Reaffirming a Mortgage: The Latest trap in the Reaffirmation World

03 Aug Reaffirming a Mortgage: The Latest trap in the Reaffirmation World

Do you need to reaffirm your mortgage in a bankruptcy? It probably depends on State law. In Connecticut, for example, you don’t. See Gene Melcione’s post and the more technical discussion by Jay Fleischman.

Generally, when you don’t reaffirm the mortgage, the secured creditor is left to State remedies. That can mean foreclosure if your payments aren’t made. Usually, however, they can’t do anything if you keep current on the mortgage.

But mortgage companies don’t like that. They want you to commit yourself to the loan in spite of your bankruptcy and in spite of the fact that you are making your payments. In that way, their remedies are greater should you default. For example, if you don’t pay a second mortgage or line of credit, you can be personally liable for any deficiency even if you wouldn’t have been liable for the first mortgage.

The latest attempt to persuade you to sign a reaffirmation agreement on your mortgage is to refuse to update a credit report if you don’t sign. Thus, your credit report continues to show that your mortgage is in bankruptcy even if you are current and even after the bankruptcy is finished! This can negatively affect your credit score and your attempts to rebuild your credit.

Can they do this?Apparently.

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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.
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