I had a client ask me this last night. Just to be clear: I don’t like signing reaffirmation agreements on mortgages. It means that I am pulling your biggest creditor out of the bankruptcy and agreeing that you’ll still be liable for the debt.
So, let’s say you do not reaffirm:
Cons: 1. the creditor will never give you any positive credit reporting, even if you make all of your payments on time,
2. you will never be able to do a loan modification or refinance with that mortgage company,
3. the mortgage company will never send you statements again, and they may even refuse to talk to you on the phone to give you something as simple as a current balance or a payoff.
Pros: 1. You can walk away. Even if you make payments for the next few years, if things get worse, you can simply walk away from the home. The mortgage company can foreclose its interest and take its collateral back (the home), but they cannot report a foreclosure on your credit and they cannot sue you for any deficient balance after the foreclosure sale. You never reassumed liability on the mortgage because you never signed the reaff.
2. You can still pay off the home and own it one day.
3. You can still (eventually) refinance with a third party lender. (Just go to another bank).
On the other hand, here is what happens if you do reaffirm the mortgage:
Pros: 1. The mortgage company will send you monthly statements again.
2. They will communicate with you and will at least work with you on a loan modification or refinance (there’s no guarantee that you’ll get one, but at least you can try),
3. Your credit will improve because the mortgage company will report your current payments.
Cons: 1. You just re-assumed liability for your biggest creditor. If you default on the mortgage, they can not only foreclose on your property, but they can sue you for the difference.
2. I know that the list of cons doesn’t look large, but the biggest con is that you may one day default and have to pay the mortgage company back.
That’s it. Whether or not you reaffirm, you can keep the home if you stay current on payments, but you may have credit problems if you chose one path, and you may get sued for a default if you take the other.
As for me, I don’t like reaffirming mortgages.
This is not legal advice. If you need help, go to www.robertspaynelaw.com.