WHAT HAPPENS TO A REAL PROPERTY TITLE IN BANKRUPTCY?

When a Client files a Chapter 7 Bankruptcy and there is real property involved, there are 3 options:

1. Surrender the property and move out

The debt to the mortgage company is discharged and there is no personal liability on the loan. It should appear on the credit report as discharged in bankruptcy. The title to the property will be transferred by a foreclosure sale performed by the mortgage company at a later date. Sometimes the mortgage company does not transfer title when the mortgage company buys the property back at the sale. The mortgage company may wait until they sell the property to a third party then transfer title.

2. Reaffirm the mortgage and keep the property

If the mortgage company will provide a Reaffirmation Agreement and you sign it and it is filed with the court prior to the Discharge Order being entered by the court, then you will continue making mortgage payments and the mortgage company will continue to report payments to the credit bureau. The title to the property remains as it was prior to filing of the bankruptcy. 

Most mortgage companies will not provide a Reaffirmation Agreement. Your attorney cannot prepare a Reaffirmation Agreement without the assistance of the mortgage company. The Reaffirmation Agreement must show the amount owed on the loan and be signed by the creditor to be valid when filed with the court.

3. Stay in the home with no Reaffirmation Agreement

If no Reaffirmation Agreement is filed with the court, but you continue making the mortgage payments and stay in the home, the mortgage company will not report the payments to the credit bureau. 

As long as you are paying on the mortgage, you retain the right to live there. The title to the home remains as it was prior to filing of the bankruptcy.

  • Under this option you can still sell the property if you can pay off the mortgage in full.
  • You can continue paying the mortgage until you pay it off, then you will own the property free and clear of the mortgage lien.
  • If you stop making mortgage payments, then the mortgage company will foreclose on the property and then the title to the property will be changed to the buyer’s name if a third party purchases the property. Sometimes the mortgage company does not transfer title when the mortgage company buys the property back at the sale. The mortgage company will wait until they sell the property to a third party then transfer title.
Scroll to Top