Client no. 1 presents her long tale of bad news that started when she wanted to refinance her fully paid house 2007. That was the year of what some people call “predatory” lending. Client became a victim of a loan broker who promised her that she was getting a refinance loan at 2% per annum fixed for 30 years. Wachovia, which died with the rest of the other lenders like Countrywide and IndyMac, gave her a refinance loan of $400K. She thought she was getting a 2% per annum fixed rate loan for 30 years since that is what the loan broker said she would get. But the loan that was given to her was actually an ARM. You know, one with an adjustable rate that fluctuates every six months. After paying her mortgage for two years at $2,400, she thought everything was good. However, all of sudden she gets a notice of default from Wells Fargo, the assignee of the Wachovia loan, saying that her house was going to be foreclosed after 90 days if she did not cure the default of $20K.

In 2009, the fashion was “sue the banks” for giving you a loan that did not comply with your expectations. A lot of homeowners were actually fooled by unscrupulous lenders who represented to the buyers that, just like my client, that they were getting a really cheap mortgage loan at very low interest. The funny thing was that no matter how diligently and timely they paid their mortgage payments, the balance of the loan kept on getting bigger. Homebuyers then thought, now, that can’t be right. There’s something wrong going on here.

After investigations conducted by the district attorneys, it was determined that there was a massive fraud perpetrated by the banks on homebuyers. The banks marketed their teaser low rates, which were only good for a specific period of time. When adjustment time came around, most homebuyers were faced with a higher mortgage payment. The banks that got bail out funds were required to settle with the government by forcing them to give loan modifications under HAMP. Sure, some people got sweetheart deals in HAMP, reducing payments, converting ARMS to fixed 30 or 40-year loans, and even reducing principal if your house was upside down. However, many people to this day are still left holding the bag. And since HAMP will end by December 31, 2016, next year, most banks are now reluctant to dole out loan modifications unless there is a very good reason to give one.

Client has had several lawyers over the years working on a resolution of her claim of fraud. She doesn’t want to sue the bank. All she wants is to have that the bank modifies her loan to 2% fixed 30 as what she was promised by the loan broker 8 years ago. However, she has gotten another notice of default, and this time her default is $40K. The right thing to do is file a Chapter 13 to protect the house from foreclosure and continue negotiations on resolving her fraud claim against the bank. Otherwise, she will certainly lose her house to foreclosure even while the resolution of her fraud claim is pending. Certainly, this is not fair or just, but that’s the way the foreclosure process works. Only a Chapter 13 can stop the foreclosure on its tracks. Further, a motion to allow debtor and bank to pursue the loan modification is a standard motion in Chapter 13. Chapter 13 does not exclude or kill the loan modification process. In fact, Chapter 13 enhances debtor’s chances of successfully resolving her claim of fraud with the bank. Under the worst situation, client can file an adversary proceeding in Chapter 13 to ask the bankruptcy court to rule on her claim of fraud against the bank.

Client no. 2 is almost in the same situation. It’s been a nightmare for her since 2010. That’s when she sold her residence in Orange County and transferred her equity to buy her new residence in Riverside. She became the victim of identity fraud when unknown persons made it appear that she applied and got a HELOC line of credit against her new house in Riverside for $40K. The first mortgage and the HELOC line are with the same bank. Thus, imagine her predicament and frustration when she found out her mortgage payments for the first mortgage, were being used by the bank to pay the 2^nd mortgage HELOC, which she never applied for. In effect, her arrears on the first mortgage became bigger and bigger until a notice of default was recorded.

Again, she retained several lawyers in the last several years to try to get the bank to remove the 2^nd mortgage based on fraud and to reinstate the first by applying her payments to the 2^nd to the first mortgage. Unfortunately, while negotiations were going on, a foreclosure sale notice was recorded despite the negotiations. So, to stop the foreclosure, client needs Chapter 13. In the 13, she is also going to avoid the 2^nd trust deed because her house in Riverside is upside down.

“THE LORD HIMSELF GOES BEFORE YOU AND WILL BE WITH YOU; HE WILL NEVER LEAVE YOU NOR FORSAKE YOU. DO NOT BE AFRAID; DO NOT BE DISCOURAGED.” DEUTERONOMY 31:8

Lawrence B. Yang is a graduate of Georgetown University with a Master’s Degree in Law and specializes in Bankruptcy, Business, Real Estate and Civil Litigation.  He speaks English, Mandarin and Fujian and has successfully represented thousands of clients in California, including companies overseas.  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 OR at 20274 Carrey Road, Walnut, CA 91789.