topic Re: Reaffirming a mortgage in BK/Reversing a BK discharged mortgage in Bankruptcy

Reaffirming a mortgage in BK/Reversing a BK discharged mortgage

DaveInAZ — Sun, 12 Oct 2014 19:46:29 GMT

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.

Re: Reaffirming a mortgage in BK/Reversing a BK discharged mortgage

0REDSOX7 — Sun, 12 Oct 2014 20:28:58 GMT

Keep in mind that reaffirming a debt does not guarantee that credit reporting will continue.

9 times out of 10, it will not.

Re: Reaffirming a mortgage in BK/Reversing a BK discharged mortgage

0REDSOX7 — Sun, 12 Oct 2014 20:32:48 GMT

Also, my mortgage is with BofA, and after discharge without a reaffirmation agreement, I am on auto pay with them.

They dont report the payments, but, we all know that.

Re: Reaffirming a mortgage in BK/Reversing a BK discharged mortgage

DaveInAZ — Sun, 12 Oct 2014 20:46:22 GMT

"Keep in mind that reaffirming a debt does not guarantee that credit reporting will continue."

- Well, no, I don't believe there are any laws that require a creditor to report. But if reaffirmed they certainly cannot report Discharged in Bankruptcy, which is a negative account on your record for 7 years.

"9 times out of 10, it will not."

- I'm not challenging that, but am curious for your basis for saying that. While there are no laws requiring reporting, I would be willing to bet that the credit reporting agencies have in their contract that if you use their service you most report all your credit accounts to them. What motivation would they have to not report your account?

In my situation, I've spoken withe my mortgage bank's Bankruptcy dept. many times over the past 4 years. They have assured me they will resume reporting my account if I get the discharge reversed and reafirmation agreement approved by the court & recorded in my case.

My mortgage bank is BMO Harris, and they very cautious & strict - they say automatically debiting my account for payment could be construed as an attempt to collect a debt discharged in BK. I can call them every month and give them a one time authorization over the phone to debit my bank account, it's easier to me to just mail them a check - the only bill I pay by mailing a check. I asked them about refinancing and they said Aboslutely not!, that would be attempting to collect a discharged debt.

Re: Reaffirming a mortgage in BK/Reversing a BK discharged mortgage

0REDSOX7 — Sun, 12 Oct 2014 20:48:22 GMT

It's also in contracts not to do Pay For Deletes, but we all know that happens.

My basis for saying 9 times out of 10 is that my research shows it. Very rarely will they report it - which is why if you do, make sure they agree to it on your reaffirmation agreement, otherwise, what's the point of reaffirming.

Your case is obviously different and I am curious to see how it pans out.

Re: Reaffirming a mortgage in BK/Reversing a BK discharged mortgage

Billybob_TX — Mon, 13 Oct 2014 00:50:38 GMT

Reaffirmed or not, it will report as IIB, because it is.

Re: Reaffirming a mortgage in BK/Reversing a BK discharged mortgage

DaveInAZ — Mon, 13 Oct 2014 02:21:49 GMT

"Reaffirmed or not, it will report as IIB, because it is."

Absolutely not. If reaffirmed it is not Included in BK. That's the exact reason for advice against reaffirming - you are waiving your BK rights and exempting that debt from being included in your BK.

Re: Reaffirming a mortgage in BK/Reversing a BK discharged mortgage

0REDSOX7 — Mon, 13 Oct 2014 10:54:38 GMT

The tradeline still says it is included in bankruptcy (it won't update to say discharged in bankruptcy) because as previously mentioned, it was included in a bankruptcy proceedings.

The rare credit reports I have come across that have reaffirmed debt shows the tradeline saying "Included in Bankruptcy - Debt Reaffirmed xx/xx/xxxx" and again, don't show payment history - but you have an agreement with your bank to continue the reporting.

Re: Reaffirming a mortgage in BK/Reversing a BK discharged mortgage

StartingOver10 — Mon, 13 Oct 2014 11:42:42 GMT

I reaffirmed a vehicle loan in my Bk (one of them) because there was equity and not much left on the loan.

My trade line reads: Reaffirmation of Debt. That particular tradeline is not in my list of derogatory tradelines and it does not read IIB. It also reads "Pays as Agreed" and at the time the payments were reported monthly. It has been paid off and closed now for a few years because it was paid off within 10 months of discharge so the payments no longer show.

I don't know if something similar would happen with your mortgage reporting,

Re: Reaffirming a mortgage in BK/Reversing a BK discharged mortgage

0REDSOX7 — Mon, 13 Oct 2014 11:44:29 GMT

Random question - do you know if varies by credit reporting agency? Seems the three of them have different defaults they use...

Re: Reaffirming a mortgage in BK/Reversing a BK discharged mortgage

ezdriver — Mon, 13 Oct 2014 15:14:28 GMT

@Billybob_TX wrote:
Reaffirmed or not, it will report as IIB, because it is.

Wrong! Where did you get that information? Do you have personal experience with a reaffirmed debt being reported as IIB? The reaffirmation agreement removes the debt from the protection afforded by bankruptcy laws.

My reaffirmed auto loan was never reported as IIB.

Re: Reaffirming a mortgage in BK/Reversing a BK discharged mortgage

DaveInAZ — Mon, 13 Oct 2014 16:47:58 GMT

"The tradeline still says it is included in bankruptcy (it won't update to say discharged in bankruptcy) because as previously mentioned, it was included in a bankruptcy proceedings.

The rare credit reports I have come across that have reaffirmed debt shows the tradeline saying "Included in Bankruptcy - Debt Reaffirmed xx/xx/xxxx" and again, don't show payment history - but you have an agreement with your bank to continue the reporting"

- Well, since my mortgage was discharged almost 4 years ago it's going to be different than a debt reaffirming during BK. You can't reaffirm a discharged debt, so if the court approves & accepts my reaffirmation agrrement they have to resverse the discharge, called a Notice of Removal. That Notice will force the credit reporting bureaus to completely remove the current derrogatory account which is listed as IIB/Discharged in Ch. 7. Then my mortgage holder, BMO Harris Bank, will send them a new listing for the account, originating date 5/2006, paid as agreed, with 8 year payment history, never late. Likely it will say "Reafirmed", perhaps IIB, but the Paid as Agreed is the important part - it's already clear in my credit reports I filed BK in 2010.

But, let's see if I'm as clever as I think I am. I filed my Adersary Complaint Pro Se (no attorney) with me as Plaintiff, BMO Harris as defendant. I'm claiming it was not dischargable because at all times I indicated my intention to reaffirm, and case was filed with Schedule D (secured debts) listing is as "Intend to Reaffirm"..My claim is that the only reason it was discharged & not reaffirmed is because of the "substandard and inadequate legal representation by my attorney". He was old and I had heard he had retired & moved to Oregon; I checked the AZ Bar and sure enough he's listed as "retired", so he can't take part in any legal proceeding except as a defendant - one of the reasons why I listed BMO Harris as defendent (the other is they're the 'perfect' defendant, they want the same outcome I do). Just to cover myself I mailed him a copy of my complaint and got it returned by the postal service as "undeliverable". Court issued a Summons to BMO Harris & set 10/28 hearing on 9/23. I served summons on BMO Harris on 9/29 by certified mail, and filed Certificate of Service with the court the same day. I called BMO Harris last week to check and they are responding to the Summons with "We do not contest any claims made by Plaintiff, and have no objections to the Remedies he seeks". I'm now filing an Application for Summary Judgement, requersting a Judgment of: 1) Reopen my BK case; 2)Allow 28 days for BMO Harris & I to execute a Reaffirmation Agreement & submit it to the court for approval; 3) On approval of the Reaffirmation the court issue a Notice of Removal of the discharge, record the reaffirmation, and re-close the case.

In my online research I found that in 2009-2011 almost noone was reaffriming mortgages at the height of the foreclosure crisis, and few courts were allowing them. Now, with a couple of years of continued payments on the mortgages,demonstrating committment & abbility to pay the courts are very favorable toward reopening cases & allowing reaffirmation.

Re: Reaffirming a mortgage in BK/Reversing a BK discharged mortgage

0REDSOX7 — Mon, 13 Oct 2014 16:45:21 GMT

Dave, might want to start a new career on the side. I'm learning a ton from you.

Re: Reaffirming a mortgage in BK/Reversing a BK discharged mortgage

ezdriver — Mon, 13 Oct 2014 18:36:33 GMT

I hope that you prevail in court OP. Do keep us posted.

I tried to reopen my ch7 after discharge on the grounds that the auto loan company added legal fees [effectively doubling my balance owed] to my outstand balance ... subsequent to the discharge and reaffirmation agreement betwwen the auto loan company and me. Every attorney with whom I consulted told me that there is no provision in the laws for a bankruptcy judge to reopen a discharged case unless fraud can be proven tohave occured. I refinanced the loan per my bankruptcy attorney and it took three months for the auto loan company to release the title to the credit union with which I refinanced the loan.

Re: Reaffirming a mortgage in BK/Reversing a BK discharged mortgage

DaveInAZ — Wed, 15 Oct 2014 23:48:50 GMT

"Every attorney with whom I consulted told me that there is no provision in the laws for a bankruptcy judge to reopen a discharged case unless fraud can be proven to have occured."

- Well, that's pretty much the advice I was given, but they're only half right. If after discharge a creditor learns new info and thinks fraud occured they can petition to reopen the case under the exact same procedure I used: Rule 4007, Determination of Dischargability of a Debt. They would argue their debt was not dischargable because the debtor committed fraud - hid assets, income, etc. There is no time limit to reopen a case under that procedure, but it's not limited to creditors, debtors can use it as well - there's just very few stituations where a debtor would want to challenge the discharge of one of his debts; mine is one of those few situations. . I'm arguing that my mortgage was not dischargable because I clearly stated my intent to reafiirm and it was discharged only because of the incompetence of my attorney.

But that wouldn't work for you, you're not questioning discharge, you're questioning the car loan co. padding the balance due with fees, which your contract probably has a clause allowing them to do that. Your only leverage with them was in negotiating the Reaffirmation Agreement, refusing to sign it until they remove the charges, or negotiate an agreed amount. Most lenders prefer to avoid foreclosure/reposession, your leverage would have depended on value of the car & balance of the loan - and how badly you wanted to keep the car.

Re: Reaffirming a mortgage in BK/Reversing a BK discharged mortgage

DaveInAZ — Mon, 20 Oct 2014 20:03:59 GMT

Well, looks like I wasn't so clever after all. Just got off the phone with mortgage bank, BMO Harris. I had been talking with their BK Dept folks, who are not attorneys, they had told me if I was successful in reopening my BK case they would send me a reaffirmation agreement. But when they got my Summons with them as Defendant, they sent my file to the Legal Dept. The Legal Dept is going to respond to my Summons with Motion to Dismiss, they are not willing to agree to a Reffirmaiton Agreement, they say doing so nearly 4 years after discharge "opens them up to liabilities". As I said, they've always been super cautious with BK discharge, they won' debit my account for payment, they say that can construed as an attempt to collect a discharged debt, they only accept voluntary payments I send them by check & mail.

Oh well, looks like refinance time.

Re: Reaffirming a mortgage in BK/Reversing a BK discharged mortgage

0REDSOX7 — Mon, 20 Oct 2014 20:12:41 GMT

Sorry to hear that...but you seem to have learned quite a bit after this ordeal.

Let me know how the refinance goes - I am curious how that works and will follow this closely.

Re: Reaffirming a mortgage in BK/Reversing a BK discharged mortgage

0REDSOX7 — Mon, 20 Oct 2014 20:14:03 GMT

Forgot to add, are you gonna refinance with them or no? Figure they have your payment history and what not but don't know if they would do it.

Re: Reaffirming a mortgage in BK/Reversing a BK discharged mortgage

DaveInAZ — Mon, 20 Oct 2014 20:18:50 GMT

I'd like to refi w/them, but they say No! - their refinancing my discharged debt is an "attempt to collect a discharged debt". Most they'll do is cooperate w/ new lender providing them wiith my (perfect) payment history & Pay Off balance. I sure hate my attorney who got me in this mess.

Re: Reaffirming a mortgage in BK/Reversing a BK discharged mortgage

0REDSOX7 — Mon, 20 Oct 2014 20:21:29 GMT

Odd - wouldn't a refinance be considered a brand new account, thus creating a new tradeline?