Should I reaffirm my mortgage? This question comes up a lot.
Regarding a person who has not received a discharge in bankruptcy, a mortgage lender has two remedies when the borrower stops paying: 1) it can foreclose on the real estate, or 2) it can sue the borrower for the amounts owing. However, regarding a person who has received a discharge in bankruptcy, a mortgage lender's remedy is limited to foreclosure on the real estate.
In Georgia, as a matter of practice, first mortgage lenders rarely sue the borrower for the amount owing when the borrower stops paying; the mortgage lender forecloses. Also as a matter of practice, second mortgage or home equity line lenders rarely foreclose on the real estate; the second mortgage lender sues. So, after a borrower receives a discharge in bankruptcy, a first mortgage lender can do what it would have done as a matter of practice prior to the bankruptcy: foreclose on the real property. However, after a borrower receives a discharge in bankruptcy, a second mortgage lender cannot do what it would have done as a matter of practice prior to the bankruptcy: sue. In fact, the only way that the second mortgage lender can sue is if the borrower signs a reaffirmation agreement. Therefore, first mortgage lenders typically don't care about getting reaffirmation agreements because the bankruptcy discharge does not prevent them from foreclosing; but second mortgage lenders do. As a result, it is difficult to obtain a reaffirmation agreement from the first mortgage lender; they don't seem to care. And the borrower shouldn't care about signing one. Second mortgage lenders, on the other hand, are eager to have the debtor sign a reaffirmation agreement so that they can sue the borrower if the borrower fails to make the mortgage payment.
Generally, my advice to clients is to not sign reaffirmation agreements on mortgages. First mortgage lenders don't care about them and second mortgage lenders do in order that they can sue the borrower in the event that the borrower stops making payments. I usually advise clients who want to retain their homes to just keep making payments on the first and second mortgages. Doing so does not reestablish the borrower’s personal liability on the mortgage. If a mortgage becomes unaffordable, the borrower can walk away from the home without concern of being sued… ever. The disadvantage is that the lender may no longer send monthly account statements to the borrower, but at the very least, the lender will send an annual statement to the borrower. Another disadvantage is that mortgage payments no longer report to the credit bureaus, but I recommend rebuilding credit in other ways. If no reaffirmation agreements are signed on real property, when the debtor sells the property, the profit goes to the debtor as if they had never filed the bankruptcy.
Reaffirming any debt is an important decision for any person who has filed bankruptcy. Speak with your attorney to decide whether reaffirming a mortgage debt is best for you.
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