QUESTION
If my 2nd mortgage was reaffirmed but the 1st was not, what are my options?
Asked on Jan 19th, 2014 on Bankruptcy - California
More details to this question:
My husband and I filed chapter 7 back in 2009. We were advised by our lawyer to reaffirm both our first and second mortgages, even though we were upside down with the two. He told us that it would be best for our credit to reaffirm and get credit for the monthly payments. Well, we learned just recently that our first was never reaffirmed. But our second WAS! Now we are TIED to this house, and of course everyone blames each other. So I, the consumer, get screwed! Why would any lawyer do this? And why were we NOT told about this? That the first was not reaffirmed but the second was? We NEVER would have gone through with the reaffirmation of the second without the first being reaffirmed!! Also our second mortgage company was bought out by another bank in 2011. Once the buy out happened, the new bank never started reporting our payments to the credit bureau. I have called them and they are "looking into it". Our credit report has our WF home loan noted as key derogatory and as included in chapter 7 bankruptcy. I called WF, they refuse to start reporting payments. (And yes, I know they don't HAVE to). I called our lawyer, and his receptionist said our only option was to re-open and reaffirm for a $700 fee!! No, thanks. We asked to speak with our lawyer, he refuses to speak with us! We have never missed a mortgage payment or been late on either loan. What are my options? And who fights for the consumer anymore? Any help would be greatly appreciated!!
5 ANSWERS
What you should do depends on if you want to stay in the house and if the second was purchase money or not It's possible to maintain a loan and even modify a loan without re opening your case to reaffirm.
Answered on Jan 23rd, 2014 at 6:29 AM
It was your decision to sign the reaffirmation paperwork and it was the decision of the bankruptcy trustee to approve or reject your reaffirmation agreement. The law has evolved in the past few years due to the economic meltdown and the collapse of the housing market. For you to have expected your lawyer to have a crystal ball and urged you not to go ahead with a reaffirmation is no guarantee that you would have taken his advice and that anything would have been different. I know plenty of my clients think they know more than I do and act in complete disregard to my advice. IMHO, you have no options at this point. Bankruptcy Rule 4008 provides that any reaffirmation be submitted to the court within 60 days of the 341 meeting. To the best of my knowledge, there are no exceptions to this rule. BTW, the first mortgage company may not have offered you a reaffirmation. Under those circumstances, the truth may be that you were not able to reaffirm the first mortgage.
Answered on Jan 23rd, 2014 at 6:27 AM
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Reaffirmations can be a difficult issue in bankruptcy. It is true that reaffirming a first mortgage can help obtain future credit, and that failure to reaffirm a 1st mortgage may lead some lenders to use that as an excuse not to modify at a later date. However, these lenders will not commit to a modification without first reaffirming even if you reopen, so then you would be stuck with a reaffirmed debt. Also, reaffirming a first mortgage risks a deficiency claim if there is ever a foreclosure. For this reason, perhaps most bankruptcy attorneys will not sign for any mortgage reaffirmation, even though the lender will not report the payments made to the credit bureaus and even though the lender might not agree to modify. Many debtors are later upset that they had not reaffirmed, but they received the benefit of the discharge and have no risk of liability on the mortgage if they cannot pay the mortgage. Wells Fargo commonly refuses to modify without the reaffirmation. As for reaffirming an underwater second mortgage, the risks of reaffirmation are even greater. Another note, many mortgage lenders do not even send a reaffirmation agreement to be signed.
Answered on Jan 23rd, 2014 at 6:27 AM
We can definitely help. If the 2nd is not reporting and you did reaffirm the debt, that is a violation of both the Fair Credit Reporting Act and the bankruptcy code. Why wait for them to "look into it?" A lawsuit will get them to answer. We would file a lawsuit by the end of the week if you did actually reaffirm the debt and they are not reporting the payments. That is the whole point (and really the only good reason) to reaffirm.
Answered on Jan 23rd, 2014 at 6:26 AM
Hmmm. If your second mortgage AND your first mortgage were both underwater, you could have stripped the second mortgage entirely as an unsecured debt. This would have required a Chapter 13 to do, which is more costly and time consuming, plus a 3-5 year commitment, but well worth it. This could be malpractice if your circumstances indicated a 13. As far as reaffirmation, what you are being told sounds right, although what is the explanation for not getting the first mortgage approved in the first place? Sounds like your lawyer screwed up, possibly multiple times.
Answered on Jan 23rd, 2014 at 6:25 AM