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Mortgage Discharged in Bankruptcy is NOT Free and Clear?

Mortgage Discharged in BKAugust 2014 UPDATE:  Fannie Mae has made a significant change is how it views mortgage debt included in Bankruptcy.

Now, if you had a foreclosure, short sale or deed in lieu of foreclosure after the Bankruptcy, the waiting period to buy again begins from the Bankruptcy discharge date, not the subsequent removal of your name from title! – Read More Here >> Fannie Mae Waives Waiting Period After Bankruptcy


 

Much of this conversation has taken place in the comments sections of two articles from a few months back – Buy Again After Bankruptcy, Foreclosure and Buy Again One Day Out of Short Sale.

All of the conversations I have had around this subject are very similar in that:

  • I discharged my mortgage through bankruptcy
  • The home is upside down but I didn’t want to lose it
  • Now I want to buy a new home with a more affordable payment

What it boils down to is that when mortgage debt is discharged through BK, it does not mean that you own the home free and clear, and it doesn’t mean that you’re off the hook for the mortgage.

When mortgage debt is discharged, you are protected against any personal liability should the home foreclose through or after the BK – this essentially means the lender cannot come after you for their losses.

Many times the mortgage debt will show up on the credit report as “included in bankruptcy” with is slightly deceiving because it implies that the debt is no longer owed…which is not the case.

The challenge is that if you decide you do not want to be shackled by  your upside down mortgage at any time in the future, you are still facing either foreclosure or short sale to rid yourself of the home.

To buy again after bankruptcy you have to wait for 24 months before you can use a FHA loan for the purchase of a new owner occupied home.

Once the bankruptcy is complete, homeowners are still faced with the fact that refinancing into today’s lower rates is not possible due to the fact that the home is upside down.

Renting the home out to buy again after the 24 month bankruptcy wait is also a challenge, as I have detailed in this article: Can I Rent Out My Upside Down Home and Buy Again?

I am keeping a close eye on this, I think that many home owners are in this situation now after filing for bankruptcy a couple of years ago.

I think this is an important conversation to have as there are many families trying to get back on their feet after tough times.his topic?

Do you have any experience or questions around this topic?  Please leave comments and questions below if you have a specific situation you would like to discuss.

562-999-1355

Scott Schang

Branch Manager at Broadview Mortgage Long Beach, California, I am passionate about educating and empowering consumers. Feel free to call, text or email me at (562) 999-1355 or ScottS@broadviewmortgage.com

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489 comments
nelablake
nelablake

My house went into foreclosure in 09.  I filed for Chapter 7 in 2010.  The bankruptcy was discharged in 2011 and the foreclosure was dismissed in 2012.  The bank did receive an automatic stay, however, only 287,000 of the original mortgages (355,000.00) was deemed secured.  Anyway, the house has been empty for 5 years now, I am still on the title as the owner, the bank has not refiled the foreclosure, the property is only worth 140,000 or less now.  The morgage (287,000.00) went to collections.  They began harassing me non stop so my lawyer got onto them, they stopped and paid me 1000.00 for their actions.  Now I get a notice from the collection company monthly describing my mortgage, the balance due, how they have purchased insurance and paid the taxes, etc.  they are also maintaining "My" property.  I understand they need to file a new foreclosure action, but if they do not what are my options?  I'd love to be living in my HOUSE! or I want my name off of it.  How do I accomplish this?

Mark9999
Mark9999

I assume you filed for Chapter 7 Bankruptcy. Why do you pay on a Mortgage that was discharged in bankruptcy? Even if you continued to live in the house, you have no legal responsibility to pay on a discharged loan. You received some very bad advice.


Affirmation of a debt can only occur while your case is moving through the bankruptcy court.  Once you receive a Discharge of Debt from the US Bankruptcy Court, you have no further obligation to pay the debt. I will read the actual wording of the Court in this matter:


"The discharge prohibits any attempt to collect from the debtor a debt that has been discharged. For example, a creditor is not permitted to contact a debtor by mail, phone, or otherwise, to file or continue a lawsuit, to attach wages or other property, or to take any other action to collect a discharged debt from a debtor.....A creditor who violates this order can be required to pay damages and attorney's fees to the debtor"


The wording speaks for itself.


Hope this helps you.

Mark9999
Mark9999

I'm assuming you filed for Chapter 7 Bankruptcy. Who ever told you to continue paying on a mortgage that was discharged in bankruptcy? Even if you continue living in the house, there is no legal reason for you to pay the loan. You have received some very bad advice.

MLMcFadden
MLMcFadden

I went through a bankruptcy in 2012 and the mortgage was discharged, but I was not in arrears on the payments and have continued to make them. I went to a credit union to apply for a HARP loan but they said since the mortgage was discharged (and GreenTreeServicing, which is still collecting the loan, keeps sending "this is not a bill" bills!) is not reporting my payments to the credit bureaus) so the credit union said they couldn't do a refi since there really was not a mortgage to refi - how the hell do I get through that mess! Property is slightly under water but if I could score a decent interest rate it could right-size in a reasonable amount of time! Any ideas to resolve this problem?



soccergirl2013
soccergirl2013

 I filed bankruptcy in Sept. 2011 and was discharged in Dec. 2011.  Of course my home mortgage was never reaffirmed so it isn't showing up on my credit report.  It shows up as discharged in bankruptcy.  I do still pay the house note.  I was just recently informed that they sold my mortgage to a new mortgage company.  My question is this new mortgage company will advise the credit bureau.  Will the mortgage now show up as a debt that is owed again even though I have not reaffirmed it?  I know they my force a reaffirmation now but was wondering until the due will this debt still show up as being discharged in bankruptcy since a new mortgage company has taken over and the fact it was not affirmed.

Mark9999
Mark9999

Regarding Geeooff1's comment about the bank's request for relief from automatic stay, this is nothing more than the bank asking the bankruptcy court to allow them to collect from you directly instead of waiting for the stay period to end. The practical results of this are the bank and/or it's servicing agent will be able to call you directly so the irritating phone calls will begin again. Also the stay allows the bank to move forward more quickly with the foreclosure rather than waiting for the completion of the bankruptcy process. My loan servicing company lied to me by implying the stay removed my home mortgage from bankruptcy protection. That is NOT TRUE! So be careful!

geeooff1
geeooff1

Hi Scott. I had filed a chapter 13 bankruptcy that was discharged in November of 2012. During the bankruptcy my mortgage company filed an order for relief from automatic stay. The court granted it so I went through as loan modification with them. On my credit reports only two out of the 3 credit reports are showing a payment history. Is this just an error on one credit report?

ShaunSigley
ShaunSigley

Hi Scott,

 I went through bankruptcy in March of 2013. My house was included and I decided to continue making payments without a reaffirmation agreement in order to stay living in the house until I was financially fit to move. I'm looking at moving at the end of next year and I would really like to know what I need to do to make the process as simple as possible. It's my understanding I will be able to get a VA loan after July of next year (2 year anniversary of my bankruptcy closing date) but I don't really understand the process that it entails. Will I have to pay back what is owed on the lien on my current house (I have about $5,000 of equity as it stands, leaving me with $5,000 to make a new purchase after the sale) or am I entitled to the entire sell price of the house (it's worth about $80,000)? What exactly do I owe the lien holders of my current house when I go to sell and how does that affect my chances of successfully getting a new loan?

LindaLawrence
LindaLawrence

 Hi Scott, My husband filed chapter 7 . Now we received a phone call stating they have a program to offer us money to move out is this normal ? Are should we avoid these this?


Felicia08
Felicia08

My Chapter 7 BK went through last March and I did not reaffirm my loan after BK. I decided to go ahead and leave the house to rent for a while several months ago since the house and maintenance was too much for me as a single mom, knowing that they couldn't come after me for the balance. I recently heard that they are going to sell the home at a foreclosure auction on 9/30, in eight days. They sent me formal notice via certified mail. I just received a letter from a property consultant looking to pay me $ for an interest in the title. Is this something I should do? Are there any caveats to this? I am no longer in the home and have no desire to move back or buy for some time. I am also the only one on the deed.

LisaDF
LisaDF

I live in Michigan and we short sold our home over 2 years ago.  Everyone signed off and we short sold the house to a buyer.  Now Fifth Third Bank is trying to come after us for the amount that they say we owe - they were our 3rd mortgage - home equity line of credit.


Seems odd to me because they signed off...can they do this?

Rjkmom
Rjkmom

My filed chapter 7 bankruptcy a few years ago. I also got divorced during that time frame. My ex wants me to quit claim our investment property to him. The property is upside down. I know I'm not liable for the mortgage but if I'm quit claimed off the property would I still get a 1099 for the debt loss if he short sales property and would I have to pay taxes on this difference?

Mark9999
Mark9999

Just for the record, when a house is foreclosed on, the bank sends a 1099-A  (Acquisition or Abandonment of Secured Property) to the former owner. This is normal even for property declared in a bankruptcy. When filing your 1040 long form, you'll have the opportunity to check this off as included in bankruptcy with no further issues. 


IF the property was used in business (re.g. rental, etc), the situation gets much more complicated. You'll have to file forms 4797 (Sale of Business Property), 8582 (Passive Activity Loss Limitations) and 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness). It's not complicated but you must have access to your previous returns to determine if you had a gain on the sale of the property after taking into account recaptured depreciation and other deductions. If you were seriously underwater to begin with, you shouldn't have any taxes owed. If this all sounds confusing and complicated, go see a tax attorney or CPA.


P.S.  I'm NOT an attorney or CPA.

Mark9999
Mark9999

Hi, I want to clarify something you have stated on this blog. From reading your responses to others, I believe you have stated that 4 years after a Chapter 7 bankruptcy, I can be approved for a conventional mortgage even if my former house title is still in my name. Is that correct?

suzq1411
suzq1411

Soooo confused and annoyed! My Husband and I filed for chapter 7 in 2011 received discharge in 2012. We also did a short sale on our home since BOA kept extending our loan modification process and eventually sent us a foreclosure letter. Short sale was approved and house was sold in 2013. We received a 1099 stating everything was payed off. 2 years later we are trying to use VA loan to purchase again. VA approved the loan but our lender just called us that Nationstar which eventually took over the loan during the short sale process is now saying that we owe 137,000 in late payments and placed in our credit report. Can they do this???

shaunnacarbonell
shaunnacarbonell

I live in Arizona and  chapter 7  bankruptcy was discharged over a year ago. We have remained in the home and continued to pay the mortgage and hoa fees. We now want to relocate and eventually purchase another home in another state. How do I get my name off of the title and how long can we stay in the home without paying the mortgage and hoa fees?

binnstacy
binnstacy

Hi I filed chapter 7.. 4 years ago for two investment properties that i foolishly bought and owed more than the equity. they were discharged and Its been seven years and the banks have not foreclosed on the properties.. A investor suggested to short sale the two properties so they could buy them from the bank... I would like to get rid of the properties and start over...Do you think this is a wise decision to try a shortsale?

dhite08
dhite08

My husband and I filed bankruptcy chapter 7 in February of 2010. It was discharged in May of 2010. I had an adjustable rate mortgage loan through a local bank that I kept through the bankruptcy but never reaffirmed the loan. So, the rate adjusts every so often and I have to sign paperwork for it, but it still doesn't report to the credit bureau. If the payment stops being made I assume it would probably go into foreclosure. If that happens would the foreclosure show up on my credit report and would I be legally responsible for the payment?

chestermeeker
chestermeeker

OK here goes - complicated mess.  But I am engaged and my girlfriend owns a house outright that she wants to put me on deed  BUT before that I have a nighmare situation.

I currently live in Indana for over 2 years - due to ex (Never been married) having a domestic violence order against her and tried to kill me.  I also am a recovering stage 4 cancer survivor.


NY 2001 I foollishly purchased a manufactured home with ex (NEVER married) for 101,000 it IS Jointly titled in Both our names.   I put  up over 50,000 to attached it to property well , custom features etc.  This was secured my 10 acres which was deeded in my ex names


NY Onadaga county has been taxing the property as real property - even though NY doesn't allow  titlte purging.  Taxes were 3 years behind in 2011... Family member paid them for Me - they were in exs sole name and saved the tax auction - I  was fighting for my life and 4 months to live.  When ex tried to kill me (another story).  So, when I finanaly  I had the strength and the TRO I moved in Fall of 2012 as far as I could for protection - Indiana. 


In the meantime - while I had been fighting Cancer - the property fell behind in payments again and again (ex used ALL her money for partying - she has a drinking problem etc)... and was Mad I was dying and couldn't make them solely anymore)  she bounced checks... didn't pay... got deferrals.. and Finally I filed Chapt 7 in Indiana and was discharged of Mortgage in Dec 2013.  I surrendered property - but mortgage company refused to take it..  INSTEAD they allowed her to sign a  mortgage reversal and deferral in MY name also and was granted it in Jan 2014 for 6 months... payments were due to resume in March 2014 - she paid IT late and shorted them $50.  she then Stopped all together again... We had got so many 90 Notice OF default and papers to bring mortgage current was due by Sept 6 to prevent foreclosure.  I got a copy of these since I am Still on Mortgage and Still on Manufactured House title (remember NY titles this with DMV).. she told everyone she was losing home (first time she EVER admitted it) so, I know she was serious and going to let it go into foreclosure..


Lo, and behold ON Aug 15 - She Miraculously comes us will 4,700 to bring mortgage current!  I then was told by someone living in My house - that she told them they would have to get out she had sold the house (this person was going to College) and she had to move end of September.  Remember I am STILL on title of House.. I have NEVER signed a quit claim deed or anything giving away my right to house.  I don't know who bought my property or ANYTHING - the least  I know IS that she has forged my name before and I AM certain she is doing this again.  She doesn't have the intelligence to understand the laws of mortgage fraud... title forgery etc... and IS NOT above doing this to get some $$$ in her pocket - did I mention there IS about 40000 in equity in property?  I believe she sold it to her daughter/new spouse... they are living there with her for last year.. and were NOT married and mysteriously after ALL the years together had to get married and without a couple of weeks - house was sold!  I ALSO believe she is dumb enough to contact one of these mortgage scam artists and believe she is smart enough to scam the scammers!


she and the unknown buyer/scammer (this has NEVER been listed for sale so I know it is a private sale) are up to some Mortgage forgery and probably some Mortgage fraud here... how can someone get a mortgage WITH another persons name on TITLE???: without forging it???  The mortgage company doesn't care a BIT.. I am sure now with the mess she is to deal with they are just want their money However they can get it (yes I called and that is pretty much what they said - and they don't care if it was sold - probably Already know and wont tell me - so they can get their money - and don't care about the Fraud.! they did say I was still on mortgage - they know BK I am NOT responsible But they said we are Both still on Mortgage.. so THEY know I have NOT quit claimed title to anyone)..


Oh did I mention SHE is NOW 18,000 plus in back taxes for 3 years and property is on brink of tax auction?  So WHY would a buyer/ how could a buyer buy a property without bringing taxes current?  No one knows about them - she is hiding that fact!  If this IS an all cash buyer...I believe she plans on TAKING the Money and Running and Not paying off mortgage... and IF this a buyer who has to get mortgage - wont they - the bank find out about the Jointly owned title on House?  and the back taxes?  if it is on contract - WHO would ignore these facts????  this leads me to believe it is a Scam Artist OR her daughter/baby dad who lives there and they a JUST as dumb as she is in regards to Mortgage Law and reprecussions of Mortgage Fraud and they also wouldn't be above Forgery! AND NO WAY WILL I EVER SIGN A QUIT CLAIM DEED ETC GIVING UP MY RIGHTS TO MY PROPERTY WITHOUT MY SHARE - IN CASH/WIRE TRANSFER!  I AM NOT REWARDING MORTGAGE FRAUD AND SOMEONE WHO TRIED TO KILL ME -FINANCALLY.  This is not for me about Money ANYMORE - it is about my Health and Happiness... I WILL NOT SIGN any other way!


WHERE DO I TURN TO REPORT THIS CRIME AND PROBABLY MORTGAGE FRAUD???  SALE IS GOING THROUGH IN SEPTEMBER!  I had a high powered lawyer a year ago to handle her signing my name before etc BUT they did NOTHING! and REPEAT I do NOT have a dime to my name - I am still recovering from Cancer.

Telling me to get another one wont Help - this IS criminal and I am Indiana and the Crime is being committed inI  New York!  Legal Aid also tried... I do NOT know a Lawyer in NY and I cant come all that way to find one (health) if I could find one to take this Pro Bono!


Anyway,  After all these years I have I found a good woman  who I am finally after ALL these years going to get married - - who is Most understanding and has a 2nd house she would like to deed to me for income!  She has her own also..  but I DO NOT WANT THIS NIGHTMARE hanging over MY/OUR head for the rest of our lives - however long or short hey may be!


Thank YOU,  I know it IS long and MOST complicated! PLEASE FEEL FREE TO CONTACT ME!...



jmmann72
jmmann72

To get a loan earlier than the regular waiting period.

jmmann72
jmmann72

My wife and I filled for chapter 13 bankruptcy during the process she decided she wanted a devoice. The 13 was then turned into a chapter 7. I have now tried to get another FHA loan. Does this situation allow me to get the FHA loan earlier than the standard waiting period. I have been turned down due to my name showing up on a carvis list. And my house had my mame on the deed till 2011. Do I qualify for an exception under the new law

nelablake
nelablake

Also, the notices that come to me from the collection agency now say "this is not an attempt to collect a debt"...

MLMcFadden
MLMcFadden

@Mark9999  As I understand it, they cannot come after ME for the money - but they can take the property which they still have title to, and I would expect them to do so. It's not entirely valueless and could be resold.


What am I missing here?


ScottSchang
ScottSchang moderator

@Mark9999 Bankruptcy protection does not take the home away from you, nor does it relieve you of your obligation to pay the mortgage.  If you continue to make payments, you can stay in the home until it's paid off and you live happily ever after.  You can even refinance the home once the "waiting period" is up.  If your intention is to let the bank foreclose, or take a more proactive approach to getting the home out of your name, you can stop making payments.  If you stop making payments, the bank will eventually foreclose and you will lose your home.  Bankruptcy protection does not in any way, shape or form affect your ownership in the property.

MLMcFadden
MLMcFadden

@Mark9999  Well of course, if I don't pay the loan is still out there and can be foreclosed on and I don't want to leave this property, which includes acreage for my horses. When I penciled moving out, renting someplace for me and boarding my horses, it works to stay here - for now. It was my decision, no one told me to do it. I have reviewed the situation again with my bankruptcy attorney. It sounds like a new mortgage could be dangerous too, as would been the case if I had reaffirmed.

ScottSchang
ScottSchang moderator

@MLMcFadden That doesn't really make much sense, except that it's a credit union, and credit union's are not really great at difficult situations.  They tend to be very conservative and don't really like anything that's not plain vanilla.

What State do you live in?  Let me see if I can point you in the right direction.

1angell18
1angell18

We filed bk 2009 and had the same happening to us. Originally we had chase and it got sold to caliber home loans. The credit report didnt change still says included in Bk and our second being a credit line showed zero balance. We never received any thing forcing us to reaafirm neither modify, however we received letters with forms to fill out and send back if we want to do. In our case we eventually stopped paying on thw mortgage and let the house go into foreclousure since we were too upside down. I hope this helps

geeooff1
geeooff1

Well my mortgage is paid up to date and all arrears have been paid. I filed for bankruptcy in 2009, and it has been discharged back in November 2012. I have no concearns about foreclosure, my only concern is my credit report. As I stated, I went through my mortgage company to do a loan modification. How this information is portrayed in my credit reports is my question.

ScottSchang
ScottSchang moderator

@geeooff1 Yes, it sounds like a credit reporting error.  On an unrelated note, the loan modification removed your mortgage from bankruptcy protection, so no foreclosure is a good thing!

I would simply dispute the credit line with the bureau that is reporting inaccurately.  They will research it and should correct the trade line.  It may cost you a few bucks to order your credit report through the bureau, and disputing the line item online is free and pretty easy.  I would start there.

ScottSchang
ScottSchang moderator

@Felicia08 Thank you for doing your research Felicia!  DO NOT reply to that property consultant, it is a SCAM.  You are already on title, and when the bank forecloses on the home, you would have absolutely no rights to the home, nor would you want any.  I hope this helps :)

ScottSchang
ScottSchang moderator

@Rjkmom if your mortgage debt is included in bankruptcy, you would not be financially responsible for any losses incurred as a result of the mortgage defaulting, or selling the home for less than what is owed.

If you can quit claim off title, I would do so as fast as you can without even thinking twice about it!  You being on title will prevent you from purchase another home in the future.

Since the debt is discharged, you cannot be held financially liable for anything that happens with the mortgage.

As far as taxes go, you would not be responsible for any income taxes, however you may be responsible for property taxes if you're on title.  You would want to speak to a CPA or maybe even your BK attorney for tax advice.

The only downside to quit claiming off title would be if your ex-husband hangs on to the property long enough to earn enough equity to sell the home at a profit at some point in the future.  If that is his strategy, you may not be entitled to any of the equity.

Hope this helps?

shaunnacarbonell
shaunnacarbonell

@Mark9999 Hi Mark,

My bankruptcy was discharged last year that includedmy home but I did not receive this form.  Is that the way it works in every state?

ScottSchang
ScottSchang moderator

@Mark9999 Thank you very much for the correction and clarification Mark!  Your input is very much appreciated :)

ScottSchang
ScottSchang moderator

@suzq1411 Oh my gosh, I can imagine your frustration!  There are several things here that don't make sense.  Did you record a reaffirmation of mortgage along with the bankruptcy?  If not, then Nationstar should have no right to come after you for late payments or penalties.  If the mortgage is included in the BK, that should be end of story.  You will want to consult your bankruptcy attorney regarding this matter.  The 1099 also concerns me.  A 1099 typically means that you the losses the lender incurred as a result of the short sale were reported to the IRS as income, which you would be responsible for paying income taxes on.

First and foremost, you need to review your BK paperwork and determine if the mortgage was discharged.  If it was discharged, all this goes away, if it was not, you owe the money.

What State are you trying to buy in?

ScottSchang
ScottSchang moderator

@shaunnacarbonell you basically have 3 options for getting your name off title.  1.  stop making payments and wait for the bank to foreclose, 2. find an experienced short sale agent and list the home as a short sale, 3. contact the lender and inquire about a deed in lieu of foreclosure.

The 1st option should be a last resort.  The bank could take years to foreclose on the home and that could seriously hinder your ability to buy again.  If you are unable to get the home out of your name, you could buy using FHA financing in 3 years from the date your name comes off title, or 4 years from the discharge date using conventional financing.

Hope this helps?

ScottSchang
ScottSchang moderator

@binnstacy Yes, I think that short sale is the best way for you to have any control at all over the timeline for getting those homes out of your name.  Of course, the bank will have to determine the sales price, you are not able to set the price yourself.

Fannie mae guidelines would actually allow you to buy again as soon as your name is removed from title.  The waiting period to buy again using conventional financing is 4 years from the bankruptcy.

Hope this helps?

ScottSchang
ScottSchang moderator

@chestermeeker This is certainly a challenging situation, and I am sorry to hear that you have had such a difficult journey.  Unfortunately, I am only a lender that is trying to educate consumers about the qualifying guidelines for buying a home after bankruptcy, foreclosure, short sale, or deed in lieu of foreclosure.

If you do not mind, I will publish your situation on my site and maybe a real estate attorney will be able to reach out and assist you pro bono.

I apologize that I am unable to offer any other help, this is a legal issue and outside of my area of expertise.

Again, I am sorry I cannot help more. I wish you the very best and am happy to hear that you have a lot to look forward to once you are able to navigate through these troubled waters.

ScottSchang
ScottSchang moderator

@jmmann72 The new law does not apply to FHA financing, only Conventional

There are a couple of things here that would like to address.  First, what happened to the home?  If you simply quit claimed off title, and your ex received the property as sole and separate through the divorce, AND if the loan was current at the time and defaulted later (which would trigger the CAIVRS alert), you might not have to deal with it - but it would be manual underwrite situation.

CAIVRS basically means that there was a default on a FHA loan.  The waiting period to buy after a FHA default goes from the date that the FHA mortgage insurance claim was paid, not the foreclosure date.  You should be able to contact CAIVRS to get this date.

Either way, the waiting period for FHA is only 3 years from the foreclosure date, which will now be the date the MI claim was paid.

Using conventional financing, you could be eligible for financing 4 years from the BK discharge date.

Hope this helps?

ScottSchang
ScottSchang moderator

@nelablake You always have the right to Short Sale the home, or approach the new "owner" of the mortgage and do a deed in lieu of foreclosure.  If they attempt to renegotiate the terms of the loan, reduce principal, interest rate or extend the term, you would be removing the debt from bankruptcy protection.


I would suggest finding a local Realtor that is a short sale specialist with experience working with the bank that now owns your mortgage.

ScottSchang
ScottSchang moderator

@MLMcFadden @Mark9999  You are talking about 2 different things here - we need to reel this in or I am going to have to delete this comment thread so people don't get confused.

The bank does not have title to your home.  You are correct, the bank cannot come after YOU for the money.  That said, if you continue to make your mortgage payments, the bank has no right to take your home, you are meeting your contractual obligation (mortgage) and there is no recourse that the bank can take.

Mark is correct about reaffirmation, and about the bank not being able to come after you for the debt, however you're missing the very important part here of the fact that you have the option, and personal choice to either make the payments and retain your home, or stop making your payments and the person who lent you the money can take back the collateral (home) securing the debt (mortgage).

Even if you filed Bankruptcy, and you have equity in your home, you can sell the home tomorrow, pay the bank the balance of the mortgage, and walk away with the profit.

Does this make sense?

MLMcFadden
MLMcFadden

@ScottSchang @MLMcFadden  I'm in Washington state. My bankruptcy attorney also suggested taking a pass on the credit union, and reminded me of why it would not have been a good idea to re-affirm - but if and when I get a new loan - that will put me back in the position of being liable for any shortfalls - assuming the next mortgage has a clause like that, which I would assume is standard procedure at this point in time. This is all about getting clear of a stinking 7% loan!

Rjkmom
Rjkmom

Thank you so much. There is not much chance of it regaining all the equity. It's upside down by about $100,000.

shaunnacarbonell
shaunnacarbonell

@ScottSchang @shaunnacarbonell This debt was discharged in the bankruptcy.  If I can get the bank to agree to a short sale or a deed in lieu of foreclosure how long will I have to wait before I can qualify to purchase again in another state?  Will the clock start when my name is removed from the title or when the bankruptcy was discharged?  I apologize for so many questions.  I just want to be sure that I am handling things correctly.

nelablake
nelablake

@ScottSchang @nelablake Thank you!  The sad part is the house has been vacant for 5 years now and has depreciated not only because of the housing situation, but also because of the vandalism done to the home.  We 378,000 for that place and now it's not even worth 120,000.00.  

MLMcFadden
MLMcFadden

@ScottSchang @MLMcFadden @Mark9999  This clarifies things very well. Thanks for explaining that the bank doesn't have "title" but it does still have the ability to take the property if I opt to default. I have opted to continue to make the payments. It was when I went to talk to a credit union about the refi (I'm past the window)  that I got confused and apparently the credit union is as well. But it gave me a chance to reconsider the value/risk of getting a refi versus living with the existing ugly interest rate but having the ability to walk away. Right now I'm opting to stay put both literally and financially!

ScottSchang
ScottSchang moderator

@shaunnacarbonell absolutely no reason to apologize!  I honestly wish more people would ask more questions :)  The waiting period, and starting point for that that waiting period will depend on what type of loan you are trying to use to purchase your new home.

If you are using FHA financing with 3.5% down payment, the waiting period is 3 years from when your name is removed from title.

If you are using Conventional financing with 10% down, the waiting period is 4 years from the discharge date of the bankruptcy.

If you are eligible for VA financing with 100% financing, the waiting period is 2 years from the date your name is removed from title.

MLMcFadden
MLMcFadden

@ScottSchang @MLMcFadden  And I would assume that any new mortgage would have a clause to hold the purchaser responsible for any deficiency should that occur on the new mortgage? Whatever happened to a mortgage only on the property value? It seems like this situation is a buildup to a new round of bankruptcies during the next downturn - the banks always win!


ScottSchang
ScottSchang moderator

@MLMcFadden @ScottSchang there is no such clause, it's a new loan.  Your BK protection only protects you against default on the current loan.  Once that loan is paid off, defaulted, the protection does not carry forward to new loans and liabilities after the fact.

I know, it's a crummy situation and it feels like you just can't win.  If you know you're going to live in the home, look at the refinance.  If you really cannot afford to live in the home, look at another solution.  Good luck, and you're right, the banks pretty much got their way through this whole mess.

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