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Dear Bankruptcy Adviser,
I stated that I wanted to reaffirm my mortgage in court before my case was discharged, but now the mortgage company
says they did not receive my agreement and I do not have a reaffirmation with them. I pay my payment timely, and if
I do not have an agreement, what liability/status do I have? The only answer I can get from the company is "continue
to pay and you can continue to live there." Do I have a legal obligation to stay, or can I move and not be charged
with foreclosure?
-- Lue
Dear Lue,
I am very glad to hear that you did not reaffirm your mortgage loan. The potentially negative consequences would far
outweigh the benefits. While you can keep your home and continue to make payments, you can also walk away if making
the mortgage payments becomes impossible.
I know people might be upset with anyone suggesting that you ought to walk away from your legal
obligations. However, there is nothing normal about what is occurring in our society. The housing meltdown has resulted
in unforeseen and unmanageable consequences. And you should never feel obligated to achieve the impossible -- make
your mortgage payment at the cost of food on your table.
Let me explain your situation for others to better understand:
A reaffirmation agreement is an agreement by a Chapter 7 filer (i.e., you) to keep the terms and
conditions of a contract that otherwise would have been eliminated in the bankruptcy proceeding. Many filers decide
to reaffirm their house and cars, thus continuing with payments while keeping the property.
The purpose of the agreement is two-fold: (1) Some creditors interpret the bankruptcy code to require
reaffirmations so that the filer can keep the property; (2) The creditor will start sending statements again and report
future payments to the credit bureaus. This usually allows you to rebuild credit more quickly post-bankruptcy.
In general, home mortgage lenders do not require you to reaffirm mortgage loans. That does not mean that
the mortgage balance is eliminated in your bankruptcy, thus paying your house in full. That is wishful thinking. However,
in most states, like in California, failing to execute a reaffirmation agreement on your home mortgage means that you
can walk away at any time and not be liable for the remaining mortgage balance (aka deficiency balance).
Please make sure to keep your property insurance current if you decide to walk away. Do not compound
the foreclosure with potential nondischargeable liability from some random accident that could occur on your property
between the time you walk away and when the bank officially takes back ownership.
Going forward, adhere to the terms of the original agreement that existed prior to the bankruptcy. As
long as you continue to make your payments, the mortgage lender cannot force you from your home.
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