write the letter and bring it with you on Monday so
that you, Denise and I, and the Trustee can sign it. We really need this
modification to move forward with our lives, without it we may lose our home and
from day one we expressed to you how we don't want to lose the house.
to be honest, Denise and I would reaffirm the mortgage a million times before we
lose this modification. if you think about it there's a VERY SMALL chance we
may end up liable for any unpaid balance if indeed we can afford to keep the
house in the future. there's a BIG % of why we will not lose the house in the
future if we have to reaffirm.

1) even in this housing crisis the house is assessed around $365k and with the
modification the balance will be $326k.

2) even if one of us lose our job the other one will be able to at least pay the
mortgage and put food on the table.
3) if both of us lose our jobs around the same time, modifying our loan will
allow us to save some money (within 4-6 month) for rainy days while we look for
another job.
4) If both of us lose jobs, we'll be able to collect unemployment benefits and
that will be enough to get us through for at least 6 months after we use the
emergency funds.
5) if after we run out of options, we will simply put the house for sale and we
will still walkout with a little bit of money after paying off the mortgage and
the buyer's real estate agent. i would list the house myself.

so i think the new game plan going to Monday's meeting should be like this.
since the loan mod doc does not mention reaffirmation on any of the 3 pages, we
should not treat it as such. Reaffirmation requires specific languages and
special forms. BofA bankruptcy department told me that the loan mod doc is not
reaffirming the debt (not that i trust them) but the attorney's response to my
question below support that. Please, try to find the time to get that letter
together before Monday and when you finished it you can email it to me and/or
the trustee so that she'll have some time to review it.

He called me right away which he usually pretty good at getting back to me. right of the bat he told me that he can't go by with what someone wrote in a forum. he said that loan modification is pretty much the same as reaffirming the loan. he admitted he has not done a reaffirmation before and since the trustee told him that would not be a good idea and he would have to agree with the Trustee. He said that the Trustee does not have any power to approve the modification, we will have to go in front of a Judge. so he wants me to ask the bank to wait after the case is discharge to do the modification. I don't want to do that because i know too many people who have been trying to modify their loans for over 1 year and they're still going at it.
Des, what's your experience on getting court approval? do we really have to go in front of a Judge if yes what are steps to get the process going. my lawyer said that he may have to refer to another attorney. i don't want to keep money to the attorneys if i don't have to, i've already paid him over $4k between ch. 13 and converting to ch.7.

[despritfreya]

QUOTE=mrslick;471739]the bank is requiring me to get court approval before the mod is clomplete. my attorney talked to the trustee today and she said that that would not be a smart move to have the court approval and my attorney agreed with her. . . does court approval means that i have reaffirm the mortgage? second, my attorney seems to be concern about his liability if he represent me if indeed the court approval the bank wants is reaffirmation, i thought attorney suppose to do what's best for the client?. . .third, did anyone of you needed court approval to get the loan modify?. . . Plus i like the idea of reaffirm the house, so that we will at least have something good on our credit. even if in the future something happen where we can afford the low mortgage payment, we can sell the house and payoff the mortgage. is it upto us to push the reaffirmation if the trustee and my attorney don't want to do it?[/QUOTE]

1. Lenders are requiring Court approval more and more.

2. A “Motion to Approve the Modification of a Residential Mortgage” is not the same as a Reaffirmation Agreement. Reaffirmation Agreements have very specific disclosure requirements which are not in the loan modification documents. In fact, if you review your loan modification documents, someplace you will find either a “Bankruptcy Disclosure Statement” or language that if you are in bk the lender agrees that its sole remedy upon default is to recover its property. Look for it. . . it’s in there.

3. I understand your attorney’s concerns however, (and print out this response) tell him that he can protect himself by doing the following: a) In the body of the Motion to Approve he clearly indicates that the Motion is not to be deemed a Reaffirmation Agreement and that it is understood by all parties that should there be a default under the terms of the Modification Agreement, lender’s remedy is solely “in rem” and it shall look to its collateral only; b)In the Order Approving the Motion the attorney should have similar language.

When I first came across this issue I too was concerned that the Court approval would be considered a Reaffirmation Agreement. Once I figured a way around it the concern went away. In fact, I believe that for so long as I am the “attorney of record”, I have greater exposure (mal-practice wise) if I do not file the Motion and, in the end, my client cannot modify the loan as a result.

Lastly, and I am sure you understand my position by reading my original post in this thread:

Reaffirming is a mistake if you live in a State that does not have an anti deficiency statute.

You have equity today, but tomorrow, who knows. To me, and this is my “legal” opinion, the risk of future financial ruin is too great and, as a result, reaffirming is a bad idea.

Des.

[mrslick]

hi all, i converted my case to chapter 7 last month due to a big decrease in income. my case is like this, i'm 3 months behind on my mortgage and i just got my loan mod docs. my mod is very similar to others except on the 7th year the rate will be 4% and will remain at that for the rest of the term. the only problem is, the bank is requiring me to get court approval before the mod is clomplete. my attorney talked to the trustee today and she said that that would not be a smart move to have the court approval and my attorney agreed with her. i'm not upside down on my house, i still have about $50k in equity even in this housing crisis. my first question is, does court approval means that i have reaffirm the mortgage? second, my attorney seems to be concern about his liability if he represent me if indeed the court approval the bank wants is reaffirmation, i thought attorney suppose to do what's best for the client? my Wife and I both want to keep the house. third, did anyone of you needed court approval to get the loan modify? Please help, my 341 meeting is this monday. Plus i like the idea of reaffirm the house, so that we will at least have something good on our credit. even if in the future something happen where we can afford the low mortgage payment, we can sell the house and payoff the mortgage. is it upto us to push the reaffirmation if the trustee and my attorney don't want to do it?

[ladycee]

Hi Des,

It certainly does help. It saves me from making a fool of myself fighting an unecessary battle. I am really grateful for the simple and clear explanation you give. Once abandoned, always abandoned......YAY! and it helps a great deal to realize that the numbers will be outdated if anything pops up...........

What a relief!

THANKS

Chris

[despritfreya]

the Trustee's report is based on the old 2005 Appraisal, even tho he discussed the new $977 equity with me. His report shows $69k Assets....$28,138 Exemptions. Amended Exemptions should have reflected $7,138 taking away the max exemption of $21,625

No way could my Assets = $69k

When queried, my atty says I do not need to understand the numbers. that my case will be discharged.

However, my question is this: What if down the road I find it necessary to File a Chapter 13. Can these incorrect figures in the Trustee's report come back to haunt me?

I have been considering contacting the Trustee's office to point out that the numbers in his report do not match the Amendments recorded on PACER. No Asset No Distribution, and not worry about the incorrect numbers?

Any input you can give me will be most appreciated Des,

Thanks,

Chris

Chris,

I did not follow your earlier thread. Sorry. But, all I needed to see of your above question was that your Trustee filed a report of no distribution. That report shows numbers associated with the amount of assets and the and the amount of debts and that the Trustee is abandoning everything. Your attny is not off the mark. There are mistakes by the Trustee but such is really no big deal.

In answer to your question. No, the dollars listed by the Trustee have no impact on any future bk you may need to file. No, it does not matter that the Trustee did not use the amendments you did. No, you do not need to get the Trustee to change anything. The fact is that the Trustee has abandoned and closed his file. Once abandoned always abandoned. You do not want the file reopened by the Trustee. The fact that you did the amendments and have supporting documentation for those amendments is all you need. Further, "down the road", even your current values will be outdated.

The mistakes by the Trustee would have been an issue if he was trying to liquidate an asset that, due to the higher but mistaken value, was deemed worth in excess of some allowed exemption. Since it appears he has abandoned all assets this is not an issue.

Hope this helps.

Des.

[ladycee]

Hi Des,

You are very knowledgeable and experienced and I have a question for you.

Reading your posts has been very gratifying and educational....thanks

After reading posts on this thread, I am more concerned than I was before. I have decided not to reaffirm my mtg. I am also beginning to consider "walking away" from my home. Perhaps 1 or 2 yrs down the road after all ducks are in a row. Not getting any younger and mowing a huge lawn gets harder and harder. Winters here are also harsh.

My atty was insisting that a 5yr old appraisal giving me $30,000 equity was valid, even tho the sr partner had agreed that it had probably dropped in value, and promised me they would "try" to do a comparison.

I was in shock that they did not really do a comparison, but chose to stay with this overblown appraisal.

I got a new bona fide appraisal from an indisputable appraiser, who teaches other appraisers, dropping my equity down to $977. It was only this new appraisal which gave me the confidence to convert from a 13 to a 7. Atty had me sign a bunch of papers and promised that now, with the new appraisal, I had an $11,000 wild card to apply anywhere I like. (Didn't really need it as my Assets totaled $12,226). But it was a relief to me (just in case) I do have some furniture (4 or 5 pieces) which might be classified as antiques.

I was in shock when 15 days later, my atty filed Scheduels based on the old appraisal. It was a nightmarish struggle to get the atty to file Amended Schedules, but I persisted. The corrected Schedules were posted on PACER. Chapter 7, 341 Hearing was basically uneventful and Trustee even discussed the new appraisal showing $977 equity.

Next day, the Trustee's report is based on the old 2005 Appraisal, even tho he discussed the new $977 equity with me. His report shows $69k Assets....$28,138 Exemptions. Amended Exemptions should have reflected $7,138 taking away the max exemption of $21,625

No way could my Assets = $69k

When queried, my atty says I do not need to understand the numbers. that my case will be discharged. That it is not a good idea to question a "successful verdict". This is all in my posting "Strange Attorney Actions" tho I don't want to make you read all of that.

However, my question is this: Hypothetical of course. What if down the road I find it necessary to File a Chapter 13 (don't really expect to, but another scenario could someday come up).......Can these incorrect figures in the Trustee's report come back to haunt me?

I have been considering contacting the Trustee's office to point out that the numbers in his report do not match the Amendments recorded on PACER. This will surely anger my atty. Should I just shut up and be grateful that it is deemed a No Asset No Distribution, and not worry about the incorrect numbers?

Any input you can give me will be most appreciated Des,

Thanks,

Chris

[tobee43]

Actually, in Florida, a different set of caselaw seems to apply. I can't find the cases at the moment, but several judges in the Middle District opined that the intent of the FRBP (federal rules of bankruptcy procedure) and the Title 11 bankruptcy code, wanted cases to flow quickly. If an individual didn't know the status of a lien strip until 5-6 months into the case, then that would be a bad thing. Especially since the resources used to prosecute the case would be utilized, only to find out that after the lien strip is granted, that the debt limit was exceeded once the debt becomes unsecured.

At least that's how the majority of Judges in the Middle District have ruled. The Middle District (MD) was basically the counter to the 9th Circuit. The MD opined that the debt limits should be looked at from the schedules only. That the judge could go beyond the schedules if necessary. However, anything that did not have an immediate liquidation value or needed to be determined through a hearing or through litigation, did not count towards the 109(e) debt limits.

jb....the middle district of florida is most likely one of the most confusing in country....as i know you know....in that district is how many counties???....and each of those counties have different formulas in calulating the final sums in either your means test or procedure.

and how is it they can find out after and not before?? it's so nuts.

the middle district (MD) was basically the counter to the 9th circuit covers where exactly?.... is it, or does it cover the entire scope of lake, orange counties...etc. all having different criterial for filing. wow....

[justbroke]

Sorry when this seems to be a dumb question - but I'm not too familiar with the court-system. So does this decision have a direct influence to CH 13 filings in the Florida Middle District?.

Actually, in Florida, a different set of caselaw seems to apply. I can't find the cases at the moment, but several judges in the Middle District opined that the intent of the FRBP (federal rules of bankruptcy procedure) and the Title 11 bankruptcy code, wanted cases to flow quickly. If an individual didn't know the status of a lien strip until 5-6 months into the case, then that would be a bad thing. Especially since the resources used to prosecute the case would be utilized, only to find out that after the lien strip is granted, that the debt limit was exceeded once the debt becomes unsecured.

At least that's how the majority of Judges in the Middle District have ruled. The Middle District (MD) was basically the counter to the 9th Circuit. The MD opined that the debt limits should be looked at from the schedules only. That the judge could go beyond the schedules if necessary. However, anything that did not have an immediate liquidation value or needed to be determined through a hearing or through litigation, did not count towards the 109(e) debt limits.

[ladycee]

Hi Des and Blockhead:

That is exactly what my attorney said, that in some states, state law prohibits a finding of default due to bankrupty and failure to reaffirm, by a note holder on real estate property as long as the note is paid up to date. In a different thread I can't find though, Des, you said there was also a part of the bk law itself that prevented acceleration for up to date notes and you mentioned some clause relating to existing contracts? I ask as someone here asked me if I could remember the clause and I couldn't

Just need to ask: What is "acceleraton for up to date notes"?

thanks for a really informative thread all,

Chris

[wnguyen]

To wnguyen, in response to:

“Does it mean a debtor has to reaffirm his/her vehicle because the Code requires? My case specifically, my lawyer said there was no need to reaffirm (disregard the paperwork sent by the lender) because they won't take the car if the loan is current.”

11 USC §521(a)(6) states “in a case under chapter 7. . .in which the debtor is an individual (the debtor) shall not retain possession of personal property (like a car) as to which a creditor has an allowed claim for the purchase price (not a refinance or a title loan type debt) secured. . . by an interest in such personal property unless the debtor, not later than 45 days after the first meeting of creditors. . . either (A) enters into an agreement with the creditor pursuant to 524( C) (reaffirmation agreement). . . or (B) redeems such property from the security interest pursuant to section 722. If the debtor fails to act within the 45-day period. . . the stay. . . is terminated. . .

So based upon 521(a)(6) you must reaffirm or redeem and if you do not, the creditor is free to take action. HOWEVER,

Some jurisdictions have flat out held that so long as you are current and, based upon state law, if you fail to reaffirm there is nothing the lender can do. This may be the situation in your jurisdiction hence the reason your attny said you do not have to reaffirm.

In my jurisdiction state law does not help, but some of the judges are now warning creditors that they will have to answer to the court if they repo solely because the debtor did not reaffirm. I do not think the judge can really do anything but. . .

To tyson24, in response to:

“I was looking at my petition before I sign it, and notice there is no surrender or reaffirm checked in the statement of Intention for either my residential home or my rental property. My residence is current but my rental property is unpaid for 2 years but not yet in foreclosure. (Chase bank) If I do not surrender (in MN) will I have to pay the foreclosure fees if I do not surrender the home? Am I better to surrender it?”

The Code requires a Chapter 7 debtor (individual) to submit a Statement of Intention. If you did not it was most likely an oversight and should be corrected. While the Statement of Intentions may say you are retaining, so long as you do not sign a reaff it does not matter. Keeping or surrendering does not change the effect of a discharge. What does change the effect of the discharge is the signing of an official Reaffirmation Agreement and not rescinding it within the time period allowed. If, in your case, you stop making payments and do not sign a reaff you have effectively surrendered. But. . . please remember that if there is an HOA you must pay all assessments/fees that fall due from your filing date until the mortgage company forecloses.

Des.

Thanks Des for clearing it out.

[despritfreya]

That is exactly what my attorney said, that in some states, state law prohibits a finding of default due to bankrupty and failure to reaffirm, by a note holder on real estate property as long as the note is paid up to date. In a different thread I can't find though, Des, you said there was also a part of the bk law itself that prevented acceleration for up to date notes and you mentioned some clause relating to existing contracts? I ask as someone here asked me if I could remember the clause and I couldn't

Look at the inter-play between the following Code provisions:

1. 362(h) - the stay is lifted if an individual fails to reaffirm or redeem personal (not real) property,

2. 524(a)(3) - the discharge acts as an injunction for the collection or enforcement of a debt as it relates to personal liability.

3. 524( c) - excepts from the discharge, debt that is properly reaffirmed.

4. 524(d) - requires the Court to advise a pro se debtor that a reaffirmation agreement is not required under bk law or non-bk law. Similar disclosures are required of debtor’s counsel.

As a result, the only “requirement” to reaffirm relates to the lifting of the stay and the ability of a creditor to repo the personal property if a reaff is not signed. That does not necessarily mean a lender will repo especially if payments are current. But the creditor, unless non-bk law prohibits it or the bk judge thumbs his nose at the Code, has the right to repo and this right only relates to personal property.

As it relates to the “acceleration” of the note such is unenforceable under several provision.

1. 362(a)(6) as it relates to any action to collect, assess or recover a pre petition claim as well as other provisions under 362(a).

2. 365(b)(2) as it relates to executory contracts/unexpired leases (subject to the rejection provisions.)

3. 524(a) as it relates to the effect of the discharge injunction since an acceleration is an attempt to collect.

4. 524(f) which authorizes voluntary payments to a creditor.


Hope this clarifies.

Des.