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

[IBroke]

I'll sell you my 3,800sqft home for $500K. It's very nice in a very nice neighborhood. It would be a short sale though..

OK, the balance would be lower - but be advised that we need financing on the entire $500K - oh, and we wouldn't make any payments on $420K of said balance for the next 27 years...

Well, the reaffirmation-question is not going to come up anyway since it will be a CH 13..

[blockhead]

To wnguyen, in response to:

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. . .

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.

Thanks for all your assistance to people here.

[justbroke]

Moving itself would cost us $10K and there is no 3,800 sqft.-home on the market for less.

I'll sell you my 3,800sqft home for $500K. It's very nice in a very nice neighborhood. It would be a short sale though.

Anyhow, with regards to the never reaffirm... I absolutely see NO reason to reaffirm on a home! In Florida, and the 11th Circuit (Georgia, Florida, Alabama), there is NO ride-through with cars and such, so you must reaffirm them if you want to keep them. However, this is not always enforced, as it is really up to the creditor to complain.

There was one judge in Texas -- and several others across the Districts -- that always tells debtors, at reaffirmation hearings, that he is "doing them a favor" and "denying your reaffirmation". He does it in all cases.

[tobee43]

In response to. . .

"so let me have my moment of appreciation for your efforts...please. because i DO understand your devotion."

I do appreciate your comments and thank you whole heartily. But I must admit that it is my boss who has the drive. I just work here. He handled a particular case that started in 1994, went to the 9th Cir. twice and then up to the USSC where he won a reversal of the 9th Cir ruling (we did have special counsel for that part of the case). It took 15 years including additional litigation once it was remanded back down the chain to the bk ct, but he finally got paid, not from the client, from the other side. Never asked a dime from the client.

Des.

des... please...one cannot work for and with someone unless they have at least a bit of their mind set. you would not likely have been hired!! LOL.

and it must be nice to work with someone that actually has principles!! so, it just rubbed off on you bit! LOL!! take the compliment! that and dime will not even buy you a cup of coffee, but it might get you into Heaven!

[IBroke]

Does a non reaffirm mortgage show up on your credit report?

It shows up as "IIB" and "$0 Balance" - but future payments probably won't be reported.

[ironpirate]

Does a non reaffirm mortgage show up on your credit report?

[IBroke]

You would not be responsible for any remaining balance.
I think your credit would be affected by the new foreclosure.

That's correct.

[keepinitreal]

Question, I didn't reaffirm my mortgage and say 2 years down the road I say screw it and leave. I wouldn't be responsible for any deficient remaining balance and would not affect my credit?

You would not be responsible for any remaining balance.
I think your credit would be affected by the new foreclosure.

[ironpirate]

Question, I didn't reaffirm my mortgage and say 2 years down the road I say screw it and leave. I wouldn't be responsible for any deficient remaining balance and would not affect my credit?

[IBroke]

No, the 9th Cir. BAP decision is not binding in Florida which is, I believe, in the 12th Circuit - not sure. . .) but it could influence a court in your district.

The Bankruptcy Appellate Panel (BAP) is the 1st level of appeal - decisions out of it are binding on the bk courts within the circuit until the Court of Appeals for that circuit renders a ruling changing it.

Des.

Thank You so much, Des.!

Your info is highly appreciated. BTW, I think I located a Circuit-Map and Florida should be 11th Circuit.

I have to agree that the decision in the 9th circuit is VERY strange. Considering a second mortgage "unsecured" right from the start makes no sense to me. If that's the case, it is hard to make an argument that just the exact same mortgage can't be stripped in a CH 7 because it is all of a sudden considered "secured". And if the court shares the opinion that it is unsecured, wouldn't that mean a second mortgage couldn't foreclose? It simply makes no sense...

Since i grew up in another country, this entire court-system is still like a foreign language to me - and decisions like that certainly don't make it any easier to understand..

Once again, THANK YOU so much for your time and efforts!

[despritfreya]

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? If so, CH 13 would be off the table right from the start...

No, the 9th Cir. BAP decision is not binding in Florida which is, I believe, in the 12th Circuit - not sure. . .) but it could influence a court in your district.

The Bankruptcy Appellate Panel (BAP) is the 1st level of appeal - decisions out of it are binding on the bk courts within the circuit until the Court of Appeals for that circuit renders a ruling changing it.

Des.

[IBroke]

In response to:

"Now, I just want to make sure that the unsecured debt-limit won't be an issue in my mother's case. As far as I know, The second mortgage - although stripped - is not applied towards the unsecured debt limit because the transformation from secured to unsecured debt is contingent. Is that still accurate? "

Not in the 9th Circuit. Very recent decision of In re Smith (decided on July 8th by the BAP and "ordered" published) stupidly applies In re Scovis 249 F.3d 975 (9th Cir. 1999) to the lien strip issue and holds that the unsecured claim is counted towards the 109 debt limits, despite the fact that a) you must file an adversary and b) the lien strip only goes into effect after you complete the 13 and get a discharge. My boss is considering taking this issue up to the 9th Cir. when the "right" case comes along. We all believe the Smith decision is wrong.

Des.

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?

If so, CH 13 would be off the table right from the start...

[despritfreya]

In response to:

"Now, I just want to make sure that the unsecured debt-limit won't be an issue in my mother's case. As far as I know, The second mortgage - although stripped - is not applied towards the unsecured debt limit because the transformation from secured to unsecured debt is contingent. Is that still accurate? "

Not in the 9th Circuit. Very recent decision of In re Smith (decided on July 8th by the BAP and "ordered" published) stupidly applies In re Scovis 249 F.3d 975 (9th Cir. 1999) to the lien strip issue and holds that the unsecured claim is counted towards the 109 debt limits, despite the fact that a) you must file an adversary and b) the lien strip only goes into effect after you complete the 13 and get a discharge. My boss is considering taking this issue up to the 9th Cir. when the "right" case comes along. We all believe the Smith decision is wrong.

Des.

[IBroke]

Ok, I misunderstood. I thought you were going to discharge the second mortgage but reaffirm the first. That's where I couldn't understand it. Now I agree with you, with a payment of $1300 a month, it absolutely does make sense to hang onto the home right now. My mistake, I would stay too in that case for $1300 a month.

No problem!

I have to admit that the whopping $560K look very scary at first..

[IBroke]

Again, it all goes to motive. In your scenario there still could be bad faith. While I am looking at this from the creditor's point of view, an aggressive debtor's attorney will argue that there is nothing wrong with using the provisions of the Code to their fullest. As to the length of the Plan if you are below median the Plan is 3 years if above it is 5 years but in either case the Plan ends (no discharge) when all "allowed claims" are paid in full, which, theoretically could be almost immediately upon Confirmation. Definitely a very grey area.

Des.

Yeah, looks quite difficult. Considering that filing a CH 7 PLUS a CH 13 is also associated with some high attorney-fees, it might not be worth it. A clear cut CH 13 right from the start might be the better way to go - also in regards to the credit-history. Two BKs don't look too good either..

Now, I just want to make sure that the unsecured debt-limit won't be an issue in my mother's case. As far as I know, The second mortgage - although stripped - is not applied towards the unsecured debt limit because the transformation from secured to unsecured debt is contingent. Is that still accurate?