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If you own a home and file for Chapter 7 bankruptcy, your lender might ask you to sign a reaffirmation agreement. Here’s what it means, and why you may want to think twice.
When you file for Chapter 7 bankruptcy, your personal responsibility for paying your mortgage will be wiped out.
That doesn’t mean your mortgage disappears, however. What it does mean is that your can’t be held responsible for any shortfall if you fall behind and the lender sells the property at a loss.
In California, you can’t be held liable for the shortfall on a first mortgage anyway. But in New York as well as elsewhere, without a bankruptcy discharge the lender could sue you for the deficiency.
Confused? You’re not alone.

Home Loans – Two Obligations
When you take out a mortgage, you’re actually doing two things: signing a Promissory Note and a Mortgage (which in some places is called a Deed of Trust).
The Promissory Note is a document that obligates you to repay the debt with interest over time, spelling out your rights and responsibilities.
The Mortgage, however, is merely a document that serves as a lien against your property. It’s filed as a public record so that you can’t sell without satisfying the Promissory Note.
More to the point, it is the Mortgage that the lender will use to foreclose on the property in the event that you fail to live up to your obligations under the Promissory Note.
Chapter 7 Bankruptcy Affects Only One Document
When you file for Chapter 7 bankruptcy and get a discharge, your personal responsibilities under the Promissory Note are wiped out.
The Mortgage, however, remains unaffected. The lien stays against your property, and the lender will use it if you don’t make your payments.
In that way, you’re still sort of liable on the Promissory Note. If you don’t care about keeping the property, don’t make payments. But if you want to keep it, you need to keep sending your money.
Reaffirmation – A New Promise to Repay
Rather than voluntarily making payments on the mortgage after you file your Chapter 7 bankruptcy case, you or your lender may look at a process called reaffirmation.
Reaffirmation is a legal term, but it loosely means a new promise to repay a debt after bankruptcy that otherwise would be wiped out. You and the lender sign an agreement that’s approved by the bankruptcy judge, and it becomes binding on you after your case is completed.
See also:

• Options For Keeping Your Car, Home And Property After Chapter 7 Bankruptcy

The agreement may also signed by your bankruptcy lawyer if you’ve got one, but that’s not necessary. Your lawyer’s signature may quicken the process by eliminating the need for court approval, but lots of lawyers won’t sign them (for example, I do not sign reaffirmation agreements).
In addition, a fair number of bankruptcy judges won’t sign a reaffirmation agreement because it’s not necessary in order for you to keep the property.
If you’re hellbent on reaffirming the mortgage, be prepared to face some tough questions in your quest to convince the judge that it’s a good idea to do so.
Why You May Care About Reaffirming Your Mortgage
If you discharge your personal liability to the mortgage company in Chapter 7 bankruptcy, they may not let you refinance with them in the future. But you do realize that there are lots of other banks out there, right?
After you discharge your mortgage obligations, the lender isn’t allowed to report your payments to the credit reporting agencies. Of course, there are other ways to prove to the world that you’ve been making your payments.
Aside from those two reasons, I have no idea why you’d want to reaffirm a mortgage debt. After all, you’re still allowed to pay the mortgage after bankruptcy,
See also:

• How Your Mortgage Shows Up On Your Credit Report After Bankruptcy
• Paying Debts After Bankruptcy
  

How Long You Have To Reaffirm A Debt
A reaffirmation agreement must be signed by both parties and approved by the bankruptcy court before the discharge is entered.
Once the discharge is entered, the bankruptcy judge doesn’t have the authority to sign the agreement.
If you’re going to do it, best to get the process started as soon as the case is filed.
What If You Want To Reaffirm After Bankruptcy?
You can’t reaffirm your mortgage once the bankruptcy case is over without jumping through some additional hoops.
You’re going to need to make a motion to the bankruptcy court to reopen your case for the limited purpose of entering into a reaffirmation agreement.
Some courts will allow you to do so, others will not permit it.
A Tool For Limited Use Only
Reaffirmation is seldom a good idea, and for a mortgage it can be a downright stupid one.
That said, I’m sure there are some situations that call for reaffirmation of a mortgage. I don’t think I’ve seen one in nearly 19 years of practicing bankruptcy law, but there’s always a new twist to be considered.
If you’re looking to go down the reaffirmation rabbit hole, talk with your lawyer first. If you filed for Chapter 7 bankruptcy on your own, this would be a good time to sit down with an attorney if only to review your options with respect to the mortgage.

Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing Chapter 13 and Chapter 7 bankruptcy cases. His office is centrally located in Miami at 1221 Brickell Avenue, 9th Fl., Miami and may be reached at (305) 891-4055.  www.bublicklaw.com

One of the hottest topics in South Florida is the real estate "short sale." Actually a short sale is nothing new, but it now quite the vogue. A short sale basically means that the mortgage lender (or lenders) agree to satisfy its mortgage lien and allow the transfer of the real estate in exchange for receipt of less than the full amount of the amount due on its mortgage loan. In a short sale, the real estate is sold to a buyer who obtains a new mortgage. As the net proceeds of the sales price is less than the full amount due on the mortgage lien(s), the mortgage holder(s) must agree to accept a "short" payoff in exchange for release of its mortgage lien.

Despite this basic definition, there is more involved with the short sale and whether it is actually beneficial to the homeowner facing foreclosure. The fact that the internet is full of courses, books, and seminars offering to turn out "short sale experts" should in and of itself advise caution.

It is been my experience so far that many homeowners facing foreclosure seek out the "short sale", but do not entirely understand the process or many of its implications. Some do not even seem to understand where they stand on various issues even after a "short sale" supposedly took place. Apparently, one of the short sale's greatest boosters, at least at present, is the real estate broker or other "third party negotiator" who would earn a commission upon the closing of a short sale.

At this time, it seems that substantially more are failing to achieve a short sale than are those who have achieved one. Many seem to seek out the short sale as almost a holy grail and advise that they are in the "process of a short sale", but few have actually advised that they have completed one. Many seem to indicate frustration in the attempt to communicate with the mortgage lender(s) and/or actually complete a short sale.

Apparently the most difficult item in the short sale process is communicating with the lender and any second mortgage holder, such as a "home equity loan." In addition to the agreement of the first mortgage holder, the agreement of any junior mortgage holders must also be obtained. Outstanding judgment or tax liens may also be an issue as the buyer would need to receive clear title.

One of the most important issues in the short sale is whether the homeowner is actually released from liability for the "short" or unpaid amount. If the mortgage company and/or the second mortgage company do not release a person from liability for the unpaid portion, the benefit of a short sale to a homeowner may be questioned.

Another important issue is the federal income tax consequences. If the unpaid mortgage debt is forgiven, "discharge of indebtedness income" may be implicated. Discharge of indebtedness income basically involves the recognition as income for federal income tax purposes of the discharged mortgage debt. But there are various exceptions to the recognition of discharge of indebtedness income, such as the insolvency exception or discharge in bankruptcy. Although a form 1099 may be issued as to the homeowner/seller to the IRS, one of the various exceptions to the rule may apply and income taxation on the discharge amount may not be due. A complete analysis of this issue should be completed before one commits to undertake a "short sale."

Many seem to seek out the short sale to "save their credit." One should try to get the best understand possible of whether a short save will actually save or protect one's credit from the reporting of a foreclosure. In general, a credit reporting agency may report accurate information on your credit report. Although a "foreclosure" may not be reported on one's credit, a mortgage delinquency may. One may question the effective difference.

A short sale may be in the mortgage lender's supposed "best interest." But one should realize that many lenders may be under contractual or regulatory restrictions that may not permit them to agree to a short sale. Furthermore, one may actually be communicating with the lender's loan servicer and not the actual mortgage lender.

In any even a short sale usually takes several weeks to pursue and one needs to furnish substantial documentation, including personal financial information such as paycheck stubs, bank statements, 401(k) statements, and tax returns. One may also need to furnish information about a hardship.Jordan E. Bublick is a Miami Personal Bankruptcy Lawyer with over 25 years of experience in filing chapter 13 and chapter 7 bankruptcies. Miami Personal Bankruptcy Lawyer Jordan E. Bublick has filed over 8,000 chapter 13 and chapter 7 cases.

A federal grand jury returned a 24-count indictment on former Enron Executive Jeffery Adam Shankman, 46, that included concealing assets with bankruptcy fraud.  He is expected to make his appearance before a U.S magistrate judge upon turning himself in to authorities. His charges include purposely hiding assets from creditors and the bankruptcy trustee who was [...]

Today's New York Times refers to a recent decision by the Supreme Court of Kansas in the case of Landmark National Bank v. Kesler, et al., No. 98,489 (Kansas 2009) involving the controversial organization known as "MERS" - the Mortgage Electronic Registration Systems, Inc. MERS was established by large lenders as a quasi-parallel recording recording system to facilitate electronic trading and tracking of mortgages.
The Kesler case involved a routine residential foreclosure by the holder of the first mortgagee, Landmark National Bank. Landmark included as defendant the homeowner and Millennia Mortgage Corp. who per the public records held the mortgage. Sovereign Bank and MERS as its nominee were not included as defendants and subsequently claimed to be the assignees of Millennia.
The court stated that it would base its decision on the true roles of the parties and not the mere "nomenclature" used in the mortgage document. The court found that the form of the mortgage designated MERS as the mortgagee but not the lender.  
The court found that MERS had no right to the underlying debt repayment secured by the mortgage and did not even act as the servicing agent. The court found that MERS was only the agent of the lender. Jordan E. Bublick is a Miami Personal Bankruptcy Lawyer with over 25 years of experience in filing chapter 13 and chapter 7 bankruptcies. Miami Personal Bankruptcy Lawyer Jordan E. Bublick has filed over 8,000 chapter 13 and chapter 7 cases.