Illinois Pro Bono | Mortgage Foreclosure

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Mortgage Foreclosure
Author: Revisions contributed by, Jim Brady, Legal Assistance Foundation of Metropolitan Chicago
Last updated: August 2011

State Statutes
Illinois Mortgage Foreclosure Law (IMFL), 735 ILCS 5/151507,1508;1602
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Foreclosure Process
Illinois is a judicial foreclosure state. The foreclosure process is governed by the Illinois Mortgage Foreclosure
Law (IMFL), 735 ILCS 5/151101 et. seq.
Mortgages for this purpose include real estate installment contracts of more than five years duration, entered
into after July 1, 1987, whose balance is less than 80% of the original purchase price. IMFL provides the
exclusive method for foreclosing on all mortgages. In addition, the secured party in some UCC actions may
elect to use IMFL, if the security interest is based on the assignment of a real estate installment contract or
the 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 by
the sheriff, about nine months. Foreclosure defense in court can be successful in defeating the foreclosure
action but if not, may prolong the foreclosure by as much as 24 months. If the property is not residential or
is abandoned, the process can be substantially shortened. The following is an outline of a typical foreclosure
case:
Default
Filing of Foreclosure
Service of Summons
Foreclosure Judgment and Order of Sale
Reinstatement Period Expires (90 days after personal service)
Redemption Period Expires (7 months after personal service or 3 months after judgment, whichever is
later)
Foreclosure Sale
Foreclosure Sale Confirmed
Right to Possession Expires (30 days after foreclosure sale confirmed)
Eviction by Sheriff of Named Parties
Recording of Foreclosure Deed

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

Definitions

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Default: The date of the first missed payment and should be identified in the lenders complaint. When the
borrower has missed the second payment, the lender sends (statutory) notice advising borrowers they have
a 30-day grace period to contact a housing counselor, in which case they will receive a second 30-day grace
period prior to taking legal action. 735 ILCS 5/15-1502.5. Once the borrower misses a third payment, the
lender sends a notice of acceleration, informs borrower it intends to foreclose and sends the file to an
attorney to initiate foreclosure.
Filing of Foreclosure: The foreclosure case starts with the filing of the lenders complaint to foreclose. The
required elements of the complaint are set forth in the IMFL. 735 ILCS 5/15-1504.
Service 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 personal
service. All information in the notice must be accurate. A Homeowner Notice advising the homeowner of
their rights, including reinstatement and redemption must be attached to the summons. 735 ILCS 5/151504.5.
Foreclosure Judgment and Order of Sale: If no answer is filed by the homeowner the lender may move
for a default judgment or if an insufficient answer is filed by the homeowner, the lender may move for
summary judgment. If granted, a judgment of foreclosure is entered.
Reinstatement: Payment of past-due amounts, including all accumulated principal, interest, escrow, costs
and fees, bringing the account current. 735 ILCS 5/15-1602. If the court makes an express finding that a
homeowner has reinstated the loan pursuant to this section, the right to reinstate will be available once
every 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 the
jurisdiction of the court.
Redemption: Payment of all amounts due to the lender, including the full principal balance, all accumulated
interest, fees, and costs. In the case of residential real estate, the redemption period ends seven months
from the date the mortgagor was served with summons or by publication or three months from the date of
entry of the judgment of foreclosure, whichever is later. 735 ILCS 5/15-1603.
Judicial Sale: After expiration of the rights to reinstate and to redeem, the lender may sell the home by
judicial sale. Notice of the sale must be given to all parties in the action who have appeared and have not
been found in default for failure to plead. Notice of sale must also be published, running in the newspaper for
at 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 the
sale unless it finds: 1) that notice of the sale was not proper, 2) the terms of the sale were unconscionable,
3) the sale was conducted fraudulently or 4) that justice was otherwise not done. 735 ILCS 5/15-1508. An
order of possession will also be entered and stayed for 30 days. Personal liability for any deficiency is
established at this time. The order confirming the sale is the final order in the foreclosure case for appeal and
other motion deadline purposes.
Special Redemption: A right of redemption that applies if the purchaser of residential property at a
foreclosure sale is the mortgagee and if the sale price is less than the total amount of principal, interest,
costs, and attorneys' fees. Under those circumstances, the mortgagor has a special right to redeem up to 30
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days after the foreclosure sale is confirmed by paying the sale price, all additional costs incurred by the
mortgagee set forth in the report of sale and confirmed by the court, and interest at the statutory judgment
rate 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 to
refinance (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 to
cause default.
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Options
If the house is not yet in foreclosure, the client should immediately contact the lender and try to work
something 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
they wish to move. A realistic and careful assessment of the clients income and expenses must be done to
determine if it is feasible to keep the home. If the homeowner is to keep the house, they must reinstate,
redeem, 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 file
bankruptcy.
Sales: The house can be sold at any point through the final redemption date. Proceeds are used to redeem
the mortgage. This is a particularly good option for a homeowner who has substantial equity in the home. An
assumption of the mortgage by the purchaser is also possible. The lender may also agree to a short-sale a
sale for less than the debt if the house has been assessed at less than the value of the debt. A short sale
has tax consequences forgiveness of debt is income and buyers should be advised accordingly. Many
lenders require that the home be listed for at least 90 days before they will consider a short sale. Also,
unless 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 from
personal liability on the debt. The procedures are set forth at 735 ILCS 5/15-1401. There can be no junior
liens on the property for this to work. The Illinois ARDC recommends that the homeowner use an attorney for
the 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 60
months, they may be eligible for a Chapter 13, which would allow them to keep the house. If not, they can
file a Chapter 7, which will allow them to escape personal liability for the debt. A Chapter 7 will not let the
buyer keep their home. A bankruptcy filing, either Chapter 7 or Chapter 13, will stay foreclosure proceedings
and 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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obtain credit counseling before filing the bankruptcy case. You can find an approved credit counseling agency
on the United States Department of Justice website.
The client may continue living in the house until the expiration of the stay of enforcement of the order of
possession that is entered upon confirmation of the judicial sale. Until confirmation of the judicial sale or a
deed in lieu of foreclosure, the homeowner is responsible for the upkeep of the property.

Workout Agreement
After a possible workout agreement is identified, a hardship letter, outlining the clients circumstances, must
be drafted and sent to the lender. There are a wide range of workout agreements possible. If the client has
some income, or has the prospect of some income in the near future, and wishes to keep the house, a
careful review of their income and expenses must be done to determine what workout arrangements are
possible. Many credit counseling agencies will help negotiate workout agreements to prevent foreclosure.
Typically, the homeowner or their representative needs to work with the loss-mitigation department, not
the foreclosure department. If the homeowner is represented by an attorney, the attorney should seek
permission from the foreclosure attorney before contacting the loss mitigation department directly.
Temporary Indulgence: A month or two grace period to bring payments current.
Deferral of Principal: Buyer pays only interest for a period of time and then resumes normal principal and
interest payments.
Forbearance: Payments are suspended or reduced for up to 18 months with the agreement that they will be
brought current at the end of that month.
Partial Reinstatement: Pay one-half of delinquency and agree to repayment plan no longer than 18
months for remainder.
Mortgage Modification: A change in one or more terms of the original loan to eliminate the arrearage. The
interest rate can be lowered, the term extended, the arrearage added to the principal balance or recast to
the end of the term, and the principal reduced to the assessed value.
The Home Affordable Modification Program (HAMP) is a voluntary modification program that aims to help
homeowners avoid foreclosure as part of the President Obama Administrations larger Making Home
Affordable (MHA) initiative. HAMP provides incentives for Fannie Mae, Freddie Mac, and participating
servicers to reduce first lien mortgage payments for eligible borrowers to 31% of their gross (before taxes)
monthly income using specific modification steps. The program expires on December 31, 2012. For
information on the Home Affordable Modification program (HAMP) go to Making Home Affordable.
Streamline Refinance: A new loan is issued, at current market rates, by the same lender. This is only an
option if the loan is or can be brought to 2 months or less delinquent.
Refinance: A new loan from another lender. Homeowners should be very wary of this. They are likely to
receive many offers to refinance the loan and save the home. The terms of these offers are usually predatory
and the homeowner ends up losing the house, after more expense.

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Partial Claim: If the mortgage is HUD (Department of Housing and Urban Development) insured, the lender
may 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 is
usually 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 notice
from 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 should
not 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
equitable or technical defenses. A list of some possible issues that may create defenses follows:
Force-placed Insurance: Sometimes lenders purchase insurance in the mistaken belief that the
homeowner has let their policy lapse. If, in fact, the homeowner has their own insurance, they should not
have 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,
if 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 are
not applied to a buyers account.
Failure to Accelerate the Note: The loan cannot be foreclosed until the loan is accelerated. If the loan
documents require notice because of acceleration, failure to send the notice may defeat the foreclosure.
Suit after Assumption: If the original mortgagor sells the property and does not get a release, they will still
face personal liability in a foreclosure action. The original mortgagor should be dismissed from the lawsuit
without any adverse credit consequences.
FHA-Insured Loans: FHA loans have special servicing requirements, including a counseling notice mailed to
the mortgagor within 45 days of default, a face-to-face meeting with the borrower within 90 days of default,
and a notice of available counseling. 24 C.F.R. 203.500 et. seq. Failure to comply with these rules is an
affirmative 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 the
mortgagor 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 a
defense at any time. However, the most powerful remedy available, rescission, i.e. voiding the mortgage (if

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a nonpurchase mortgage) is only available within three years of execution of the mortgage. An attorney must
review the original disclosure documents to determine if there was a violation, but failure to disclose material
terms in writing, or high interest rates on a nonpurchase mortgage, almost always warrant careful
investigation.
Fraud, Abuse, Collusion: In some cases, where the loan is clearly abusive or coercive or where the overall
loan transaction was abusive or coercive, it may be possible to plead fraud or raise an equitable defense to
foreclosure.
Fair Debt Collection Practices Act, 15 USC 1692-1692a: Attorneys who file foreclosure papers are
debt collectors and must comply with the FDCPA. Heintz v. Jenkins, 115 S. Ct. 1489 (1995). While not a
defense per se to the foreclosure action, it does give rise to a statutory and actual damages claim.
Failure to Attach Note and Mortgage to Complaint: If the note and mortgage are not attached to the
complaint, the complaint is subject to a motion to strike. 735 ILCS 5/2-606. However, most courts allow a
lender to cure this deficiency without striking the complaint. A lender is not required to attach any
endorsements of the note or assignments of the mortgage and simply is required to allege that it is the
holder of the indebtedness or the holders agent.
Incorrect Notice or Service: Service by publication is only valid after an attempt at personal service. All
information in the notice must be accurate. Not infrequently, mistakes are made in the notice of motion for
foreclosure, invalidating the subsequent order.
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Tenants
735 ILCS 5/15-1701(h)
Unnamed parties, including tenants, who came into possession before the foreclosure proceedings, cannot
have their right to possession terminated by the Order Approving Sale. The Plaintiff must obtain either a
Supplemental Order of Possession or file a forcible entry and detainer action. Tenants may have a defense to
either of these actions.
Even though a foreclosure has been filed, a tenants lease is still valid. If the Plaintiff becomes the new owner
as a result of a foreclosure judgment, the bank must notify the tenant in writing. If the bank does not notify
the 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 written
notice to vacate advising the tenant that they have at least ninety (90) days after the date their lease ends
to move out of the apartment.
If eviction is due to a building foreclosure, the tenants eviction record should be sealed by the court.
If the tenant is a Section 8 housing choice voucher holder, the bank is required to accept rental payments
from the tenant and the Chicago Housing Authority.

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Judicial Sale
735 ILCS 5/151507, 1508
The person who conducted the sale reports the results of the sale to the court. Personal liability for any
deficiency is established at this time. Occasionally, the property is sold for more than the pay-off. The
client may be entitled to a surplus from the sale. The client should call the mortgagees attorney and see if
the property sold for more than the amount due. If there is a surplus, the client must file a motion to request
turnover of the excess proceeds of sale.
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Investment Property
If the property is an investment property, the lender can ask for a receiver or caretaker as soon as the suit is
filed. Also, since the right to redeem can be waived in non-residential loans, the foreclosure can go much
faster.
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Foreclosure Scams
There are many mortgage scams. Anyone who is foreclosed will receive 30 to 80 pieces of "vulture" mail
which offers a variety of advice. The client should beware of these solutions. The client should use approved
credit counseling agencies instead.
EXAMPLE: Caller tells client that they have excellent credit and can get a mortgage on the property. They
will allow client to deed the property over to them, and lease it back to client. Of course, they own the
property then and the client is evicted.
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