If I Do Not Reaffirm My Mortgage in Chapter 7, Do I Automatically Lose Title to my House?
I have been getting a lot of questions recently about reaffirmation and about the consequences of not reaffirming a mortgage loan. I have previously written about the consequences of not reaffirming a mortgage debt. The 2005 BAPCPA changes to the Bankruptcy Code attempts to force debtors to choose between reaffirmation or surrender of their collateral. The trend I am sensing both here in the Northern District of Georgia and elsewhere around the country suggests that bankruptcy judges are not particularly inclined to force this issue. In cases where the debtor cannot or will not sign a reaffirmation there seems to be a judicial acceptance of the old "stay and pay" process.
In those cases where a debtor does not reaffirm, there seems to be some confusion as to how this decision affects the debtor's rights. I received the following question from Heather, who asks the following:
Jonathan, I claimed Chapter 7 bankruptcy back in 2004. Sadly enough I just now looked closely at a credit report. My mortgage wich I had maintained through the bankruptcy and have done so for the past 5.5 years said it was discharged on the bankruptcy. Which rose many questions! I called the mortgage holder and they said I never reaffirmed my mortgage. I don't know if I did or didn't my original mortgage was with one company who sold it to another in 2006. I no longer live in this house, it is an income property, which I also have on the market. Am I going to run into trouble selling this? And my mortgage is directly withdrawn out of my account each month if "technically" it was discharged are they able to continue to take that money every month? I have sunk a lot of time and money into this property if it "technically" isn't mine. What would I lose by stopping payment on it. I've already suffered the credit report deduction for 5.5 years and have managed to get my score to fair standard even with that on there. what more can it do to me and where should I go from here. Thanks
Here is my response: Not reaffirming a mortgage obligation means that you are not personally liable on the promissory note associated with the security agreement. The property remains encumbered by the mortgage obligation and you continue to maintain and grow your equity interest in the property. Your title interest does not change.
The biggest difference – you are no longer personally liable on the note. This is a positive development in that you cannot be sued personally if you were to abandon the property and a foreclosure sale generated less than what was owed, or if the property burned down and there was no insurance.
The negative about not having personal liability – your credit report will not reflect any positives arising from the payments that you do make. As you, personally have no obligation to make any payments, you are not personally accessing any credit.
If you were to pay off the mortgage, you would get the title just as you would otherwise. You can still apply to reaffirm the debt and get back into a more traditional security note + promissory note situation. You can also sell the property as you do have title interest.
As far as where to go – you will have to decide if the benefit of building credit through a positive mortgage payment history following a refinance outweighs the benefit of not having personal liability on a mortgage.
Filed under Chapter 7 issues, Reaffirmation and negotiation by 
Please post your comments here. Please do not use the comment form to ask for legal advice.
Comments on If I Do Not Reaffirm My Mortgage in Chapter 7, Do I Automatically Lose Title to my House?
Jonathan,
I'm an Arizona bankruptcy lawyer, and I like your discussion of reaffirmations better than my explanation of reaffirmations.
So I'm going to link my discussions of this topic to your blog, because this is one that you explain very well!
Keep up the good work. You have a great bankruptcy blog!
Joseph: Thanks for the kind words. You have a pretty good blog there yourself and I'm going to add it to my blogroll. Although there are some local issues that do arise in a bankruptcy case, many of the principles that debtors face are similar whether the debtor lives in Georgia or Arizona and I encourage my readers to review and subscribe to thoughtful blogs like yours that address these questions and make us all think.
I filed Ch 7 bk back in April 2009 and my statement of intentions was to reaffirm my motorcycle payment with Harley Davidson Financial. However, my lawyer did not think it was in my best interest, so the papers were never signed / returned. I have been regularly making payments to HDFSI and they have not called or mentioned anything about taking the cycle.
My discharge happened on September 1st, 2009. Should I be worried that Harley might change their mind and try repossessing the cycle? I wish there was a way to work out a written agreement that they wouldn't; however the automatic stay is technically lifted.
Do you think they will bother? There are still 4 more years of payments left, is it worth taking the risk of just continuing to "ride and pay"? Is the statement of intentions enough to show a bankruptcy judge "hey I wanted to but my lawyer didn't think it was a good idea" and Harley won't be able to repossess if I'm current on payments?
Thanks much! -Tom
Hi
I live in MA and am contemplating Ch 7 bankruptcy. I am current on my mortgage payments and intend to remain so. I doubt they will let me reaffirm as it is a high payment.
I can find no clause in the mortgage note that talks about BK. My lawyer says they cannot pull the mortgage but I am nervous as he has not gone over the note with a fine tooth comb as yet.
Can they call in mortgage in MA just because I declare BK?
Jonathan,
We live in Georgia and this Dec. 2009 our bankruptcy was discharged, including the mortgage. We are planning to stay in our home for now and continue making the payment. The mortgage company asked us prior to the discharge to reaffirm, but we declined not knowing whether or not the trustee was were going to take the house. We continued to pay the house note as usual. Now that the mortgage debt was discharged along with our other debts, should we decided to sell the house in the future, Is the mortgage company entitled to any of that money since we are not reaffirming the note? Is there any mortgage to pay off? Who then, does the title go to? Technically the house is solely the banks, is that correct? And essentially we are renters, sort of speaking? Am I understanding things correctly? Or not? The decision to not reaffirm was advice from our attorney. Says it's in our favor not to.
At this writing, we have not been contacted by the mortgage company on reaffirmation. I do understand they have a vested interest and could foreclose, but would they since we continue making the payment? I suppose this depends on the lender.
My parents just found out that they have this same situation. They are wanting to put their house on the market and move, and when they pulled their credit it showed that they had not made any payments for the last 4 years! So it hurt their credit and they need to get a new mortgage to buy another house.
So what options do we have as consumers? How can GMAC continue to accept payments for something that technically is discharged? Isn't that considered fraud?
Oh, and one other thing…
If they technically don't own the home anymore, then essentially they can stop making payments. But then can GMAC report that negatively to the credit bureaus?
My chapter 7 was discharged in Oct 05. I did not reaffirm the mortgage on my house but have made all payments on time. Is this considered a foreclosure in 2005 if I walk away in 2010? I owe more than it is worth. Or is this a 2010 foreclosure? Need to know to apply for a new mortgage now.
I too have these questions. We filed Chapt 7 in 2003, the mortgage refuses to report all the years we have continued payments (we did not reaffirm, based on attorney's advice that the judge would not allow it).
What I don't get, no one ever explained to us how mortgage companies are not "required" to report your payments if you don't reaffirm, yet if you DO reaffirm, you are at higher risk. Plus, back in 2003, no one ever explained to us we could option to re-finance or re-structure the loan to reduce interest, etc. So, 7 years later, we've paid the mortgage three times the amount the home is worth, we have NO credit reported, and NOTHING to show that we paid for this home!
How is that fair to consumers? How can throwing huge sums of money to a mortgage company NOT account for something? Surely, there is a large percentage of post-bankruptcy cases who chose to not reaffirm, continue to make payments, and hope to pay off in full to obtain title. But, the laws never change to protect those of us in this VERY SPECIFIC SITUATION???