By: Robert K. Feldman
RKF Law Offices LLC © 2023
FORECLOSURE IN ILLINOIS. Foreclosures in Illinois are a judicial process under the Illinois Mortgage Foreclosure Act (“Foreclosure Act”). A judicial foreclosure is a civil litigation action filed in the Chancery Division and includes full discovery, motion practice, hearings, trial and ultimately judgment. Generally, a complete residential foreclosure in Illinois may require up to fifteen months to complete.
1. Pre-Foreclosure processes. The foreclosure commences with the lender sending to borrower an initial default notice (“default letter”). The default letter mandates compliance within thirty (30) days of issuance and is accompanied by information regarding the borrower’s right to a mitigation plan. The Consumer Financial Protection Bureau (CFPB) regulates loss mitigation in all Illinois foreclosure actions. The foreclosure process will be stayed if the borrower submits a “loss mitigation application” within the 120 days of issuance of the initial default notice. If the borrower fails to submit the plan within the 120-day period or, fails to comply with the plan, the lender may accelerate the note and proceed with the foreclosure.
2. Complaint. A foreclosure action commences with the lender filing a complaint in the Chancery Division in the county where the property is located. The complaint will outline all allegations of default and must include a copy of the promissory note and mortgage. The required elements of the complaint are set forth in the Foreclosure Act (735 ILCS 5/15-1504).
3. Service of Process. Failure of proper service can defeat a foreclosure action, as every litigant has a constitutional due process right to proper notice. A lender may obtain proper service of process by serving either the borrower or, any individual, age of 13 or above, that resides at the property (often referred to as “substitute service”). If the process server cannot serve the defendant personally (or obtain substitute service), the lender may submit an affidavit to the court in support of the service by publication in a local newspaper. Notice of the publication must then be sent to the last known address of the borrower. The county sheriff serves the borrower with a copy of the summons, complaint together with a “Homeowner Notice,” advising the borrower of mitigation rights including reinstatement and redemption. Improper service may nullify a foreclosure judgment as well as a foreclosure sale, including a subsequent real estate owned sale (“REO”).
4. Filing an answer and appearance. Within 30 days of being “served,” the borrower must respond by filing an appearance and must file an answer or otherwise plead, typically filing motions to address any procedural or substantive flaws in the complaint. Assuming the borrower fails to succeed in attacking the complaint, the borrower must then file an answer to the complaint including raising any affirmative defenses or counterclaims.
5. Reinstatement period. The borrower has the right to reinstate the mortgage within 90 days after being served with a summons or by otherwise being submitted to the jurisdiction of the court. (735 Ill. Comp. Stat. § 5/15-1602). To reinstate, the borrower must bring the loan current and pay all accrued interest, penalties and fees, including delinquent taxes (735 ILCS 5/15-1602). Upon payment, the foreclosure will be dismissed, and the loan reinstated. The right to reinstate is limited under the Foreclosure Act to once every five (5) years.
6. Default Judgement and Summary Judgement. A default judgment may be entered if the borrower fails to appear or answer the complaint within the prescribed time periods. A lender may also file a motion for summary judgement asserting there are no issues of any material fact or law that refutes the borrower’s liability. Upon entry of a favorable order on the motion for default or motion for summary judgment, the court will issue a judgement in foreclosure against the borrower. Once the Order is entered, the lender will provide an “affidavit of prove-up” (Illinois Supreme Court Rule 113), confirming amounts owed under the Note and Mortgage (principal balance, accrued interest, legal fees and court costs, late fees, and penalties). Lenders may also file a “loss mitigation” affidavit to demonstrate that they offered meaningful assistance to a borrower. (Illinois Supreme Court Rules 113 and 114).
7. Trial. Once all issues are resolved favorably to the lender, the matter will be set for a bench trial with the presiding Chancery Judge. If a verdict is entered in favor of the lender, the lender will then proceed to obtain a court order of sale.
8. Redemption. The Foreclosure Act grants the borrower a “Right of Redemption,” (735 ILCS 5/15-1603) subject to the borrower’s payment of all amounts due under the note and mortgage, including the entire principal balance, accrued interest, late fees and penalties, court costs and legal fees. The Right of Redemption must be exercised by the borrower, within seven (7) months from the date of service of process or three (3) months from the date the judgment of foreclosure has been entered, whichever is last to occur (note this redemption period does not apply if the property has been abandoned nor is it applicable to commercial property) (735 ILCS 5/15-1212).
9. Judicial Sale and Confirmation. Upon a favorable determination on pre-trial motions, or upon the entry of a verdict in favor of the lender at trial, and upon expiration of the redemption period, the lender will request an Order of Sale permitting the sale of the property at auction. Under Illinois Supreme Court Rule 113, notice of the sale must be given to all parties and in addition, and a notice of sale must also be published in a local newspaper for three (3) consecutive weeks prior to the sale (735 ILCS 5/15-1507). Additionally, the sales date cannot be earlier than thirty (30) days after the notice of sale. Under the Foreclosure Act, if the notice requirements have not been met, upon motion from the borrower, the order of sale may be set aside by the court (735 ILCS 5/15-1508). Once the auction is complete, the lender must then file a motion to confirm the judicial sale with the court. Should the auction price be less than the total amount due by the borrower to the lender under the Note and Mortgage, the lender may also obtain a judgment against borrower for the “deficiency.”
10. Successful Bid at Auction. A successful bidder at a foreclosure sale typically must deposit 10% to 25% of the purchase price with the Sheriff, and the balance typically due twenty-four (24) hours later (each county has their own rules). Note, certain liens or encumbrances may not be “foreclosed out” by the foreclosure sale, including property taxes, municipal utilities, certain homeowners’ association assessments, mechanic’s liens, etc., and a buyer should engage capable counsel to review the court file and the title prior to the auction.
11. Special redemption. Under the Foreclosure Act, if the lender was the successful bidder at the auction resulting in a deficiency, the borrower is granted an additional or “special” redemption period of thirty (30) days from the auction date, in which to redeem the property. The special redemption period grants the borrower the right to redeem by paying the winning bid amount from the auction plus statutory interest accrued from the date of sale, plus any other costs recoverable by the lender as were confirmed by the court in the judgment (735 ILCS 5/15-1604).
12. Condominium Associations. Under the Foreclosure Act (subsections 9(g)(3), (4), and (5)), a successful bidder must begin paying assessments to the condominium association the first day of the month after the date of the foreclosure sale, even though the sale may not yet be confirmed. In addition, Condominium Associations carry “super lien rights,” granting the Association the right to recover up to six (6) months of delinquent assessments which obligation will survive the foreclosure (765 ILCS 605/9(g)(4)).
13. Right to Possession. Should the borrower remain in possession of the property post foreclosure sale, the lender may enter an Eviction Order which by rule is automatically stayed for a period of thirty (30) days from the date the judicial sale is confirmed. After expiration of the thirty (30) day period, the successful bidder may proceed with a separate action under the Illinois Eviction Act to evict the borrower. Other individuals in possession that were not parties to the foreclosure action must be evicted by a supplemental petition in the foreclosure case (735 ILCS 5/15-1701(h)) or by filing a separate action under the Eviction Act.
B. OTHER CONSIDERATIONS. Other key considerations in any foreclosure include the following:
1. Federal Mortgage Servicing Laws and Foreclosure Protections. Under federal mortgage servicing laws, if the property is borrower’s principal residence, the lender must attempt to contact the borrower to discuss loss mitigation options including loan modification, forbearance, and a repayment plan. The lender must provide such consultation no later than 36 days after a missed payment and again within 36 days following a delinquency. (12 C.F.R. § 1024.39). In addition, the lender must contact the borrower to discuss loss mitigation plans no later than 45 days after a missed payment. Exceptions apply for bankruptcies and under the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.30, 12 C.F.R. § 1024.39,12 C.F.R. § 1024.40). Under federal law, the lender must delay the filing of a foreclosure action for 120 days after notice of past due payments.
2. Short Sales A "short sale" involves the borrower selling the property to a third party for less than the mortgage balance, and the lender typically agreeing to waive any deficiency as provided in the loan mitigation plan. The plan should also address the issue of any deficiency, although a limited number of states may restrict the recovery of a deficiency by the lender. Note, a short sale does not “foreclose out” any other liens or encumbrances on title, so any buyer in a short sale should consult with qualified counsel to review title atters.
3. Deed in Lieu Transactions. In a “deed in lieu” transaction, the borrower transfers title back to the lender under a mitigation plan. Similar to a short sale, a mitigation plan should address any deficiency as well as any other liens and qualified counsel should review title.
4. Consent Foreclosure. Illinois law permits a "consent foreclosure" (735 Ill. Comp. Stat. § 5/15-1402). In a consent foreclosure the borrower waives any objections to the judgment order being entered. The lender then continues the post judgment action and proceeds to judicial sale. A consent foreclosure will eliminate most secondary liens or encumbrances on title. However, a consent foreclosure will not eliminate liens with priority, including a federal tax lien, as by statute title will be vested in “the mortgagee free and clear of all claims, liens … except liens of the Unites States of America, which cannot be foreclosed without judicial sale (735 ILCS 5/15-1402). The consent foreclosure must also address any borrower deficiency like any other mitigation plan.
5. Bankruptcy. Bankruptcy stops the foreclosure process immediately. The bankruptcy court issues an injunction called “an automatic stay” ordering creditors to cease all collection activities and foreclosure actions. However, the stay is only temporary as the secured lender will petition the bankruptcy court to lift the automatic stay and proceed with the foreclosure. Under chapter 7 of the bankruptcy code, once the stay is lifted, the lender will then proceed to a foreclosure judgment; a chapter 13 bankruptcy filing is essentially a workout or mitigation plan, and the foreclosure is avoided to the extent the borrower fully complies with the plan.
6. Defenses to a Foreclosure. There are numerous defenses available to a borrower in a foreclosure including: (a) the lender must have standing to pursue the action (i.e., own the note and mortgage); (b) Claims against the lender under the Illinois Consumer Fraud and Deceptive Businesses Practices Act; (c) the Real Estate Settlement Procedures Act including proper maintenance of escrow accounts, disclosures and payment records; (d) Violations of the Truth-in-Lending Act and Home Ownership and Equity Protection Act (HOEPA); (e) Failure of the loan originator or lender to disclose material terms; (f) Usury laws and violation of the Truth in Lending Act (TILA) as well as prohibitions against predatory lending under HOPFA; (g) Fair Debt Collections Practices Act (FDCPA); (e) Fair Credit Reporting Act mandating proper credit reporting; (f) FHA loans require various notices be delivered as well as credit counseling services for the borrower; (g) Common law claims of fraud involving fraudulent, abusive or coercive conduct by the lender; and (j) Lender acceptance of payment after filing the foreclosure may be deemed a reinstatement of the loan.
There are other defenses and more specific concerns that impact on the foreclosure process, and any buyer of a foreclosure property should engage proper legal counsel to review each phase of the foreclosure process. At RKF Law Offices LLC, we can assist with the evaluation and due diligence of a prospective foreclosure purchase, REO, short sale or consent foreclosure.
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