In general, a lender wants you to reaffirm a loan when it can sue you for any remaining balance owed on your mortgage after foreclosing on the property. I believe there are two reasons lenders don't actively work with all borrowers to reaffirm a mortgage loan.
Make sure your credit is mortgage-ready and get personalized purchase rates, with your free credit report and score at myBankrate.
The first reason: Some states do not allow a lender to come after a homeowner after the foreclosure on the property to collect on a remaining balance owed. In those states, the lender may not want to spend the time and use resources to finish the reaffirmation paperwork, present it to the court and follow up when it does not protect the lender's interest.
The second reason: Even if the lender in a certain state has the right to sue a borrower after foreclosing, the cost of staffing and managing reaffirmation agreements in all 50 states may not be worthwhile.
While your lender might not let you reaffirm the loan, you also do not have to sell the property and the mortgage lender cannot simply foreclose on your property because you failed to execute an agreement. The terms of your contract remain enforced: You make the mortgage payments, you keep your house.
Each month, your mortgage payment goes toward the principal and interest on the loan. Once you have made all your loan payments, you will be the owner of the property free and clear.
Refinancing the property is still a possibility. While lenders are definitely much more stringent refinancing mortgage loans, the bankruptcy will not hamper that process. You will just need sufficient equity in the property and monthly income for the lender to consider refinancing. Since you have a poor credit rating caused by the bankruptcy, equity and income will be the key to finding a lender willing to refinance your loan.
While I assume you want to refinance the property to take advantage of the low mortgage loan interest rates, you will need something more to offer before any new lender OKs your application.
Yes, it is true that dealing with a mortgage loan after bankruptcy is more difficult than had you not filed at all. But you did file and will need to patiently work through any issues that come up. Just remind yourself that your goal is to keep your home.
Ask the adviser
To ask a question of the Bankruptcy Adviser, go to the "Ask the Experts" page and select "Bankruptcy" as the topic. Read more Bankruptcy Adviser columns and more stories about debt management.