Credit Reports and Post-Bankruptcy Mortgage Payments

Under New York bankruptcy law (In re Boodrow) a debtor does not have to sign a Reaffirmation Agreement for a mortgage on real estate. This is a good thing (especially when dealing with second or third mortgages), since a signed Reaffirmation Agreement causes you to remain personally liable for the mortgage debt after bankruptcy, and for any resulting deficiency judgment determined to be due after a foreclosure of the “reaffirmed” mortgage.

Is there any downside to not signing a Reaffirmation Agreement on your mortgage? Depending upon the policy of your mortgage holder (ie., how much do they want to “bust your chops”), the answer sometimes can be “Yes”. Some mortgage lenders take the position that since bankruptcy discharges your personal liability for debts, they no longer have to report your post-bankruptcy mortgage payments to the Credit Reporting Agencies (CRA’s) because the underlying debt is discharged. This can cause a problem if someone is examining your Credit Report for certain purposes, including future mortgage refinance efforts. If your post-bankruptcy mortgage payment history does not appear on the Credit Report it can certainly prejudice, and probably doom, your refinance efforts.

Fortunately there is a solution to this quandary, although it involves a two-step process:

Step 1: Pursuant to § 2605(e) of the Real Estate Settlement Procedures Act (“RESPA”), make a Qualified Written Request to your mortgage servicer that they provide to you an accounting of all mortgage payments that you have made. This accounting should establish that you have been making timely mortgage payments post-bankruptcy.
Step 2: File a dispute with the CRA complaining that the reported mortgage payment information is inaccurate, attaching thereto the accounting received pursuant to the Qualified Written Request. Assuming that you are in fact current on your mortgage payments, this should result in the Credit Report entries being corrected, pursuant to the procedures established in The Fair Credit Reporting Act ( 15 USC § 1681i ).
There is another way to correct inaccurate Credit Report entries concerning your mortgage payment history, but it is very labor intensive and involves much photocopying and record keeping (which is not always a bad idea). As soon as you file bankruptcy begin (1) making copies of every check or bank draft that you use to pay your mortgage, and (2) keeping copies of your bank statements showing that said mortgage payments were received and cashed by your mortgage lender or servicer. You then file your dispute with the CRA complaining that the reported mortgage payment history is inaccurate, and attach thereto all check photocopies and bank statements evidencing that the required payments were made by you and received by the lender. This should result in the Credit Report entries being corrected.
Wouldn’t it just be easier to sign a Reaffirmation Agreement concerning your mortgage, as this would result in your post-bankruptcy payments being correctly reported to the CRA? It might be easier, but the downside to signing one is so onerous, as above noted, that you would be crazy to do so. In addition, it is highly unlikely that a Bankruptcy Judge would ever approve such a Reaffirmation Agreement unless it resulted in the debtor was receiving a substantial, favorable modification of the mortgage terms, which rarely happens in the context of Reaffirmation Agreements.