THE client is 55 and single. He appears to have no problems to worry about. He is self-employed and makes about $5,000 monthly teaching people a special skill. He has no dependents. He owns a house that has no equity. The house is worth $400,000 but he owes $420,000 for it. He has not paid the mortgage for at least three years and has massive arrears on his mortgage of $88,000. He has applied several times for loan modification.
Unfortunately, all attempts to modify were denied by the bank. I would surmise that his income is not easily verifiable. He filed another loan modification package three months ago (looks like he won’t take no for an answer) and the bank has yet to respond. Despite his pending loan modification request, the bank proceeded with a notice of default to start the foreclosure process. As you probably know, the bank is not supposed to proceed with foreclosure if there is a loan modification pending. However, the reality is that most banks don’t follow this law. Why should they? All you have to do is keep on resubmitting a loan modification package after each denial.
As a result, the bank will never be able to foreclose on the house and you get to stay in your house without paying the mortgage forever. They’re not that dumb.
So, with a week before the foreclosure sale date, he comes to see me because he says he wants to stop the foreclosure. Well, the only sure way to stop the foreclosure is with a Chapter 13. Foreclosure stops upon the filing of the Chapter 13 petition. The default amount gets frozen and the client is given 60 months to pay the default in equal monthly installments without interest.
However, the current mortgage payment must be resumed a month after the case is filed. I said, “Are you sure? Because your default is $88,000 and this means that your monthly plan payment to cure the default will be at least $1,466, and you have to resume your regular mortgage payment.”
This means that in addition to your regular mortgage payment, you have to produce another $1,466 to save your house from foreclosure. Considering that the house has no equity isn’t it more productive to just abandon the house and rent somewhere since the client is still single with no dependents? I mean, he lives by himself, so he can actually go buy a mobile home and live in it for less than $600 a month, plus rent of the space. That’s even less than the estimated plan payment. Or, he can just rent a room and pay $300 a month. There’s more than one way to skin a cat.
The client is headstrong and really wants to keep his house, I guess for sentimental reasons. He still believes that his pending loan modification might turn out ok. So he is willing to pay through his nose to save his house. Maybe it’s a matter of pride? Whatever the reason is, and I’m no psychiatrist, he is willing to suffer a pyrrhic victory to save his house. A pyrrhic victory is one where the victor suffers a devastating loss to achieve victory.
Of course, if the loan modification comes through, then the mortgage will become current again as the $88,000 default will just be added to the principal. There’s another problem that has just reared its ugly head. He has an adjustable rate mortgage that will reset next month by adding $500 to the monthly mortgage payment because of higher interest. When it rains it pours.
On the other hand, the client has no credit card debt, but he does pay for two new cars, the total is about $900. Why not just abandon the house and live in the brand new van? That’s something to think about. The van has all the amenities of a house except a toilet and a kitchen. He doesn’t cook anyway. Maybe he can just buy one of those tiny houses? You can buy one for $20,000. It has everything that a normal sized house has, except it’s smaller, like 200 sq. ft.
We just came back from the first hearing. The client paid the plan payment plus the first mortgage payment. He could be hoarding a lot of cash since he hasn’t paid the house for two years.
Senior seeks Chapter 7 relief for $19K credit cards
The next client is 80. Finally, someone older than me. Would you believe, my oldest client for Chapter 7 was 92 years old? He did his first Chapter 7 case when he was 60.
He had four wives and outlived all of them. He just retired last month. His social security benefit is $1,000. His wife’s social security is $400. They migrated here just ten years ago. He had to work for 10 years to qualify for social security. His rent is $900. He owes credit cards of $19,000, requiring minimum monthly payments of $700, which is 70 percent of his social security. Obviously, it’s high time to get rid of the $19,000 with a Chapter 7 petition. The client agrees and decides to file for Chapter 7 immediately. That’s the right decision of course.
* * *
Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave, Mailstop 58, Building A-1 Suite 1125, Alhambra, CA 91803.