Most attorneys will advise you strongly not to reaffirm a mortgage. In fact, every legal advice I've received or read strongly urges you to never reaffirm any debt, a mortgage in particular. There are certainly risks in reaffirming a mortgage - it makes you responsible for the amount of your mortgage in full, regardless of the current value or value if seized & sold in foreclosure. But, if you have an excellent payment history on the mortgage their are "rewards" in reaffirming - that excellent past payment history and future payment history remain as current on your credit report. If you do not reaffirm your mortgage is recorded as Discharged in Bankruptcy, and future payments cannot and will not be reported to the credit reporting agencies - the discharged debt no longer exists, your payments are simply "voluntary" payments that keeps theTrust Deed current, preventing the mortgage holder from foreclosing and seizing your property.
In deciding whether to reaffirm a mortgage, the first question to ask is: Is your state a non-deficiency state? Many states have laws that if a mortgage is for a primary residence if it is foreclosed and sells for less than the balance due - a "deficiency" - they cannot come after you for any deficiency. So, in those non-deficiency states not reaffirming a mortgage gives you no additional protection - they can't come after you for any deficiency in foreclosure, reaffirmed or not reaffirmed - if your mortgage is for your primary residence.
Arizona is a non-deficiency state, I filed in Chapter 7 in Sept. 2010. My mortgage was opened in 3/2006 and was only a 60% Loan to Value so I had plenty of equity, and payments were affordable, and I very much enjoy the property. But my attorney still said No! when I told him I was going to reaffirm. I told him flat out that I was going to reaffirm and if he didn't allow me to reaffirm I'd find another attorney, so he said OK. But I didn't know much about BK - which is why I used an attorney - and I thought filing with intention to reaffirm was all that I needed to do. The bank sent a reaffirmation agreement to my attorney to forward to me, and the SOB didn't even tell me about it. In my Creditor's Hearing the Trustee asked if I still intended to reaffirm the mortgage and I said 'Yes", but she didn't tell me I need to sign a Reaffirmation Agreement that the court needed to approve prior to discharge. So, I get my discharge and call the mortgage company and say "OK, I'm discharged, let set auto payment back up", and they tell me about the Reaffirmation Agreement needed to return the mortgage to standard servicing. I call my attorney, madder than hell, and he says "I told you that you didn't need to reaffirm that mortgage, if you want to keep it just keep paying it". I got pretty heated and accuse him of dishonesty & deception, and he tells me to never call him again and hung up.
Every person I talked to told me that once a debt is discharged nothing can be done to change that. I even got legal advice from Legal Aid group and that attorney assured me I could not reaffirm a discharged debt and advised me to just focus on rebuilding my credit for the next couple of years and then look into refinancing or even selling it and buy another property. So, that's what I did. I looked into refinancing this summer. Several brokers told me that refinancing a property with a discharged debt is difficult because technically there is no mortgage to refinance. And then it got down to the specifics of the property - a rural 10 acre property in SE AZ with a manufactured home. For a property with a manufactured home to qualify for FHA mortgage funding it has to have a HUD approved "permanent foundation" which involves design & certification by a licensed engineer, which would cost $6-8,000. Not worth it for me. So that limits mortgages from lenders who keep the mortgage in their own private investment portfolio, and since the mortgage bubble, the pool of those lenders has shrunk significantly, and rates are much higher - I'd end paying a 6-8% interest rate if I refinanced. While the current mortgage is a variable rate, it's currently only 3.5%, and very reasonable variable rate terms with caps on lifetime rate and annual increases. In short, my current mortgage is much more favorable then one I could obtain today for this property. I enjoy it very much and have no interest in selling it.
So I started researching on the internet and learning as much as possible about BK - something I wish I had done before filing BK in 2010. I'm in a legal action now called Rule 4007 Adversary Complaint, Determination of Dischargeability of a Debt, to reopen my case - there is no time limit to file this type of action, and if filed by the debtor there are no fees to reopen the BK case. I'm seeking to reverse the mortgage discharge with what's called Notice of Removal, and get the court to approve & record a reaffirmation agreement. The bank with the mortgage has been very cooperative, and have told me if I am successful they will remove the discharge from my credit report and report all the never late payments since 2006. The negatives on my credit report are BK Public Record, of course, but also short length of credit history (only since BK accounts), and lack of any installment loans. If I get that 8+ years of perfect payment history back on my report it should be a huge boost to my score. I'm currently 670-680. My car was purchased new in 2003, was owned free & clear when I filed BK and exempted. It's time for a new car, and to get a good rate I need to have a Good credit rating of 700+. But this is also about righting a wrong. I'm not usually one to hold a grudge, but I intended to reaffirm this mortgage, and my attorney screwed me over thinking he knew what was "best". I hired him to take care of the complicated BK filing, I didn't hire him to make decisions that were mine to make.
My hearing with the Bankruptcy Court is Oct. 28 _ I'll report back on what happens.
