by Peter Bricks, a Woodstock bankruptcy attorney

The most common error I see as an Atlanta bankruptcy attorney is debtors reaffirming mortgages. Reaffirming a mortgage in Chapter 7 bankruptcy rarely makes sense. Some attorneys even consider it malpractice.

In the rare circumstances where it is okay to reaffirm a mortgage in Chapter 7, the debtor needs to make sure there is no second mortgage behind it. This is true even if the debtor does not intend to reaffirm the second mortgage.

The simple fact is reaffirming a first mortgage binds the debtor to the second mortgage even if the debtor does not reaffirm the second. Follow this fact pattern to understand why.

The debtor’s home is worth $160,000. His first mortgage balance is $140,000. The second mortgage balance is $140,000. The debtor therefore has no equity because the total debt ($180,000) exceeds the property value.

If the debtor reaffirms the first without reaffirming the second mortgage, the debtor owes a debt to the first mortgage, but not the second mortgage. However, if he does not lien strip the second mortgage, both the first and the second will retain their liens on the residence.

Accordingly, if the debtor tries to sell or refinance, the debtor will have to satisfy the second mortgage in full even though he owes no debt to that mortgage.

If the debtor defaults and the first mortgage forecloses, the foreclosure appears on the debtor’s credit because the debtor reaffirmed that mortgage. Had the debtor not reaffirmed the first, the delinquent payments and foreclosure would not have showed up on the debtor’s credit.

Additionally, there could even be a deficiency with the first mortgage if the debtor gets sued on the balance.

Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys (NACBA). He is a regular contributor to bankruptcyblog.org has bankruptcy attorney offices in Jonesboro, Cumming, Atlanta and Dunwoody.