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

[despritfreya]

Griffy,

I was planning on staying out of this one since JB is doing just fine communicating with you but when I read the following, I just could not resist. . .

My lawyer is still being sketchy but he did give me another option for the 2nd - to Redeem since the 2nd is now only worth $1,001.38.

I want you to go back to that lawyer and ask him what provision of the bk code he thinks can be utilized to cram down (redeem) such a mortgage lien. If his answer is 11 USC 722 you better run, not walk, out of his office.

The ability to "redeem" collateral in a Chapter 7 only applies to certian personal (not real) property.

Now, if, after your case is over, you wish to try to settle with a slightly “in the money” 2nd, (Eason's strategy) that is up to you. The bk court simply has no authority to modify the rights of a lender solely secured by the debtor’s principal residence, be it a Chapter 7, 13 or 11. Only a Chapter 12 (family farmer) will allow such action.

Des.

[Griffy]

My lawyer is still being sketchy but he did give me another option for the 2nd - to Redeem since the 2nd is now only worth $1,001.38. I think I could actually come up with that amount of cash if they forced me to pay it all at once. It would be better than negotiating as $1k is only 1.73% of the loan (Tom Eason's thread on LoanSafe.org suggests to expect 2-10%).

If I go the Redeem route on the 2nd, does it force me to go a certain route on the 1st? Just asking since I'm not getting straight answers from my lawyer.

Also didn't see anywhere on the SOI documents where I needed to do a separate Reaffirm agreement; however, if the ebook "Filing for Bankruptcy in Texas Made Simple" it did say that "a reaffirm agreement must be executed before discharge".... so it concerns me to check off Reaffirm on the SOI and then just not do the agreement.

Thanks again!

[justbroke]

The 1st I'm still pondering, but the only advantage I can see is that it will improve my credit if I pay timely but if I get in an unforeseen bind in the future, I'm stuck. I certainly would like to claim my expense deductions.

Never reaffirm to "improve" your credit. It almost always backfires. Your credit score should not drive a significant financial decision, such as discharging a $175K debt! No one can predict what tomorrow will bring for themselves.

So if I understand you correctly JustBroke, I should check other on the SOI and write in Stay & Pay? If there is a Reaffirmation agreement, just make sure that isn't completed?

I am not saying that. I am saying that this is strategy and it depends on how effectual "Stay and Pay" works in your particular district/appellate circuit. In Florida, I've seen both "Stay & Pay" (Other) and Reaffirm listed. In both those scenarios the debtors never actually enter into a reaffirmation agreement.

This is something you and your attorney needs to work on. Be aware that your attorney is walking a fine line and trying to show you what you are required to do (redeem, reaffirm, or surrender). The reaffirmation agreement would come from your lender after they receive your petition, read your Statement of Intentions, and determine whether they want a reaffirmation agreement.

[Griffy]

Thanks JostBroke for the quick reply.

I haven't paid on the 2nd for about a year and don't plan on paying the monthly amount in the future. Once I save up a bit, I would like to negotiate a settlement. (thread on LoanSafe. org by Tom Eason suggests that is possible btw 2-10%).

I definitely do NOT want to reaffirm the 2nd in any shape or form. The 1st I'm still pondering, but the only advantage I can see is that it will improve my credit if I pay timely but if I get in an unforeseen bind in the future, I'm stuck. I certainly would like to claim my expense deductions.

Just reviewed my SOI (which I guess is the petition ... not seeing an actual reaffirmation agreement). The SOI (filled out by my attorney but not signed by me yet) says

Property will be (check one):
Surrendered or Retained (checked)

If retaining the property, I intend to (check at least one):
Redeem the property
Reaffirm the debt (checked)
Other. Explain, for example, avoid lien using 11 U.S.C. Section 522(f)

So if I understand you correctly JustBroke, I should check other on the SOI and write in Stay & Pay? If there is a Reaffirmation agreement, just make sure that isn't completed?

Thanks

[justbroke]

I don't know why he added "George Bush" judges as that's irrelevant. The law changed in 2005 and you must Reaffirm, Redeem or Surrender the property. In our Appellate Circuit (11th), it is the law of the land... that is you must choose one. However, we still have attorneys that put "stay and pay" on the petition. We even have debtors that list "reaffirm" on the petition, but they don't actually complete the reaffirmation agreement.

Attorneys are there to help guide you in the right direction. In some Districts, putting "surrender" on the Statement of Intentions (SoI) could trigger a UST audit where the UST will not let you claim the expense deduction for the mortgage, possibly leaving you with significant disposable monthly income (DMI).

What your attorney wrote is doublespeak. He's saying what I wrote in the first paragraph. He's also contradicting by saying that you really don't need to on the 2nd since most "wholly" unsecured junior lienholders don't care about reaffirmations. It's a tightrope that your attorney is trying to balance upon!

In your particular case, you actually have a partially secured 2nd. While you do not need to reaffirm (you could choose surrender), the affects of this is very specific to your UST and District. I (personally) would not reaffirm the 2nd at all. You will need to weigh this and you'd stay need to pay the 2nd. However, your are severely underwater by almost 33%. I like to think that 10% underwater is manageable, but 33% is surely not something to even reaffirm.

It's a financial decision that you must make alone. What were your intentions with the 2nd? Were you going to continue paying it? I would not reaffirm either loan in your particular case! It makes no financial sense.

[Griffy]

I'm confused here in Texas. Just got my the filing paperwork from my BK attorney to sign and was surprised to see that he had checked off reaffirmation of both the 1st and 2nd mortgages.

I sent him an email (before finding this website) asking "Can I affirm my first mortgage but NOT my second?" His reply was: "The George Bush bankruptcy judges have held that reaffirmation agreements must be signed on secured debts - however wholly unsecured second lien creditors are not likely to take any action if you do not reaffirm."

Mortgage details:
Been paying my new HAMP on time since 9/12
New 1st is $174,880 (Chase)
2nd is $58,000 and not paid since 12/11 (SLS)
Property tax value is $175,881 (dang it)

Can't for the life of me see why my attorney wants me to reaffirm the 2nd and after reading this thread possibly the 1st. Goals: I want to stay in the house, keep risk to a minimum and improve credit where I can.

What questions should I be asking my attorney or how should I redirect him?

Thanks

[patrickmead]

I recommend all my clients NOT to reaffirm, just pay and keep current if they want to keep the house.

[justbroke]

Mark, I know you are just a spammer but. . . why on this (or any other) planet would you think I need to view your website? Surely you have read some of my posts and, assuming you understand English, have figured out that I am well versed in this subject. Please go away - but thanks for the early morning laugh.

It's almost like the wannabe cops that try to pull over a REAL cop!

[ValleYum]

ROFLMAO. . .

Mark, I know you are just a spammer but. . . why on this (or any other) planet would you think I need to view your website? Surely you have read some of my posts and, assuming you understand English, have figured out that I am well versed in this subject. Please go away - but thanks for the early morning laugh.

Des.

I sent him to "Banned Camp" earlier, Des - but left his comment for the giggle I got reading it. Glad you got a giggle, too.

[despritfreya]

. . .hello there des!i can recommend to you a website that might help you with your bankruptcy problems. . . Regards,Mark

ROFLMAO. . .

Mark, I know you are just a spammer but. . . why on this (or any other) planet would you think I need to view your website? Surely you have read some of my posts and, assuming you understand English, have figured out that I am well versed in this subject. Please go away - but thanks for the early morning laugh.

Des.

[markabne2318]

hello there des!

i can recommend to you a website that might help you with your bankruptcy problems. it has complete information regarding with your bankruptcy law needs and questions. they also give suggestions. here is the URL of the site <site address deleted by moderator> -- just check there site.

i hope this will help.

Regards,

Mark

[IBroke]

IBroke, you are lucky. Some Judges in the Middle District of Florida (FLMB) are actually allowing Motion to Determine Secured Value and Strip Lien in Chapter 7 cases! Be aware that not all Districts in Florida seem like they'll follow the recent "unpublished ruling" in McNeal v. GMAC Mortgage, LLC, 11th Circuit, case No. 11-11352 from the 11th Circuit.

Cool - thanks for letting me know, justbroke!

Tomorrow evening, we have our initial consultation scheduled with a local attorney. I'll keep you guys updated where we will go from there..

BTW, the attorney we will see tomorrow has EXACTLY the same link you just provided posted on his website so that gives me some confidence that he should at least be aware of what I'm talking about when I'm asking about lien stripping in a CH7....

[justbroke]

IBroke, you are lucky. Some Judges in the Middle District of Florida (FLMB) are actually allowing Motion to Determine Secured Value and Strip Lien in Chapter 7 cases! Be aware that not all Districts in Florida seem like they'll follow the recent "unpublished ruling" in McNeal v. GMAC Mortgage, LLC, 11th Circuit, case No. 11-11352 from the 11th Circuit.

[2muchinDebt]

We are over 2 yrs discharged, We did not reaffirm. We did a HAMP loan mod right before filing CH7. and have always been on time with payments. We had a HELOC for $47K that was "looming" out there because it wasn't included in the CH7, but on Friday we got a UPS overnight envelope from Chase saying they were forgiving the HELOC and releasing the lien!! Sooo glad we didn't reaffirm and we have 3.25% fixed interest rate. Now if they just reduce the principal by about $50K we'll be even on what we owe and it's worth.

So once we get to the break even point or there's a little equity..Chase can't take the house back from us can they even though we are always on time with payments.

[despritfreya]

"In 1982, the Garner-St. Germain Depository Institutions Regulation Act included provisions that prohibited lenders from exercising the due-on-sale clause under a several circumstances. These include transfers to a spouse or child who will live in the residence, to a surviving joint tenant or to a spouse or child in a court-ordered divorce settlement. The debt is still tied to the property, but the new owners in these circumstances are allowed to assume the mortgage."

Very interesting. I guess I never heard of it because, in Arizona, due on sale clauses are not enforceable. See In re Garcia, 276 B.R. 627 (Bankr. Ariz., 2002) at Footnote 11. Interestingly, while I never noticed it before, Judge Haines refers to the Act you speak of in the Footnote. I should have been more diligent in my review of this case as it is cited quite frequently.

Des.