December 15, 2017

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 And my mortgage is directly withdrawn out of my account each month if “technically” it was discharged are they able to continue to take that money every month?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. [Read more…]

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