Re: Chapter 7 already discharged - mortgage not reaffirmed - foreclosur
e/credit score question
01-26-2012 10:56 PM
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.
(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.)
Starting Score: ~470 preBK(8/2010)
Current Scores as of 8/2/13: EX 710, EQ 691, TU 709, all 3 LP for a Mortgage (TriMerge Report)
Goal Score: 700+ FICO across the board w/ my BK still on there (until 8/2020) - 1 down, 2 to go!