Chapter 7 Debtor Did Not Reaffirm Mortgage

I am about to file a 7 and I want to reaffirm my mortgage. I do NOT want to lose my house. There is maybe $20,000 in equity but I expect that to improve in the next few years. Two years ago I had $250,000. in equity.

My lawyer told me not to reaffirm but this seems to leave me vulnerable to foreclosure if I am even 1 day late on my mortgage.

I modified my loan this year with BOA and I finally havean affordable payment I can live with. Now it's time to address the credit card debt, around 55000.

I pass the means test for the 7 but the house has me so worried. I feel like if I cant reaffirm I will lose my house when property values come back up and the bank can make a profit.

Any thoughts would be appreciated.

Frankly, I think that is bad advice, and not in accordance with the law. The bankruptcy rules promulgated in 2005 REQUIRE you to either 1) Reaffirm, 2) Redeem, or 3) Surrender the property. (Thus putting a stop to the "ride-thru" which your attorney is suggesting).

The legality of it is this: The filing of a bankruptcy proceedings is automatically considered a "default" under the terms of your mortgage note. (In other words, as soon as you file bankruptcy your mortgage is in default, whether you are current with the payments or not). Now, while your bankruptcy is ongoing you have a court-ordered "stay of collection" which prevents the mortgage from taking any legal action against you.

Once your bankruptcy is discharged, two things happen: 1) You no longer have a valid contract with the mortgage, because that contract was discharged by your bankruptcy (but their lien and rights to the property remain intact); and 2) the stay of collection ceases, you no longer have court protection against legal action. SO at this point, if you have not done one of the three things I listed above (reaffirmed, redeemed or surrendered), then you no longer have a right to make installment payments under the terms your original mortgage -- the mortgage may accept payments (hence the "ride-thru"), but technically since you no longer have a valid contract, they can accelerate your balance at any time and demand the entire unpaid balance immediately due, or they can otherwise act to realize on their security (foreclose).

Reaffirming that mortgage reinstates your contract, as if you had never filed a BK. It works two-fold: 1) Yes, you are then bound again by the terms of the contract. BUT they have a lien anyway, you would have to pay them regardless or they could foreclose; 2) MORE IMPORTANTLY, for you, reaffirming binds the mortgage company to the terms of the contract and protects your interests as well. IE after you reaffirm, you have a right again to make payments, and they cannot arbitrarily at any point in time demand the balance in full or initiate foreclosure without cause.

Thanks Debt, that's what I thought. I found a new lawyer in my town who I love. When I asked him about this he said right away we would reaffirm. I think that other guy wanted to do less work.

I really appreciate your help!

"The legality of it is this: The filing of a bankruptcy proceedings is automatically considered a "default" under the terms of your mortgage note."

Just where are you getting this?

It will be in the default clause of your mortgage note. Below is an example from an IL mortgage:

DEFAULT AND ACCELERATION: if Undersigned shall default in the payment, when due of any installment of this Note or in the payment or performance of any other obligation or indebtedness due to Lender, or in the performance of any covenant or agreement contained in Undersigned's mortgage, if any, in case of loss, substantial damage to, destruction, sale, encumbrance, concealment, removal, attachment or levy upon the Collateral; or if any proceeding shall be instituted by or against Undersigned under any bankruptcy or insolvency statute; or Undersigned shall make an assignment for the benefit of creditors; or Lender shall deem itself insecure, then upon the happening of any of the foregoing events of default, Lender may declare the unpaid balance of this Note including all accrued interest and charges and all other indebtedness and obligations of Undersigned to Lender immediately due and payable, without notice or demand.

Not in mine it isn't!

what state are you in jesse2?

MA - Freddie Mac standard mortgage form 3022 which is specific to MA
Does have stuff about rights to correct any deficiency in the security in a BK or other situatiion, which might mean must reaffirm, just not spelled out - my lawyer said MA law prohibits acceleration

okay that explains alot.i would go with what the attorney advised in your case.

Paul, thanks - but I have nonetheless asked him for the relevant MA law chapter as I don't want to leave something so important to a verbal OK .

oh yeah,i hear you.in fact i would basically ask to see it in person before commiting.things like this vary state to state.it's best to know now before you are unpleasantly suprised later.

Not to contradict your attorney, and I'm definitely not familiar with MA laws -- but to say that a loan cannot be accelerated would mean that if you defaulted in payments, then the lender would have to wait 30 years (or however long your contract was for) until every payment came due before they could sue for the balance...... (or else they'd have to file separate suits in small increments as the payments came due, which doesn't make any sense).

There has to be something more to the laws than that, I'd think.

Articles 19 & 22 of your Mortgage ("Borrower's Right to Reinstate After Acceleration" // "Acceleration; Remedies") refers to the acceleration.

Keep in mind your mortgage is just a way of perfecting a lien on the property. The actual promissory note (which is incorporated by virtue of the definitions (D) and (F)) creates your obligation to pay. Refer to your promissory note, which will also have requirements and the default/acceleration clause.

Mom

Who is your mortgage company. I am about to file a 7 but dont want to lose my house, I have Contrywide/BOA

I checked with my atty who has been doing BK work for many years and he says in MA the only way lender can accelerate is when there is monetary default.

Yeah, sorry, realized what I posted before had as an implication that you are current with your mortgage payment - then they cannot accelerate or foreclose - otherwise they can.
So it is a case of the fine print, as my atty calls it, in the mortgage note being trumped by state law.