Mortgage IIB over 7 years ago, fell off report, got modification, mortgage reappars on on credit report?

[doodlebugger]

Argh! I wanted to be out of this house by now, but our particular situation is complicated and we are stuck for the moment. We filed bk7 on this house, stayed and paid. Had a very temporary bump, asked for a mod, was told we had to be late on our payments to qualify. Stopped making payments, but it took them TWO years of non payment to agree to modification. Plus, they started foreclosure proceedings. Finally got through trial mod, started making mod payments, even got a release for the foreclosure. We had a lawyer look at the mod papers, and he said that there is no way they can say we owe this because it was discharged in bk7 over 7 years ago. We can just go back to the original agreement of paying and staying. The mortgage had fallen off this year. Dh gets an alert. We check and we see that they started reporting the mortgage (as a positive) to our credit reports again?!?!?!?!? Is that even legal?

[stroked89coupe]

In the process of the loan mod was it possible that you signed reaffirmmation papers as well?

[BRBiz]

If you continue making payments after BK they can report those payments as such late, current, etc. but should also reflect as IIB.

[doodlebugger]

The reason we took the papers to a lawyer was to ensure that we didn't reaffirm because we don't plan on staying much longer. The lawyer said they would have to go back through the bankruptcy courts to reverse the discharge. It has only showed up on dh's EQ so far and it shows as date opened in 12/2001 (original mortgage), balance date as of 8/2013, and that it
is completely current (even back when we stopped making payments for two years), and that it's a current and valid real estate account. Once the mortgage was discharged, and after the 7 years is up, they cannot keep reporting is what I have always been told. The mortgage fell off and stayed off until after the modification. Even the paperwork with the modification said this was an attempt to collect a debt, but if the debt had been discharged in bankruptcy, they would only take action against the property. It's a long and complicated story, but we were pre-approved by USDA to purchase another house, but that was before this entry showed up on dh's credit report. I don't know how they will see this now because it shows as a current and valid mortgage.......

[road2freedom]

If you continue making payments after BK they can report those payments as such late, current, etc. but should also reflect as IIB.

 

They can't report any negative activity post-BK. They could report positively, but most don't because it's a matter of turning CRA reporting on/off in their system and they don't want to risk reporting negatively.

 

OP, it's my understanding that a modification could constitute a new payment agreement. I can't tell you if that actually happened or not, but you may want to get an attorney involved again. If it shows as a current mortgage that could wreak havoc on your DTI calculations and I'm not sure how that affects your USDA eligibility in general.

[stroked89coupe]

The same reason why mine stopped reporting.

[Bitbit]

Our mod papers specifically stated that if the original loan was discharged in BK that this modification would not affect the discharge. Blah Blah Blah'd some more, but was very clear that if you wer "off the hook" because of BK, you would still be "off the hook" for the modified loan.

[stroked89coupe]

Is the lender reporting accurately/Positively? If so there is nothing you can do about it. Their communication(statements ect) should say something to the affect of this is not an attempt to collect a debt but for informational purposes only. If they don't then technically they are trying to collect a debt. Which is technically illegal. But if that's all the issues you are having, then I'm 99 percent sure you have no legal recourse and no real reason to be upset.

 

 

If they report any negative information if for any reason you were to stop paying on the property, then in that case the situation would be a lot different.

 

 

 

Be sure to keep all of the paperwork from your loan mod stating this in case of any issues down the road.

Edited September 4, 2013 by stroked89coupe

[doodlebugger]

They are reporting positively, but that is not the point. This was IIB, fell off, and should still be IIB according to our lawyer and the paperwork. The modification doesn't change anything according to our lawyer, according to PNC reps, etc as far as the IIB. The paperwork said they know that it was IIB and that the new agreement only allowed them to take action against the property. So, why they would report positively and retro everything else as positive is beyond my comprehension. The issue I have is that we are not going to stay in the house, and are trying to get out, but that this is going to affect our future mortgage.......guess I need to go back and see a lawyer? Or, should we just dispute that this was IIB and outdated? Ugh.

[road2freedom]

Even if you dispute it and successfully get it removed, as soon as you stop paying it will likely happen all over again. You'll either need to be prepared to dispute it again or go ahead and get an attorney involved now and keep their number handy for when you walk.

 

I assume the more immediate issue is that this is showing up to prospective lenders and they will want to know your intentions for the property and likely include it as a debt when you attempt to qualify.

[doodlebugger]

Heard from our lender today. They had to pull dh's credit again since we haven't found a new house. They saw this entry and they are having a real estate attorney look at it who has a massive amount of experience with these kinds of things. They are telling us that it's looking like the modification is superseding the BK7 discharge - is that even possible? How can that happen? He basically told us not to stop paying right now because it's going to hurt our credit. Waiting to hear whether they confirm this about the mod. I sure hope that it doesn't supersede the BK7 because that means that we basically in a round about way reaffirmed our mortgage which is what we were told by several people, including our own lawyer that was not what the modification's purpose was. Ugh!!!

[jmw1212]

I PM'd you about this, but my papers say the same, So I will be calling my lawyer too. I am so confused as I was also told that the loan mod was just that and not a reaffirmation. The reaffirmation had to be done through the courts and approved by the bk judge. Once you are discharged from the debt, there is no way for them to collect in an event of a default on that same debt. You are basically paying and staying. I sure hope I am wrong though. I will let you know what my lawyer says Monday.

[jmw1212]

Ok just found our answer I hope: "In a case where the debtor did not reaffirm their mortgage in bankruptcy but then enters into a modificationafter bankruptcy. That modification does not reaffirm the debt. The debt was forever discharged in the bankruptcy under code section is 11 USC 524. The lender cannot get the debtor to once again take any personal liability on the mortgage by entering in a modification after bankruptcy when it was already discharged.

What the bank is modifying is the bank’s lien rights to foreclose. There is no personal liability being modified and being forced upon the debtor since the debtor discharged the mortgage in bankruptcy when they did not reaffirm it. This is true whether the debtor modifies the loan after bankruptcy or not."

[jmw1212]

a few more: "A loan reaffirmation of any type must be approved by the bankruptcy judge. You would have to petition the court, and the judge would have to sign off on it."

"Yes do not let the bank confuse you by stating this will reaffirm the debt, a loan modification can NOT reaffirm a debt discharged through bk."

 

Well found more info here:

http://www.loansafe.org/forum/ask-attorneys/51400-does-modification-automatically-reaffirm-mortgage-discharged-ch-7-a.html

Edited October 12, 2013 by jmw1212

[jmw1212]

Guess we need to just call our lawyer because the internet has so much conflictions. See here, (all lawyers): http://www.lawqa.com/qa/if-i-enter-into-loan-modification-on-my-house-after-chapter-7-bankruptcy-this-equivalent-to-reaffirming-mortgage

[jmw1212]

This I think explains it the best:) I think we are good to go Doodle:)

 

"A loan modification does not re-establish liability on the loan. While the terms of the loan might change, the loan is not being refinanced. Refinancing the property into a completely new loan would re-establish liability, but not a loan modification. This is an important distinction."

Read more: http://www.bankrate.com/finance/mortgages/will-loan-modification-reaffirm-mortgage.aspx#ixzz2hTf4atwG
Follow us: @Bankrate on Twitter | Bankrate on Facebook

[jmw1212]

Here is the whole post:

 

"Dear Bankruptcy Adviser,

My client recently filed bankruptcy and has since been offered a loan modification from his lender. As I understand, the mortgage company does not have a legal right to pursue the client for the debt. But my question is: What happens if the borrower ever needs to transition out of the home if it is sold or transferred? If he accepts the modification, is he still responsible for the debt owed, and does the total amount become due at the sale or transfer date? Can he still claim the interest on the mortgage on his income taxes?
-- Tiffany

Dear Tiffany,
You ask a lot of good questions, Tiffany. Many homeowners face this decision post-bankruptcy: Keep the home or walk away. While I can't give an answer that absolutely covers all 50 states, this would apply to a majority of cases.

You are correct that the lender cannot sue your client for any unpaid balance in the event your client does walk away from the house. If your client stops making mortgage payments, the lender can only foreclose on the property after the bankruptcy case is over. However, the bankruptcy does not constitute a default allowing the lender to take the house when the homeowner is current on the payments.

Your client is also afforded all the same benefits of homeownership. He or she can write off the interest and property taxes and can access equity in the property. He or she can also sell or transfer the house to family, friends or a third party.

You can also work on a loan modification with your client. It appears to me that lenders are approving more loan modifications now than ever before. Let's hope that is the case for your client.

A loan modification does not re-establish liability on the loan. While the terms of the loan might change, the loan is not being refinanced. Refinancing the property into a completely new loan would re-establish liability, but not a loan modification. This is an important distinction.

Recently, some clients are telling me that lenders will not work on a loan modification unless the homeowner reaffirmed the loan during the bankruptcy. A reaffirmation agreement is a legally enforceable contract filed with the bankruptcy court that states your promise to repay all or a portion of a debt that may otherwise have been subject to discharge in your bankruptcy case.

Depending on what state your client lives in, this could be a very risky decision. Your client could reaffirm a loan that was otherwise discharged in bankruptcy, thereby re-establishing that eliminated liability. If your client lives in a state in which the lender can pursue a homeowner post-foreclosure for a deficiency balance, reaffirming the loan could be a horrible decision.

I think that will be the key to helping your client: whether reaffirming the loan will result in liability that was otherwise wiped out in bankruptcy. Once you confirm that information, your client can make an informed decision.

Good luck!

[doodlebugger]

The main issue that our current lender, and some attorneys, from what I am reading and hearing is that it's the language of the modification that is truly what it boils down to. Our modification has NO mention of the loan being IIB or discharged in bk7. That is what concerns me, along with the fact that they made us sign an agreement about no oral agreements will supersede the modification, and the errors and omissions agreement which basically takes away our right to nullify the agreement even if they made mistakes (at least that is the way I read it). I sent you a PM, but we are waiting on our lender's real estate attorney to look it over and come back with some answers next week. So frustrating!!!

[road2freedom]

The way I read it, they are required to include that paragraph if the loan was originally IIB and the mod should not in any way supersede the BK... I'm more interested to know if that actually could void the modification agreement, since they left out what was legally required.

[jmw1212]

The way I read it, they are required to include that paragraph if the loan was originally IIB and the mod should not in any way supersede the BK... I'm more interested to know if that actually could void the modification agreement, since they left out what was legally required.

Great, how do I know if mine is correct, tell me what it's suppose to say? I have the same mod through the same bank.

Thanks

[doodlebugger]

Jmw1212 - look at this document -

https://www.fanniemae.com/content/legal_form/3179.doc

It says: Lenders MUST amend the document by inserting the following new paragraph 6 if the borrower previously received a Chapter 7 bankruptcy discharge but did not reaffirm the mortgage debt under applicable law:

 

Notwithstanding anything to the contrary contained in this Agreement, Borrower and Lender acknowledge the effect of a discharge in bankruptcy that has been granted to Borrower prior to the execution of this Agreement and that Lender may not pursue Borrower for personal liability. However, Borrower acknowledges that Lender retains certain rights, including but not limited to the right to foreclose its lien evidenced by the Security Instrument under appropriate circumstances. The parties agree that the consideration for this Agreement is Lender’s forbearance from presently exercising its rights and pursuing its remedies under the Security Instrument as a result of Borrower’s default thereunder. Nothing in this Agreement shall be construed to be an attempt to collect against Borrower personally or an attempt to revive personal liability.

PNC has left this out of our modification loan. I have been trying to deal with Fannie Mae about this mess.

In the meanwhile - dh disputed the EQ entry for the modification which was showing like we never IIB'd the mortgage and within less than a week, they deleted it from EQ saying that it was supposed to be IIB, and since ours was obsolete (over 7 years old from the bankruptcy discharge), they had to remove it completely!!!

We are moving forward again. But I am cautious. I need to get this modification agreement issue worked out because right now, our modification just reads like we have a new agreement, and that is not the case. Ugh. I'm working with Fannie Mae and will let you know what I find out.

[jmw1212]

Jmw1212 - look at this document -

https://www.fanniemae.com/content/legal_form/3179.doc

It says: Lenders MUST amend the document by inserting the following new paragraph 6 if the borrower previously received a Chapter 7 bankruptcy discharge but did not reaffirm the mortgage debt under applicable law:

 

Notwithstanding anything to the contrary contained in this Agreement, Borrower and Lender acknowledge the effect of a discharge in bankruptcy that has been granted to Borrower prior to the execution of this Agreement and that Lender may not pursue Borrower for personal liability. However, Borrower acknowledges that Lender retains certain rights, including but not limited to the right to foreclose its lien evidenced by the Security Instrument under appropriate circumstances. The parties agree that the consideration for this Agreement is Lender’s forbearance from presently exercising its rights and pursuing its remedies under the Security Instrument as a result of Borrower’s default thereunder. Nothing in this Agreement shall be construed to be an attempt to collect against Borrower personally or an attempt to revive personal liability.

PNC has left this out of our modification loan. I have been trying to deal with Fannie Mae about this mess.

In the meanwhile - dh disputed the EQ entry for the modification which was showing like we never IIB'd the mortgage and within less than a week, they deleted it from EQ saying that it was supposed to be IIB, and since ours was obsolete (over 7 years old from the bankruptcy discharge), they had to remove it completely!!!

We are moving forward again. But I am cautious. I need to get this modification agreement issue worked out because right now, our modification just reads like we have a new agreement, and that is not the case. Ugh. I'm working with Fannie Mae and will let you know what I find out.

My loan mod definitely does not have that language in it. So does that mean I am responsible for the debt if we default? I never reaffirmed the debt through the courts. I am confused, tried to call my lawyer but he and his paralegal are out of the office. Let me know what you find out.

[jmw1212]

Just pulled out my trial mod and the language is on that paperwork, but not on the final. What do you think that means?

[doodlebugger]

Well, our lender sent it over to a real estate attorney who said it looked like a reaffirmation agreement the way it was written. Then, he sent it to a bankruptcy lawyer who said that the agreement looked like we were reaffirming debt based on how it is written. So, two lawyers agreed that the language of the modification indicate that we are reaffirming the debt because we are agreeing to new terms. However, our lender says that if PNC removed it from our credit and marked the mortgage as IIB, then we didn't reaffirm. What we are doing is waiting to hear back from Fannie Mae, but in the meanwhile, we are thinking about sending a letter to PNC showing them the error, and asking them to correct the modification papers.

[jmw1212]

Well, our lender sent it over to a real estate attorney who said it looked like a reaffirmation agreement the way it was written. Then, he sent it to a bankruptcy lawyer who said that the agreement looked like we were reaffirming debt based on how it is written. So, two lawyers agreed that the language of the modification indicate that we are reaffirming the debt because we are agreeing to new terms. However, our lender says that if PNC removed it from our credit and marked the mortgage as IIB, then we didn't reaffirm. What we are doing is waiting to hear back from Fannie Mae, but in the meanwhile, we are thinking about sending a letter to PNC showing them the error, and asking them to correct the modification papers.

I also tried to ask my attorney, but he has not got back with me. He is not paid anymore and I think he feels he has already done enough. I don't know what to do, because the way I understood this was the BK courts would have to have reaffirmed the debt for it to count. Any loan mod would be just that and nothing more. I am so confused. Ask your lawyer what if the trial loan docs included that discharged language, but the final did not? That's my case. They are reporting, but it's helping me now, but I was told that this debt was discharged. I don't know who to call or who can answer this now for me.