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

[8bitmachinegun]

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...

[DaveInAZ]

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.

[FireMedic1]

@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

[Anonymous]

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@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.

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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

[8bitmachinegun]

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’?

[CreditGuy03]

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@Anonymous wrote:

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@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

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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...

[sccredit]

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@CreditGuy03 wrote:

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@Anonymous wrote:

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@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

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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...

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

[DaveInAZ]

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@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’?

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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.

[Anonymous]

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@CreditGuy03 wrote:

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@Anonymous wrote:

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@DaveInAZ wrote

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Why would someone want another home loan?

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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. 

[8bitmachinegun]

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.