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Mortgages and Bankruptcy credit reporting after a Bankruptcy should you sign a reafermation agreeme by Paul Belanger Benson
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Mortgages and Bankruptcy credit reporting after a Bankruptcy should you sign a reafermation agreeme |
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I have seen many questions regarding mortgages and bankruptcy and credit reporting.I thoughtI'd give some legal background to provide more understanding to those who have questions, and help to clarify. A mortgage is actually made up of two different legal documents that you sign when you get the mortgage. One is the Mortgage or Deed of Trust as it's known in some states, and one is the Note. Each document has language in it that says it is to be read and works in conjunction with the other. Each document has different legal effects to the creditor and consequences to you, the borrower. The Mortgage or Deed of Trust is the document giving the mortgage company the right to foreclose on your home if you default in any way under the Mortgage or Note, because it contains language securing the loan they give you mortgage against your home, so that if you don't pay the loan back to them pursuant to the terms of the Mortgage and Note, they can take your home because of your default. The Note is your personal promise to repay the loan. Signing the Note renders you personally, legally responsible to pay the loan back to the mortgage company pursuant to the terms of the Mortgage and Note. If you default and stop making your payments, or default in another way under these contracts, the mortgage company can foreclose on you under the Mortgage, or sue you under the Note for the total amount owed, or do both foreclose and then sue you for any balance remaining owed after the foreclosure sale. When you file bankruptcy and receive a discharge, the Note is the actual debt relating to the mortgage, and therefore is discharged in the bankruptcy along with the rest of your dischargeable debts. The Mortgage security interest is unaffected. So, if you default on your mortgage, the mortgage company can foreclose, but cannot sue you under the Note for any amount, since the Note has been discharged. This is why mortgage companies will report your mortgage to the bureaus after a bankruptcy discharge as $0 balance owed discharged in bankruptcy. This is legally correct, because the bankruptcy has discharged your personal liability on the Note and responsibility to pay the Note. So, it will continue to report this way, even if you are making your payments. If you have reaffirmed the mortgage, then you are actually reaffirming the Note (your personal legal responsibility to pay), and the mortgage company should then report your correct balance and payment history after your bankruptcy discharge. I personally tell my clients never to do so, as you are reinstating your legal, personal responsibility to pay the Note, and giving the mortgage company the ability to sue you under the Note should a future event happen that causes you to default on your mortgage payments. Once a debt is reaffirmed it can never be discharged. Further, the bankruptcy law doesn't require reaffirmation agreements on mortgages. So, a mortgage company cannot foreclose on you for not signing one (unless there is language in the Mortgage or Note saying otherwise, but I've never seen that). Remember that a bankruptcy discharge doesn't affect the mortgage company's ability to foreclose. So, if you want to keep your home, make sure to keep making your payments. There are instances when a mortgage company may foreclose even if you're current in your mortgage payments, because in some instances the mere act of filing bankruptcy can be seen as a default under the terms of the Note and Mortgage. However, this is rare and I personally have never seen it happen. Paul Benson is an attorney in Utah who practices Bankruptcy his web site is www.paulbensonlaw.com
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