Filed ch7 3 weeks ago! Question about reaffirmations. Is it worth it when value is less then owed?

[Anonymous]

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@MyFico_704 wrote:

Hello... Original Poster here,

Wow.. this is great! I'm learning so much from these "discussions" and I appreciate all of they inputs, personal experiences and yes, legal advice!

Filing was 2 weeks ago but my attorney says I have before discharge to decide whether or not to reaffirm.

fyi..

1st - obviously secured.

2nd - secured

3rd - (HEL) - secured to property as well. 

ALL ARE WITH SAME LENDER IN NC.

From what I'm reading it would seem it's in my best interest NOT TO REAFFIRM but continue to pay.. and STOP paying on 2nd/3rd if my financial situation does not improve in the coming years.  MY BIGGEST CONCERN is that because they are SAME LENDER they can just "wrap" all 3 into 1... then I'd probably be screwed!  Then again, Mecklenburg County NC just came out with reassessment and the property is only 220k, while all mortgages are almost 280k.

I'm tempted NOT to reaffirm ANY!  But at minimum I'm thinking just REAFFIRM the 1st.

What should I do? 

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In a perfect world, you'd only have to worry about the obligation that is secured.  On the positive side is that they cannot wrap all three obligations into one single obligation.  The bad news is that they can hold you in default on any one of the obligations.  This is a potential disadvantage when one -- let's say the one that is secured -- case isn't particularly strong, but the one that is unsecured is. 

The chances of them starting foreclosure when you are current are probably not great, but you need to look at the contracts to see what they *can* do and then with your attorney see what your lender *usually* does do. 

[chasmith]

This needs legal advice in your jurisdiction.  They wouldn't need to "wrap the three into one", could foreclose the second or third lien.   I would be concerned that if you reaffirmed only the first mortgage (and by the way you would need their agreement I believe - so they could demand you reaffirm all or none), then stopped paying on the junior loan(s), it would be worth their while to foreclose the junior lien.

Normally the holder of a 2d or 3d Lien won't foreclose because they have to buy out the first lien holder.  With mortgages of 280K on a home valued at 220K this wouldn't make sense EXCEPT that since they would be buying out their own first position it might make sense to the lender to get this off the books. 

[Anonymous]

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@chasmith wrote:

This needs legal advice in your jurisdiction.  They wouldn't need to "wrap the three into one", could foreclose the second or third lien.   I would be concerned that if you reaffirmed only the first mortgage (and by the way you would need their agreement I believe - so they could demand you reaffirm all or none), then stopped paying on the junior loan(s), it would be worth their while to foreclose the junior lien.

Normally the holder of a 2d or 3d Lien won't foreclose because they have to buy out the first lien holder.  With mortgages of 280K on a home valued at 220K this wouldn't make sense EXCEPT that since they would be buying out their own first position it might make sense to the lender to get this off the books. 

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Very well put!

This could be one of many scenarios where a policy of never reaffirming could potentially come back and cause you great distress. 

[MyFico_704]

My attorney said "DON'T REAFFIRM ANY OF THEM BUT STAY CURRENT."  In case 3 years down the road I come into worse financial situation "at least they're discharged" and I wouldn't be on the hook and the lender can't come after me for the deficiencies.

Option 1 - REAFFIRM ALL - continue to pay.  Concern here is what if I can't do it 2-3 years down the road, and loans are NOT discharged!

Option 2 - DO NOT REAFFIRM - continue to pay on ALL!  PROBABLY NO CONSEQUENCES UNLESS I START TO MISS/SKIP PAYMENTS

Option 3 - REAFFIRM ONLY 1ST- continue to pay 1st mortgage ONLY. - what are the consequences? 

My concern, IF i choose option 2 is that the lender (same for all 3 loans) will "wrap" mortgages in 1 loan.. then FORECLOSE ON ME!  But again, home value is 60k in the hole.  Would it benefit the lender to do that?

[Anonymous]

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@MyFico_704 wrote:

My attorney said "DON'T REAFFIRM ANY OF THEM BUT STAY CURRENT."  In case 3 years down the road I come into worse financial situation "at least they're discharged" and I wouldn't be on the hook and the lender can't come after me for the deficiencies.

Option 1 - REAFFIRM ALL - continue to pay.  Concern here is what if I can't do it 2-3 years down the road, and loans are NOT discharged!

Option 2 - DO NOT REAFFIRM - continue to pay on ALL!  PROBABLY NO CONSEQUENCES UNLESS I START TO MISS/SKIP PAYMENTS

Option 3 - REAFFIRM ONLY 1ST- continue to pay 1st mortgage ONLY. - what are the consequences? 

My concern, IF i choose option 2 is that the lender (same for all 3 loans) will "wrap" mortgages in 1 loan.. then FORECLOSE ON ME!  But again, home value is 60k in the hole.  Would it benefit the lender to do that?

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I would defer to the advice your attorney gave you since he has all the details, is up-to-date on your lender's current tendencies and is familiar with the law as applied in your jurisdiction.

You are likely lucky in that in your jurisdiction lenders cannot foreclose as long as your loan(s) are current.  In the vast majority of other jurisdictions, however, this is not true.

Option #1:  Yes, there is the risk that after reaffirming you ultimately get into difficulties again and would have lost the protections that you had under bankruptcy.

Option #2:  As long as in your area lenders cannot / will not / do not want to foreclose while current even though under the terms of your contract(s) they can, you are fine.

Option #3:  Will your lender allow you to reaffirm only the 1st?  If not, you are back to option #1 & #2.  If they allow you to reaffirm the first, your attorney will have to make certain the lender gives up their rights under your subordinate obligations.  If they do not, they can likely come back and foreclose on them whenever it is convenient for them.

[rsant101]

Yes...dont ever reaffirm a second mortgage especially with the home value.  Its not collectable as it will more than likely be deemed an unsecured liability and be discharged at bankruptcy.