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If home is already discharged in Chapter 7 does mortgage company even have to foreclose?

Mount Morris, MI |

Does keeping the payments on time and the insurance and property taxes (complete escrow requirements) keep the ownership of the home in your name and does it get reported to credit bureaus. Also if you decide you want to move a couple years after having stayed in the home and making payments in a chapter 7, what do you have to do other than contact the mortgage company or loan servicer? Can they charge you for anything if you pay and then move later. Can you re-affirm atfer the discharge? How long do you have to move after the discharge? Can they take your home if you stay current after chapter 7 discharge? Will the companies you pay your payments to report good credit to credit bureaus? If you reaffirmed your vehicle does the credit union have to report your good payment history?

Attorney Answers 3


  1. In a chapter 7, only your personal liability to pay back the home loan (i.e., your obligations under the note) gets discharged. If your chapter 7 case is closed, then you are the owner of the property, but the property is subject to the mortgage company's lien.The chapter 7 does not affect the lien that the bank has on your property (the mortgage creates the lien). This means that if you stop paying your mortgage, the mortgage company can foreclose in order to collect the money it lent you, but it can't sue you for the money because the bankruptcy discharged that obligation.
    If you are current on all the payments you owe to the mortgage company, then it cannot foreclose. Mortgage companies usually don't report your payments after bankruptcy to the credit reporting agencies because you don't owe a debt to them - technically, you're only paying them to keep them from foreclosing, not because you have a legal obligation to. If you want to move out of your house and there is no equity or no reason to sell it, then yes, you should be able to do a "walk-away" and the mortgage company can't come after you for any money that is still owed on the loan after it forecloses & sells the property. If you find yourself wanting to move and there's no equity, it might be better to contact the mortgage company and see if they'll pay you some money if you just sign the deed over to them and save them the expense for foreclosing.


  2. The Deed determiens ownership. You cannot reaffirm after discharge. If you did not reaffirm the bank will not report to the creit bureaus. If the note was dischrged they cannot charge you for anything but they will foreclose and send you a bunch of paperwork that you should keep. Stay in the house till they throw you out as you are stillon the Deed. If you reaffirm the debt and make timely payment they will report the good information (and the bad).

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    Disclaimer: This answer does not constitute legal advice. I am admitted in the States of New York, New Jersey and Massachusetts only and make no attempt to opine on matters of law that are not relevant to those three States. This advice is based on general principles of law that may or may not relate to your specific situation. Facts and laws change and these possible changes will affect the advice provided here. Consult an attorney in your locale before you act on any of this advice. You should not rely on this advice alone and nothing in these communications creates an attorney client relationship. The opinions expressed herein are those of the author only and the fact that he has worked as an Assistant District Attorney; State Supreme Court Clerk; Special Assistant United States Attorney (Hawaii); Assistant Cornell University Counsel or Judge Advocate, United States Marine Corps should not be relied upon to assume that these statements reflect the policy of these organizations.


  3. Your home is not discharged of the debt. You are. The lien against the home for the payment of the mortgage debt survives the bankruptcy discharge. Keeping payments on time does not guarantee that the mortgage company will not foreclose on the home thus depriving you of ownership of the home. Payment of the property taxes will prevent the county from forefeiting the property for unpaid taxes and may encourage the mortgage to allow you retain the home in the form of a non-recourse loan if you likewise maintain the insurance and payments. A non-recourse loan means that they have no recourse against you in the future if you should not pay as your individual liability for the debt was discharged in bankruptcy. Recourse for the payment of the mortgage debt is available only against the home for its value. Therefore you can move away after a couple of years without responsiblity for the unpaid balance. You may wish to contact the mortgage company or servicer as a matter of courtesy. You have no obligation to do so. They cannot charge you anything. You cannot reaffirm a debt after discharge. Your discharge does not dictate when you should move. Once you fail to make payment after a period of time within the business judgement the motgagee may decide under state law to foreclose. In Michigan the mortgagee can only forelclose after they initially send you a letter offering you an oppurtunity to negotiate a loan modification. If you affirmatively respond to the letter within 2 weeks they cannot foreclose for 90 days. If you fail to respond they are compelled to post notification of the foreclosure sale of your home for four consecutive weeks in the legal newspaper and post notice of the sale on your property in a conspicuous place on your property (usually the front door) They do not have to mail you the notice nor personally hand it to you to be valid. The sale is held in the civil division of the sheriff's department. The sheriff's deed will be held back from the purchaser for usually 6 months pending your right to redeem the mortgage for the full payment of the mortgage debt. If you vacate the property it may reduced to 1 month. Under certain circumstances the redemption period may be one year. Nothing requires a mortage company to report any credit reference at all. After all a credit report is only like a newspaper reporting what other entities tell them. False information is forbidden only. Usually unless there is a recourse loan the successful payment history most likely will not be reported. Nothing again requires the credit union to report successful payments. Most likely they will if there is a reaffirmation. Most likely not if there is no reaffirmation.

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