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Is accepting a modified mortgage loan considered reaffirmation of the loan?

Sacramento, CA |

My mortgages were discharged from a recent chapter 7 bankruptcy. After months of battling with my lender, they finally offered me a permanent loan modification where the terms were changed to a lower interest rate and a shorter term. All the unpaid balances were added to the loan, dramatically increasing the principal balance. I have no intention of reaffirming the loan, just making a loan modification. I want to keep the loan for now because the payment is better than a rental.

I only have a week to make a decision, so I came up with the questions below. I hope I can get some expert advice before then:

1) By signing and submitting the offer, does it mean I'm accepting a new contract and reaffirming my debt?
2) If I accept it and default again in the future, can the lender come after me if I walk away?
3) Does the Mortgage Debt Forgiveness Act apply to this loan modification?

Attorney Answers 3

  1. First of all, you can't reaffirm a debt after discharge, so that matter is moot. To the best of my knowledge, a loan modification is just that: a modification of an existing loan. It is not the creating of a new loan (such as a refinance would be). Thus, it should not affect the discharge of the debt, and you should be able to default later without any further financial obligation (although obviously they could foreclose on their lien).

    Mark J. Markus, Attorney at Law
    Handling exclusively bankruptcy law cases in California since 1991.
    bankruptcy blog:
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    Legal disclaimer: Mark J. Markus practices law in California only. The information is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation. Answering this question does not in any way constitute legal representation.

  2. 1. No, it is just a loan modification and not a new contract.

    2. Yes, the lender can declare a default in the future.

    3. Yes. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief under the Mortgage Foregiveness Debt Relief Act. See:,,id=179414,00.html

    The information presented here is general in nature and is not intended, nor should be construed, as legal advice. This posting does not create any attorney-client relationship with the author (who is only admitted to practice law in the State of California). For specific advice about your particular situation, consult your own attorney.

  3.  When a lender makes a loan modification, they are simply changing the terms of an existing loan. It does not create a new contract or reaffirm your debt. If you stop paying the mortgage, then the lender retains the right to foreclose on you. Whether they can come after you to collect any money depends a lot on the modified loan that you have but generally, California is a one-action state. This means that a lender that forecloses cannot also sue you later to collect money. They only get to take one action against you-- the foreclosure. If this home is your primary residence, the mortgage debt forgiveness act does apply.