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Judge Halts Foreclosure in Low LTV Case

60% LTV on CA property securing CitiFinancial loan

November 26, 2004


A low loan-to-value ratio in a California bankruptcy case convinced a judge to halt a foreclosure against the owner of a Monterey County residential property.

Idolia M. Avila, 71, filed for Chapter 13 bankruptcy protection in June of 2003. She lived in a $300,000 house with a $178,916 first mortgage from CitiFinancial Mortgage, according to court records filed with the U.S. Bankruptcy Court for the Northern District of California.

Under her court-approved bankruptcy plan, Avila was required to pay CitiFinancial $1,339 a month.

But earlier this year Avila was not making the payments to CitiFinancial.

"You are behind on your Chapter 13 payments and your case will be dismissed unless your default is cured," the bankruptcy trustee wrote in a notice to Avila in February, according to a copy of the notice filed with the court. "You must take action."

At the time, Avila was $1,748 behind on her payments, records show.

"The debtor submits that she has been unable to make the mortgage payments because she has been having problems with her tenant" who rented a portion of the triplex, court papers indicate. "She also submits she is trying to refinance the debt on the property."

CitiFinancial filed papers with the court to foreclose on Avila's property and sell it to recoup the loan.

Avila wanted to either refinance the loan or sell the home, according to court papers filed by her lawyer.

But it was too late. CitiFinancial continued to pursue the foreclosure.

Then, Avila's lawyer used an interesting tactic.

Attorney Clark Miller showed that Avila's equity in the property was $87,962, or about 40 percent of the home's value.

Because of Avila's low loan-to-value ratio, CitiFinancial did not risk a big foreclosure loss if she was given more time to sell or refinance, Miller argued in court filings.

The bankruptcy judge agreed.

"CitiFinancial Mortgage is adequately protected by an equity cushion of 40%, so relief based on a lack of adequate protection is not appropriate," the judge wrote. "Where a creditor is adequately protected by a large equity cushion, the debtor would suffer a substantial loss in the event of foreclosure, and no economic harm to the creditor would result," the judge said.

"Complete relief to proceed to (foreclosure) sale is premature at this time," the judge continued. "For example, the debtor's tenant my resume rent payments, the debtor may receive additional assistance from her adult children, or she may relet the income-producing unit, enabling her to make the mortgage payments. Alternatively, the debtor could successfully refinance the debt on the property."

Avila was ordered to find a solution to satisfy the CitiFinancial debt within 90 days or the foreclosure would proceed.

Patrick Crowley is a political reporter and columnist and former business writer for The Cincinnati Enquirer. Email Patrick at: [email protected]
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