The Foreclosure Process in Illinois

A Guide for Homeowners and Attorneys

Justin Abdilla

First Steps

• Before the Bank can sue you for mortgage foreclosure, they must see first if you qualify for a loan modification under the federal HAMP program.

• After 2 missed mortgage payments, the bank must give you 30 days to catch up. If you communicate to the Bank that you’re working with an approved housing counselor, you will get an extra 30 days under HAMP.

• During this time, expect to receive a Grace Period Notice.

Grace Period Notice

• Your Grace Period Notice must state in bold 14-point type:

• "GRACE PERIOD NOTICE", and shall state the following in 14-point type: "YOUR LOAN IS MORE THAN 30 DAYS PAST DUE. YOU MAY BE EXPERIENCING FINANCIAL DIFFICULTY. IT MAY BE IN YOUR BEST INTEREST TO SEEK APPROVED HOUSING COUNSELING. YOU HAVE A GRACE PERIOD OF 30 DAYS FROM THE DATE OF THIS NOTICE TO OBTAIN APPROVED HOUSING COUNSELING. DURING THE GRACE PERIOD, THE LAW PROHIBITS US FROM TAKING ANY LEGAL ACTION AGAINST YOU. YOU MAY BE ENTITLED TO AN ADDITIONAL 30 DAY GRACE PERIOD IF YOU OBTAIN HOUSING COUNSELING FROM AN APPROVED HOUSING COUNSELING AGENCY. A LIST OF APPROVED COUNSELING AGENCIES MAY BE OBTAINED FROM THE ILLINOIS DEPARTMENT OF FINANCIAL AND PROFESSIONAL REGULATION."

The Summons

• Approximately, but no fewer than 30 days after the Grace Period Notice is sent to you, and no fewer than 120 days after your first missed payment, the bank can file their foreclosure action.

• The Sheriff, or a special process server, will serve you the foreclosure complaint. Typically this is done by coming to your home and handing you the papers. If the server comes to your home a few times and cannot find you, the notice of the lawsuit will be put into a local newspaper.

• Your time to respond to the Complaint begins 30 days after you are served, unless you are in a mandatory mediation county.

Mediation by County

• Cook County gives access to housing counselors and foreclosure legal assistance at each judge’s respective help desk, and from time to time on the 7th floor of the Daley Center. Call (877) 895-2244 for details.

• Kane County has a mandatory opt-out mediation program. You will be given a mediation date, and as long as you appear you can participate in the court sponsored mediation.

• Will County is similar to Kane County’s program, but the date to appear will be listed on the Complaint.

• Lake County’s program allows homeowners to use the Court sponsored mediation program so long as they attend an education session offered by the Affordable Housing Corporation within 35 days of receipt of the summons. Call (846) 796-8050 for details.

What to Expect in Mediation

• Mediation is a program where you and the bank will work together to attempt to solve your foreclosure without litigation and the fees included.

• Mediation is confidential, and the mediator does not force the parties to agree to a result.

• When you appear at mediation, you will be given the opportunity to explain to the Bank if you want a loan modification, short sale or a consent foreclosure solution.

• Because this mediation session will include an examination of your financial ability to repay the loan if modified, you should contact an approved housing counselor or your mediation program coordinator to see what documents you might need.

If Mediation Succeeds

• If court-sponsored mediation is successful, you will have reached an agreement with the bank on whether you will receive a loan modification and retain your home with either a new HAMP modification or a trial payment period plan. You may also come to terms regarding short sale figures or a consent foreclosure, and agree to give up your home to either a new buyer or the bank, so long as certain conditions are met.

If Mediation Does Not Succeed

• If mediation does not succeed, you will be given a date to appear in the courtroom for the start of litigation.

• Your date to make your first response to the court will typically be 30 days after your mediation program sends you a letter saying mediation terminated.

First Steps in the Courtroom

• All homeowners stepping into a courtroom for mediation should first consult an attorney about any defects in the service of the Complaint or any defects apparent from the face of the Complaint itself.

• Before that 30 day period to respond has passed, the homeowner and her attorney should work together to file the proper response to the Complaint, and a proper appearance.

Reinstatement

• To save the home without winning the foreclosure case, there are few options once litigation starts.

• A Homeowner has the absolute right to reinstate the loan within 90 days after receiving the foreclosure complaint. This means that you will pay the missed payments, attorneys fees, court costs and all other fees from escrow that were incurred during the time that you missed payments.

Defenses to a Foreclosure Complaint

• Many defenses to a Foreclosure Complaint exist in Illinois that should be utilized when applicable to defend a foreclosure.

• The following pages list some of these defenses, but please note that an attorney should be consulted to determine if a factual basis for raising any of these defenses exists.

• The laws for foreclosure are constantly changing, please note that the following is accurate only as of September 15, 2015.

Standing

• If the Bank suing you for foreclosure has no interest in your property, your attorney should raise the affirmative defense of standing in the first pleading filed with the Court.

• “It is a fundamental precept of the law to expect a foreclosing party to actually be in possession of its claimed interest in the note, and to have the propersupportingdocumentation on hand when filing suit” – Deutsche Bank v. Gilbert

• “in light of the apparent discrepancy between plaintiff’s complaint and the attached documents, plaintiff’s standing is much in doubt.” – Nationstar v. Canale

Grace Period Notice

• If the Bank failed to send you a grace period notice before your foreclosure began, in the proper time, the foreclosure is not yet ripe.

• If no grace period notice was sent to the defendant and the bank did not wait the 30 days required by the grace period notice, the foreclosure case must be dismissed. -- Bank of America, N.A. v. Adeyiga.

Full Payment

• If you have never missed payments under your loan, the Bank cannot prove an outstanding debt.

• Judgment of foreclosure will not be granted to a party that has been paid to current on the mortgage loan, where there are no amounts due and owing on the case. 735 ILCS 5/15-1506(a)(2).

Rescission

• Under the Truth in Lending Act, a federal law, homeowners are intended to know the credit terms of their loan and to avoid being exploited by misinformation concerning their home loan.

• If a homeowner sends a letter seeking rescission of the loan within 3 years of the signing of the loan, and then the Bank does not respond within 20 days, the loan can be rescinded and the parties put back into the positions they were in prior to the home loan. Jesinoski v. Countrywide Home Loans, Inc.

• Please Note, if the borrower cannot pay back the loan proceeds from the home loan (through cash or sale), rescission may not be possible under legislative intent.

RESPA Disclosures

• Under the Real Estate Settlement Procedures Act (RESPA), mortgage servicers, lenders and brokers must provide certain disclosures regarding the nature and costs related to the purchase of real estate. Section 6 governs foreclosures.

• If the homeowner sends a qualified written request to dispute an action on the home loan, to seek information, and/or to inquire about a loan modification, the servicer must acknowledge receipt within 5 business days, unless the servicer corrects the account in that timeframe.

• Within 30 days the servicer must correct or explain the error under 12 USC 2605(e)(2). If not, the servicer can be sued for any actual damages, punitive damages or attorneys fees within 3 years. 12 USC 2605(f)(1); 12 USC 2614.

Discovery

• Sometimes the information to prove your case, or to disprove your opponent’s claims is not in your possession. At this point, the parties will enter into discovery.

• Discovery is a process where you ask the other side to tell you what they know about the case. This can take the form of yes or no questions (requests to admit), open ended questions (interrogatories), examination with the witnesses (depositions) and/or requests for documents.

• These are governed by Illinois Supreme Court Rules, and both attorneys and lay-people must strictly follow these procedures in order to request this information.

The Homeowner’s Right to Discovery

• Recently, in U.S. Bank v. Kosterman, the Illinois Appellate Court opined that “defendants are entitled to take discovery on a challenge to Plaintiff’s standing.”

• Kosterman found that the Bank having possession of the original home loan note is good evidence in a case, but still evidence that a homeowner can fight and challenge. Illinois Circuit Courts would abuse their discretion if a homeowner in foreclosure were prohibited from fighting the standing of the Bank.

Summary Judgment

• At some point after the answer is filed, after the bank responds to the answer and after discovery has stopped, the bank almost always moves for a summary judgment.

• Summary judgment is a judgment on the merits of the case, like a trial, but no trial occurs at summary judgment, only arguments on the motion.

Summary Judgment (cont.)

• At summary judgment, the Bank will present affidavits to show non-payment of the loan and its right to foreclose.

• You or your attorney should be prepared to file affidavits of your own to show that the facts asserted in your answer are true, and their facts are incorrect.

• If you show that there is any genuine issue of material fact in your case, summary judgment will not be granted. If no genuine issues of fact are found, summary judgment and judgment of foreclosure will be granted.

Trials

• From time to time, on rare occasion, neither party is entitled to a summary judgment, because clear factual disputes are apparent from the proofs offered by each party.

• If this is the case, there will be a trial where the bank calls witnesses to prove its case and you call witnesses to prove yours. No jury will be used in a foreclosure trial, because it is not a money trial, but rather a trial over the interest in the home.

The Homeowner Wins

• If the homeowner wins the foreclosure suit and the foreclosure action leads to a judgment against the foreclosing bank, the homeowner is entitled to lift the lis pendens against the home saying that it is being foreclosed upon. The foreclosure suit disappears. The hit should be removed from the credit report. The bank will be required to pay the homeowner’s legal fees for defending the foreclosure case.

Judgment of Foreclosure is Entered

• If the homeowner loses, a Judgment of Foreclosure and Sale is entered. This judgment sets out a 3 month period for redemption, and following this will be a sheriff’s sale.

• During that redemption period, nothing will happen inside the courtroom, but some options remain for resolving the case without a total loss.

Loss Mitigation in Redemption

• In Redemption, the homeowner has several opportunities:

• Pay the entire amount of the loan, with all fees and costs listed in the judgment.

• Acquire a loan modification under HAMP or an internal program with the Bank.

• Short Sale.

• Trial Payment Plan offered by the Bank.

• If the Homeowner cannot accomplish any of these, the home will be sold at sheriff’s sale.

Sheriff’s Sale

• To sell the home at sheriff’s sale, the bank must:

• Publish a notice of sale in a local newspaper. That notice must be in the real estate section and circulate for 3 weeks in a row.

• Give you a decision on any pending HAMP requests.

Ending the Foreclosure

• The foreclosure sale will be confirmed at a hearing approximately one week after the sale unless any of the following occur:

• Lack of proper notice

• Unreasonable sale

• Fraudulent sale

• Justice not done

• Violation of HAMP.

• The homeowner will have the right to 30 more days of possession of the property.

• If the property does not sell for the amount the homeowner owes, there may be a deficiency judgment against the homeowner for the difference in amounts.

Violations of HAMP (Until December 31, 2015)

• By law, until December 31, 2015, all foreclosure auctions must be stopped if the homeowner files an eligible, completed HAMP loan modification packet within seven days prior to sale.

• Strict rules govern how the Bank must respond to HAMP modification requests, including multiple notices in writing that any document is missing from the full loan modification packet, and a written letter on all denials stating the basis for the denial of the loan modification.

• Experienced practitioners can assist homeowners in defeating a sale if the homeowner has applied for a loan modification and has never received any response from the bank.

Closing Remarks

• Foreclosure litigation is a complex and difficult area of law with many nuances, and so homeowners should consult and consider the advice of a licensed attorney andapproved housing counselor.

• Results on foreclosure litigation vary from case to case, so it is important to have clear goals on how to resolve the foreclosure proceedings concerning your home.

• Participation in court-sponsored mediation is typically the best chance homeowners have of retaining the property, and it is best to approach these proceedings with care and seriousness.