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

[larryt]

Hi Just, thanks for all your helpful posts. It seems I am in the same timeframe where you did your mod. I have filed my 7 and had my 341 meeting and am awaiting discharge. I did/will NOT reaffirm my 100K upside mortgage, have an 80/20 with BofA. Wanting to know: must I keep my payments current at this time, or could I fall behind a little and see if BofA will offer me a mod? Thanks.

[Memphisbelle]

BellaLush is back and filed and post 341 meeting but not discharged. I will do a general post sharing my journey soon.

For now I am posting here cause I am actually reconsidering reaffirming. I talked to my lender and they told me if I don't reaffirm they will never post that I have paid my mortgage to the credit bureau's dinging my credit for years to come. And, I am sure the banksters will not offer me the best interest rate out there for a credit score I should have but don't because they won't update my credit score. We know that is just the way they role. Even thought they know I've paid them they will use the dinged credit score.

I am adding a significant amout of value to my home/land with my mom building a seperate home for herself on my land this summer, so short of an apocalypse, my home should alway's be worth more than the current mortgage. And, if it ever goes on the market it is an attractive buy with a seperate "rental" unit.

So, I don't see why I shouldn't reconfirm to save my credit score. I suppose I could petition the credit bureau's to reflect my payments with documentation and get them them to adjust my credit report before I apply for a refi but that seems like headache.

As you can see I am on the fence. Any comments would be helpful in making this decision cause I have to make it fast before I am discharged. I just found out yesterday that it could affect my credit for the life of the mortgage.

Plan for an apocalypse or spend a lifetime updating my crediting score......

[Snax]

I don't know Florida law and I am not an attorney, but I think the distinction here is that paying is a way to affirm your intent to continue paying the lien off, which is not an official agreement of any sort. It demonstrates that foreclosure proceedings would be lacking merit with respect to whether you have intent to avoid settling the lien.

[bacchus13]

My atty stated that if you continue to make payments, your actions are considered as reaffirming the debt. (Fla.) So how does that work in all of this?

[justbroke]

thank you for the info...No I had a modification before my chapter 7. This was just a 3 month trial period to "pay to stay" like alot of ppl are getting.

Until this post, I have never heard about (or read about) a 3 month trial period to "pay to stay". I did not have to do this and no one I ever heard of, has had to do this outside a "modification".

The debt would be discharged, so there would be no trial period since that could be construed as a violation of the automatic stay and/or discharge injunction. (For my Chapter 7, I certainly would have loved to litigate it in the bankruptcy court. However the outcome would not be good since they'd probably say redeem, reaffirm or surrender.)

I am pretty sure that what you signed was a modification. The reason why I tend to believe this, is that you indicated that US Bank had you sign "a one page letter for me to sign saying they are putting my past due payments in a balloon payment at the end of loan". That is a modification agreement hence the need to do the trial period. Still, I never had to do a trial period and I was behind on payments (due to the Chapter 13).

[ryan44]

thank you for the info...No I had a modification before my chapter 7. This was just a 3 month trial period to "pay to stay" like alot of ppl are getting.

[justbroke]

I'm not sure if this was touched on in this sticky but what does a reaffirmation agreement look like from a bank for a Mortgage?? USbank sent me a one page letter for me to sign saying they are putting my past due payments in a balloon payment at the end of loan. This allowed me to pay and stay but after a few months I'm letting it go as it was to be surrendered in my Chapter 7 BK. I'm assuming this was in no way a reaffirmation agreement.

The "official" form is issued by the Bankruptcy Court and it must exactly match the format. It's called Official Form B204 and is available here.

Additionally, most Districts require the new coversheet (Official Form B27) to be filed as well.

There is no such thing as a one-page reaffirmation agreement. The Court created the Official Form B204 and is available official form to make sure all disclosures are done and that the creditors are playing by the rules. Additionally, your attorney and/or the judge must sign off on any reaffirmation.

So, when is a reaffirmation agreement not a reaffirmation agreement? When it's not on the Official Form B204 and is available official form and signed by your attorney and/or the judge.

What you signed was probably a "recordable" modification agreement. I'm assuming that you had to have it notarized and return the originals to the bank?

[ryan44]

I'm not sure if this was touched on in this sticky but what does a reaffirmation agreement look like from a bank for a Mortgage?? USbank sent me a one page letter for me to sign saying they are putting my past due payments in a balloon payment at the end of loan. This allowed me to pay and stay but after a few months I'm letting it go as it was to be surrendered in my Chapter 7 BK. I'm assuming this was in no way a reaffirmation agreement.

[justbroke]

For me, I don't see that it matters when the modification is done. I did mine just after filing and before discharge. I was completely done with the paperwork in less than 6 weeks. Doing it before the bankruptcy will usually involve words like "trial period", "trial modification", "forbearance" along with "we lost your file", "we never received it", "you have to apply again".

I purposefully did mine during the pendency of the Chapter 7 bankruptcy discharge. You have to go in knowing that you'll lose the house to foreclosure and be prepared for the same. One should never depend on a modification to keep a home.

Just my thoughts.

[Snax]

If the terms of your mortgage are simply too much for you to handle, in my non-attorney opinion, it is better to seek a modification before you file if you can. It can be a drawn-out hassle, but the money you may save just may be enough to allow you to skip the bk filing in the end. Alternatively, you may gain a more practical understanding of what the expectation of the bank will be after filing. It is for this reason that we delayed filing our Ch7 for a year. In that time, we were able to secure a modification that helped us out significantly. It didn't go far enough to save our bacon completely, but it was enough that we could determine with certainty that reaffirmation or not, we could afford to sustain payments on a ride-thru.

We were fortunate to get the mod and avoid judgment on other debt until just before filing, but I would not want to be in the situation of having to pay our old mortgage payment on the ride-thru or risk losing the house altogether on the whim of the bank. We also retain our option to abandon the property at a later date with minimal repercussion, providing us significant bargaining power with the bank to modify it again after our discharge on April 1.

That said, we still indicated an intent to reaffirm in our initial petition, regardless of our resolve to actually do it based upon the current lien value. Market value of the house has dropped by over 13% just since filing at the first of the year. The bank has not offered a reaffirmation, and I don't think we will be locking ourselves into anything anytime soon!

[justbroke]

That would be a "back door" reaffirmation and is 100% illegal. I would have shown those docs to my attorney immediately.

[yellowstone]

We have also been offered a modification of a mortgage that was discharged. my recollection of the docs was that we would be fully liable (recourse) for the principal balance which is now way over the value of the property. So we have said no, not wanting to be saddled with an upside down loan. I will have to take another look at the loan docs to see if it is non-recourse like you suggest.

[despritfreya]

I did NOT sign a reaffirmation on either the first mortgage or the home equity second mortgage. Now, I need to do a payment modification on the Home Equity Loan and the lender has sent me the application. What I want to be sure of is that by doing a modification now, I will NOT in any way be reaffirming the debt.

This is a valid concern and, to date, I have not seen any case law. There are two schools of thought:

1. Signing a loan modification is not going to take the debt out of the protection of the Discharge since it just is not a Reaffirmation Agreement.

But . .

2. Signing a loan modification could be deemed "new consideration" thus creating a new debt that is not subject to the Discharge.

It is a risk and I simply do not know how to advise. What I can tell you is that the loan mods I have seen have very specific language in them that the creditor, upon default, will only look to the collateral. Further, these documents make reference to the bk and the fact that the debt was discharged. If you can find such language in the documents you were given by the lender that should give you some confidence that you will not be, shall we say, stuck, if down the road you cannot afford to pay for the home.

Hope this helps and best regards.

Des.

[ColoFiler]

Thanks, Despritfreya, for all the insights in this post.

I want to be really sure of something. I am in Colo (which I believe is a deficiency state). My Chap 7 was discharged last June ;)

I did NOT sign a reaffirmation on either the first mortgage or the home equity second mortgage. Now, I need to do a payment modification on the Home Equity Loan and the lender has sent me the application. What I want to be sure of is that by doing a modification now, I will NOT in any way be reaffirming the debt.

Your thoughts would be appreciated.

Colofiler

[despritfreya]

my lawyer said not to reaffirm so i did not car was repoed call the lawyer explained to them i did what they said they did work to get my car back said the new law is you now have to reaffirm on cars i was not behind at all so the bank gave me back my car and i will sign a reffirm to keep it

Glad they got the car back for you but. . . there is nothing "new" about the law. The "new" law took effect October 17, 2005.

Des.