QUESTION
What is the Status of Mortgage after Bankruptcy?
Asked on Apr 23rd, 2013 on Bankruptcy - Florida
More details to this question:
I have read all the answers regarding re-affirmation and non re-affirmation of a mortgage debt after discharge of a CH 7 BK. However, I am curious as to the status of the mortgage if I do not re-affirm. Although I am paying the mortgage everyone says the lender cannot foreclose. Is that part of the written agreement? What agreement am I paying under? What are the rate and the due date? If the original note was an adjustable rate, can my rate change? Most importantly, what if I want to move - my lender tells me that I cannot get a new mortgage until 3 years after the current lender actually forecloses but the lender hasn't foreclosed. Can I sell the property and payoff the mortgage? Can I short sell the property? Lots of questions here but I understand that the personal obligation is discharged. What does govern the relationship between the lender and I?
9 ANSWERS
Appellate Attorney serving Grosse Pointe Farms, MI
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Musilli Brennan Associates, PLLC
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You are correct that the lender can no longer personally seek to have you pay the underlying note. However, the mortgage holder still has a valid lien on the property and can foreclose. They generally will not do that as long as you continue to make the payments but there is no guarantee. What you really need do is to buy an hour of attorneys time to determine exactly what position do you should just take and to determine the position the lien holder is taking. The additional advice would you have received, I generally cannot qualify for another mortgage for three years, is the general rule.
Answered on Apr 25th, 2013 at 10:22 PM
You cannot modify the terms of your mortgage contract in bankruptcy, except in Chapter 13 you can payoff arrears through the Chapter 13 plan. You cannot modify the interest rate, the payment due date, or any other terms of the contract and the contract still governs your relationship with the lender. But, the bankruptcy does discharge your obligation to pay the note and if it goes into default the only remedy the lender has is to foreclose on the property and sell it. You are the legal owner of the property so, yes, you still sell the property if you choose to do so. And, if you sell, the mortgage has the right to be paid from the sale. And, the court will never approve a reaffirmation agreement regarding a mortgage, the Bankruptcy Code specifically forbids that. It is never a good idea to try to reaffirm a mortgage.
Answered on Apr 25th, 2013 at 2:12 PM
Bankruptcy Attorney serving Livonia, MI
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Charles J. Schneider, P.C.
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If you do not reaffirm you are discharged.
Answered on Apr 25th, 2013 at 2:11 PM
After a bankruptcy ends, the mortgage company can foreclose if you don't make the payments. If you are current, under the contract as well as under state law, they cannot foreclose. If you chose to keep the property, you will have to live with the original terms of the loan, although you can apply for a loan modification. If you want to sell, a sale would be handled as if you hadn't filed bankruptcy. If you short sale, the lender must agree to the short sale and cannot sue you to obtain any money that may have been lost on the arrangement. Real estate and contract law governs the relationship between you and the lender
Answered on Apr 25th, 2013 at 2:11 PM
Bankruptcy Attorney serving Phoenix, AZ
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Law Office of D. L. Drain, P.A.
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The original contract terms still controls your obligations. If the promissory note had adjustable rate of interest, then it is still adjustable. The discharge eliminated the lender's right to sue you. If the house is worth enough then you can sell the house and pay the entire debt off. If the house is not worth what is owed against it, then talk to a very good real estate attorney before doing a short sale. People do not know how dangerous short sales can be without good legal counsel. As to buying a home in the future - there is no way to predict when or if some future lender will give you a new loan to buy a home. That depends on the lender, you, your financial situation and the type of loan. Be very careful when making decisions.
Answered on Apr 25th, 2013 at 2:10 PM
2 Awards
If you do not reaffirm, you can still pay the mortgage timely and ultimately own the house upon payment in full. However, the mortgage company may not reflect the timely payments on your credit report but rather note the debt discharged. So the timely payments will not help you re-establish your credit. Some banks will not do a loan modification if you have filed bankruptcy and failed to reaffirm the debt.
Answered on Apr 25th, 2013 at 2:09 PM
Bankruptcy Attorney serving Walnut Creek, CA
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Alan E. Ramos Law Offices
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When your debts were discharged, assuming that you did not reaffirm the debt, your personal liability for the loan was eliminated. The note and deed of trust are still in effect. The original note and deed of trust control, including payments, due dates, etc. You can sell the property, short-sell the property (assuming the lender agrees) or refinance it (if you can get a loan).
Answered on Apr 25th, 2013 at 2:09 PM
Deborah F. Bowinski
As long as you comply with the terms of the actual loan contract the lender will not foreclose. If you default under the mortgage terms of the mortgage loan they will be able to move toward foreclosure in order to recover the collateral for the loan. As far as a new loan is concerned, typically a year or two after discharge you may be eligible for new mortgage financing assuming you meet all other underwriting requirements. I your current lender will not finance you then try another lender.
Answered on Apr 25th, 2013 at 2:08 PM
Bankruptcy Attorney serving Plantation, FL
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Moffa & Breuer, PLLC
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The answer is that the note and mortgage still govern the transaction. All that has changed is that the lender can only look to the property for payment, not to discharged debtors. So the lender can still raise or lower the payments, pursuant to the Note and foreclose if the terms of the agreement are not complied with. You are correct that your personal obligation to pay has been discharged. You can certainly sell the property and payoff the balance of the mortgage, but I would only recommend this if you are going to get money from the sale. Why try to short-sell a property that will inconvenience you by showing it when it does NOT affect your credit rating and does NOT get you any money. Banks seem leery to refinance these properties, but why a NEW lender wouldnt give you a mortgage if all other criteria is met, is a mystery to me.
Answered on Apr 25th, 2013 at 2:08 PM