“Dear Steve,
Post 2 years Chapter 7 – credit report shows discharge of mortgage. Want to stay here and pay off the house and eventually get title…
My Chapter 7 discharged unsecured debts more than 2 years ago. Unbeknownst to me it also discharged my primary residence mortgage. I have stayed current on the mortgage the entire time even though upside down still by a good amount on the house. I would like to stay here for the next 20 years, pay off the mortgage, and eventually get title/deed. Is that even possible? And what will I have to do to get title/deed since my credit report shows payments current but notes a discharge back in August 2010??
Thanks!
Greg”
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The Answer
Dear Greg,
Yikes. Houston, we have a problem.
What is tripping you up here is a common misperception and problem faced by others in the same situation.
It is true the chapter 7 bankruptcy discharged your personal obligation to repay the mortgage.
But, and here is the big but, the lien against the property was not eliminated. The payments you are making now to the bank, they will gladly take, but they are not going towards anything. You do not have an obligation on the property. It’s kind of like the bank is taking your payments as rent. Actually they are just taking your payments. They can kick you out any time they want to take the house back.
Right now you are living in a property that has a huge underwater lien on it. If you were to attempt to purchase the house either the bank has to take the property back in a foreclosure and strip the lien or you need to pay off the old lien which was for the value of your mortgage.
You can’t payoff a mortgage which no longer exists and you can’t get a mortgage on the property unless the old lien is removed against the title to the property.
Before you continue to make payments I would strongly suggest you find a local real estate attorney and discuss the situation with them. With their help, or maybe by yourself, you’d have to negotiate a solution with the bank, that currently owns the house, to reissue a mortgage on the lien value outstanding.
Oh, and let’s not forget, as long as the house and lien are in your name you are responsibile for the insurance and taxes as well.
Please post your responses and follow-up messages to me on this in the comments section below.
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