COMBINATION OF CHAPTERS 7, 13 AND LOAN MODIFICATION GIVES CLIENTS EXTREME FINANCIAL MAKEOVER

When an obese person weighing 500 lbs. implements steps to lose 300 lbs. and actually succeeds, people take note and are happy for that person. The reality shows call this extreme makeover.  Real estate TV shows call the new look of the property after improvements are made on it as extreme makeover. The kitchen cabinets are torn down and new ones are installed. Walls are torn down.  Carpets are removed and marble tiles are installed. The bathroom fixtures are replaced with new ones. Even the landscaping is changed. So, we all know what extreme makeover means.

Extreme makeovers not only happen with human bodies and houses. Extreme makeovers can also happen to a debtor’s financial landscape. Take my client’s example:

Client is a registered nurse who has gross annual income of $100,000. Husband recently lost his job as a warehouse person.  Since husband used to gross $30,000 yearly, the household income is reduced by 24%. Husband ‘s unemployment benefits have terminated. Their credit card debt is $110,000, which they have not paid for 8 months. They own a house worth $400,000. Their monthly mortgage is $3,100, excluding real estate tax, with a balance of $500,000. They have not paid the house for over a year and owe arrears of $44,000. They have a 2^nd trust deed of $120,000 payable at $1,000 monthly which they have also not paid for more than a year. 

Client filed a Chapter 13 with another lawyer in 2013 with a plan payment of $1,500 for 60 months. Since she could not afford the plan payment, her case was dismissed on month 3. The first mortgage files a notice of default for the $44,000 with intent to foreclose in 90 days.

After she explained what had happened which apparently started out with following the instructions of a loan modification person to stop paying her mortgage so she could qualify for LM which was eventually denied, I explained the future steps that we could take to straighten out her financial situation and save her house. In a span of 14 months everything we planned out happened with facts that I would have to say is miraculous.  Since we were both Christians, I said let’s pray for the best, and she said “Amen.”

First we filed a Chapter 7. It stopped the foreclosure and discharged all of her credit card debt of $110,000. The first mortgage holder could have, but did not file a motion for relief to ask court permission to continue foreclosure while the Chapter 7 was pending. For 5 months, secured creditor sat and did nothing. I will call this the first miracle because if creditor asked for court permission to continue foreclosure then we would have to convert 7 to 13, which we did not want.  The Chapter 7 discharge was entered on month 6.

On month 7, we filed their Chapter 13 case to handle the default of $44,000 of the first mortgage and to cancel the 2^nd trust deed of $120,000. After we filed the motion to avoid the 2^nd trust deed, the second miracle happened.  Two weeks after the motion was filed, client received a letter from the bank saying that they had FORGIVEN the 2^nd trust deed, that client owes bank nothing anymore, and attached to the letter a deed of reconveyance for the 2^nd trust deed. The reconveyance is absolute proof that the debt has been forgiven and the mortgage released and satisfied in full!

So, the only problem left was the first mortgage default of  $44,000. The plan payment of $800 monthly for 60 months took care of this. However, it was still a burden for client to pay the current portion of $3,100 plus $800 for the plan payment.  That’s almost $4,000 for the house payment alone!

We file for loan modification. Creditor is Nationstar. Next to One West Bank, this bank is probably one of the hardest banks to talk to.  After 4 months, Nationstar reduces her mortgage payment by $800 to $2,300.  This is the third miracle for her!

The LM puts her back in current status with the mortgage; therefore, the Chapter 13 case is no longer needed to protect her house. With God’s help, clients’ finances indeed went through an EXTREME MAKEOVER.

“You are my lamp, O Lord; the LORD turns my darkness into light.”  2-Samuel 22:29.

Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years.  He specializes in bankruptcy, business and civil litigation and has handled more than five thousand successful bankruptcy cases in California.  He speaks Mandarin and Fujien and looks forward to discussing your case with you personally.  Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave, Mailstop 58, Bldg A-1 Suite 1125, Alhambra, CA 91803.