Chapter 7 already discharged - mortgage not reaffirmed - foreclosure/credit score question

[Anonymous]

I am looking for some direction on the following scenario:

1.  We are 2 years past our Chapter 7 discharge and mortgage was included in discharge NO REAFFIRMATION

2.  We have stayed current on the mortgage but credit score shows chapter 7 for the mortgage and no activity on it since the discharge

3.  We are now cosidering walking away from the house/mortgage

4.  We have rebuilt our credit up to the mid 600's and would like to keep it that way

Questions:

1.  How will the foreclosure be reported to the credit bureaus?

2.  Since the mortgage is already closed will this lesson the affect of the foreclosure?

3.  Are there other options to avoid the foreclosure with the bank such as deed in lieu or cash for keys?

4.  Any other suggestions/options that would allow us to give the property back to the bank and avoid the foreclosure process completely?

Thank in advance for any help!  We greatly appreciate it!

[Anonymous]

Welcome walt!

Hopefully someone knowledgeable will chime in on this forum.

If you'd like this moved to the mortgage forum, just holler, and we'll move it.

It's hard to know which of the two forums a question like this will get the best responses on, but I'll keep one eyeball peeled and my fingers crossed. 

[Anonymous]

Hello, I don't how much this answer will help, basically my understanding is you are just paying to stay at this point.  We also filed bk and the mortgage company didn't reaffirm.  No payments we make show up on the credit report.  I asked my attorney if we wanted to walk away years from now if we could....His answer was yes.  He said it would like we were being sued, becasue the mortgage company would still have to file with the state to begin foreclosure.  We would not be responsible for any legal fees or other type of charges from the mortgage company.  It is already showing up as in bankruptcy I don't see how it can hurt you anymore.  I would double check with an attorney to see if they will update it to foreclousre or if there is nothing else they can note since it was in bankruptcy.

[ScoreBooster]

On the reported tradeline, there will be no additional, derogatory reporting. However, the foreclosure might show up as a public report. 

[Tropikal]

Hi

Sorry for sticking my nose in this tread, I'm in similar situation, I did BK7 then the mortgage lender forclosed on the property since I did not wanted to reafirm nor pay. It shows on the CR as a "BK Chapter 7". So my question is when you apply for a new mortgage is that consider BK, Forclosure or Both?  I ask because I'm trying to find out how long will need to wait before applying again since the two dates of the BK7 discharge and Foreclosure are long apart.

Thanks

[SoulMaster]

This is an interesting situation, which I've seen before.  I can only speak to NV, but I'd assume that some other states follow the same model.

Basically, there are two parts to including a Mortgage in bankruptcy: 1. Removing the Debt Obligation, and 2. Clearing the title of the original owner.

The first part is simple.  You are cleared of the debt (you no longer owe it) the instant you are discharged, provided you don't reaffirm.  (There is a catch to this, that some post-BK7 loan modifications actually wind up reaffirming the debt, but that's a different post.)  The debt is cleared in federal court, but it doesn't clear the title.

In order to complete #2, the bank must clear the title. In order to do that, they must follow the laws of the state, which are usually foreclosure laws.  The paradox here is that (at least in NV) the bank cannot foreclose without sustained delinquency (you don't pay the bill).  This is why they don't immediatly "take the house back" when your BK is discharged.  So, once you fall behind after the BK, they can start the foreclosure process to clear the title.  There will be a Notice of Default, Notice of Trustee sale, and eventually it will go to auction (again, NV law).  The auction process is what actually clears the title... it either goes back to the bank as an REO or the title goes to the winner of the auction.

Niether of these actions have any effect on the discharged debt whatsoever.  The federal ruling that the debt was discharged on such-and-such a date stands and thus, the CRAs are to report the loans/liens attached as IIB in perpetuitum untl they age off. (Unless you get a GW, of course!) 

Unfortunatley, some creditors WILL report back to the CRAs as "Foreclosed" or, if they're silly, "Reposessed".  It is usally a matter of a valid dispute to get them reset back to IIB... though it can be a pain.

I haven't actually seen a situation where an IIB mortgage (or IIB car loan) is set to anything other than IIB, but I've heard that it happens.

Hope all this helps, but please see my sig.

As fot your Q's 3 and 4... they answer eachother.  You CAN get cash-for-keys both before and after the foreclosure auction, but each case is different. The DIL will give them to you, or the REO agent/Purchaser will contact you after the auction with an offer.  The other option is to run it through a short-sale, getting your cash for keys that way... use HAFA if you qualify for it.

If you play the game right, you can be in your house for a year or more after you stop paying, which allows you to bank the cash you'd spend on rent.  (If you're going to strategic default after a BK, PLEASE consult an attorney... it's pretty trickey and you can wind up in a heap of a mess if you do it wrong.)

Again, all this varies by state... I'm only familiar with NV rules.

-SM

(the quick version of this is: 1. It shouldn't be, the loan is IIB and should stay that way. 2.  There is no "foreclosure", you gave the house back in the BK and they have to do the paperwork to get the title clear (which means forelcosure process, but not a true foreclosure). 3. Yes, what you mentioned + short sale. 4. See 3.)

[jenrhi]

I was actually in this very situation -i filed a chpt 7 and was discharged in 9/08-the house was included. I never signed a reaffirmation but i continued to live in and pay the mortgage payments for a year and half and then made a decision to vacate the house.

Its actually to your benefit that they didnt reaffirm the debt because you really can choose to walk away...however, fast forward to present, my house is STILL vacant, they have not even started the foreclosure process, the house is still in my name though the bank is paying the taxes every year. Really this would be all well and good except that I am trying to obtain a mortgage and running into roadblocks because even though the debt was discharged, the deed is still in my name. Its insane to me but banks are slow to move because of the economy, number of foreclosures etc.

For me, it was the best move at the time, I could ill afford the payment and too many repairs needed to the house. I dont regret my decision but I wanted to share my story since it does have an impact in the long term.

[cem13]

I live in Michigan.  I had 2 houses, one in Suburbs and a vacation home "up north".   I lost my job in 8/08, divorced in 2/09, stopped paying all my bills 6/09 and went on a "irresponsible binge" for 18 months (boy did I have some fun).  WFHM put me on trial period after trial period.  Then due to divorce, lost the paper work and I did the trial again. I dragged my feet and delayed as long as I could.

I didnt make a mortgage payment on either house for 18 months, took the money and played golf and had beers.  I was reemployed in 6/2010 and started to become responsible again.  In 12/10 I asked my ex-wife to come back home.  WFHM send us a Home Modification letter on primary house in 1/2011.  We both signed it.  A week later we filed BK7 individually.  WFHM sold the second house in foreclosue 4/2011, no one was at the auction so it went back to them.  Michigan law requires a one year redemption period.

Our attorney advised us NOT to re-affirm either mortgage, which we didnt.  However, since we were technically "current" on the new modified mortgage, they could not take the primary house from us.  We continued to make our payments through the BK process.  I then started the process of getting a much better job but attorney advised me NOT to take the new job (paying almost double the salary) until AFTER discharge, which my employer agreed.

So at discharge, we whiped out $75k in CC debt and second mortgages.  All I was left with was a $3k state tax lein and $20k in student loans which are totally rehabilitated now.  My ex was co-borrower on all my debt as well.   We let the second house go through the process as we owed $95k and its worth $50k.  They took possession in 4/2012.  We could not justify paying almost twice the price for a cabin.

BK7 was the best thing that happened to us.  We had to "get over" the moral obligations issue.  It took me about 3.5 seconds but the ex-wife needed a beer.  Both mortgages show IIB with balance of 0.   Attorney told us that a forclosure while in BK will be reported as only IIB.  So we used the second house as our vacation home up to the final day.  And get this, they paid me $3k on the "cash for keys" program.  I could not believe it.

The only problem is that the primary house does not report positive payments.  I was a co-signer on my daughter's student loan so that reported through the process.  So we both applied and received Cap 1 CC $750 CL, 3 months after discharge.  I applied and received a HSBC CC $1500 CL 6 months after discharge.  I applied and received a new car loan, (interest rate of 6.9%) 9 months after discharge.  I recently applied for a Barclays and was approved at $2000 CL.  It is only 1 year after discharge.  All CC get PIF.

I spoke to a Mortgage lender about another vacation house.  He said I need 2 years after filing date and a mid score of 700 for approval.  So I am going to build a log home twice the size of my previous cabin for about $60k @4% instead of a 25 year old cabin $95K @ 6%.   So the only negative was the foreclosure notice in the newspaper which is embarrasing.

My attorney told me that we can walk away from the primary house anytime we want over the next 30 years with no "foreclosue" or additional negs on my CR.  He said that after the BK comes off the CR, I should keep a copy of discharge paperwork to prove I dont owe the debt.

Overall, my experience with BK7, foreclosure, losing a job, getting a much better one, playing golf everyday, going on extended vacations, all worked out.  I just pulled my FICO today and I am at 667.  I have 6 months to get to 700.

[Anonymous]

Does anyone have an answer to this?  This is our question too -- we are in California.  We filed Chap 7 and was discharged a year ago, but filed for loan modification as we really want to keep our home.  Finally almost a year now still no loan mod.  The bank has beat us up good...our home is completely underwater and needs lots of repairs which we don't mind doing if we can keep it.  Since the bank is not budging even after our DTI qualified (our loan is predatory with Wachovia and was bought out by WFHM), we feel there is no hope trying to work with them, it appears investor want out regardless of our qualification.  But they are asking us to Short sale....we are wondering which way to go - they don't want give us the loan mod but they want to short sale...Shall we Short Sale or Foreclose?  We have worked hard to get our credit score back up to a decent number and don't want a foreclosure to reverse what we have built up again.  The mortgage is already recorded on our credit as being discharged with BK with no data.  Can the bank double report and put down a foreclosure or will it come out as public record?  I seems criminal that they double ding us preventing us to move forward to rebuild.  Please anyone out there with an answer would be so appreciated.

[cem13]

Nadodog:

Here is my story.  I had a second summer home along with my primary home.  I lost my job and defaulted on both.  I worked on a modification with Wells Fargo.  They did not want to work with me.  I then got a job.  I was able to work out a modification on the primary house.  Discover filed a judgement against me so I had to file BK7.  A few days later I filed BK7.  I did not re-affirm either mortgage.  However, because I had a modification on the primary house, they could not foreclose on it.  The secondary home was about $55k underwater (owed $95k, sold $40k).   So they sold the house in a sherrifs sale.  They sold it back to themselves.  After 1 year redemption, I received notice that my one year was over and to pay the balance due.  I was able to get some financing and offered $60k.  They rejected my offer.  I then offered them the "cash for keys", they accepted.  I received $3000 to leave without evicition.

So, primary house is up to date with no issues.  It is not re-affirmed.  I can stay as long as I keep making payments.  The primay house was sold for $35,000 on the open market.  My credit report does NOT show a foreclosure.  Why?  Because I live in a state (Michigan) that does not use the Judicial process of foreclosure.  We use the sherrif's sale.  Nothing gets recorded in the county court house.  The deed changing hands gets recoreded in Register of Deeds which is a separate department. 

CRA use third party companies that scour court records.  They could look at register of deeds too but that would be way too time consuming and costly.  So 18 months after BK7, I will be 700 across the board.  The foreclosure could show up sometime in the next 7 years but I doubt it will.  Freddie Mac knows about the foreclosure so I will have to wait the 2 years for a new mortgage, but the CRAs have not caught it yet.

California uses a non-Judicial process as well (from what I found with a google search).  I doubt that you will be caught but others on this board will have to chime in.  Just dont let them evict you.  That is a court document that will get caught and you will be hit.  Ask for the "cash for keys" if appropriate.

Please remember that there are two components to a mortgage.  One is the actual liabilty to pay the money back.  The other is the title or possession of the house.  In BK7 the judge wipes out your responsibility to pay the note back.  It has nothing to do with foreclosure.  Foreclosure is the bank's method of recovering the security of the loan by taking back the house and selling it.  I will assume that you did NOT reaffirm your mortgage in Chapter 7 BK?

In a short sale, the bank should not update the tradeline because it should be IIB.  The short sale is only the transfer of title to a new borrower.  Get a few offers and then match them to see if they will bite.  This assumes you are back on solid financial footing again.