topic Re: Did not reaffirm mortgage in BK7; can I walk away? in Bankruptcy

Did not reaffirm mortgage in BK7; can I walk away?

8bitmachinegun — Sun, 01 Sep 2019 18:49:43 GMT

Nearly 10 years ago, on the advice of my lawyer I filed what's known as a "Chapter 20" bankruptcy. That is, I filed Chapter 7 and Chapter 13 nearly simultaneously to protect my car and house. In the years since I've been scraping by and have had to let maintanence and repairs and slide. The heat and air don't work, the house has electrical issues, sinks need repair, the stove is broken and the front porch is falling down. There are also several trees that need to be taken down, another high ticket item.

As far as I know I did not reaffirm the mortgage despite getting a fairly generous modification. The mortgage servicer does not report my payments to any of the credit bureaus, and puts a disclaimer on every bill that it is not an attempt to collect.

My understanding of this situation is that I have no "personal liability" to pay the mortgage. I know that my mortgage holder can't sue me for a deficiency if they have to sell the property, but other than that I'm not aware of the implications of just handing them the keys.

So if I walk away does my credit rating take a hit? Would there be court records of a foreclosure? Thanks for any info...

Re: Did not reaffirm mortgage in BK7; can I walk away?

DaveInAZ — Tue, 03 Sep 2019 14:22:59 GMT

I've never heard of filing Ch. 7 & 13 at the same time, it seems like one would have been dismissed, and which one is important - a Ch. 13 is a repayment plan while a Ch. 7 discharges all debt not reaffirmed. With the notice of "not an attempt to collect a debt" on your mortgage statement it sounds the mortgage debt was discharged in Ch.7, but do you still have the paperwork to check?

If your mortgage debt was discharged in Ch.7 then no, there is effect on your credit rating if you walk away and they foreclose, the debt was discharged so there's nothing for them to report. But yes there will be a record of the foreclosure with the County Recorder, not courts, but it would only affect you if you applied for a new mortgage in the next few years most mortgage programs will not approve you if you've had a recent foreclosure.

Re: Did not reaffirm mortgage in BK7; can I walk away?

FireMedic1 — Tue, 03 Sep 2019 15:42:10 GMT

@DaveInAZCheck this out. I had to look this up. Never heard of it either. Weird how it works on NOLO:

Sometimes financial problems are too complex to be solved by Chapter 7 or Chapter 13 alone. That’s where Chapter 20 comes in. Chapter 20 is not an official chapter under the bankruptcy code, but a strategy where two bankruptcies are filed in quick succession -- a Chapter 7 followed by a Chapter 13 -- to resolve financial problems that cannot be adequately dealt with by filing under just one chapter.

https://www.thebankruptcysite.org/resources/what-is-chapter-20-bankruptcy.htm

Re: Did not reaffirm mortgage in BK7; can I walk away?

Anonymous — Wed, 04 Sep 2019 02:45:22 GMT

@DaveInAZ wrote:

If your mortgage debt was discharged in Ch.7 then no, there is effect on your credit rating if you walk away and they foreclose, the debt was discharged so there's nothing for them to report. But yes there will be a record of the foreclosure with the County Recorder, not courts, but it would only affect you if you applied for a new mortgage in the next few years most mortgage programs will not approve you if you've had a recent foreclosure.

There are guidelines, set by Fannie Mae, that determine how long after a foreclosure you have to wait before you can successfully qualify for a new home loan. Home loan lenders follow these guidelines, and it is one of the criteria you have to meet to successfully apply for a loan.

Until recently, that period was measured from foreclosure, no matter what other circumstances there may have been. Fannie Mae clarified those guidelines, however, and now say that that period can be measured from the date of the bankruptcy, not the foreclosure. That means that walking away from your home may not lengthen the time you have to wait before applying for another home loan. YMMV

Re: Did not reaffirm mortgage in BK7; can I walk away?

8bitmachinegun — Wed, 04 Sep 2019 21:04:42 GMT

Thanks for the information. That still leaves one question: how hard will it be to rent an apartment? I still need to live somewhere.

Even if it doesn’t show up on my credit, there will still be a record of foreclosure. What if I do a ‘deed in lieu of foreclosure’?

Re: Did not reaffirm mortgage in BK7; can I walk away?

CreditGuy03 — Thu, 05 Sep 2019 14:35:06 GMT

@Anonymous wrote:
@DaveInAZ wrote:

If your mortgage debt was discharged in Ch.7 then no, there is effect on your credit rating if you walk away and they foreclose, the debt was discharged so there's nothing for them to report. But yes there will be a record of the foreclosure with the County Recorder, not courts, but it would only affect you if you applied for a new mortgage in the next few years most mortgage programs will not approve you if you've had a recent foreclosure.
There are guidelines, set by Fannie Mae, that determine how long after a foreclosure you have to wait before you can successfully qualify for a new home loan. Home loan lenders follow these guidelines, and it is one of the criteria you have to meet to successfully apply for a loan.
Until recently, that period was measured from foreclosure, no matter what other circumstances there may have been. Fannie Mae clarified those guidelines, however, and now say that that period can be measured from the date of the bankruptcy, not the foreclosure. That means that walking away from your home may not lengthen the time you have to wait before applying for another home loan. YMMV

Why would someone want another home loan? I don't get the home buying illusion in America. You pay so much more money than your actual mortgage and it isn't an investment. You tie up 3-20% of your hard earned money in a house that won't appreciate much if at all especially in this volatile economy. Buying a home in 2019 is not the same as it was buying a home back in the 80s or 90s. Too many leechers, too high property taxes, ridiculous HOA fees etc.

But i digress...

Re: Did not reaffirm mortgage in BK7; can I walk away?

sccredit — Thu, 05 Sep 2019 17:10:04 GMT

@CreditGuy03 wrote:
@Anonymous wrote:
@DaveInAZ wrote:

If your mortgage debt was discharged in Ch.7 then no, there is effect on your credit rating if you walk away and they foreclose, the debt was discharged so there's nothing for them to report. But yes there will be a record of the foreclosure with the County Recorder, not courts, but it would only affect you if you applied for a new mortgage in the next few years most mortgage programs will not approve you if you've had a recent foreclosure.
There are guidelines, set by Fannie Mae, that determine how long after a foreclosure you have to wait before you can successfully qualify for a new home loan. Home loan lenders follow these guidelines, and it is one of the criteria you have to meet to successfully apply for a loan.
Until recently, that period was measured from foreclosure, no matter what other circumstances there may have been. Fannie Mae clarified those guidelines, however, and now say that that period can be measured from the date of the bankruptcy, not the foreclosure. That means that walking away from your home may not lengthen the time you have to wait before applying for another home loan. YMMV
Why would someone want another home loan? I don't get the home buying illusion in America. You pay so much more money than your actual mortgage and it isn't an investment. You tie up 3-20% of your hard earned money in a house that won't appreciate much if at all especially in this volatile economy. Buying a home in 2019 is not the same as it was buying a home back in the 80s or 90s. Too many leechers, too high property taxes, ridiculous HOA fees etc.

But i digress...

If you are renting a home you are still paying property taxes, HOA fees, etc. It's just built into your rent.

Re: Did not reaffirm mortgage in BK7; can I walk away?

DaveInAZ — Fri, 06 Sep 2019 00:02:56 GMT

@8bitmachinegun wrote:
Thanks for the information. That still leaves one question: how hard will it be to rent an apartment? I still need to live somewhere.

Even if it doesn’t show up on my credit, there will still be a record of foreclosure. What if I do a ‘deed in lieu of foreclosure’?

You shouldn't have any problem renting an apartment, if they pull your credit report they're just looking for any active collections, especially any rental collections.

While there is a record of foreclosure a prospective landlord won't look for that, it would only come up if you applied for a new mortgage because you have to document your living expenses for the past couple of years. Why do your mortgage lender a favor and give them a deed in lieu for foreclosure? You've paid them a ton of interest over the years. I'm not advising you to do this, but just be aware folks post here that they live rent free for many months to a couple years after they stop paying their mortgage before the bank gets around to foreclosing. When you go late on a mortgage the bank usually hires a company to do a drive by inspection to see if the house is still occupied and still standing and in good repair. From your description of the property the bank will realize they're not going to land a windfall if they foreclose and likely won't rush things.

Re: Did not reaffirm mortgage in BK7; can I walk away?

Anonymous — Fri, 06 Sep 2019 12:30:38 GMT

@CreditGuy03 wrote:
@Anonymous wrote:
@DaveInAZ wrote
Why would someone want another home loan?

Rent payments never stop, and never appreciate at all. Homes may appreciate slowly in this economy, but they still appreciate, and eventually, your payments stop. You may still have taxes/fees but they are insignificant compared to someone renting a similar property.

Just my 2 cents.

Re: Did not reaffirm mortgage in BK7; can I walk away?

8bitmachinegun — Fri, 06 Sep 2019 14:50:58 GMT

I wanted to reply to a few of the thoughts that have come up since I last posted.

Home ownership is not for me. I hate doing maintenance and yard work, and this is compounded by a couple of medical conditions and encroaching old age. Nor do I have the skills required for taking a DIY approach to repairs. Paying someone else to do it is an option, but that gets expensive fast. Honestly, the only thing I like about being in a house is being able to listen to my music whenever and at whatever volume I like.

Just stopping payments makes me nervous. Will I be able to scrape together enough money for first & last month’s rent in time without being able to know exactly when proceedings will begin? And it just seems dishonest to just give them the middle finger.

Re: Did not reaffirm mortgage in BK7; can I walk away?

8bitmachinegun — Fri, 06 Sep 2019 23:20:22 GMT

A couple of other concerns occurred to me about using this Chapter 7 option with my mortgage. Every 3 years I have to pass a background check to keep my job. Is there any chance that court record would show up?

And another concern is tax liability. Would the IRS come at me for the $75K debt I’m walking away from?

Re: Did not reaffirm mortgage in BK7; can I walk away?

DaveInAZ — Fri, 06 Sep 2019 23:57:14 GMT

@8bitmachinegun wrote:
A couple of other concerns occurred to me about using this Chapter 7 option with my mortgage. Every 3 years I have to pass a background check to keep my job. Is there any chance that court record would show up?

And another concern is tax liability. Would the IRS come at me for the $75K debt I’m walking away from?

Well, in some states a foreclosure is a judicial process, meaning the lender has to file a case in court and get a judge to order a foreclosure, in those states there is a court record of the foreclosure. In other states, such as here in Arizona, it's non-judicial, they just have to follow state rules for foreclosure, usually just posting legal notices in newspapers and on the property, in those state their is no court record, just a record on the property deed usually by the county Recorder's office. Nolo.com has a list of which states use which system:

https://www.nolo.com/legal-encyclopedia/50-state-chart-key-aspects-state-foreclosure-law.html

I've never gone through a background check but I imagine they just look for any criminal records. If you work in banking they might consider a foreclosure "risky" personal finance activity while a government job wouldn't be concerned, there's nothing illegal about foreclosed on. As for tax liability No, debt discharged in BK is not taxable and your $75k debt was discharged almost 10 years ago, you've just been making payments so they can't foreclose.

As for just stopping payments and stay as long as you can, yeah that's why I said I'm not advising you to try it, just letting you know some people do and live for some time with no housing expense. I wouldn't do it myself, I like being comfortable & secure, and wondering if the next knock at the door is the Sherrif's office posting a foreclosure and/or eviction notice isn't my idea of comfortable & secure.

Good luck with your decision.

Re: Did not reaffirm mortgage in BK7; can I walk away?

8bitmachinegun — Sat, 07 Sep 2019 00:42:53 GMT

Hmm, my state is non-judicial, but does allow delinquency judgements. Since they can’t collect on a delinquency in my case I would assume (cough) that they can’t lodge any kind of court record. That makes me feel a little better, but I’m starting to think I should talk to my old lawyer. Or maybe any bankruptcy lawyer.