Entering into a reaffirmation agreement on a fixed term mortgage is not generally advised.  The vast majority of attorneys will advise their clients not to sign reaffirmation agreements regarding fixed term mortgage loans, unless there is a specific benefit to be obtained in signing the agreement. For example – if the mortgage loan was not a fixed term (a balloon note) financed through a credit union – you would sign a reaffirmation agreement if you wanted to keep the house and you wanted that credit union to refinance the mortgage loan when it ballooned.

Upon completing your Chapter 7, you will receive a discharge order which relieves you of any personal liability on your debts – unless you choose to reaffirm the personal liability through a reaffirmation agreement.

The decision to reaffirm a personal liability on secured debt depends on the type of secured debt. If you have an auto loan and you want to keep the car, you will reaffirm that debt – the discharge order would have no effect on that debt. Even if the car is subsequently repossessed, you are responsible for the debt that you reaffirmed.

If the secured debt is a mortgage loan on your residence, you are reaffirming your personal liability that attached to the mortgage loan note. You would be giving up your discharge at that debt. For this reason, the vast majority of competent attorneys do not recommend signing reaffirmation agreements on mortgage loans.

The complexity of reaffirming mortgage loans relates to any subsequent foreclosure. If you are “upside down” on a mortgage loan or you get divorced or move, you may decide that it is no longer in your best interest to pay on the mortgage loan. Under Michigan law, if you fail to pay on the mortgage loan and the mortgage is foreclosed, the creditor cannot sue you on a discharged obligation – they would, however, be able to sue you on that claim if you had reaffirmed it.

After the fact, may mortgage companies state that if you had reaffirmed the mortgage loan, they would have sent mortgage statements in a timely manner. Lender’s also state that they would have resumed credit reporting activities had you reaffirmed the mortgage loan. And the list of their “after the fact” lies and misrepresentations goes on and on. Even you have reaffirmed your mortgage loan, there is nothing that makes the lender do anything except take your money and sue you for a money judgment if some unforeseen incident occurs in your life – you move, get divorced, or want to stop making payments on an “upside down” house.

Signing a reaffirmation agreement on a mortgage loan is the rare exception rather than the rule. In fact, the vast majority of mortgage lenders do not prepare or send reaffirmation agreements; little facts that they don’t bother to tell you after the fact.

If there is an issue with respect to the mortgage lender reporting payments to the major credit bureaus, your remedy is found in the Fair Credit Reporting Act.