Daily Archives: July 7, 2015

Mortgage Reaffirmation In Bankruptcy

Mortgage Reaffirmation In Bankruptcy is something I never bkCOURTgr

tried to do.  Until last week.

In Michigan, you can be stuck for a deficiency if your home

is foreclosed, and the foreclosure sale price is less than

what you owe on the mortgage.  And, if the first mortgage

forecloses and there is a second mortgage, you still owe that.

Unless, you filed Chapter 7 bankruptcy and got a discharge.

Then, your personal liability is gone with the chapter 7 discharge, though the mortgage lien, or liens if you have more than one mortgage, remain on the home.  So, if you do not make the payment, and pay the taxes and insurance, they can still foreclose.  They just cannot come after you personally if the foreclosure sale price does not equal at least the balance owed on the mortgage.

So, I never sign off on reaffirmation agreements for mortgages, because, all that does is make my client personally liable again for the mortgage note.

Now, credit reporting agencies, Experian, Equifax and Trans Union being the Big Three, do NOT have to report anything.  So, if you stay current on your mortgage, after your Chapter 7 bankruptcy discharge, they can report zero balance, debt discharged in bankruptcy, and that is accurate.  Which is all they are required to be.

And, if you reaffirm a mortgage, the mortgage companies will report that you are current.

That does not seem to me to outweigh the risk of being stuck with a deficiency if there is a future foreclosure.

So, last week I actually asked a bankruptcy Judge to re-open a closed chapter 7 case to allow the debtor to reaffirm her mortgage.

BECAUSE, the realtor said she could easily sell the condo for more than she owed, which was her plan.

AND, because the mortgage guy told me she had to wait 3 or 4 years post-bankruptcy to get a conventional mortgage.  UNLESS, she reaffirmed the mortgage she had.  Which would be paid off in a matter of months, when the condo sold.

So, I filed the papers and stood before the court.

And the Judge decided she could not re-open the case just to reaffirm a mortgage; the law would not let her.

So, today, I was in front of a different bankruptcy Judge, for another client who wanted to reaffirm her mortgage.

Per my usual practice, I did not sign off on it, so the Court scheduled a hearing for the debtor to explain why she wanted to do this.

I told the Judge why I do not sign mortgage reaffirmations, but also informed him of what I had just learned on the other case, about the mortgage industry doing an end run around the discharge injunction, effectively coercing people into reaffirming mortgages or risk being shut out of the mortgage market.

The Judge reluctantly agreed to allow the mortgage reaffirmation.

The bad guys won again.

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