The Impact of Chapter 7 on Your Home And Mortgage

The Impact of Chapter 7 on Your Home And Mortgage

Your Current Home: The Note and Deed of Trust

In purchasing a home/real estate, there are at least two parts to the transaction: (a) the Promissory Note that indicates you have borrowed money to buy the home and terms under which you have agreed to repay the debt, and (b) the Deed of Trust that indicates that your failure to pay the debt according to the agreed terms gives the lender the right to foreclose (if they so choose) on the property and take ownership from you.

The Impact of Bankruptcy Discharge On the Note

When you file bankruptcy and receive a Discharge (unless you have reaffirmed the debt),   the discharge removes your personal obligation to pay the Promissory Note.   As a result, if you do not reaffirm the debt, post-bankruptcy payment or nonpayment on the Note will NOT show on your credit report (because you no longer personally owe on the debt).  Also, future FHA loans or mortgage modification might be at risk. If you “reaffirm” the debt, you do owe the debt and it will show on your credit report.    Contact the creditor as ask for a reaffirmation agreement if you are considering reaffirming the debt.

The Impact of the Bankruptcy Discharge On the Deed

A Discharge of debt has NO IMPACT on the Deed of Trust concerning ownership of the home or the lender’s right to foreclose if you stop payment on the Promissory Note.   That means, amongst other things, that YOU OWN the home, even after bankruptcy, unless and until the ownership is transferred to a different person/party (even if you have moved from the property).

How to Transfer Ownership of the Home

Ownership can be transferred by either:

  • Foreclosure by the creditor
  • Creditor accepting from you a Deed in Lieu of foreclosure
  • A completed sale by the Trustee in Bankruptcy to a third party
  • A completed sale by you to a third party

Until a transfer is completed, you own the home.    This means, among other things, that until ownership is transferred YOU are STILL responsible for:

  • Any Homeowner’s Association fees/dues that come due after you filed for bankruptcy
  • Any utilities that come due after filing (you might choose to have them turned off)
  • Complying with county and other code safety requirements including mowing the yard
  • Notifying the lender if and when you vacate the home so that they can insure the property for damage that might occur in your absence
  • Conferring with your insurance representative about the benefits of insuring the property
  • Hiring a real estate broker to sell the home if you want to sell [WE CAN HELP WITH THAT]
  • Anything an owner is responsible for except making the mortgage payment IF you no longer want to keep the home (then you need to make the payments, etc.)

FINALLY, you have every right to live in the home until you no longer own the home.  In fact, if a home is transferred by foreclosure, then you have the right to stay in the home for an additional twenty (20) days after the foreclosure.

Comments

  1. Gina Duncan says:

    You are a God send. Reading your articles and advice you give to others have helped my husband and I tremendously. Thank you for looking out for us homeowners in difficult times and circumstances.

  2. Pamela Williamson says:

    I have been reading this subject across the internet for two days trying to decide the best course of action. I want to move several states away but need money to do so. I made some repairs and updates to the home, I have a hamp loan after chp 7, I am current on all payments and it took me 7 years to learn about the non reporting due to the chp 7 but my credit scores are close to 700 and I have no debt but a loan from my bank, weird to me, but I have gotten for loans from them in four years, auto drafted. I am on SSDI and SSI and have no intention of using credit for anything in the future, accept maybe car insurance. I have a place to live in Ohio with my daughter. I am in Arkansas currently I need money to get there. I am cannot afford to make the payments anymore and I am about to list the house for sale. However the likelihood of a sale in an undesirable neighborhood and a fixer upper is not too promising.

    1. So what could happen if I did not make the payments.
    2. Could I still try to sell it and get the money?
    3. Or maybe pay half a payment and get behind, I do not think they will foreclose with partial payments until it sells, or if it does, but it is almost winter and I cannot move in that season.
    4. Will making partial payment affect my Hamp loan negatively or is there anything they can do to me for not making payment or part of them.
    5, I have read that Nationstar (now Mr Cooper, dumb name) is very difficult to obtain an DIL of forclosure or cash for keys. I would love to just give it back for $3k. What are my chances if you know, of getting either?

    Thank you in advance for all the helpful advice

    • Pamela: Great questions. Here are some ideas. However, please check with local counsel to make sure they apply in your area and situation. (1) If you don’t make the payment, they can seek to foreclose. Because you filed bankruptcy, received a discharge and did not reaffirm the debt, they cannot come after you for any leftover home debt on that mortgage. (2) You can sell the house as long as it is still your house house to sell (before it’s foreclosed upon, etc.) (3) To collect money to move, many people might reasonably chose to note make mortgage payments and save that money to cover moving expenses. (4) If the approval process is complete, then you have a “new” loan and terms. If you don’t pay the new modification terms, then you are in default and they can pursue foreclosure etc and whatever remedies they have under you State law. (5) Normally, in my experience, you don’t get the “cash for keys” option from any mortgage servicer unless you first try to sell the home, even short sale the home. You would just have to check with Mr. Cooper (yes, an odd choice, for sure, in names) to see what they offer. IN SUM: A lot of people in your circumstances stop making house payments, set aside those funds to move, and then list the house for sale and see if it can be sold. However, as noted, you need to check with local counsel etc to make sure what is best in your circumstances. I hope this helps!

  3. Tameka steele says:

    I want to learn more about being able to buy a home while in chapter 13 bankruptcy..

    • Well, the next step after reviewing the article is finding a qualified mortgage broker/lender that can help you through the process. Do you happen to be in SW WA?

Leave a Comment

*