Mortgage Foreclosure Definitions

8/10/2019 Mortgage Foreclosure Definitions

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3/1/12 10:29 Alinois Pro Bono | Mortgage Foreclosure

Page 1ttp://www.illinoisprobono.org/index.cfm?fuseaction=home.dsp_content&contentID=327

Author: Revisions contributed by, Jim Brady, Legal Assistance Foundation of Metropolitan Chicagoast updated: August 2011

State Statutes

llinois Mortgage Foreclosure Law (IMFL), 735 ILCS 5/151507,1508;1602

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Foreclosure Process

llinois is a judicial foreclosure state. The foreclosure process is governed by the Illinois Mortgage ForeclosureLaw (IMFL), 735 ILCS 5/151101 et. seq.

Mortgages for this purpose include real estate installment contracts of more than five years duration, entered

nto after July 1, 1987, whose balance is less than 80% of the original purchase price. IMFL provides thexclusive method for foreclosing on all mortgages. In addition, the secured party in some UCC actions maylect to use IMFL, if the security interest is based on the assignment of a real estate installment contract orhe beneficial interests in a land trust. 735 ILCS 5/15-1106, 735 ILCS 5/15-1207 .

The entire foreclosure process in Illinois takes, on average, from the filing of the complaint to the eviction byhe sheriff, about nine months. Foreclosure defense in court can be successful in defeating the foreclosurection but if not, may prolong the foreclosure by as much as 24 months. If the property is not residential ors abandoned, the process can be substantially shortened. The following is an outline of a typical foreclosurease:

DefaultFiling of ForeclosureService of SummonsForeclosure Judgment and Order of SaleReinstatement Period Expires (90 days after personal service)Redemption Period Expires (7 months after personal service or 3 months after judgment, whichever islater)Foreclosure SaleForeclosure Sale ConfirmedRight to Possession Expires (30 days after foreclosure sale confirmed)Eviction by Sheriff of Named PartiesRecording of Foreclosure Deed

Why It Matters

A homeowner risks the loss of their home (including any accumulated equity), a personal judgment for theebt, and the loss of future credit, since a foreclosure judgment appears on credit reports.

Definitions

Mortgage Foreclosure


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Default: The date of the first missed payment and should be identified in the lenders complaint. When theorrower has missed the second payment, the lender sends (statutory) notice advising borrowers they have30-day grace period to contact a housing counselor, in which case they will receive a second 30-day graceeriod prior to taking legal action. 735 ILCS 5/15-1502.5 . Once the borrower misses a third payment, theender sends a notice of acceleration, informs borrower it intends to foreclose and sends the file to anttorney to initiate foreclosure.

iling of Foreclosure: The foreclosure case starts with the filing of the lenders complaint to foreclose. Theequired elements of the complaint are set forth in the IMFL. 735 ILCS 5/15-1504 .

ervice of Summons: Service of the summons and complaint are governed by Article II of Illinois Code of Civil Procedure. 735 ILCS 5/15-1107 . Service by publication is only valid after an attempt at personalervice. All information in the notice must be accurate. A Homeowner Notice advising the homeowner of heir rights, including reinstatement and redemption must be attached to the summons. 735 ILCS 5/15-504.5 .

oreclosure Judgment and Order of Sale: If no answer is filed by the homeowner the lender may moveor a default judgment or if an insufficient answer is filed by the homeowner, the lender may move forummary judgment. If granted, a judgment of foreclosure is entered.

Reinstatement: Payment of past-due amounts, including all accumulated principal, interest, escrow, costsnd fees, bringing the account current. 735 ILCS 5/15-1602 . If the court makes an express finding that aomeowner has reinstated the loan pursuant to this section, the right to reinstate will be available oncevery five years. The mortgagor has the right to reinstate the mortgage within 90 days from the date the

mortgagor was served with a summons or is served by publication or was otherwise submitted to theurisdiction of the court.

Redemption: Payment of all amounts due to the lender, including the full principal balance, all accumulated

nterest, fees, and costs. In the case of residential real estate, the redemption period ends seven monthsrom the date the mortgagor was served with summons or by publication or three months from the date of ntry of the judgment of foreclosure, whichever is later. 735 ILCS 5/15-1603 .

udicial Sale: After expiration of the rights to reinstate and to redeem, the lender may sell the home byudicial sale. Notice of the sale must be given to all parties in the action who have appeared and have noteen found in default for failure to plead. Notice of sale must also be published, running in the newspaper fort least 3 consecutive weeks, between 45 and 7 days prior to the sale. 735 ILCS 5/15-1507 .

Confirmation: Lender files a petition with the court to confirm the judicial sale. The court must confirm theale unless it finds: 1) that notice of the sale was not proper, 2) the terms of the sale were unconscionable,) the sale was conducted fraudulently or 4) that justice was otherwise not done. 735 ILCS 5/15-1508 . Anrder of possession will also be entered and stayed for 30 days. Personal liability for any deficiency isstablished at this time. The order confirming the sale is the final order in the foreclosure case for appeal andther motion deadline purposes.

pecial Redemption: A right of redemption that applies if the purchaser of residential property at aoreclosure sale is the mortgagee and if the sale price is less than the total amount of principal, interest,osts, and attorneys' fees. Under those circumstances, the mortgagor has a special right to redeem up to 30


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ays after the foreclosure sale is confirmed by paying the sale price, all additional costs incurred by themortgagee set forth in the report of sale and confirmed by the court, and interest at the statutory judgmentate from the date the purchase price was paid. 735 ILCS 5/15-1604 .

Warning

Homeowners threatened with foreclosure receive a flood of mail offering quick fixes and advice.Homeowners should be warned about this mail and told to discard it all. Typically, scams involve offers toefinance (at an exorbitant interest rate or with hidden fees) and offers to buy the property, pay off the

mortgage and resell the property to the homeowner, usually at an inflated price or on terms guaranteed toause default.

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Options

f the house is not yet in foreclosure , the client should immediately contact the lender and try to workomething out. The client should pay as much as possible and save any money returned by the lender.

Once the house is in foreclosure, the client should decide if they can and wish to keep the house or if hey wish to move. A realistic and careful assessment of the clients income and expenses must be done toetermine if it is feasible to keep the home. If the homeowner is to keep the house , they must reinstateedeem , file a Chapter 13 bankruptcy, or attempt a work out with the lender. If the homeowner does not

want to keep the house , the client can sell the house, offer a deed-in-lieu of foreclosure , or fileankruptcy .

ales: The house can be sold at any point through the final redemption date. Proceeds are used to redeemhe mortgage. This is a particularly good option for a homeowner who has substantial equity in the home. Anssumption of the mortgage by the purchaser is also possible. The lender may also agree to a short-sale ale for less than the debt if the house has been assessed at less than the value of the debt. A short saleas tax consequences forgiveness of debt is income and buyers should be advised accordingly. Manyenders require that the home be listed for at least 90 days before they will consider a short sale. Also,nless the lender waives their right to a deficiency, a short sale rarely benefits the homeowner.

Deed-in-lieu: The client deeds the house to the lender and moves out in exchange for a release fromersonal liability on the debt. The procedures are set forth at 735 ILCS 5/15-1401 . There can be no junioriens on the property for this to work. The Illinois ARDC recommends that the homeowner use an attorney forhe preparation of these documents to avoid chances of practicing law without a license.

Bankruptcy: If the buyer has enough regular income that they can bring the mortgage current within 60months, they may be eligible for a Chapter 13, which would allow them to keep the house. If not, they canile a Chapter 7, which will allow them to escape personal liability for the debt. A Chapter 7 will not let theuyer keep their home. A bankruptcy filing, either Chapter 7 or Chapter 13, will stay foreclosure proceedingsnd extend the redemption deadline. Chapter 7 bankruptcy is not an option if they have filed another

Chapter 7 petition in the last eight years and if a discharge was a granted in the prior bankruptcy.

A bankruptcy must be filed before the judicial sale. Additionally, a debtor seeking bankruptcy protection must


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artial Claim: If the mortgage is HUD (Department of Housing and Urban Development) insured, the lendermay be able to request that HUD pay the arrearage. HUD then takes a junior mortgage on the property,which must be paid off after the existing mortgage or at the time of the transfer of the property.

Repayment Agreements: The buyer pays the arrearage with an additional payment each month; term issually limited to 12 months, not to exceed 18 months.

You should warn homeowners to call back if, after negotiating a workout agreement, they receive a noticerom the servicer raising the total monthly payment because delinquent escrow accounts must be made up.

This usually means the loss mitigation department has not contacted the escrow department. Buyers shouldot have to pay back the delinquent escrow twice.

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Defenses to Foreclosures

Loan documents and the foreclosure complaint must be carefully reviewed to determine if there are any

quitable or technical defenses. A list of some possible issues that may create defenses follows:

orce-placed Insurance: Sometimes lenders purchase insurance in the mistaken belief that theomeowner has let their policy lapse. If, in fact, the homeowner has their own insurance, they should notave to pay for force-placed insurance.

Tax Sale: If the real estate taxes are unpaid and sold, the buyer should not have to pay any increased costs,f the buyer made all timely mortgage and escrow payments and responded promptly to lender inquiries.

Lost Payments: Sometimes, particularly when a loan is sold or transferred to a new service, payments areot applied to a buyers account.

ailure to Accelerate the Note: The loan cannot be foreclosed until the loan is accelerated. If the loanocuments require notice because of acceleration, failure to send the notice may defeat the foreclosure.

uit after Assumption: If the original mortgagor sells the property and does not get a release, they will stillace personal liability in a foreclosure action. The original mortgagor should be dismissed from the lawsuit

without any adverse credit consequences.

HA-Insured Loans: FHA loans have special servicing requirements, including a counseling notice mailed tohe mortgagor within 45 days of default, a face-to-face meeting with the borrower within 90 days of default,

nd a notice of available counseling. 24 C.F.R. 203.500 et. seq . Failure to comply with these rules is anffirmative defense. Bankers Life v. Denton , 120 Ill. App. 3d 576, 458 N.E. 2d 203 (3d Dist. 1983).

Accepting Payments After Foreclosure: If the lender accepts payments after filing foreclosure, and themortgagor is not in bankruptcy, there may be a technical defense to the foreclosure.

Truth-in-Lending and HOEPA Violations: Truth-in-Lending and HOEPA violations may be raised as aefense at any time. However, the most powerful remedy available, rescission, i.e. voiding the mortgage (if


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nonpurchase mortgage) is only available within three years of execution of the mortgage. An attorney musteview the original disclosure documents to determine if there was a violation, but failure to disclose materialerms in writing, or high interest rates on a nonpurchase mortgage, almost always warrant carefulnvestigation.

raud, Abuse, Collusion: In some cases, where the loan is clearly abusive or coercive or where the overalloan transaction was abusive or coercive, it may be possible to plead fraud or raise an equitable defense to

oreclosure.

air Debt Collection Practices Act, 15 USC 1692 - 1692a : Attorneys who file foreclosure papers areebt collectors and must comply with the FDCPA. Heintz v. Jenkins , 115 S. Ct. 1489 (1995). While not aefense per se to the foreclosure action, it does give rise to a statutory and actual damages claim.

ailure to Attach Note and Mortgage to Complaint: If the note and mortgage are not attached to theomplaint, the complaint is subject to a motion to strike. 735 ILCS 5/2-606 . However, most courts allow aender to cure this deficiency without striking the complaint. A lender is not required to attach anyndorsements of the note or assignments of the mortgage and simply is required to allege that it is theolder of the indebtedness or the holders agent.

ncorrect Notice or Service: Service by publication is only valid after an attempt at personal service. Allnformation in the notice must be accurate. Not infrequently, mistakes are made in the notice of motion fororeclosure, invalidating the subsequent order.

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Tenants

35 ILCS 5/15-1701(h)

Unnamed parties, including tenants, who came into possession before the foreclosure proceedings, cannotave their right to possession terminated by the Order Approving Sale. The Plaintiff must obtain either aupplemental Order of Possession or file a forcible entry and detainer action. Tenants may have a defense toither of these actions.

Even though a foreclosure has been filed, a tenants lease is still valid. If the Plaintiff becomes the new owners a result of a foreclosure judgment, the bank must notify the tenant in writing. If the bank does not notifyhe tenant, the bank cannot demand rent from the tenant.

Before a bank can file an eviction case against a tenant, the bank must serve the tenant with a writtennotice to vacate advising the tenant that they have at least ninety (90) days after the date their lease endso move out of the apartment.

f eviction is due to a building foreclosure, the tenants eviction record should be sealed by the court.

f the tenant is a Section 8 housing choice voucher holder, the bank is required to accept rental paymentsrom the tenant and the Chicago Housing Authority.


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udicial Sale

35 ILCS 5/151507, 1508

The person who conducted the sale reports the results of the sale to the court. Personal liability for any

eficiency is established at this time. Occasionally, the property is sold for more than the pay-off. Thelient may be entitled to a surplus from the sale. The client should call the mortgagees attorney and see if he property sold for more than the amount due. If there is a surplus, the client must file a motion to requesturnover of the excess proceeds of sale.

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nvestment Property

f the property is an investment property, the lender can ask for a receiver or caretaker as soon as the suit is

iled. Also, since the right to redeem can be waived in non-residential loans, the foreclosure can go muchaster.

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Foreclosure Scams

There are many mortgage scams. Anyone who is foreclosed will receive 30 to 80 pieces of "vulture" mailwhich offers a variety of advice. The client should beware of these solutions. The client should use approvedredit counseling agencies instead.

EXAMPLE : Caller tells client that they have excellent credit and can get a mortgage on the property. Theywill allow client to deed the property over to them, and lease it back to client. Of course, they own the

roperty then and the client is evicted.

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Documents

Mortgage Foreclosure Definitions