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BK 7 and the house.


willingtocope
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Ok, so just in case you missed it. BK7 in March 2004, discharged May 2004. First and third mortgage to same lender IIB. Bank sold 3rd, we lived in the house without making payments until August 2005. Did a deal with the bank that said they'd give us like $3000 to move out of the house in August...let them inspect it before we got the money. Okay...did that, got the $3 grand, moved. Bank gave the house to Fanny Mae who sold it.

Now...fast forward a year. Denied credit for a car loan. Pull CRs. House is listed as "late payments" for every month between March 2004 and September 2005. Obviously, that isn't correct (they can't report negative anything post BK), but, if I stand up and complain, they'll probaby change it to IIB.

So...the question is...FICO wise, am I better off to let crabby dogs lie, or should I dispute?

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So you're saying that if you list your mortgage in your BK ,they can't report it as foreclosed? I thought the foreclosure was a different animal altogether. I know they can't come after any deficiency if you file BK, but isn't the foreclosure actually a method for retrieving the property itself?

I'm currently in a lawsuit with Ameriquest over this very thing. They are foreclosing (05/06) after my BK (discharged 02/06) while in the process of working through the deed-in-lieu-of-foreclosure (since 03/06).:confused:

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  • 1 month later...

I have a Ch7 Bk that was discharged 8/05 and was current on my mortgage (still am current). If I purchase another house, and simply "throw the keys" to my old mortgage company, this will not in some way haunt me on my credit reports in the future? I did not do a reaffirmation on the mortagage, btw.

I am thinking of just turning the property over to the mortgage company (stinky ol' CitiMortgage) because it has a current market value of $72,000+/- and I owe about $72,000 on it. No way to sell and pay the realtor fees and such without a really generous buyer or digging deep in our pockets.

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By continuing to pay on it after discharge, you may have inadvertantly reaffirmed the mortgage. I think if you handed over the deed to them, you'd probably be considered in default and have a foreclosure listed against you. I'd have to do some more digging on this, but I'm pretty sure that's how it would shake out.

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By continuing to pay on it after discharge, you may have inadvertantly reaffirmed the mortgage.

I'm not absolutely certain, but I don't think that's the case. I think in order to reaffirm ANY debt from BK, you actually have to have the court agree (or actually, not disagree) and you actually have to sign a reaffirmation statement.

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I checked into it. Real property with a mortgage interest is a bit different when it comes to bankruptcy-7/13. It's one of the few debts that a creditor can actually have the automatic stay lifted and foreclose even while the bankruptcy-7 case is going on. In a bankruptcy-13 they can't get around the stay if the mortgage is included in the re-payment plan. The mortgage survives BK-13s even if not repayed in full as the plan only covers paying enough to cover current payments and adding on enough to get current.

"in a chapter 7 case, as soon as the bankruptcy case is closed, the automatic stay terminates, and the creditor can proceed with foreclosure or repossession [on secured property] if the debtor is behind on the payments." (American bakruptcy Institute, QA)

Further, bankruptcy only covers debts incurred before the filing. So if they foreclose after the discharge the costs associated are new debt incurred after the bankruptcy and subject to deficiency. Redemption is limited to personal property uder section 722 of the bankruptcy code and the new changes to the law still do not allow cramdown for debts on homes. So you can never owe less on a mortgage than the real balance despite any BK filing.

So the answer appears to be that they can still foreclose and can still get you for the deficiency balance.

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Methuss: I just read the FAQs on the ABI site and got a slightly different impression.

Yes, for a secured loan like a mortgage, when the BK is discharged, the creditor is free to foreclose...or not...their choice.

However...regardless of whether the loan is secured or not...all debtor obligations are discharged in the BK. The only way a debt can survive the BK is if the debtor reaffirms the debt...and files papers with the BK court to that affect. It is NOT automatic.

If the debt isn't reaffirmed, the creditor can choose to continue to accept payments and allow the debtor to continue to live in the property....but...all obligation on the part of the debtor is discharge. If the debtor later defaults, the creditor can then foreclose...but the debtor has no further obligation.

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The mortgage situation is dealt with in the bankruptcy. There is either a signed (and approved by the court) reaffirmation agreement to continue the mortgage obligation or there isn't.

No formal reaffirmation agreement = no post-bk mortgage obligation/responsibility

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Yes, that's been my experience as well. The debt is dishcarged, period. They can, and will, foreclose if you walk away, but they can't come after you for the deficiency. The foreclosure, however, is lengthy and in essence will "start over" your bankruptcy date. Not technically, of course; your discharge date is the magic number when it comes to getting another mortgage. However, if you have a foreclosure AFTER the BK, most, if not all lenders will look at the foreclosure date as your magic number so you lose whatever time you have between the BK and the foreclosure.

For instance, let's say your BK is dishcarged June 1, 2006. Your ability to get a mortgage and the interest rate you receive will be partially based on how far you are from that date and what you've done with your credit since. But if you have a foreclosure December 1, 2006, you lose the six months, because most lenders will use the date since foreclosure, not BK. Plus, a foreclosure is MUCH WORSE for getting a mortgage later, especially if it's after the BK. If you reaffirm the house, or just keep paying for it, mortgage lenders will see that even though you filed BK, you still paid your mortgage.

Talk to your lender about a deed-in-lieu-of-foreclosure. This still allows you to walk away and the lender doesn't have the go through the foreclosure proceedings to get the house back. You just sign the deed over to them. Beware though, some lenders will file a foreclosure anyway, then withdraw the filing once the deed-in-lieu is finished.

Each lender has specific stipulations before they'll accept a deed-in-lieu. Ameriquest required that the house be listed on MLS for six months, two years tax returns, payroll verification, etc. You pretty much have to "unqualify" yourself for the mortgage. If you still qualify to make the payments, they might not accept the deed-in-lieu. Again, they won't be able to get money from you, but a foreclosure will TRASH your credit.

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You guys are forgetting about the old "ride-through" loophole.

Ride-through on a mortgage is when the debtor includes it in their bk but continues paying the bill and keeps it current. Under this circumstance, there is no default and the lender has no cause to foreclose, even after the case is closed. If the debtor becomes delinquent after the case closed and there was ride-through, they can foreclose on the property as if the bk never occurred, take the property back, and since the foreclosure expenses occurred after the bk case is closed, those costs are a new obligation against the debtor (The cost of the foreclosure did not exist prior to the bk filing). A debtor may be able to escape liability on any deficiency between the sale price of the house and what they owed (I've found both sides of this explained), but the legal fees and court costs are all new debt.

Just to be clear on the subject here's some case-law desription:

HELD: BAPCPA ELIMINATES “RIDE-THROUGH” OPTION

§ 521(d), § 521(a)(2)(A)-©, § 521(a)(6), § 524©, § 362(h)

Under BAPCPA if the debtor fails to timely file statement of intentions within 30 days of the petition date or in the case of a purchase-money-security interest enter into a reaffirmation agreement and perform the intentions within 45 days of the first meeting of creditors, the automatic stay is terminated with respect to the property affected. Thus the debtor's right to “ride-through” (retain the property and keep the payments current but discharge the liability) is no longer provided for in the Bankruptcy Code.

So if you discharged under the old law, you probably have an out. If you filed under the new law, it is an absolute no-way...you're still liable. Even under the old code, you are still laible for new debt incurred after the case is discharged (the foreclosure costs).

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I filed on my house and didn't reaffirm, didn't stay in the house, and didn't stay current. Based on that, the foreclosure costs are part of the BK, right?

Correct. Because you surrendered the property in bk, there is no liability under either the old or new rules.

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Methuss: You got me worried, so I did some more research.

First, before the BK reform in 2005, the whole "ride-through" thingy was a bit inconclusive. It appears that 4 out of the 9 (?) circut courts decided one way and the other went the other. The question seemed to be whether or not ride-though meant the mortage HAD to be reaffirmed in order to survive BK. In some instance, the creditor used it to their advantage...in some, the debtor. BUT...in all cases, the debtor's obligation to the mortage was discharged by the BK. Continuing to make payments DID NOT obligate the debtor to any "shortfall".

Post 2005 BK reform, the situation is even less clear. The new BK law seems to have been intended to stop ride-though completely. Whether it worked or not is still being decided. (There's even a judge who wrote a Dr.Suess poem about it). BUT...again...there doesn't seem to be anything that says a debtor's is automatically obligated to dealing with any shortfall post BK.

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You guys are forgetting about the old "ride-through" loophole.

Ride-through on a mortgage is when the debtor includes it in their bk but continues paying the bill and keeps it current. Under this circumstance, there is no default and the lender has no cause to foreclose, even after the case is closed. If the debtor becomes delinquent after the case closed and there was ride-through, they can foreclose on the property as if the bk never occurred, take the property back, and since the foreclosure expenses occurred after the bk case is closed, those costs are a new obligation against the debtor (The cost of the foreclosure did not exist prior to the bk filing). A debtor may be able to escape liability on any deficiency between the sale price of the house and what they owed (I've found both sides of this explained), but the legal fees and court costs are all new debt.

Just to be clear on the subject here's some case-law desription:

HELD: BAPCPA ELIMINATES “RIDE-THROUGH” OPTION

§ 521(d), § 521(a)(2)(A)-©, § 521(a)(6), § 524©, § 362(h)

Under BAPCPA if the debtor fails to timely file statement of intentions within 30 days of the petition date or in the case of a purchase-money-security interest enter into a reaffirmation agreement and perform the intentions within 45 days of the first meeting of creditors, the automatic stay is terminated with respect to the property affected. Thus the debtor's right to “ride-through” (retain the property and keep the payments current but discharge the liability) is no longer provided for in the Bankruptcy Code.

So if you discharged under the old law, you probably have an out. If you filed under the new law, it is an absolute no-way...you're still liable. Even under the old code, you are still laible for new debt incurred after the case is discharged (the foreclosure costs).

Do you have any case "law" on this for the foreclosure costs following the debtor in the absence of any new agreement between the creditor and the debtor?

It was my understanding that the obligation of the mortgage (which would include any extra "costs") is extinguished by the bk and that the only recourse for the creditor is to recover against the property.

The reason that I phrase it that way is that the mortgage debt obligation comes directly from the note that was signed when I bought the house, and that note specifies what costs are my obligation and what are not. Shouldn't any obligation on my part to the debt created and owed based on the original note be what was extinguished with my Chapter 7 discharge? Doesn't that leave the note as signifying/showing nothing more than who holds a lein against the property since there is no debt owed by me based on the note?

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