Reaffirmation Of Mortgage Note In Chapter 7: Interesting Post By Atlanta Attorney

Many mortgage companies ask Chapter 7 bankruptcy debtors to sign reaffirmation agreements if they intend to stay in their house through their bankruptcy. Reaffirmation means that the debtors will remain personally liable on their mortgage note after the bankruptcy discharge, and it means the lender can sue them if they subsequently are unable to make payments. I saw a good discuss of the mortgage reaffirmation topic in a blog post by Atlanta bankruptcy attorney Jonathan Ginsburg. Mr. Ginsburg points out two problems with not signing a reaffirmation; first, future mortgage payments do not help restore credit, and two, without reaffirmation the bankruptcy is a technical mortgage default. In addition, I have found that bank's do not cooperate with debtor's who subsquently need documentation, such as payoff numbers, if they have not formally reaffirmed personal liability after bankruptcy.

Notwithstanding the above, I advise my clients not to reaffirm mortgage debt because doing so results in a large personal financial liability. I agree with Mr. Ginsburg's conclusion that lenders will unlikely default a mortgage for any reason as long as the borrower is making payments. I also agree that merely continuing current payments by itself will not result in personal liability absent a signed reaffirmation agreement.

Comments

[Michael Perretta]

In a Chapter 7 bankrupcy, what are the rights of the private mortgagee (lender) if the mortgage has been in default for months?
Should the mortgagee have the debtor sign a reaffirmation?

[Selling Mortgage]

Hello,

Oh yes, the designs are really cute. The sale of a property by a financially distressed borrower for less than the outstanding mortgage balance due where the proceeds from the sale will be used to repay the lender. These are so cute what a brilliant idea - thank you for sharing!

[Mike]

I also think that if the lender accepted payments for any period of time, it could not later attempt to treat the bankruptcy as an event of default under the doctrine of latches.

[Debra Tuttle]

I have heard that HAMP mortgage modifications, FHA HAMP modifications and many traditional or in house modifications are not available to homeowners who have received a Chapter 7 discharge, but did not reaffirm the mortgage note during the bankruptcy. The idea, as explained to me, is that when the Mortgage Note discharged, all that remains is the lien, and thus nothing to modify.
Wondering if this is accurate.

[bankruptcy]

Oh no, I should not have signed the reaffirmation then... When I filed Chapter 7 bankruptcy, I totally wasn't aware of it, and my bankruptcy lawyer did not advise me on such issue.

[Bankruptcy attorney]

People file for bankruptcy for many different reasons. Bankruptcy should be a last resort, but there are situations where there are no other alternatives. Bankruptcy takes a huge toll on credit scores.

[Bankruptcy attorney]

The other major form of bankruptcy is chapter 13, which seeks to create a repayment plan to ease your burden (but does not eliminate your debt).