If I Don’t Reaffirm My Mortgage Note, Is My House at Risk?

11 May If I Don’t Reaffirm My Mortgage Note, Is My House at Risk?

This past February, my colleague and fellow Bankruptcy Law Network blogger Brian Methner wrote a helpful summary about reaffirming a debt in Chapter 7. What happens, however, if a debt is not reaffirmed?

I recently received an email from a lady named Lisa who lives in Titusville, Florida who reports that she filed a Chapter 7 back in August, 2005. She entered into a reaffirmation agreement with her car lender, but no reaffirmation was ever entered into with her mortgage lender. Now, she says

My mortgage company continues to bill me, but with the bankruptcy disclaimer, saying it’s not an attempt to collect a debt. I’m never late on my payment, but this has me worried. Is there anything the mortgage company can do to me?

As a practical matter, I do not believe that Lisa or her home are at risk – as long as she continues to send in her regular mortgage payment. Although Lisa’s personal liability to pay the mortgage obligation is gone, her property is still subject to a lien in favor of the mortgage lender.

Most mortgage obligations are comprised of two parts. As a borrower, you sign a promissory note whereby you agree to be personally responsible for the monthly installment payment. You also execute a deed to secure debt meaning that as title owner of your house you are pledging the real estate as collateral for the loan.

Subject to any objections, your Chapter 7 discharge serves to eliminate your personal obligation under the promissory note. However, your Chapter 7 discharge does not eliminate the bank’s security interest (or lien) against the real estate.

In Lisa’s case, she did not reaffirm her personal obligation, so her personal liability to pay under the promissory note has been eliminated, or discharged. That is why the mortgage lender bills her with a bankruptcy disclaimer saying that the bill is not an attempt to collect a (discharged) debt.

If Lisa should stop paying the note, the mortgage company could foreclose on the property but Lisa’s personal credit would not be affected. On the other hand, because Lisa has no personal obligation to pay the mortgage note, her payments do not serve to restore her credit.

Does Lisa have any risk? Arguably, when Lisa filed bankruptcy, she triggered a default clause in both the promissory note and the security agreement. In theory, the mortgage lender could declare the note in default and proceed with foreclosure.

In reality, most mortgage lenders would much rather have regular payments than another foreclosed property in their inventory. Further, there is a doctrine in law called “laches” which means that if a party sits on its rights for too long, it may be estopped from enforcing those rights.

As a practical matter, therefore, Lisa’s house is most likely not at risk as long as she makes the payments. At some point in the future, I would advise Lisa to consider refinancing her mortgage so she can gain the significant benefit to rebuilding her credit that would arise from making regular mortgage payments. Refinancing would also eliminate whatever risk does exist that the mortgage company would try to start foreclosure based on the default triggered by the bankruptcy filing.

Finally, I would also note that not every mortgage company will agree to a reaffirmation – some mortgage lenders will not enter into reaffirmation agreements despite a Chapter 7 lawyer’s best efforts to put one in place.

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Jonathan Ginsberg, Esq.

I represent individuals in Chapter 7 and Chapter 13 cases filed in the Northern District of Georgia, which includes Atlanta, Newnan, Gainesville and Rome. I publish several informative web sites, including www.atlanta-bankruptcy-attorney.com and an Atlanta bankruptcy blog, www.thebklawyer.com/thebkblog. Please mention Bankruptcy Law Network when you call.
8 Comments
  • rockwellrock
    Posted at 12:33h, 11 June

    I am in Lisa’s boat in that my mortgage company (WF) told me that the court papers did not show that I reaffirmed my mortgage before discharge in 2003.
    They said you can only reaffirm during an active bankruptcy.
    I have been making payments since then and refinanced in 2004.
    They told me that even though I refinanced , It means nothing and that they will not report that I have been paying on the property, and that does not mean that I renewed a mortgage with them, and they still can take the property.
    When I was in the bankruptcies lawyers office I signed a “Chapter 7 Statement of intent ” which said I was keeping my property, and a “Schedule C-Property Claimed as Exempt” paper.
    I can’t believe there is nothing I can do.

    Thanks

  • trish
    Posted at 20:28h, 31 May

    If my home was not reaffirmed, and paying my monthly payments can at anytime the
    mortgage can take my home.If an when the home is paid off will the home be mine or the mortgage company .If I wanted to buy another home so that my payments are reported, what could I do. Becasue the deed is still in my name. What can I do to get out of this situation. So I can rebuild my credit again and move on.

  • Brian
    Posted at 16:19h, 10 June

    If you don’t reaffirm a mortgage but you continue to make the payments can you still deduct the mortgage interest paid on your tax returns? For that matter will the lender send you the mortgage interest paid statement at the end of the year?

    • Brett Weiss, Maryland Bankruptcy Attorney
      Posted at 16:31h, 17 June

      Yes as to both.

  • myra
    Posted at 19:48h, 14 June

    my husband filed chapter 7 in nys in 2007 and signed an affirmation with the mortgage company. he filed alone.
    I am filing chapter 7 in a few days and my attorney advised me not to sign an affirmation with our mortgage company because we plan on selling the house. our mortgage payments are up to date and have never been late.
    how does this affect me on filing bankrupcy by not signing the affirmation and how does it affect my husband by him signing the affirmation in 2007

  • Jay
    Posted at 16:57h, 17 June

    We went through a ch13 seven years ago and do not recall if I signed a re-affirmation at the time. Our paperwork was destroyed so I don’t know whether we did or not. I had been able to go on to the mortgage companies site since and pay, view, etc. We got behind last year and were able to negotiate a load modification, since then, I cannot see my info because the mortgage holder says I never filed a reaffirmation (which I did not realize until that point). I understand that, but my mortgage does show up on my credit reports, which, as I have ready, should not be there after the BK. I am wondering if this is a mistake on their part and if I should try to do anything about it or just let it lie.

    thx

  • Jay
    Posted at 16:57h, 17 June

    We went through a ch13 seven years ago and do not recall if I signed a re-affirmation at the time. Our paperwork was destroyed so I don’t know whether we did or not. I had been able to go on to the mortgage companies site since and pay, view, etc. We got behind last year and were able to negotiate a load modification, since then, I cannot see my info because the mortgage holder says I never filed a reaffirmation (which I did not realize until that point). I understand that, but my mortgage does show up on my credit reports, which, as I have ready, should not be there after the BK. I am wondering if this is a mistake on their part and if I should try to do anything about it or just let it lie.

    thx