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

[debee]

There are some additional factors to consider here though. Using Oregon as an example, foreclosures can be either judicial or non-judicial. The non-judicial process is usually written into the note, forcing foreclosures into a minimum of 130 days to evict. Once a mortgage is wiped out however, lenders must foreclose judicially, and depending on court backlogs, this can happen much more quickly.

The rub however is in what equity you have and whether you continue to make payments. If you are negative or have very minor equity, it is unlikely they will pursue foreclosure, as doing so cements in a loss. They can still do it, but I can't imagine any good reason why.

Now if you actually do have equity, at some point the bank can pursue judicial foreclosure in an attempt to force payoff or refinancing. So if the intent is to keep the property long term, one should work toward being able to do that.

This isn't true. Judicial foreclosure takes a lot longer than non-judicial. Also, when a lender forecloses they can only do so IF the borrower is in default according to the mortgage agreement. Bankruptcy doesn't wipe out that agreement. It only wipes out the borrower's liability for the debt. (Therefore, no deficiency)

The lender can't foreclose for any reason except default. That means unpaid taxes, insurance or monthly mortgage payment, and rarely, letting the property fall into a state of gross disrepair.

[Snax]

I agree blockhead, but my point was that it probably is possible (as difficult or undesirable as it might be) and one should consider that as reasonable motivation to get and keep their financial house in order.

[blockhead]

If you keep up to date, and you have equity, substantial even, they'd have a hard time foreclosing in most states..

This may be obvious - it wasn't to me -I kept fretting about acceleration of note clause

Desprit set me straight on that as did state law (MA)

[Snax]

There are some additional factors to consider here though. Using Oregon as an example, foreclosures can be either judicial or non-judicial. The non-judicial process is usually written into the note, forcing foreclosures into a minimum of 130 days to evict. Once a mortgage is wiped out however, lenders must foreclose judicially, and depending on court backlogs, this can happen much more quickly.

The rub however is in what equity you have and whether you continue to make payments. If you are negative or have very minor equity, it is unlikely they will pursue foreclosure, as doing so cements in a loss. They can still do it, but I can't imagine any good reason why.

Now if you actually do have equity, at some point the bank can pursue judicial foreclosure in an attempt to force payoff or refinancing. So if the intent is to keep the property long term, one should work toward being able to do that.

[newbie2]

Overit, please seriously consider rescinding the reaffirmation. Even if you stop making payments they still have to follow your states foreclosure laws and no, they cannot change the terms of your mortgage / note. They can't personally come after you for the money, their only recourse post bankruptcy is to foreclose. Just keep on making payments and please don't reaffirm.

[blockhead]

I didn't reaffirm, just kept paying mortgage. Interestingly now Wells Fargo is reporting

Status: Discharged through Bankruptcy Chapter 7/Never late.

So that's nice

[overit]

So, to make sure I have this right...

Living in the Southern Indiana District of District 7

Only one mortgage

Loan is about at "break even" status in regards to what I owe vs appraised value in 12/09

Loan is modest in comparison to lots I've read about on here; under $90k. House payment with taxes and insurance is nearly the same as I would have to pay in rent. Want to keep the house for stability for my son.

Loan Terms 5.5% fixed for 30 years.

Don't care in the least about what, if any affect happens on my credit report.

I recently had my 341, and was determined no asset in a Chapter 7. I reaffirmed my car, which is worth more than I owe. I reaffirmed the mortgage, but now believe that rescinding that agreement might be the best option.

so...

if I do that, there is nothing that makes it faster for them to foreclose, should I fall behind, correct? They still have to follow the same Indiana rules for foreclosure that they would have to if I reaffirmed and then lost the house?

and

they can't raise my interest rates or make me do a balloon payment, because technically, the loan no longer exists?

Am I understanding that right?

[Snax]

Our petition probably says something like that in it too, along with the check box to reaffirm. The key thing to note here is that an indicated intent to reaffirm doesn't lock you into anything, even if the lender actually offers up an agreement. You have time to think about it and decline.

[despritfreya]

Our lawyer put "Debtor will continue to make payments" or something to that effect. Not sure if this is something that is accepted in all districts though

This is very similar to what we state.

Des.

[laurannm]

Our lawyer put "Debtor will continue to make payments" or something to that effect. Not sure if this is something that is accepted in all districts though

[feebee1]

I have been searching the site and I am wondering what people put on the form when they continue to live in the home but do not reaffirm the debt. There are options to surrender or retain and retain is followed by 3 options: redeem, reaffirm, other.

Any thoughts on this?

[sh9730]

Snax,

Thank you for responding. Those are the items I need to think about....right now I need to the BK filed and started which will happen this week.....this all may be moot as it is possible I may end up in a CH13 in the end (see my other post for details on that), but for now I will keep thinking on the reaffirmation issue.

Thanks!

[Snax]

In my non-attorney opinion:

Don't count on Chase doing you any favors. If you are upside down and continue to make payments, they are unlikely to push for abandonment or foreclose - whether you reaffirm or not. You however hold the cards by NOT reaffirming. Reaffirming an underwater loan merely serves to tie you back into the financial responsibility of it, with very little if any benefit to you. If you are having trouble making the payments now, why would you want to lock yourself back into that after the BK?

If the idea is to recover your credit rating, continued delinquency is not going to help you out one bit, and continuing to pay-and-stay can work for you in lieu of that - if the bank agrees to continue reporting. Likewise, if you continue to have trouble with it, they are not supposed to report to your credit unless you have specifically authorized them to do so after your case is closed.

Regardless, indicating an intent to reaffirm the mortgage in the petition reserves your right to do so if the bank agrees. It also prevents an immediate red flag to the bank that you may have no intention of continuing to make payments, a point that they can use to persuade the trustee to force you out of the property even faster than under normal foreclosure proceedings.

It's also worth noting the time limitation for The Mortgage Forgiveness Debt Relief Act, which though 2012, will not count extra income associated with the deficiency in a foreclosure against you for taxes due.

http://www.irs.gov/individuals/article/0,,id=179414,00.html

This act MAY NOT BE RENEWED! So if you lose the house after 2012, while you may not be on the hook for the deficiency directly, whatever deficiency you end up with between the mortgage balance and foreclosure sale price may count as taxable income. If you don't reaffirm, you don't have this potential liability. There are other conditions which will extend beyond the act which may prevent taxation, but the factors and risks should not be ignored if you are serious about reaffirming.

[sh9730]

OK - Since this thread is still active I will ask here. I did post another seperate thread but might get better answers from the people subscribed here.

Will be filing a CH7 this week. Am currently 3 payments behind on mortgage with Chase. It is an FHA loan. No refi or second involved and Im not tooo upside down by AZ standards, and since I work from my house I would like to stay here.

Have rec'd official notice of default but that is it as I have agreed to a repayment (catch up over several months - not a modification). However, the first (and largest) payment in this plan of 2K is not due until May 11th and I will not be able to make that payment until that date. At that point I will officially be 4 payments behind (about 5K total).

I was originally planning on reaffirming since my only FINANCIAL risk is that the house gets foreclosed on later if I dont make the payments. Granted my credit will get creamed again since the FC will be seperate and newer than the BK.....but I really am pretty confident at my ability to make the payments in the future, especially after the repayment timeframe has past. My reasons for maybe reaffirming were to get the credit score boost (which is a loooww priority but part of it), but mostly because I thought it might make Chase more apt to keep working with me even though I will be filing BK before they get their 1st payment of the new plan?

Thoughts?

[Snax]

In some states, the bank can force abandonment of the property during the 60 day period. Whether they would or not is another story.