MORTGAGE REAFFIRMATIONS
By Kurt O'Keefe, Attorney at Law on May 26, 2007 in General Bankruptcy Information, Michigan, State Specific Bankruptcy Issues
I analyze things in terms of upside versus downside. Usually, there is no downside if you do not reaffirm on a mortgage in Michigan.
We are a foreclosure by publication state, although there is a judicial foreclosure option, which takes longer, and so costs more money. In the vast majority of cases, the mortgage company bids the amount due on the mortgage, and that is the successful bid, so there is no deficiency balance. That is, the debt is wiped out in exchange for the property, so the mortgagor (homeowner) owes nothing further to the mortgage company.
However, if there is a second mortgage, which allows the first to buy at the sale, the mortgageor-homeowner would be out of a house and still owe the entire balance on the second mortgage, or home equity loan.
What if the homeowner files chapter 7 bankruptcy, and wants to keep the house?
Any upside to reaffirming a mortgage? On a second mortgage, unless the other side is reducing the balance, interest rates or payments to the advantage of the debtor, I see no upside, and the possible downside explained above, in which the first mortgagee forecloses and the second is still unpaid after the foreclosure sale.
However, on the first mortgage, many of the mortgage companies are not reporting payments on a mortgage that was not reaffirmed. There is no duty for a creditor to report payments to Trans Union, Equifax, Experian or any credit reporting agency. The law requires that whatever they report be accurate, but they are free to report nothing.
So, you can file chapter 7, not reaffirm the mortgage, keep paying, keep the house, no foreclosure, but your credit report shows nothing.
Federal law requires the mortgage company to provide at least annual statements, which you can send to the credit reporting agencies yourself, for inclusion in your record. That is a hastle, and not what creditors are accustomed to seeing. When you try to refinance, the potential new mortgage company wants to see information that is familiar tio it.
If they will report your payments on a reaffirmed mortgage, there is now an upside to reaffirming that mortgage. In light of the overwhelming odds that, if there is a foreclosure after a future default, it will be by publication, and the mortgage company will bid the amount due, and there will be no deficiency balance owed by the mortgagor-homeowner, there is virtually no downside to reaffirming a first mortgage.
So, reluctant as I am to sign any reaffirmation agreements, I will do so in these limited circumstances.
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