Reaffirming A Mortgage

Can I Reaffirm My Mortgage In Bankruptcy?

We receive this question very frequently and it seems most real estate lenders are ignorant of the Bankruptcy Code.  Reaffirming a mortgage is a legal impossibility since mortgages deal with real property.  Yet reaffirmation agreements are only possible on personal property.

Sections 362(h) and 521(a)(6), the provisions added by BAPCPA that terminate the stay as to an interest in property if the debtor does not comply with § 521(a)(2) or 521(a)(6) – by not timely filing a statement of intention and performing that intention under § 521(a)(2), or by not entering into a reaffirmation agreement or redeeming the property within the statutory period under § 521(a)(6) – apply only to personal property. See 11 U.S.C. §§ 362(h), 521(a)(2), (a)(6).  Moreover, the Code also seems to contemplate ride-through on consumer debts in real property instead of reaffirmation because it states that the discharge injunction under § 524(a)(2) does not apply to a “creditor [who] retains a security interest in real property that is the principal residence of the debtor.” 11 U.S.C. § 524(j)(1).

Finally, irrespective of any reaffirmation agreement, California Law provides there is no personal liability on mortgages in California except in limited cases.  As a result, reaffirmation of a mortgage does nothing for the lender since it adds no personal liability.  Thus there is no benefit to the creditor in reaffirming a mortgage.

Further information on mortgages and bankruptcy can be found below.  However, if your lender is adamant on a reaffirmation agreement on the mortgage, you should politely direct them to this blog and request they contact their legal counsel for further instruction.

Bankruptcy removes personal liabilities, not liens:

Bankruptcy removes personal liabilities, not liens. There is a difference between “In Rem” liability (Deed of Trust creates lien against the house, i.e., if the mortgage isn’t paid the house will be sold at foreclosure) and “In Personam” personal liability (your personal obligation to pay the debt.)  A Chapter 7 bankruptcy discharge eliminates your “In Personam” liability; it does not eliminate “In Rem” liability. But since there is usually no personal liability for mortgage under California Law, the discharge has little impact.  Notwithstanding, the lien remains despite the Bankruptcy.

Credit Reporting on Mortgages after Bankruptcy:

Mortgage credit reporting usually changes after Bankruptcy.  Technically, mortgage companies legally can not report mortgage balances or payments received on credit reports after a bankruptcy discharge. The credit report is a report of debt you personally owe due to METRO II guidelines.  These guidelines require $0.00 balances to be reported on claims after discharge.  Notwithstanding, the lien still remains.  But again, the lien is not your personal obligation, but an obligation on the house.  The same happens when a car is not reaffirmed.  Even though you might be continuing the payments, the credit report will show a $0.00 balance since you personally no longer owe the debt.

In fact, there is case law holding that reporting late payments on a discharged mortgage to a credit bureau is a violation of a debtor’s discharge, since such tactics are viewed as coercive efforts to force a debtor to pay and collect on a previously discharged debt.  Accordingly, since a mortgage company can also get sued for reporting delinquent post petition payments, mortgage companies generally comply with the law in not reporting any information.

One of the key facts of the credit reporting laws is that creditors can only report accurate information. They are not, however, required to report all accurate information; they can instead choose to remain silent. It may possible, nonetheless, to still get your payment history included in your credit report as follows:

1. Request a payment history from the mortgage company. (The mortgage company is required by law to provide one every year free of charge.)
2. Then file a dispute with the three credit bureaus, attaching a copy of the payment history.
3. The credit bureau is required to verify the accuracy of the debt with the mortgage company within 30 days.
4. At that point, the mortgage company can either:
   1. Remain silent and then the credit bureau must accept the information provided by the client; or
   2. Respond that the debt was discharged and a $0.00 balance remains.
5. You will need to repeat this process on a regular basis, as credit reports are constantly changing with new information, many times monthly.
6. Additionally, you should keep the payment history, since that can be provided to anyone you’re applying to for new credit, as an alternate means of proof of prompt mortgage payments.

This process, while a headache, at least gives you a route to accomplish your goals. Additionally, for refinancing purposes, the payment history itself is often sufficient instead of the credit report at all.

If your end goal is to refinance, please contact Attorney Steve Doan at our firm.  He is a Real Estate Broker and former Bankruptcy Attorney and most qualified in the nuances of real estate financing and former bankruptcies.

Written by Michael G. Doan– Owner of the Oceanside Bankruptcy Attorney Office, Michael also manages his business and is a highly skilled Bankruptcy Attorney with nearly 30 years of experience.  Michael is currently concentrating his practice solely in Bankruptcy Law and is a Board Certified Specialist in Consumer Bankruptcy Law by the American Board of Certification.