How to Navigate Illinois Foreclosure Law

In today’s uncertain economy many families are unable or will soon be unable to make their mortgage payments.  The clients that come to my law practice for counseling are mortified with thought of being thrown out of their house through foreclosure.  To compound their fears homeowners who have missed a mortgage payment or a few payments are fearful that any day the sheriff with knock at their door and force them to leave their home.

Fortunately, in Illinois a homeowner who has missed a mortgage payment, or two payments, or even three payments will not immediately have to move out of their homes.   In Illinois missing a mortgage payment in not the end of living in your home.  It is only the beginning of the long process of foreclosure (in Illinois), A process where missing a mortgage payment will not result in immediate eviction from their home.

Certainly, missing a mortgage payment is reason for concern however, it is not the end of the world.  Further, understanding Illinois foreclosure law can help homeowners have less anxiety and better make decisions about their future living accommodations.

Illinois Foreclosure Law: Mortgages can be reinstated

 Good news, under Illinois law if a mortgage goes into default a homeowner can reinstate their mortgage.  Reinstatement is effected by curing all the defaulted payments (paying the missed payments) and; paying all costs and expenses associated with the default (usually back interest, late payment penalties, and attorney’s fees).  The reinstatement payments must e made within 90 days from the notice of default.

If the missed payments along with the interest, penalties, and attorney fees are paid in the 90 days prior to the notice of default the mortgage document shall remain in force as if no acceleration or default had occurred.  See 735 ILCS 5/15-1602.

Illinois Foreclosure Law: Mortgages in foreclosure can be redeemed

 More good news, under Illinois law if a home goes into foreclosure the homeowner can redeem their mortgage from foreclosure process.  When the mortgage on residential real estate is foreclosed on the homeowner is granted a redemption period in which to stop the lawsuit for foreclosure and retain their home.

In Illinois the homeowner has 7 months to redeem their home from the date the homeowner is served with a summons for foreclosure or served by publication.                   See 735 ILCS 5/15-1603.

To redeem their home from foreclosure the homeowner must pay the following:

The amount specified in the in the judgment of foreclosure which shall consist of

a)     all principal and accrued interest secured by the mortgage and due as of the date of judgment.

b)     all costs allowed by law, this would include late payment penalties, additional interest from the date of judgment to the date of redemption, attorney and other administrative fees.

In my bankruptcy practice I often counsel with clients who have missed one or two mortgage payments.  They are fearful the sheriff will be knocking on their door to evict them from their home.

Fortunately, Illinois foreclosure laws allow homeowners (through reinstatement or redemption) the ability to retain their home and gives the homeowner who has missed mortgage payments ample time to “save” their home.

 What to expect you miss a mortgage payment (do not worry)

 Generally, the mortgage lenders, large banks and corporations that do mortgage lending are bureaucracies and are generally unable able to foreclose if you have missed a only a single mortgage payment. This systemic inability to take action is frustrating, but is actually beneficial if you have not made a mortgage payment lately.

At my law firm Thinking Outside the Box Inc. our experience has been that the mortgage company probably will not even notice you until you until you have missed three or four payments, in general.  We often have clients who have missed three to five payments and have had no contact with the lender regarding the missing payments.  We have observed that if you miss three or four payments and you will get a letter of default stating you have thirty days before the mortgage company will file a suit for foreclosure.

Next, your mortgage company will task a local law firm to file a lawsuit to foreclose on your home in the state courts.

DO NOT WORRY.  You have 90 days to reinstate your mortgage if you are in default or 7 months to redeem your mortgage if you go into foreclosure.

Even if you ultimately lose your home in foreclosure generally you will not have to leave your home for 9 to 12 months from the time you stopped making mortgage payments.

Strategies under Illinois Foreclosure Law if you are having trouble making your mortgage payments.

 What should I do if I cannot make my mortgage payments or in the near future cannot make my mortgage payments?

Step One: Make the decision

First, decide whether will keep your home or let your lender take it back.  This decision should be based on whether you can, long term, afford to keep the home.  This decision should not be based on sentiments, nostalgia or feelings you have about the home.

If, long term you will be able to make up the missed payments then you can keep the home… if long term you cannot make up the missed payments and at the same time continue to make the normally scheduled payments then you cannot keep the home.

Step Two: Pick your optimal strategy

KEEP YOUR HOME: If you decide you can keep the home call your lender and make a plan to cure the arrearages.  If you need time, you can file a Chapter 13 bankruptcy.  Under   Chapter 13 bankruptcy the Court forces your mortgage company to let you to make up the missed payments over time (3 to 5 years).  Filing a Chapter 13 bankruptcy will also stop the foreclosure process.

GIVE YOUR HOME BACK TO LENDER:  After you have decided you cannot, long term afford your home, you will have to let it go back to the lender.  Since you have already  missed some payments the foreclosure process will take its natural course.  After you miss three or four payment the lender will file a lawsuit for foreclosure, from the point you are served with the lawsuit Illinois law allows you to continue to live in the home for 7 more months (without having to make a payment).  This grace period give you the time to save money in anticipation of moving.         

 UNDECIDED WHETHER TO KEEP HOME:  If you are undecided whether you can afford to keep your home here is the optimal strategy.  It does not make sense to continue mortgage payments if your financial situation is uncertain making you unable to pick one of the previous two strategies.  Immediately stop making mortgage payments, but do not stop making payments and spend the money.  Stop making payments and put your normally scheduled payments into a savings or checking account.  Then if your finances improve take the savings account pay off the missed payments and fee and keep your home.  If it ultimately turns out that your finances do not improve allowing you to keep the home your will have some money of help fund your move and maybe make a rent deposit.

Your first strategy should be to call your lender/bank tell them you do not want the house and request that they accept a deed in lieu of foreclosure.  Here you give the deed back to the lender and they fore go the foreclosure process.  Go ahead and ask, however generally most lenders will not accept a deed in lieu of foreclosure.

If you are having trouble making your mortgage payments do not be overly concerned.  If you miss a payment or a few payments you will lose your home but not immediately.  Illinois foreclosure law will allow you to reinstate or redeem you home and give you a fair amount of time to do it.

Finally, this article is general foreclosure information based on Illinois Law, however it cannot replace the advice of an experienced bankruptcy attorney who practices law in the state where you live.

Thinking Outside the Box Law
taxcounselor@comcast.net
http://bankrupctcylawcounselor.com

Chapter 13 Bankruptcy solves multiple problems for Chicago client.

This is an actual Chapter 13 bankruptcy that our office filed in the bankruptcy courts.  The chapter 13 bankruptcy helped our client do the following:

In one Chapter 13 plan Thinking Outside the Box, Inc. was able to set up a plan to pay off the clients entire debt to the IRS without interest. Bring her mortgage payments current and stop foreclosure.  Chapter 13 also allowed our client to pay off 96,000 in credit cards with no interest for a little over $10,000.

A client came to our Thinking Outside the Box office with the following problems:

1. Client owed the IRS $9,000 in unpaid taxes.  The IRS was on the verge of taking the unpaid taxes out of her paycheck (called a tax levy).

2. Client was three months behind on her mortgage payments and her mortgage company refused to let her make payments on the mortgage until she paid all of the missed payments.  To make matters worse the mortgage company had started the foreclosure process.

3. Client had around $96,000 in credit card debt. She could not make the minimum payment of around $1,900/month. Further, some of the credit cards had been referred to collection agencies, some of the credit cards had been referred to law firms who threatened lawsuits seeking judgments for the balances on the credit cards.

Thinking Outside the Box, Inc. designed a Chapter 13 plan to allow the client to address all of her financial problems.

First, we designed the plan to pay off the unpaid taxes in full (required by law). However, by including the taxes in the Chapter 13 plan the client was able to pay off the taxes over a five-year period. Even better the Chapter13 prohibited the IRS from charging interest on the unpaid taxes saving the client $540.00 per month in interest.

The filing of the Chapter 13 plan also stopped the IRS levy on our client’s weekly paycheck.

Second, our office designed the chapter 13 plan to allow the client to make her unpaid mortgage payments over a five-year period. The filing out of the Chapter 13 plan also forced the mortgage company to accept the normal monthly mortgage payments and stopped the foreclosure process.

Third, our office designed a Chapter 13 plan that let her address the $96,000 in credit card debt. We crafted a plan that allowed our client to payoff the credit card debt with no further interest payments or late fees. This saved the client about $1,400 per month in interest and fees. We were further able to structure the Chapter 13 plan allowing the client to payoff the entire $96,000 credit card balances with payment totaling only $10,600.

That is why Thinking Outside the Box, Inc. calls a Chapter 13 Bankruptcy plan the Swiss Army Knife of financial tools. In one Chapter 13 plan Thinking Outside the Box, Inc. was able to set up a plan to pay off the clients entire debt to the IRS without interest. Bring her mortgage payments current and stop foreclosure.  Chapter 13 allowed the client to pay off 96,000 in credit cards with no interest for a little over $10,000.

Thinking Outside the Box, Inc.
Jon Dowat Attorney at Law
4320 Winfield Road Suite 200
Warrenville, IL 60555
http://www.bankruptcylawcounselor.com

Deficiency Judgments: Lose your home and still owe money to your Bank.

Believe it or not a homeowner can lose their home through foreclosure and still owe money to their mortgage Lender.  This article describes how to avoid a deficiency judgment if one loses their home through the legal process.

2008 experienced an implosion of the subprime credit market, a precipitous drop in real estate values, tightening of credit standards for people seeking mortgages, the beginnings of a prolonged recession and rising unemployment.  These conditions have caused an increase in the number of foreclosures.  In a real estate market that is showing little life, some homeowners will try to avoid foreclosure by selling their home for less than what they owe to the lender, this is a short sale.  

Unfortunately after losing their home in foreclosure or a short sale, a consumer may still owe money to their original lender.  When a home sells for less than the borrower owes, the lender can sue the borrower in state court for the difference between the sales price and the amount owed on the mortgage.  The state court can order a judgment on the difference called a deficiency judgment.  Further lawsuits can force the consumer to pay the deficiency judgment from their other assets or wages.  So how can a borrower about to lose their home avoid a deficiency judgment?

Some states have anti-deficiency statutes such as California, while other states such as Illinois do not. There are however, provisions in the Illinois statutes and Federal Bankruptcy Code that allow a borrower to avoid deficiency judgments.

There are three ways to avoid the deficiency judgment.  First way of avoiding a deficiency judgment is to enter an agreement with the lender called a deed in lieu of foreclosure.   Simply put, the lender agrees to forego the long and expensive process of foreclosure and they get the deed to your property in return.  A deed in lieu of foreclosure relieves borrowers and guarantors of a deficiency judgment unless the deed-in-lieu agreement or a contemporaneous document says otherwise.  (735 ILCS 5/15-1401)  

Second way to sidestep the prolonged foreclosure process and avoid a deficiency judgment is through a consent foreclosure.  Here a borrower agrees to allow an abbreviated foreclosure.  The lender submits a motion to the court stating that the borrower will not contest the foreclosure and the court grants the foreclosure without further litigation.  In a consent foreclosure, the court grants immediate title to the lender and in return the lender waives the right to a deficiency judgment.  (735 ILCS 5/15-1402)  

A third way to eliminate the possibility of a deficiency judgment is through a Chapter 7 Bankruptcy.  When a Chapter 7 Bankruptcy is discharged, the borrower is protected from the personal liability of a deficiency judgment.  Johnson V. Home State Bank, 501 U.S. 78, 82 (1991). 

The previous article offers general advice but should never be substituted for seeking the advice of a qualified Attorney at Law who practices in the state where you live. 

Illinois law does not expressly prohibit deficiency judgments.  An Illinois mortgage borrower can avoid a deficiency judgment by giving their lender a deed in lieu of foreclosure or entering into a consent foreclosure with the lender, or Filing for a Chapter 7 Bankruptcy. 

Thinking Outside the Box Law

Jon Dowat Attorney at Law
4320 Winfield Road Suite 200
Warrenville, IL 60555

taxcounselor@comcast.net

http://bankruptcylawcounselor.com

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