11 Jun Reaffirming a Home Loan
Brett wrote a great post about not reaffirming a mortgage in a bankruptcy proceeding. Heâ€™s right â€“ 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 donâ€™t pay the mortgage, the house is foreclosed upon and there isnâ€™t enough money received from the home to pay off the loan.
A non-recourse loan, on the other hand, means that the lender canâ€™t collect any money from the borrower if, after a default, the house doesnâ€™t pay off the loan.
So, as Brett said, donâ€™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 doesnâ€™t make any difference to the lender to have such a loan re-affirmed since they canâ€™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 donâ€™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
Latest posts by Douglas Jacobs, Esq. (see all)
- STUFF YOU KEEP IN BANKRUPTCY - January 31, 2016
- Bankruptcy And The Elderly - April 11, 2014
- Four Steps to a Successful Chapter 7 bankruptcy - March 11, 2014
- Thinking About Filing Bankruptcy? Now Might be the Right Time. - February 11, 2014
- The Debt and the Lien: Two Completely Different Problems - January 11, 2014