Bankruptcy and Subsequent Eligibility for New Mortgage
My question involves bankruptcy in the state of: Michigan
Filed & received chapter 7 discharge in Sept 2007. Included everything: home 1st mortgage, home equity loan and home improvement loan (that should have had a lien against the property), among other debts. Did not sign reaffirmation agreements for anything. Have continued to live in the home, continuing to pay the 1st mortgage only. Have since rebuilt credit to a relatively good level. Recent credit report shows all three of those loans as marked "paid or paying as agreed" and of course, they each note the bankruptcy; also, none display a current balance, but the "past due" is noted as zero.
1st question: In the situation noted above, if I STOP paying the 1st mortgage and allow the home to foreclose (I understand that they can only act upon the property by taking repossession, of course), how will that affect my credit record? It is my understanding from some of the answers I've received (and this makes the most sense), is that since the loan is no longer my responsibility, a "foreclosure" on that loan wouldn't be "my" foreclosure - i.e. will not appear on my credit as a foreclosure AFTER the bankruptcy. Is that correct? I and friends in same boat have received a LOT of conflicting information in regard to this (from bankruptcy lawyers, real estate professionals, mortgage professionals and even on this forum).
2nd question: Because the above question has had a lot of conflicting answers, and because now it is potentially affecting my ability to obtain a preapproval (and/or an actual mortgage), I need this answered (I have to move from this area soon). This particular mortgage agent told me the following, after having spoken to his underwriter:
"I have reviewed the underwriting guidelines and have conferred with our head of underwriting regarding the status of your current home loan. I am concerned that you are still obligated on the current loan. I understand that you contend your mortgage was charged off in your bankruptcy and you have no obligation to repay it, however, my understanding of bankruptcy proceedings is that mortgages are typically not satisfied and although you are afforded protection from foreclosure under the umbrella of the bankruptcy, that you are still obligated for the debt. Here is my first question…have you received a “release of lien” regarding the mortgage on your home? (if so, please forward that to me) Since you have not been foreclosed on, I would think that you have not, but if your mortgage has been satisfied, you should have received one and that would probably answer the balance of my questions and concerns. If the property has not been foreclosed on or you have not received a release of lien in spite of the mortgage being “charged off” as part of your bankruptcy, it has not been satisfied and you are most likely still obligated on it. Therefore from an underwriting standpoint on a future mortgage, that means that I need to treat that mortgage debt just like I would for a borrower that did not go through a bankruptcy."
What are your thoughts on his comments regarding the "release of lien" and what does he mean "...mortgages are not typically satisfied"???? I understand what a lien is...and that the mortgager still has a lien against the property - which is why they can repossess it - however, I'm not responsible for the lien anymore, right? Isn't the bank (who now owns the house for all intents and purposes) the one that has to worry about it?
I'm so confused........
(Sorry for the long post...wanted to explain the whole story.)
Thanks in advance for any info you can provide.
Re: Bankruptcy and Subsequent Eligibility for New Mortgage
Obviously you're not going to have a release of lien. How can an underwriter not know that getting a discharge in bankruptcy doesn't mean that your mortgage is paid off or that you get your home for free.
As this case indicates, the accurate report of a foreclosure remains possible even after the underlying obligation is discharged in bankruptcy.
Quote:
Quoting Vlasic v. Equifax Credit Information Services, No. 03 C 4044 (N.D. Ill. 5/10/04)
Vlasic first contends that he intended to voluntarily surrender the property when he filed the bankruptcy petition and thus he cannot be held accountable for the foreclosure since he had already surrendered the property in bankruptcy. Vlasic represented under oath in the bankruptcy petition an intention to voluntarily surrender the property. However, Defendants correctly point out that Vlasic's intention to surrender the property did not transfer title in the property. The holder of the note could not have sold the property prior to the foreclosure and Vlasic was the legal owner of the property at the time of the foreclosure.
Vlasic also argues that he was not a party in the foreclosure action. Yet, Vlasic was personally named in the foreclosure action as the owner of the property. Vlasic next argues that the foreclosure is an in rem proceeding rather than an in personam proceeding and thus the foreclosure cannot be reported on his personal report....
Defendants correctly point out that if foreclosures were never allowed to be reported on a person's credit report because a foreclosure action is an in rem proceeding, no foreclosure could ever be reported on a credit report because a piece of real estate does not have a "credit report." Vlasic has not cited any legal authority that indicates that a foreclosure cannot be reported on a credit report and Defendants have provided legal support for the contrary assertion. See Sepulvado v. CSC Credit Servs., Inc., 158 F.3d 890, 892 (5th Cir. 1998)(indicating that under the FCRA a foreclosure could be reported on a credit report for seven years). See e.g. Zahran v. Transunion Corp., 2003 WL 1733561, at *1 (N.D. Ill. 2003); Grant v. World Class Mortg. Corp., 1990 WL 19466, at *1 (N.D. Ill. 1990). There is nothing confusing about reporting the foreclosure on Vlasic's credit report because of his direct connection to the foreclosure. For instance, the judgment of foreclosure names Vlasic as a party and forecloses the mortgage created in conjunction with his mortgage loan account. Defendants also correctly point out that not every person that files a bankruptcy also is a party in foreclosure and thus it is appropriate to report both a bankruptcy and a foreclosure when applicable.
I assume you're in the position of a lot of people who have gone through bankruptcy - that you indicated that you wanted to surrender your home but that the bank is content to allow you to remain as long as you continue to make the payments. You may want to talk to your lender about whether you can title the property back to them or otherwise voluntarily surrender it in order to remove the "obligation" from your credit history. Or you may want to try working with a different mortgage lender.
Re: Bankruptcy and Subsequent Eligibility for New Mortgage
To Mr. Knowitall,
Can I have your permission to cut and paste your above post to bkforum.com?
I have always been of the belief that it is not improper to report a foreclosure on a credit report after a discharge but I have never researched my beliefs. Your post is excellent and, while there may be contrary court opinions, I would like to share your post with others to show that the issue is not so "cut & dry".
Please advise. Thanks.
Des.
Re: Bankruptcy and Subsequent Eligibility for New Mortgage
Quote if you want, or simply share the case.