Another Court Says Reaffirm Personal Liability On Mortgage Or Face ...

Another bankruptcy court decision on reaffirmation of mortgage loans. Bankruptcy debtors have always understood that they had to reaffirm their liability for car loans if they wanted to keep the car through bankruptcy. Many debtors over the years believed they did not have to reaffirm secured loans such as home mortgages. A Middle District bankruptcy court ruled a couple years ago that a mortgage lender could demand the homeowner reaffirm personal liability on mortgage debt. If the debtor refused to sign a reaffirmation agreement then the mortgage lender could take the house just as a car lender could repossess a car if the debtor did not reaffirm the car debt.

A bankruptcy court in the Southern Division of Florida recently issued an opinion which reached the same conclusion. The court held that a debtor who is unwilling to reaffirm a home mortgage must either pay off the mortgage in full or indicate an intent to surrender the home to the mortgagee. The court pointed out that if the debtor does not want to reaffirm liability the mortgage lender is not required to foreclose. The court stated that if a debtor is unwilling to enter into a reaffirmation agreement and unable to pay off the mortgage the lender may nevertheless determine that it does not want the collateral and permit the debtor to stay in the home as long as the debtor makes satisfactory periodic mortgage payments. The bankruptcy code recognizes that the lender may take action to collect mortgage payment in lieu of pursuing a foreclosure. Case No. 10-40367.