Yesterday Elena and I came back from a delightful morning at Stanford University and San Mateo. Elena took the mail up to the house and put it on the table. Thee was one innocuous letter from the San Mateo County Clerk’s Office. I assumed it was just a notice on the change of our property taxes due to the recent passage of a parcel tax for the Jefferson Union High School.
I opened the letter and it was a legal paradox. It was in complex legal language that I had to struggle to understand despite the fact that I had attended law school. I figured out that it was the release of lien on the second lien that had haunted our house since 2007. It was anti climactic. I was in shock to finally see this document after a four year legal battle. Elena could not read the complex legal language. I had to translate it for her despite the fact that she is a medical doctor.
All of this drama began in April of 2007 when we took out a second mortgage on our house during the wild housing bubble. From the start we had trouble with Wells Fargo Bank. The monthly payment was an astronomical $2,500 US per month. When the housing bubble burst our house dropped in value from $870,000 to about $400,000. I also left my corporate job to form my own resources business. I picked up a client in Colombia. I was part of a team developing a new gold mine. It looked like I had a $250,000 fee coming in. Sadly we never got paid for all of our work. I found myself over 60 years of age and unemployed.
I contacted Wells Fargo Bank and asked for a loan modification on the second lien. They were nice to me at first. They reduced our payments from $2,500 per month to $800 per month. We paid this payment for 18 months. We then were served with a demand to increase the payments back to $2,500 per month. We declined and stopped paying on what we considered to be a worthless loan.
We continued to negotiate with Wells Fargo Bank. I even went to a meeting with their loan officers in Oakland. Nothing seem to work.
I met with a very good real estate lawyer in San Bruno. He pointed out that even if we walked away from the house and did a strategic default, Wells Fargo could sue us for the $152,000 balance of the loan because the loan proceeds were not purchase money. We were looking at the prospect of Elena’s wages being garnished for years to pay for a worthless loan.
In April of 2010 I filed by Chapter 13 bankruptcy reorganization. I started with one team of lawyers but soon realized that the case was very complicated. I took the case to one of the best bankruptcy lawyers in the US; Cathy Moran. She took the case. She looked at the Wells Fargo second lien. It was in Elena;s name and Elena was not on the bankruptcy. She said that California was a community property state and I could put the loan on my bankruptcy petition despite the fact that my name was not on the loan.
When Wells Fargo heard about this bankruptcy filing. They hired a top-notch lawyer to fight us. This man was so well respected in bankruptcy circles that the US Justice Department had suggested that the Russian government use his services to help them develop a comprehensive new bankruptcy law.
Cathy Moran did a great job of fighting this matter through one year in court. The bankruptcy judge agreed that our law was correct. He had a personal objection to the fact that Elena was not on the bankruptcy petition. He felt that Elena was getting the full benefits of bankruptcy without the penalties of bankruptcy. Wells Fargo was taken off the bankruptcy petition. We eventually exited bankruptcy and the legal bill was over $20,000. I suspect that Wells Fargo had a legal bill just as big.
We tried to negotiate with Wells Fargo Bank. They demanded $38,000 to settle the loan. We did not have that kind of money. A collection agency was brought in. We were deluged with phone calls and letters for 18 months. We were expecting a lawsuit and another $20,000 legal bill. If Wells Fargo had sues us they would have had a $20,000 legal bill also as the litigation drug on for several years. If the case had gone to the appeals courts. Elena and I could have seen a total legal bill of $35,000 as would have Wells Fargo.
One day I called the collection agency and got a really nice lady named Mitzi on the phone. She said that she wanted to work with Wells Fargo bank to get the settlement figure down to $25,000.
I had already worked with one of the best debt negotiation law firms in the US; The Comfort Law Firm of San Mateo, California. I called them and had a meeting with Alan Sherman who is one of the best negotiators on planet Earth. I paid them a $5,000 retainer. Alan and Mike went right to work. They got the collection agency to agree to take $20,000. Alan also got Wells Fargo bank to approve this settlement figure.
Over the next month we paid $20,000 to the collection agency. It took all of our liquid savings and other money that we could put together. We lived an austere life while paying this money. Ironically Wells Fargo got $10,000 of the money and the collection agency collected a juicy $10,000 fee for doing virtually nothing.
I was worried that the collection agency would “pocket” the whole $20,000 and give nothing to Wells Fargo. We would stioll be stuck with a $152,000 bill.
A few weeks later a letter arrived from Wells Fargo Bank. It informed us that they had received the settlement payment. We were promised a release of lien and good report to the credit bureaus.
It was a big relief to see the release of lien yesterday.
We still have to hire an accountant at year end to prove the IRS with data to prove that Elena is insolvent so she will not have to pay up to $40,000 in income taxes on thew a form 1099(c) that Wells Fargo bank will send her early next year for $132,000. We have enough debt to prove that the satisfaction of the IRS that we have a negative net worth.
This awful legal battle cost us $25,000 in legal fees and another $20,000 to Wells Fargo. Thanks to what I learned from Gretchen Morgenstern at The New York Times, we will be able to legally void that form 1099(c) for $132,000 in income.
My dear readers Wells Fargo Bank did not lose all that money. They probably had our loan in some mortgage-backed securities that were sold, for example, to some teacher’s retirement fund in New Zealand. These hard-working teachers were the ones who suffered the big loss.
Wells Fargo is the most ruthless bank in the world. They play “hard ball” and they will make your life hell on earth. This is a soul-destroying experience.