Reaffirming a Home Loan

by Douglas Jacobs, Esq.

June 11, 2011

Brett wrote a great post about not reaffirming a mortgage in a bankruptcy proceeding.  He’s right – mostly.

There are, generally, two types of mortgage loans: recourse and non-recourse.  A recourse loan is one where the lender can come after the borrower if the loan is not paid and the security is insufficient to retire the debt.  What that means is that the mortgage company can come after you if you don’t pay the mortgage, the house is foreclosed upon and there isn’t enough money received from the home to pay off the loan.

A non-recourse loan, on the other hand, means that the lender can’t collect any money from the borrower if, after a default, the house doesn’t pay off the loan.

So, as Brett said, don’t ever reaffirm a recourse loan because if you do the lender can come after you even though you have filed bankruptcy.

But, there are some situations where my clients want to reaffirm a non-recourse loan.  Although it doesn’t make any difference to the lender to have such a loan re-affirmed since they can’t proceed against the borrower personally anyway after the bankruptcy, many banks are asking to have these signed.

The problem my clients are experiencing is that if they don’t sign a reaffirmation agreement on their mortgage, the lenders are refusing to report payments to the credit reporting companies and therefore my clients get no benefit to their credit score by making those payments!  This is annoying since making regular payments is the fastest and surest way to rebuild your credit.

In some states, like California, almost all loans used to purchase a home are non-recourse, and there can be no personal liability of the borrower.  But your state may differ.  Always best to check with a qualified bankruptcy or real estate attorney in your state.

 

photo credit: David Shankbone

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Douglas Jacobs is a California bankruptcy attorney and partner in the Chico law firm of Jacobs, Anderson, Potter & Chaplin. Since 1988, Mr. Jacobs has taught Constitutional law and Debtor-Creditor/Bankruptcy law at the Cal Northern School of Law. He has served as Dean of Students since 1994. He is a frequent lecturer on the subject of consumer bankruptcy law, and has spoken at both state and national levels.

Last modified: June 11, 2011