A California couple that hasn’t made a mortgage cost since 2009 will lastly be pressured out of their $1.7 million-dollar house after a state courtroom dominated final month that that they had exhausted repeated appeals, paving the way in which for his or her servicer CitiMortgage to foreclose on the property.
The story of how the couple, Anita and Mahesh Khurana, managed to evade foreclosures for 13 years on their house in San Ramon, California, is a sophisticated authorized story. The couple obtained an preliminary mortgage modification in 2009 however did not make funds after six months. Their efforts to remain of their house got here on the top of the monetary disaster when servicers had been overwhelmed by requests for mortgage modifications and coverage makers on the state and federal degree had crafted necessities geared toward serving to defaulted debtors keep of their properties.
“It’s extremely uncommon for one thing to go on that lengthy for 13 years — it is uncommon, ” mentioned Roland Reynolds, a companion at Gordon & Reynolds, a Los Angeles legislation agency that represents monetary establishments, personal lenders and servicers. “The borrower is normally someone who is excellent at preventing on a number of fronts however to get to 13 years you actually have to mix it with some kind of choice by the servicer not urgent their rights as a lot as they may.”
In an effort to stave off foreclosures, the Khuranas filed a Chapter 13 chapter reorganization in 2015, then sought a Chapter 7 chapter liquidation in 2017. Submitting for chapter permits a borrower to get an computerized keep of a foreclosures sale, typically for so long as 5 years. Consultants who’ve appeared on the state courtroom paperwork mentioned the Khuranas had been extraordinarily progressive by preemptively suing their mortgage servicer, CitiMortgage, alleging negligence, unfair enterprise practices and violations of California’s Householders Invoice of Rights. The pandemic additionally might have helped the couple keep away from foreclosures previously two years.
The California case is actually not the longest foreclosures by an extended shot, however remains to be uncommon on condition that the couple haven’t paid their mortgage in additional than a decade.
Rick Sharga, a mortgage skilled and govt vice chairman at ATTOM Information Options, an Irvine, California supplier of property knowledge, mentioned the longest case he was conscious of was in New York the place a borrower managed to keep away from foreclosures for greater than 20 years.
“It is just a little more durable to recreation the system in California than New York, which has a court-based foreclosures course of that gives a number of alternatives for delays and appeals,” Sharga mentioned. “However I’ve heard about loans in foreclosures for therefore lengthy, the place the servicers have basically simply given up.”
Servicers are more likely to level to the Khuranas story as a worst-case situation in how the authorized and chapter techniques might be gamed. It is also a cautionary story for regulators and policymakers that crafted servicing necessities comparable to California’s Householders Invoice of Rights, successfully creating countless alternatives for debtors to request loss mitigation to carry foreclosures at bay.
“The Householders Invoice of Rights will not be good, however mixed with the case legislation in California, [it] will not be pleasant to banks and servicers,” mentioned Stephen Foondos, senior lawyer at United Regulation Heart, a Sacramento, California legislation agency that represents debtors in wrongful foreclosures.
Foondos mentioned that some main banks not service loans in California “as a result of it is too troublesome given the legal guidelines,” to foreclose on debtors. “Then they rent inexperienced counsel who’re ineffective at resolving the problems and are extra keen on billing hours no matter how weak their shopper’s defenses are,” he mentioned.
Dwelling rent-free is kind of a feat for any home-owner however it’s notably troublesome in California, a non-judicial foreclosures state the place lenders usually are allowed to foreclose on a defaulted borrower inside 120 days, or roughly 4 months, with out submitting in courtroom. Consultants say the Khuranas tapped into two packages that helped them proceed to pursue alternate options to foreclosures gone the time when most debtors are ready to take action.
The California couple first utilized for the Mortgage Modification Mediation Program that permits chapter filers to start a mediation course of with their lender to get a mortgage modification or in the end give up the property. Nevertheless it was California’s Home-owner’s Invoice of Rights — a set of necessities handed in 2013 and modified and renewed in 2019 to supply protections to owners dealing with foreclosures — that purchased the Khuranas extra time, consultants mentioned.
The Khuranas purchased their home in 2001 and refinanced in 2006 by way of Argent Mortgage, a subprime lender and servicer that was dissolved early within the monetary disaster. CitiMortgage serviced the Khuranas’ mortgage for greater than a decade after Citigroup purchased the remnants of Argent’s mortgage and servicing operations and its associates in 2007.
The couple initially filed for Chapter 13 chapter in 2015 in Superior Court docket in Contra Costa County, California, which authorised the plan a 12 months later. However when the couple requested a second mortgage modification in 2016, alleging that they had despatched their servicer all of the required paperwork, Citi countered that the Khuranas didn’t qualify for a second mortgage mod.
Servicers are solely required to overview a primary request for a mortgage mod until there’s a materials change within the borrower’s monetary circumstances that’s documented and submitted to the servicer. Court docket paperwork present that the Khuranas had not submitted all the mandatory paperwork. By late 2016, when Citi issued a discover of trustee’s sale, the full unpaid stability on the Khuranas’ mortgage was $1,699,516.85, courtroom information present. Present valuations of the property weren’t instantly obtainable and photographs of the house are blocked on Google Maps.
A sale of the Khuranas’ house was scheduled for Jan. 4, 2017, however on the identical day the couple filed a voluntary petition for Chapter 7 chapter stating that they did so “for the aim of delaying a foreclosures sale,” in keeping with courtroom paperwork. Every week after submitting Chapter 7, the couple filed a lawsuit towards CitiMortgage claiming negligence and alleging that the servicer had failed to supply a single level of contact and didn’t assess a foreclosures prevention various as required by the Home-owner’s Invoice of Rights.
As a part of the lawsuit, depositions had been taken of a number of Citi workers who testified that the Khuranas had been denied a mortgage mod as a result of they didn’t submit an attraction, failed to indicate modified monetary circumstances, and didn’t present a slew of required paperwork together with tax paperwork, up to date checking account statements, paystubs or a hardship letter.
Citi workers additionally repeated core info of the case in courtroom: “The Khuranas defaulted on the mortgage by failing to make required funds starting in 2009,” state information present. “The Khuranas didn’t remedy the default, and the mortgage has remained in default since that point.”
The difficult facet of mortgage servicing is that when a borrower defaults on a mortgage, the servicer is required to proceed paying the principal, curiosity, taxes and insurance coverage to the proprietor of the mortgage. CitMortgage had the authority to make all choices on mortgage modifications, forbearance and foreclosures however nonetheless needed to proceed paying traders on behalf of the Khuranas, consultants mentioned.
Citi declined to remark. The California lawyer representing CitiMortgage within the case didn’t return calls looking for remark, and the Khuranas didn’t reply to requests for remark. Their attorneys additionally did reply to requests for remark or had been unreachable.
The final word proprietor of the Khuranas’ mortgage is U.S. Financial institution because the trustee for the residential mortgage-backed safety belief that holds the lien on the California property. A U.S. Financial institution spokesman mentioned the financial institution doesn’t have any mortgage degree info and has no duty to overview or take any motion on the servicer’s choices.
Attorneys that characterize debtors in foreclosures declare it is simpler for a servicer, with loads of funding, to endure the method free from emotional misery in comparison with the home-owner, who merely desires to reside of their house and could also be pressured to endure years of high-priced litigation and emotion trauma that could be the results of a servicers’ error, Foodos mentioned.
“In my expertise, for each one home-owner who deliberately video games the [loan modification] system, there are 50 servicers who errored and use mods to cowl it up,” Foondos mentioned.
By 2019, after a number of appeals, the Khuranas submitted further allegations in courtroom towards CitiMortgage claiming fraud and violations of the Actual Property Settlement Procedures Act. However the courtroom discovered that that they had “failed to supply any legitimate rationalization for the unwarranted delay in asserting a brand new concept of fraud so late within the continuing.”
When the pandemic hit in March 2020, mortgage servicers had been usually prohibited from foreclosing on debtors, leading to additional delays that saved Citi and different collectors from exercising their rights to achieve management of the property, information present.
In the end, a Contra Costa County Superior Court docket decide decided that the couple had been “merely drawing this litigation out in order that they could keep of their house indefinitely with out making funds,” and granted abstract judgment to CitiMortgage. CitiMortgage received approval in August to start foreclosures proceedings on the California house.
Whereas each foreclosures case is totally different, Reynolds acknowledged that some circumstances “fall by way of the cracks,” including that he nonetheless will get calls from defaulted debtors who haven’t made mortgage funds for years. He described the Khuranas’ techniques as much like a whack-a-mole carnival recreation.
“There are a number of issues occurring on this lengthy, convoluted story and totally different techniques used,” Reynolds mentioned. “It is whack-a-mole, the place they filed Chapter 13, then Chapter 7, then one other lawsuit. And in between the servicer put the foreclosures on maintain and did not get to promote the property once they may.”