Seniors face end of interest-only mortgage payments 

Need Chapter 13 to stop foreclosure 

“ Second, if they can find the right buyer, a motion seeking court permission to sell the house can be filed in the Chapter 13 case.”

THE client is 61 and her husband is 60. In my book, they are young seniors. They bought their house in 2006 just before the crash of the housing market. 

They used a zero down 10 years interest only mortgage for the first 10 years. Thereafter, they have to start paying interest and principal. They paid $2,400 a month for the purchase date up to early last year, which is interest only. As you well know, interest rates have been very low for the last 10 years. The Feds have been keeping rates at rock bottom so as not to derail the slow but steady improvement in the performance of our economy. With the expiration of the 10 years, mortgage payments doubled to $4,400. 

It appears that they have $250,000 of equity in the house. Since they could not pay $4,400, they asked the bank for a loan modification last year. The bank placed them on a three-month trial period that they complied with. However, nothing happened after the trial period. The bank started to send them statements demanding $4,400 after the trial period ended. 

The clients received the recorded notice of default last October. A foreclosure sale is now scheduled for February 15, which is next week. Their arrears on the mortgage is $60,000. A third party continues helping them to get the loan modification but they have now decided to try to sell the house. But one week is not enough time to sell the house. 

If the house is foreclosed next week, the auction sale may wipe out more than half or all of their equity if there are no serious buyers that show up for the auction sale. If no serious buyers show up, then the bank will bid the balance of the loan for the house and that will wipe out the entire $250,000 of equity. The house is worth $800,000 while the balance of the mortgage owed to the bank is $550,000, leaving equity of $250,000. But if there are no buyers at auction, the bank will bid $550,000, the balance of the mortgage, resulting in the debtors getting nothing. 

If a serious buyer shows up and bids $700,000, then the bank gets paid $550,000, and the clients realize an amount over the balance owed to the bank or equity of $150,000. The higher the purchase price, the higher the equity realized by clients. It is certainly to their advantage to prevent the foreclosure next week, so they can have enough time to get a serious buyer for the right price. 

The clients decide to get Chapter 13 relief. What will Chapter 13 do for them? First, it will immediately stop the foreclosure next week, so it creates time for them to sell the house for the right price. 

Second, if they can find the right buyer, a motion seeking court permission to sell the house can be filed in the Chapter 13 case. The court protects the house by preventing the foreclosure while the court gives them permission to sell the house. 

Third, it makes their loan modification request stronger because the filing of the bankruptcy proves financial hardship, which is a sine quo non-element of a loan modification request. If they decide not to sell the house if the loan modification is approved, or for some reason, they are now able to afford to pay interest and principal as well as the plan payment, then they can just stay on the 13 for five years. But of course, a serious buyer for $800,000 would do the trick because clients walk away with at least $200,000 of equity. They can use the cash to buy a more affordable house with a smaller mortgage payment.

Senior needs Chapter 13 to stop sale of $1-M house by judgment lien of $30K

The next client is 66. He owns a house with a small mortgage balance of $140,000. His house is now worth $1 million. So he has over $850,000 of equity. The problem is that his divorce 15 years ago “wiped him out.” I don’t really know what that exactly means. I surmise that the divorce judgment required him to pay alimony and to buy out his ex-wife’s 50 percent share in the house. As some famous actor said, two divorces wiped him out. Each divorce felt like his heart was being ripped through his wallet.  I can’t remember his name right now but the description of the financial agony that the client went through with his divorce is appropriate. Oh, yeah, it was Robin Williams who said this. His first divorce wiped out half his assets and the second divorce wiped out the other half of his assets. 

The client has social security of $1,400 and makes $2,600 driving  Uber full time. A judgment creditor had a judgment lien of $15,000 on the house 15 years ago. That lien has now ballooned to $34,000. And judgment creditor has just filed a motion to sell the client’s house to pay the lien. Is this even possible that the enforcement of a judgment lien can result in the involuntary sale of the debtor’s house? Sadly, it is true. 

The CA Code of Civil Procedure allows the judgment creditor, by motion, to request court permission to force the sale of the house to satisfy the lien! Surprised? As POTUS Trump will tweet “NOT NICE AND NOT FAIR!!” “ THAT JUDGMENT LIEN CREDITOR IS A TERRORIST AND MUST NOT BE GIVEN A VISA!”  Well, the only way to stop the forced sale of the house is to file for Chapter 13. Even a missile from Iran will not stop the foreclosure but Chapter 13 stops it dead on its tracks. Yes, Chapter 13 is more powerful than a missile from Iran.  In Chapter 13, the client will be allowed to pay the $34,000 over 60 months without interest — that’s about $570 a month. 

I am wondering why the client waited until the last minute to take care of this problem that it should come down to this. After all, he had 15 years to take care of it. Court judgments accrue interest at 10 percent p.a. until they are paid in full based on diminishing balance. The client said he wasn’t able to think right after the divorce. I guess it’s a traumatic event that has devastating financial implications.

Don’t wait until the last minute. Credit card debt must be wiped out now by Chapter 7 or 13. Otherwise, these debts will become lawsuits that become judgment liens that will put your house at risk. If you wipe them out now, they are wiped out, nipped at the bud. Peace of mind and security are what you get by getting rid of your debts now.

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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.

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