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

[StartingOver10]

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@Anonymous wrote:

I and my husband filed banrupty in 2008, we have a mortgage with BANK OF AMERICA.  We check the intention to reaffirm box on our paper. We have never been late with a payment since 03. We are trying to refinance just found out that our reaffirmation was never received by BANK OF AMERICA so they say. Called our attorney and they said that the reaffirmation was set, also called the court in Texas were we live they also sent one to BoA. I have been going back and forth. Found out that our payment each month since 08 was not on credit report. Don't know what to do. I am so tried of trying to get BoA to listen and help. They won't do anything. 

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Go to PACER.gov and check your own records to see if the reaffirmation was actually filed timely by the attorney's. It has to show as a reaffirmation in your bk records. You can find your complete bk file (and download it) at pacer in the appropriate bk region under your name or case number.

If a mortgage is reaffirmed there is no requirement that the lender actually report your payments to the credit bureau. Same if you make the payments on time and it isn't reaffirmed. Once you file bk, the lender can stop reporting the payments to the CRA's.

However, you can keep your own record of each payment in a file, electronic or otherwise, and if you decide to refinance or sell and buy something else, the record of your payments will suffice for the underwriter for the new mortgage. It is a routine thing for the underwriter to use your records when the lender isn't reporting the payments. Acceptable records would be cashed checks or bank statements showing the payments made on time.

[DaveInAZ]

So I have an unusual Chapter 7/mortgage story. Filed in 9/2010, discharged in 1/2011. I had way excessice CC debt, and in my late 50s didn't want to spend my retirement paying it off. Also, Chase & Citibank were my largest CC creditors and in 2010 I didn't have much sympathy for the big banks. My car purchased in 2003 was owned free & clear, and value was such that it would be exempted property. My mortgage was my only secured debt. I told my attorney I intended to reaffirm. He advised against it; I told him mortage was only 60% of value, and I enjoyed it very much and planned to live out my retirement in it, so he reluctantly agreed and filed it as 'Intend to reaffirm'. Well, he never told my I would need to sign a reaffirmation agreement, and that would have to be approved by the court. The bank sent a reaffirmation agreement to my attorney and not only did he not send it to me, he never even informed my about it. I had never been late before BK, kept payments current during BK. So, I receive my discharge and called the bank - BMO Harris Bank - to ask them to resume auto draft payments (had to mail payments by check during BK), and they inform me I hadn't signed the reaffirmation agreement they sent so the debt had been discharged and they could only accept my 'voluntary' payments sent to them, they could not debit my bank account for payment as that could be construed as an attempt to collect a debt discharged in BK. I was furious when I realized what had happened and called my attorney. He said "Oh, I never allow my clients to sign a reaffirmation agreement" The conversation got a little heated and he told me never to call him again and hung up on me.

So, almost 4 year later never late on payments that are never reflected in my credit report because the mortgage is recorded as 'discharged in Ch. 7'. I've gotten my FICO score back up to the high 600s by careful use of credit card debt. The 2 largest factors holding my score back is the public record (BK), and length of credit (3 yrs.). So if I could get my moirtgage opened in 2006 back on my credit report it should be a huge boost - time for a new car, with a decent loan rate. I looked into refinancing, but the property is a 10 acre rural property with manufactured home, and since the mortgage bubble the lenders for those kind of properties is very limited. And my mortgage is very favorable - variable rate, but currently only 3.5%, a refi would have 6-8% rate because of the type of property.

I've always been told that I can't reaffirm a debt discharged in Ch.7 (legal aid & BMO Harris). So this summer I started Goggling. I found out that under a Adversary Proceeding under Rule 4007 a debtor or any creditor may file a complaint to obtain a determination of the dischargeabilityof any debt, there is no time limit, and if filed by a debtor no fees to reopen the BK case. I checked with the BK dept. at BMO Harris - they've been very sympathetic & helpful when I told them what happened, while always very careful to not 'cross the line' and do anything that could be construed as attempting to collect the debt. They agreed that if they received a Notice of Removal (removing the discharge from my BK) and recording a reaffirmation agreement in my BK case they would return my mortgage to 'standard servicing' - reporting status & payments to credit agencies, and resume auto draft payments. So in August I filed a motion with the AZ BK Court to reopen my case for an Adversary Determination of the Dischargability of my mortgage, citing that I had informed my attorney of my intent to reaffirm, case was filed with intent to reafiirm, and it was discharged and not reafirmed only because of the negligence & malfeasance of my attorney. Yesterday I received notice my case is reopened and a hearing is scheduled for Oct. 28 to hear my Adversary challenge to the discharge. BMO Harris is the 'defendant', and if they make no challenge (which they won't) a Judgement by Default will be entered, removing the discharge and reccording the reaffirmation agreement.

So, any thoughts or cautions? Arizona is a no deficiency state for primary residence. A neighbor is a long time realtor and her estimate of property value has the mortgage down to around 50% of value.I'm now 62 and receiving Social Security while still working part time for the county, so the mortgage payments are less than 20% of my very stable income. I see with my proceeding as only a win-win.

[Anonymous]

@DaveinAZ,

Why would you want to reaffirm the debt?  If your only reason is so you can have your payment automatically deducted from your bank account, you should consider using an auto bill pay service instead. As far as your scores, read the thread about getting scores to 700 within 24 months. You should be there already with or without the mortgage reporting.

I seriously considered reaffirming my mortgage but after doing extensive research, I realized it is a bad idea. I couldn't find one attorney who recommended it.  God forbid something happens to you, you will be liable for the full debt and you won't have any protection provided by bk.

If you proceed, definitely get a second opinion from another attorney.

[DaveInAZ]

@kawaii - The auto pay is a minor inconvenience, it's the only payment I have to make by mailing a check. BMO Harris will not autodraft my account, they say it could be construed as an attempt to collect a debt discharged in BK, they will only accept "voluntary" payments sent to them. I read that 'get your sccore to 700' thread. I made one mistake, Barclays card sent me checks for 'transfer blances' with 0% interest for 18 mos. I needed that $, I was getting by with only $8k annual income from part time employment until I turned 62 & started receiving Social Security, so I pretty much maxed out the credit limit and even though I always paid more than the minimum (50 instead of min. payment of 35), that sent my score down to the low 600s. I paid that off a few months ago b4 the 0% went to 22.9%, and now my score has bounced back uo 680-690.

Yes, every legal advice I've received or read online says do not reaffirm a mortgage. I think that way over cautious. When I said AZ is a non-deficiency state, that means that like many states in the event of a foreclosure the bank cannot come after you for any deficiency if they sell it for less than you owe if the mortgage was for a primary residence. So what extra protection does not reaffirming a mortgage for your primary residence in a non-deficiency state provide you? Abolutely none. I am very well secure - my mortgage payment is less than 25% of my SocSec payment, which I cannot lose. I am in good health but have health insurance thanks to 'Obamacare'/healthcare,gov, so am protected in the event of an unforeseen major medical event. I knew what I was doing, preparing for a modest but comfortable retirement by getting rid of way excessive CC debt while reaffirming an affordable mortgage for the home I very much enjoy and plan to live out my retirement in. I'm not usually one to bear a grudge, but my attorney screwed that up by not following my wishes & instructions, and I am determined to right that wrong and reaffirm the mortgage and get it back on my credit report.

[Anonymous]

FIled BK7 in 2005, discharged in '06. Had 1st Mgt with Greentree and 2nd with Beneficial.  Neither were reaffirmed, but I continued making payments on both and stayed in the home.  Fastforward a couple of years and I quit making payments of the 2nd (things got tight and just couldn't make the payment and was never able to catch up).

Fastforward to 2014-Now Me & hubby want to buy a house.  Turns out 2nd lien is still on title (I get why) but they have no legal recourse to collect, so I can file a quiet title action to have them removed-should only cost about $1000.  What happens if I try to sell the house without filing the qiet title action?  Owe about $56K on 1st, not sure if I could get that much for it if I sold it; it's a moile home on 1 acre and the mobile home is not in great shape and is 14 years old.  Zillow reports value at about $80K.

Is it in out best interest to sell?  Or should I just walk away since the 1st mtg company is basically just making money off me (since I'm not legally on the hook for the property anymore).  Or can I file a quiet title action on the 1st as well?

[DaveInAZ]

"Turns out 2nd lien is still on title (I get why) but they have no legal recourse to collect, so I can file a quiet title action to have them removed-should only cost about $1000.  What happens if I try to sell the house without filing the qiet title action?"

I don't think you can get the lien for the 2nd mortgage (or 1st) removed - Ch.7 removes your obligation for the debt but does not remove the lien. If you sell the house you'll have to pay the amount due on the 1st & 2nd to get a clear title for the buyer. You don't say how much the 2nd is, and may not know as they've no doubt padded the balance with fees for not paying. I'd say it's worth talking to a realtor to find out how much they think it would sell for, Zillow is usually low on rural property values becuase of the lack of comparable sales. If you like what the realtor says call the 2nd & ask them for a payoff balance. If the realtor thinks they can sell it for enough for you to pay off 1st & 2nd + realtor commisison & have some $$ left over it's worth a try. Otherwise you might consider stop paying on the 1st, save your $$ by living there "rent free" until foreclosure and decide if you want to buy or rent. You're 4+ years discharge, so should be no problem getting a new mortgage as long as your credit score is 640+.

[cin67]

Currently, you are 4 + years post discharge, without a foreclosure. Foreclosure may be re-starting the PD clock to zero and losing your four years (or it may not).  You might want to ask your potential lender whether adding a recent foreclosure will change your ability to obtain a new loan.  

[ScoreBooster]

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@DaveInAZ wrote:

"Turns out 2nd lien is still on title (I get why) but they have no legal recourse to collect, so I can file a quiet title action to have them removed-should only cost about $1000.  What happens if I try to sell the house without filing the qiet title action?"

I don't think you can get the lien for the 2nd mortgage (or 1st) removed - Ch.7 removes your obligation for the debt but does not remove the lien. 

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Here in the Florida Middle District, we were actually able to pull off that stunt.

Stripping a totally underwater second mortgage in CH7 is possible in some areas since 5/11/2012.

CH7 Lien-Stripping

[despritfreya]

@DaveInAZ:

I do not post to this forum but simply, once in a while, peruse it. I came upon your post from September 28, October 4 and October 5 in this thread. While we are now beyond the hearing date you referenced, I see that you have not updated your query. What happened at the Hearing? The reason I ask is as follows:

1. Your attny was absolutely correct in not "allowing" you to reaffirm the mortgage. If you have been to other web sites discussing the issue of reaffirming mortgages and why doing such is a bad idea, I am sure you fell upon the thread I started at bkforum. Such explains why reaffirming a mortgage, when not required in a particular jurisdiction, is not smart - and it goes way beyond an over abundance of caution. Your attny did nothing wrong relative to his representation of you in the bk and, in fact, would most likely have committed malpractice if he had allowed you to reaffirm. Read on.

2. You are wrong. Arizona’s anti deficiency statute does not apply to you. Of course, I am assuming the Deed of Trust securing the BMO mortgage covers all 10 acres. Assuming I am correct, the statute does not apply as it only applies if the property is 2.5 acres or less. This fact alone means that had you reaffirmed and defaulted, you would have been screwed. Please read the actual law before making assumptions.

3. If a Hearing was held on 10/28 I will assume that the judge looked at you and asked something along the lines of, "under what authority are you proceeding?" as it relates to a complaint to determine if a debt is/was discharged. Complaints to determine if a debt has or has not been discharged are filed under 11 USC 523. That Codes section does not apply to your situation.

4. To attempt to reaffirm at this late date you would have to first get your discharged revoked. Not a good idea.

5. If you get your discharge revoked you would then have to enter into a reaffirmation agreement. Since your attny will rightfully refuse to endorse such a document (and even if he does sign off), the court will hold a hearing to determine if entering into the agreement is "in your best interest". I can tell you that it is highly unlikely any of the bk judges in Arizona would find that entering into such an agreement is ever "in your best interest". I can further guess that if your judge were to ask the right question and find out that the property is in excess of 2.5 acres denying the Agreement would be a "no brainer".

I just needed to clarify the above points because you are under the mistaken belief that entering into such an agreement comes with no adverse consequences. I hope that at that 10/28 hearing your judge put you back on the correct path.

Best regards.

Des.