Client is 61. 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 $250K of equity in the house. Since they could not pay $4,400, they asked the bank for a loan modification last year. Bank placed them on a 3-month trial period that they complied with. However, nothing happened after the trial period. Bank started to send them statements demanding $4,400 after the trial period ended. 

Clients received the recorded notice of default last October. Foreclosure sale is now scheduled for February 15, which is next week. Their arrears on the mortgage is $60K. 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 of there are no serious buyers that show up for the auction sale. If no serious buyers show up, then bank will bid the balance of the loan for the house and that will wipe out the entire $250K of equity. The house is worth $800K while the balance of the mortgage owed to bank is $550K leaving equity of $250K. But if there are no buyers at auction, bank will bid $550K, the balance of the mortgage then debtors get nothing. If a serious buyer shows up and bids $700K, then bank gets paid $550K, and clients realize an amount over the balance owed to bank or equity of $150K. 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. 

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 LM 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 $800K would do the trick because clients walk away with at least $200K of equity. They can use the cash to buy a more affordable house with a smaller mortgage payment.

Next client is 66. He owns a house with a small mortgage balance of $140K. His house is now worth $1.0M. So he has over $850K 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% 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 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. 

Client has social security of $1,400 and makes $2,600 driving UBER full time. A judgment creditor had a judgment lien of $15K on the house 15 years ago. That lien has now ballooned to $34K. And judgment creditor has just filed a motion to sell 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 a Chapter 13. Even a missile from Iran will not stop a foreclosure but a Chapter 13 stops it dead on its track. Yes, a Chapter 13 is more powerful than a missile from Iran.  In a Chapter 13, client will be allowed to pay the $34,000 over 60 months without interest, that’s about $570 a month. 

I am wondering why 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% p.a. until they are paid in full based on diminishing balance. 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 is what you get by getting rid of your debts now.

“YOU GUIDE ME WITH YOUR COUNSEL, AND AFTERWARD YOU WILL RECEIVE ME TO GLORY.” PSALM 73:24

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.

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