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Reaffirming A Mortgage?

By Kurt O'Keefe, Attorney at Law

Reaffirming is the only way to remain liable on a debt that is otherwise dischargeable in a Chapter 7 bankruptcy.

At least in Michigan, signing a reaffirmation agreement is never a good idea, unless the bank is changing the terms to your advantage.

If you keep up the taxes and insurance, and make the payments, the bank cannot foreclose, you keep your home without the risk of being sued if someday you can no longer make the payments.

So, it says here, reaffirming a mortgage is malpractice.

Even if you reaffirm, bankruptcy law allows the debtor 60 days to change his mind.

Just file a rescission of the reaffirmation agreement, you are off the hook, and it is just like you never signed.

This process was added to the law in 1979.

In the bad old days, if a creditor tricked you into paying even one cent on a debt discharged in bankruptcy, that revived the entire debt, just as if you had never filed.

So the reaffirmation process was instituted to protect debtors.

A recent Tennessee case shows some debtors may need protection from their lawyers.

Not only did this attorney have his clients reaffirm a mortgage, he botched the rescission of the agreement, after his clients decided to give up their home.

In re Graham, 430 B.R. 473, (E.D. TN 2010) involved a reaffirmation of a mortgage with a credit union, of a second mortgage, for $27,230.22.

Why this was done, I have no idea.

A second mortgage cannot take your house unless they pay off the first mortgage.

Not likely these days.

Hey, if you like your credit union, and want to send them your money, by all means, have at it.

But you can send any creditor money, without signing a reaffirmation that legally binds you again, and allows the creditor to sue you if you don’t hold up your end of the agreement.

Just to complete the idiocy, the debtors apparently kept their checking and savings accounts at the credit union.

So, after they signed the reaffirmation, but before the creditor got around to filing it with the court, they changed their minds, and filed an amended Statement of Intent that they were surrendering the house.

The bankruptcy court held, that amended form is NOT a rescission, so the credit union can seized the debtors’ accounts, and do whatever else is legal in Tennessee to collect the $27,230.22 they now owe on a house they gave up.

Reaffirming A Mortgage?

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Full post as published by Bankruptcy Law Network on December 08, 2010 (boomark / email).