fha loan modification after bankruptcy discharge

[lmoods]

we filed bankruptcy and through the advise of attorney we didn't reaffirm. The bankruptcy is discharged. We are struggling to make our payments and are trying to modify our fha loan through pnc. They are telling me that it most likely will be denied unless we reaffirm. To my knowledge since already discharged we cant go back and reaffirm. They said per fha guidines we must. I read mortgagee letter 2008-32 regarding the updates to loss mitigation in bankruptcy but not sure if it applies because we are discharged. any advise would be greatly appreciated.

[sh9730]

Not sure what they are telling you, but I just completed a modification in your same situation. Had an FHA loan, fell behind (so that is a small difference since it sounds like you are still current but...) on payments along with other bills, made last mortgage payment in 1/2011. Finally delcared chapter 7 BK in 4/2011 and did NOT reaffirm. Was in modification process with Chase the entire time my BK was going on but not much happened (all the normal stuff you read about resending documents etc..). BK discahrged in 8/11 and then started getting a little more action on the modification. Finally rec'd "in-house" loan documents and signed them at end of September 2011 with the 1st new payment due 11/1/2011. Rec'd my final countersigned documents on Monday 10/31 and made my 1st payment on 11/1 as required and everything is all good.

SO, you CAN get a mod with an FHA loan, and even though mine was an "in house" modification, I ve read on numerous occassions that even the government programs are allowed for people in BK. Do a Google search for "FHA HAMP" and "bankruptcy" and you should get some hits.

ETA: You are correct you cannot go back and reaffirm now - but thats a GOOD thing. You should be able to get a modification (hopefully) and still get the "benefits" of no personal liability for the loan if you should have trouble keeping up again later. Although you will still get a foreclosure record on your credit if you eventually stop paying.

[Angels]

You do not want to reaffirm a home loan in a BK!! If you do, you are now liable and have no way out. If you do get a loan mod, be certain you can pay for it and allow yourself plenty of cushion in case of financial emergencies (they do happen!) because you are now responsible for that loan and any associated deficiency related to it.

[sh9730]

Angels,

Sorry. You are incorrect. Once the loan is discharged in bankruptcy (assuming the person does NOT reaffirm which is the correct approach), personal liability can never "re-attach". Since the loan is only being MODIFIED, the borrower still has no liability after the modification. My paperwork on my modification says just this in big bold letters - "to the extent this loan was discharged in bankruptcy, this agreement (modification) does not attach personal liability for the debt".

SO, in a way it is the best of both worlds. I still got my modification which I can afford, but if I ever have trouble in the future, I cannot be sued for any defiency (although since Im in a non-recourse state that wasnt going to happen anyway). Of course, as I said, if you do not make payments on the modified loan, you still can be foreclosed upon, and that will show up as a NEW foreclosure on your credit, in addition to the bankruptcy.

But even in recourse states, if the loan was discharged in BK, even if then later "modified", the borrower still has no liability beyond foreclosure.

Just rereading your post, maybe you are saying that IF the OP signs a reaffirmation agreement, then they would be liable. THAT is correct. Sorry if I misread your post!

[lmoods]

thanks. For those who did get modified was it fha or in house through your lender? Also, if you complete the trial period is it automatically finalized? Can they turn around and deny then? If so what happens? I asked my lender this and they told me they never heard of that happening.

[sh9730]

Again, mine was an in house mod from Chase. To be honest, Im not sure if since they did that the loan is still an FHA backed loan or not? Online it used to say "FHA LOAN", but now it just says "see statement" under loan type and I havent RECEIVED a new statement yet. They are still taking Mortgage Insurance at the same rate as it used to be when it was FHA, so maybe it is still FHA? Not sure.

I know it is NOT an FHA HAMP modification though since I never had a trial period to worry about and the paperwork clearly does not say HAMP or anything...

Bout all I can add...sorry.

[mrange25]

It is my understanding with the new bankruptcy laws from 2005 that there are only two options regarding a mortgage: surrender or reaffirm. Since you chose not to reaffirm, you chose to surrender. The mortgage company may or may not agree to some type of modification, but be aware they could proceed with foreclosure at any time even if you are making payments. There is no longer officially a "stay and pay" option.

[mrange25]

I actually believe I read something a while back on this forum from someone who did a stay and pay after a non-reaffirmed bankruptcy and was making payments and then like two years later the bank suddenly sent out a notice of sale. The bank basically came back and said "You filed bk and now we are reclaiming the home, tough luck" It may not be immediate and could take a while, but I wouldn't think you would be in the home 5 years from now if you didn't reaffirm. i filed bk myself and chose to surrender. I was sent out a modificaton packet, but abandoned the idea after I read up on the surrender/reaffirm rules. I saved up about 10 months worth of money after my bankruptcy by not making payments and left the home of my own accord.I'm not a lawyer, and we live in unprecendented economic times though, so they may never foreclose. Who knows.

[Mike Raymond]

It is my understanding with the new bankruptcy laws from 2005 that there are only two options regarding a mortgage: surrender or reaffirm. Since you chose not to reaffirm, you chose to surrender. The mortgage company may or may not agree to some type of modification, but be aware they could proceed with foreclosure at any time even if you are making payments. There is no longer officially a "stay and pay" option.

That may be the case on paper, but it's extremely unlikely that the bank will foreclose if you keep up your payments. The last thing any mortgage holder wants these days is to be stuck with another repossessed property, unless it's an extremely valuable home in a neighborhood in which property values have remained high (if such a thing even exists anymore).

I know many several people who've been through bankruptcies. Some moved out immediately and abandoned their homes. The homes are still standing there abandoned. The banks never even secured them.

Others stayed in their homes but stopped paying years ago, and have yet to be evicted, maybe because the banks realize it's better to have someone there taking care of the home than have it rotting away unattended.

Still others have kept up their payments faithfully. Two people I know have continued paying their first mortgage, but stopped paying the second, realizing the holder of the second mortgage has no means to evict them even if they wanted to, and no recourse if the mortgage has been discharged in the bankruptcy.

So I would say to the homeowner, stop worrying about it and appreciate the fact that your bankruptcy has improved your situation, released you from your debts and opened up new possibilities in your life.

[Angels]

In a BK process you are no longer personally responsible for the debt. Different states, even different jurisdictions within the same state has policies regarding how to handle mortgages and contracts.

The basics are, in a mortgage this is a contract in which the loan holder agrees to pay a certain amount in order to keep the physical property. Pursuing a deficiency is a separate process or action from the loan contract, which is no longer an option for the bank once an individual is discharged from the debt. Sometimes these actions or views appear seamless from the owners perspective when there is no BK discharge. So according to your mortgage contract if you hold up your end (make the payment) the bank is required to hold up its end and give you the property once the payments are complete. This is independent of a BK discharge. If the banks don’t honor their end of the contract this is a breach of contract from which you could legally pursue damages from them. If you breach the contract the bank gets the property in exchange.

[sh9730]

Angels,

I agree with you in real world practice. SOME have said in these instances (mainly when discussing pay and stay situations where the person was NEVER behind on their mortgage), that the filing of BK (and thereby discharging the debt) IS a default of the original contract, and if desired, the bank could then foreclose at any time. Some people worry they will pay for years and then when the market is better, the bank will THEN decide to foreclose when there is some equity rather than take the chance you stop paying at a time when the market is down. In essence people say the homeowner will just be "paying rent" etc.

I completely disagree with that assessment for the reasons you point out.....

Now, it slightly different in my situation (and I believe this poster's) as I WAS in fact behind on my payments when I filed BK and the bank would have had every right to foreclose at that point.

But, since the bank (in my case Chase) made the decision to offer me a modification of my existing loan (by adding the unpaid interest to my balance and extending the loan back out to 30 years), signed it....my view is that unless I now default on the NEW MODIFIED loan, then they have no right to foreclose.

Some disagree. Im not worried.