Foreclosures down, yet struggles for loan modifications continue

John Chun has lived the American dream.

After escaping from North Korea to South Korea in 1957, he moved to the United States, learned to speak English and went to college.

Eventually, Chun became an engineer and car designer for Ford Motor Co, where he designed the Shelby Cobra, one of the most iconic hotrods of the 1960s.

But Chun's dream is turning into a nightmare. At 84, he and his wife Helen, who also is from Korea, may lose the home they have owned since the 1970s to foreclosure, even though they have plenty of equity.

Like thousands of other homeowners across the county, the Chuns are fighting in the courts to save their home, even as the housing market improves and the number of foreclosures is declining. In Minnesota, there were 9,565 foreclosures in the first half of 2012, 15 percent fewer than the same period last year.

For more than three decades, the Chuns lived comfortably in the western Twin Cities suburb of Mound, where they raised their two children.

But their rags-to-riches immigrant story took an unlucky turn in 2006, when they refinanced their home through IndyMac, now a division of One West Bank. They were unaware that it had an adjustable rate.

"We were doing very well, never behind and we enjoyed life," Chun said over lunch at his wife Helen's Chinese restaurant in Delano. "Then my mortgage payment [went] from $1,750 to $3,000, $4,000. We couldn't meet our payment."

The couple's mortgage payment skyrocketed to more than $5,000 a month — well beyond their means. At the same time, the economic downturn and road construction on Highway 12 kept customers away from the restaurant, their main source of income.

By 2010, they were well behind on their payments to their loan servicer, IndyMac, and received a foreclosure notice.

So when an IndyMac representative offered the Chuns a loan modification that year through the federal Home Affordable Modification Program, they eagerly applied. The program is designed to help struggling homeowners obtain loan modifications or to refinance their home and avoid a foreclosure.

"We don't want to simply lose the house... I'm a fighter. I know how to hang in there no matter what."

But the bank rejected their application on the grounds that their documents weren't complete. After the first rejection, they tried again and were again rejected.

In court documents, the Chuns allege bank representatives told them their applications were, in fact, complete.

With a modification seemingly out of reach, the Chuns hired a realtor to put their house on the market. The property listed for $1.4 million. According to their real estate agent, the couple stood to recoup at least $265,000 in equity if they sold their home.

An IndyMac representative again contacted the Chuns with offers of another loan modification and promised their application would be approved on the third try. Hoping to save the house where they had raised their children, the Chuns then took their home off the market to apply for another modification.

But while IndyMac processed the Chuns' application for a loan modification, the company sold their home at a foreclosure auction. The bank then bought the home for just over $685,000.

The Chuns are suing One West in federal court, alleging that the company misrepresented their loan and made false promises to them. A judge issued a restraining order to block their eviction until the case is settled.

The attorney handling the case for One West bank did not return repeated requests for comment.

In court documents, the bank disputes many of the Chuns' allegations. Bank attorneys say lending agents denied the Chuns a loan modification because they failed to provide the necessary financial documents in time. The bank has asked a judge to dismiss the Chun's case.

But the Chuns' attorney, Todd Murray, said his clients case' is about more than the loan modification.

"The issue is they deserved to be treated honestly and to be told the truth," Murray said. "They weren't told the truth and they lost their house and they lost a lot of equity in their house as a result of that."

Minnesota courts have traditionally ruled in favor of banks in such cases. Judges often say that if promises by a bank aren't in writing, homeowners cannot rely on them.

Murray, however, thinks the Chuns have a shot.

"Banks should not have the ability to just lie to people about the modification process," he said.

What happened to the Chuns was common during the height of the foreclosure crisis, Murray said. In a "dual-track foreclosure," bank officials proceed with a foreclosure at the same time they are processing an application for a loan modification.

Consumer advocates have argued forcefully that the process misleads homeowners and puts them in a difficult position of trying to figure out whether to rely on the promises of the lender regarding the loan modification or to take actions to try and protect themselves.

So-called dual-track foreclosures are now prohibited under the recent attorneys general settlement between 49 states and the nation's five largest loan servicers over foreclosure practices. One West is not a party to the settlement as it isn't one of the biggest servicers.

To prevent problems like the Chuns say they experienced, the federal Consumer Financial Protection Bureau, established by the Obama administration, is considering new rules for mortgage servicers.

Meanwhile, Chun, who is battling stomach cancer, said he and his wife are not giving up.

"We don't want to simply lose the house," he said. "I'm a fighter. I know how to hang in there no matter what."

The Chuns' case is slated to go before a federal judge Dec. 5. If the judge allows their lawsuit to move forward, the Chuns could get the opportunity to save their house.

If not, the elderly couple will have to find another place to live.

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