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Reaffirming A Mortgage

Can I Reaffirm My Mortgage In Bankruptcy?

We receive this question very frequently, and the general answer is no.  Generally, California Law provides there is no personal liability on mortgages in California except in limited cases.  As a result, reaffirming a mortgage or reaffirmation of mortgage continues to add no personal liability.  Thus there is no benefit to the creditor in reaffirming a mortgage.  Yet many creditors insist on mortgage reaffirmation agreements for internal policy reasons, such as to continue to send billing statements.  You should only reaffirm a mortgage if it will not create any new liability.

Bankruptcy removes personal liabilities, not liens.

Bankruptcy removes personal liabilities, not liens. There is a difference between “In Rem” liability (Deed of Trust creates lien against the house, i.e., if the mortgage isn’t paid the house will be sold at foreclosure) and “In Personam” personal liability (your personal obligation to pay the debt.)  A Chapter 7 bankruptcy discharge eliminates your “In Personam” liability; it does not change the “In Rem” liability. But since there is usually no personal liability for mortgage under California Law, the discharge has little impact.  Notwithstanding, the lien remains despite the Bankruptcy.

Nevertheless, mortgage credit reporting usually changes after Bankruptcy.  Technically, mortgage companies legally can not report mortgage balances or payments received on credit reports after a bankruptcy discharge. The credit report is a report of debt you personally owe due to METRO II guidelines.  These guidelines require $0.00 balances to be reported on claims after discharge.  Notwithstanding, the lien still remains.  But again, the lien is not your personal obligation, but an obligation on the house.  The same happens when a car is not reaffirmed.  Even though you might be continuing the payments, the credit report will show a $0.00 balance since you personally no longer owe the debt.

In fact, there is case law holding that reporting late payments on a discharged mortgage to a credit bureau is a violation of a debtor’s discharge, since such tactics are viewed as coercive efforts to force a debtor to pay and collect on a previously discharged debt.  Accordingly, since a mortgage company can also get sued for reporting delinquent post petition payments, mortgage companies generally comply with the law in not reporting any information.

Credit Reporting Laws

One of the key facts of the credit reporting laws is that creditors can only report accurate information. They are not, however, required to report all accurate information; they can instead chose to remain silent. It may possible, nonetheless, to still get your payment history included in your credit report as follows:

  1. Request a payment history from the mortgage company. (The mortgage company is required by law to provide one every year free of charge.)
  2. Then file a dispute with the three credit bureaus, attaching a copy of the payment history.
  3. The credit bureau is required to verify the accuracy of the debt with the mortgage company within 30 days.
  4. At that point, the mortgage company can either:
    1. Remain silent and then the credit bureau must accept the information provided by the client; or
    2. Respond that the debt was discharged and a $0.00 balance remains.
  5. You will need to repeat this process on a regular basis, as credit reports are constantly changing with new information, many times monthly.
  6. Additionally, you should keep the payment history, since that can be provided to anyone you’re applying to for new credit, as an alternate means of proof of prompt mortgage payments.

This process, while a headache, at least gives you a route to accomplish your goals. Additionally, for refinancing purposes, the payment history itself is often sufficient instead of the credit report at all.

If your end goal is to refinance, please contact Attorney Steve Doan at our firm.  He is a Real Estate Broker and former Bankruptcy Attorney and most qualified in the nuances of real estate financing and former bankruptcies.

Written by Michael G. Doan

Owner of the Oceanside Bankruptcy Attorney office, Michael not only manages his business, but is also a highly skilled San Diego Bankruptcy Attorney with over 20 years of experience. He specializes in many fields, such as: insolvency, bankruptcy, consumer rights, debt negotiation, creditor collection abuse, estate planning, contracts, real estate, and tax. Michael is currently concentrating his practice solely in Bankruptcy Law and is a Board Certified Specialist in Consumer Bankruptcy Law by the American Board of Certification, one of only fourteen such attorneys in all of California. Mr. Doan also practices on the cutting edge of bankruptcy law, and was the first attorney in the entire Southern District of California to file the very first Chapter 7 Bankruptcy and very first Chapter 13 Bankruptcy under the new Bankruptcy Laws which went into effect on October 17, 2005.