MOTHER’S HOUSE WITH LARGE EQUITY ATTACHED BY CREDITOR OF CLIENT SEEKS DEBT RELIEF

Client presents his financial problem as follows. It’s quite interesting and unusual. Client registered a partnership with his  younger brother, each owning 50% of a retail business 20 years ago. The business did very well until recently due to increased competition that slowly crept up over the years. Then disaster struck. A fire occurred in the store and destroyed substantial merchandise and a portion of the premises. Fortunately, insurance paid for most of the damage. But, due to the stoppage of business for several months, it had no cash inflow and the payables became uncontrollable. In addition, there was a slip and fall accident in the store and there was a lawsuit for $200,000, and several employees had sued for back pay, which resulted in a total of another $100,000 order to pay from the department of labor. Premises liability insurance also covered the lawsuit but there was no protection from the department of labor order to pay.

Initially, client restarted business and resumed operations but found out diminished sales generating less cash flow could not cover overhead and he was losing $10,000 a month despite insurance proceeds from fire damage. He could no longer pay the rent of $7,000 a month so the landlord threatened eviction. Two creditors started suing for a combined total of $230,000 and eventually got a judgment. It was these two judgments for a total of $235,000 that told him that it was time to throw in the towel. The judgment creditors were able to get two separate liens on the house of the mother of client, one for $60,000 and the other for $175,000. Due to judgment interest, these two amounts were increasing at a significant rate.

Mother’s house was fully paid and currently worth $700,000. She is 85 years old. This is not the kind of problem a senior citizen wants to have at that age. These creditors can actually force the sale of mother’s house to pay client’s debt, which is what we do not want to happen under any circumstance. It’s unfair to mother because she had nothing to do with client’s business. So, creditors attached it, but still, how can they do this dastardly act when client’s name is not on title on mother’s house? The reason is that the younger brother who was a 50% owner of the partnership was a joint tenant on mother’s house, and the judgment was against both client and his brother. Therefore, the judgment lien attached to any property in the name of client or his brother. As a result, the judgment liens attached to half of mother’s house in the brother’s name. Since the house was now worth $700,000, the share of brother in the house was half, or $375,000 which was adequate to pay for both liens. 

Apparently, this problem could have been avoided if client had taken the proper steps earlier to protect mother’s house when his brother had left the partnership 10 years ago and had returned to his home country. When brother left the partnership, client should have amended the partnership documents to remove the brother and register that amendment at the recorder’s office so that the brother would not have been included in the lawsuit, and as further protection of the mother’s house, required brother to quitclaim to mother, so even if the judgment was also against brother, the lien would not have attached to mother’s house. Neither was done, so mother’s house got attached. So, now we are faced with the formidable task of removing these two liens on mother’s house. This is a difficult task but with God’s help, everything is possible.

One way was for brother to file a Chapter 13. However, because of the large equity, the judgments would have to be paid 100% over 60 months. That’s at least $3,800 a month for 5 years. After completion of the plan payments, the liens will be removed. But even with the entire family contributing to plan payment, $3,800 a month for 5 years is burdensome and difficult to pay even for the entire family. Another alternative is to refinance the house and pay off the liens. But this would be a long-term mortgage and mother would never agree to this. It took her 30 years to pay that off, and at her age, a mortgage on the house is the last thing she wants, even a reverse mortgage would not give her peace of mind. The only other alternative is the settle the liens for the least amount possible. The problem is that settlement requires a lump sum payment. Even at 50% settlement, $117,000 would have to be produced from somewhere. But that’s $117,000 that client does not have. Another alternative is to settle the $60,000 for half or $30,000 cash, and pay the larger lien of $175,000 through Chapter 13 at $2,900 a month, about a thousand less at least than $3,800 a month if both liens were outstanding.

Believe it or not, we were able to remove the liens with the least amount of cash out possible, and there is a happy ending to this, which I will discuss next week.
 
 “Cast all your anxiety on God because he cares for you.” - 1 Peter 5:7.

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.