Mortgage foreclosure

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Author: Revised by Jesse Hodierne, staff attorney, Prairie State Legal Services
Last updated: September 2015

State Statutes

Illinois Mortgage Foreclosure Law (IMFL), 735 ILCS 5/15–1101, et seq.

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General Foreclosure Process

Illinois is a judicial foreclosure state. That means the foreclosure process occurs in court.  In Illinois, the foreclosure process is governed by the Illinois Mortgage Foreclosure Law (IMFL), 735 ILCS 5/15–1101 seq.  The IMFL provides the exclusive method for foreclosing on all mortgages.

The IMFL also governs real estate installment contracts (commonly referred to as “contracts-for-deed”) if:  

  • the contract was entered into after July 1, 1987,
  • the contract is more than 5 years in length, and
  • the remaining amount owed is less than 80% of the original purchase price.  735 ILCS 5/15-1106, 735 ILCS 5/15-1207

In Illinois, typically, the entire foreclosure process takes approximately nine months.  If the foreclosed property is not “residential” or is “abandoned,” the process can be shortened substantially.  A valid legal defense in court may defeat the foreclosure action.  Even if a valid legal defense does not defeat the foreclosure action, it may still greatly prolong the foreclosure process.

Why It Matters:  The foreclosure process can have substantial consequences for homeowners and their communities.  As a result of foreclosure, homeowners obviously risk losing their homes (including any accumulated equity), but also risk a personal judgment against them for the remaining debt.  Because a foreclosure appears on credit reports, homeowners may also risk the loss of future credit.


Basic Outline of the Foreclosure Process

Basic Outline of the Foreclosure Process

  • 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

Detailed Outline of the Foreclosure Process

Default:  A “default” refers to a failure to abide by the terms of the mortgage or loan documents.  Although default may occur in several ways, default usually happens when a borrower fails to make a required monthly mortgage payment.  The specific reason for the alleged default should be identified in the complaint to foreclose (i.e. the date of the first missed payment).  When a borrower fails to make a second monthly payment, the loan servicer must send a notice advising the borrower that he or she has a “30-day grace period” to contact a housing counselor, in which case the borrower will receive a second 30-day grace period prior to taking legal action. 735 ILCS 5/15-1502.5. Once a borrower misses a third payment, the loan servicer sends a notice of acceleration, informs the borrower it intends to foreclose and sends the file to an attorney to initiate a foreclosure case.

Filing of Foreclosure:  In Illinois, the foreclosure case initiates when the “complaint” to foreclose is filed.  The required elements of the complaint are set forth in the IMFL. 735 ILCS 5/15-1504.  At a minimum, the complaint should have copies of the mortgage and note attached as exhibits.  Copies of prior loan modification agreements or relevant assignments of the mortgage may also be attached or required.  

Federal regulations issued by the Consumer Financial Protection Bureau (CFPB) establish a “pre-foreclosure review period,” and restrict when the lender may start a foreclosure.  For instance, lenders cannot start a foreclosure case unless the borrower is more than 120 days delinquent.  And, if the borrower submits a “complete loss mitigation application” within the 120-day “pre-foreclosure review period,” the lender may not begin foreclosure unless:

  1. The lender sends a written notice that the borrower is not eligible for any loss mitigation option and the loss mitigation appeal process has ended or is inapplicable,
  2. the borrower rejects all loss mitigation options offered by the lender, or
  3. the borrower fails to perform under a loss mitigation agreement.  12 C.F.R. 1024.41.  

Service of Summons and Complaint:  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 5/15-1504.5.

Filing an Answer and Appearance:  Within 30 days of being “served,” Defendants must generally file an appearance and appropriate pleading in response to the complaint.  Although the complaint contains many express allegations, the IMFL contains additional implied allegations that are “deemed and construed” to be part of the complaint.  735 ILCS 5/15-1504(c) and 735 ILCS 5/15-1504(d).  Borrowers filing answers to the foreclosure complaint must also respond appropriately to the “deemed and construed” allegations contained in the IMFL.  

Defendants may also allege defenses or other claims in an answer.  If directing a defendant to pro se materials, a residential mortgage foreclosure “appearance and answer” form can be found [here].  Filing an answer and appearance requires payment of a “filing fee.”  However, the defendant may request the fee be waived by completing an “Application for Waiver of Court Fees.”  

Foreclosure Judgment and Order of Sale:  If no “answer” is filed by the defendant, the lender may file a motion for a default judgment or if an answer is filed by the homeowner, the lender may file a motion for summary judgment alleging there are no genuine issues of material fact.  If the plaintiff’s motion for judgment is granted, a judgment of foreclosure will be entered.  

Note that, in all cases filed after May 1, 2013, in order to receive a foreclosure judgment, the plaintiff must file a “prove-up” affidavit pursuant to Illinois Supreme Court Rule 113.  And, in some cases, in order to receive a foreclosure judgment, the plaintiff may be required to file a “loss mitigation” affidavit pursuant to Illinois Supreme Court Rule 114.  For more information about Rule 113 and Rule 114 affidavits, see below.  

Reinstatement Period Expires (90 days after personal service):  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.  Reinstatement requires bringing the loan completely “current” by paying all past-due amounts, including all accumulated principal, interest, escrow, costs and fees.  735 ILCS 5/15-1602. If the mortgagor reinstates, the foreclosure should be dismissed.  If the court makes an express finding that a homeowner has “reinstated” the loan pursuant to the IMFL, the statutory right to reinstate will not be available again for five years. Clients should be advised to exercise good judgment in reinstating if continuing monthly payment are unaffordable.   

Redemption Period Expires:  The “owner of redemption,” as defined by the IMFL (735 ILCS 5/15-1212) has the right to “redeem” the amount secured by the mortgage by paying the entire remaining balance, including accrued interest, costs, fees, and any other amount authorized by the court.  The IMFL contains a special process for redemption.  735 ILCS 5/15-1603.  

The redemption period ends either seven months from the date the mortgagor was served with a summons or three months from the date of entry of the judgment of foreclosure, whichever is later. 735 ILCS 5/15-1603.  The redemption period may be significantly shortened if the foreclosed property is deemed not to be “residential real estate,” or is deemed “abandoned residential property” as those terms are defined in the IMFL.  735 ILCS 5/15-1219.  735 ILCS 5/15-1200.5.  Importantly, the plaintiff may not proceed with a judicial sale until the redemption period expires.   

Judicial Sale:  After the plaintiff obtains a judgment for foreclosure, and after the reinstatement and redemption periods expire, the lender may proceed to 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 of Foreclosure Sale:  After the judicial sale occurs, the plaintiff then files a motion with the court to confirm the judicial sale.  The court must confirm the sale unless it finds:  

  • that notice of the sale was not proper,
  • the terms of the sale were unconscionable,
  • the sale was conducted fraudulently, or
  • 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.  For instance, if the property only sells for $100,000 but the borrower owes $125,000, unless a personal deficiency has been waived, or the borrower has discharged personal liability in Chapter 7 bankruptcy, the order confirming the sale will establish the borrower’s liability for a $25,000 deficiency judgment.  This is a personal judgment against the borrower which may be collected separately.  

The order confirming the sale is the “final” order in the foreclosure case for appeal and other motion deadline purposes. 

Special Redemption:  Up to 30 days after the judicial sale is confirmed, borrowers have a “special right of redemption” if:

  1. The purchaser at the sheriff’s sale was a mortgagee that was a party to the foreclosure case, and
  2. the judicial sale price was less than the total amount required to redeem.  

Under those circumstances, the borrower may exercise the “special right to redeem” by paying the judicial sale price, all additional costs incurred by the lender 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.

Right to Possession Expires & Eviction by the Sheriff:  The purchaser at the judicial sale is entitled to possession of the foreclosed property 30 days after the judicial sale is confirmed by the court.  Thus, after 30 days the sheriff will proceed with eviction procedure to remove the named defendants.  In order to evict persons in possession not named in the foreclosure, the plaintiff must file either a supplemental petition in the foreclosure case (735 ILCS 5/15-1701(h)) or file a separate action under the Forcible Entry and Detainer Act.


Illinois Supreme Court Rule 113 and Rule 114

Illinois Supreme Court Rule 113 governs “prove-up affidavits.” This rule applies only to cases filed on or after May 1, 2013. However, the court may enforce the standards outlined in Supreme Court 113 under the Illinois Rules of Evidence or other Illinois law.

The Rule 113 prove-up affidavit must include:   

  1. The identity of the affiant and an explanation as to whether the affiant is a custodian of records or a person familiar with the business and its mode of operation. If the affiant is a person familiar with the business and its mode of operation, the affidavit shall explain how the affiant is familiar with the business and its mode of operation. 
  2. An identification of the books, records, and/or other documents in addition to the payment history that the affiant reviewed and/or relied upon in drafting the affidavit, specifically including records transferred from any previous lender or servicer. The payment history must be attached to the affidavit in only those cases where the defendant(s) filed an appearance or responsive pleading to the complaint for foreclosure. 
  3. The identification of any computer program or computer software that the entity relies on to record and track mortgage payments. Identification of the computer program or computer software shall also include the source of the information, the method and time of preparation of the record to establish that the computer program produces an accurate payment history, and an explanation as to why the records should be considered “business records” within the meaning of the law.

Illinois Supreme Court Rule 114 governs “loss mitigation affidavits.”  This rule requires the lender to file a loss mitigation affidavit with the court prior to or at the time of requesting a judgment of foreclosure.  The loss mitigation affidavit must specify: 

  1. Any type of loss mitigation which applies to the subject mortgage.
  2. What steps were taken to offer said type of loss mitigation to the mortgagor(s).
  3. The status of any such loss mitigation efforts. 

You may try to contest the entry of a judgment of foreclosure if you believe the plaintiff did not properly offer or evaluate the defendant for all available loss mitigation options.  However, in order to contest entry of judgment on this basis, you should scrutinize the plaintiff’s affidavit (in substance and/or form), and provide a counter-affidavit. 


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“Loss Mitigation” Options

“Loss mitigation” is a generic term for options to avoid foreclosure.  Some of the most common “loss mitigation options” include:

  • Deeds-in-lieu of foreclosure
  • Short-sales
  • Repayment plans
  • Forbearances
  • Loan modifications 

The details of loss mitigation options are largely dependent on the “type” of loan involved, and what the investor guidelines dictate.  While loss mitigation options generally follow the same pattern, the specifics of loss mitigation options can vary greatly depending on:

  • Whether the homeowner has received prior loss mitigation options, and, if so, how recently; 
  • The nature of the homeowner’s hardship and current income; 
  • Whether the loan is insured by the federal government (Federal Housing Administration (FHA), Rural Housing Service (RHS), or Veteran’s Affairs (VA)).
  • Whether the loan is owned by a government-sponsored enterprise (Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac)).  
  • Whether the servicer participates in the Home Affordable Modification Program (HAMP).

Working directly with the loan servicer early in the process can be very important to avoiding foreclosure.  If the homeowner is in default, or is at imminent risk of default, the homeowner should immediately contact the servicer and try to reach a loss mitigation agreement.  The loss mitigation process can be difficult, but communication, diligence, and persistence are usually helpful in obtaining a loss mitigation agreement.

Clients should attempt to decide if they can realistically retain the house, or if they wish to move.  A realistic and careful assessment of the client’s income and expenses must be done to determine if it is feasible to keep the home.  

Homeowners should also attempt to make payments as much as possible and save any funds returned to them by the servicer.  Homeowners should also continue to save payments as the number of missed monthly payments accrues.  Some public benefits, like Supplemental Security Income, Medicaid, or SNAP have resource limits, however, which should be considered when advising clients to save large sums of money.   

Loss Mitigation Procedures:  The loss mitigation process is largely governed now by Regulation X – a federal regulation promulgated by the Consumer Financial Protection Bureau (CFPB).  Attorneys assisting with foreclosure must review the timelines established by the CFPB in Regulation X.  With certain exceptions, Regulation X dictates, for instance, that the servicer shall not initiate foreclosure if the borrower has submitted a “complete loss mitigation application” within the 120-day pre-foreclosure review period.  If a borrower submits a “complete loss mitigation application” after initiation of the foreclosure but more than 37 days prior to a scheduled sale, the plaintiff shall not move for judgment or conduct a judicial sale.  Additionally, if a loan servicer receives a loss mitigation application 45 days or more before the judicial sale, the loan servicer must promptly review the application, and, within 5 days of receiving the application, acknowledge receipt of the application.  In that acknowledgment, the servicer must also state whether the application is complete or incomplete, and must state what additional information must be submitted to render the application complete.  12 C.F.R. 1024.41.  These provisions of Regulation X may be enforced pursuant to Section 6(f) of the Real Estate Settlement Procedures Act (RESPA). 12 U.S.C. 2605.  

HUD-Approved Housing Counseling Agencies:  Clients should be encouraged to seek assistance from housing counseling agencies approved by the United States Department of Housing and Urban Development (HUD).   Typically, the housing counselor can explain what options are available to remain in the home, establish clients’ expenses and income, help clients budget, and assist clients in applying for loss mitigation options.  Housing counseling agencies should also keep thorough records of loss mitigation application documents, which can be helpful for an attorney requiring facts or affidavits in order to defend or postpone a foreclosure.  

Clients can search for a nearby housing counseling agency on HUD’s website.  Homeowners may also call HUD's interactive voice system at:  (800) 569-4287.


Common Retention Loss Mitigation Options

If the homeowner is to keep the house, they must typically reinstate, redeem, file a Chapter 13 bankruptcy, or attempt a work out letter with the lender.

Repayment Plan:  The homeowner agrees to pay the arrearage as an additional payment each month.  Repayment plans may be limited in duration depending on the type of loan involved.  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.

Deferral of Principal:  The homeowner pays only interest for a period of time and then resumes normal principal and interest payments.

Forbearance:  Monthly payments are suspended or reduced temporarily.  A forbearance is usually coupled with a more permanent solution like a loan modification.

Loan Modification: A change in one or more terms of the original loan to eliminate the arrearage and usually attempt to lower the monthly payments.  In a loan modification, the account is usually brought current by adding the arrearages back into the principal balance of the loan.  Then, the interest rate may be lowered, and the term extended.


Common Non-Retention Loss Mitigation Options

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.

Selling the House:  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.  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.  A deed-in-lieu agreement may shorten the time the client has to remain in the home.

Note, a deed-in-lieu and a short sale may have tax consequences – forgiveness of debt is generally considered taxable income – and buyers should be advised accordingly.  

Consent Foreclosure:  In this option, the court enters a judgment satisfying the indebtedness by vesting absolute title to the foreclosed property in the plaintiff.  In this option the rights of reinstatement and redemption may be waived.  A consent foreclosure requires the plaintiff waive the right to collect any personal deficiency.  A judgment for foreclosure, however, is entered and reported on the defendant’s credit.  


Bankruptcy Options

Chapter 13 (“Repayment”) Bankruptcy:  Chapter 13 bankruptcy is a “repayment plan” under which the client repays the missed mortgage payments over the period of up to 60 months.  During Chapter 13 bankruptcy, the client must make a monthly bankruptcy payment to repay the mortgage arrears in addition to the regular monthly mortgage payment.  Thus, Chapter 13 bankruptcy is typically not feasible unless it is affordable.  If the client has enough regular income to repay the arrearages within 60 months, he or she may be eligible for a Chapter 13, which would allow home retention.  

Chapter 13 bankruptcy may also have additional benefits if the client has substantially burdensome unsecured debt, or has no equity in the house but has additional liens on the property.  Wholly “unsecured” subordinate mortgages may be “stripped-off” the property and treated as unsecured debt in a Chapter 13 bankruptcy.  

In order to avoid foreclosure through Chapter 13 bankruptcy, the Chapter 13 bankruptcy must be filed before any judicial sale occurs 


Chapter 7 (“Liquidation”) Bankruptcy:  Chapter 7 bankruptcy will only stop the foreclosure process temporarily.  At the very least, a successful Chapter 7 may delay the foreclosure process and may discharge the client’s personal liability for the house debt.  While some debts are not dischargeable, Chapter 7 bankruptcy may also eliminate the client’s other debts.  In the course of a Chapter 7, however, any assets owned by the client, which are not otherwise exempt, may be sold by the bankruptcy trustee and used to satisfy as much of the client’s debt as possible.  In a Chapter 7 bankruptcy, keeping the home is usually only feasible if payments are current and the client’s equity in the house is protected by the applicable homestead exemption amount.  


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Common Defenses to Foreclosure

Loan documents and the foreclosure complaint must be carefully reviewed to determine if there are any equitable or technical defenses.  A list of some common law, statutory, and even equitable topics follows.  Attorneys involved in foreclosure defense must at least familiarize themselves with the applicability and proper use of the following.

Standing:  Standing is a defense that is waived if not properly raised.  With the secondary mortgage market, it may be difficult to discern whether the plaintiff actually has standing to pursue foreclosure.  The endorsements on the loan document should be reviewed along with any assignments of the mortgage to determine whether potential standing problems exist.

Illinois Consumer Fraud and Deceptive Business Practices Act:  ICFA allows recovery for not only deceptive conduct but also for conduct that is deemed “unfair.”  ICFA also allows broad recovery for violations.

RESPA Violations:  The Real Estate Settlement Procedures Act and the regulation promulgated thereunder govern much of the process for notices of transferring servicing, maintaining escrow accounts, establishing force-placed insurance, application of payments, requests for information, notices of error, and loss mitigation procedures.

Truth-in-Lending Act and HOEPA Violations: TILA 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 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.

Fair Debt Collection Practices Act:  Third party debt-collectors, including attorneys who file foreclosure, must comply with the FDCPA.  While not a defense per se to the foreclosure action, it may give rise to a statutory and actual damages claim.

Fair Credit Reporting Act:  The FCRA regulates the collection, dissemination, and use of consumer information.  Both the credit reporting agency and the furnisher of consumer information may face liability for inaccurate reporting or failure to correct inaccurate reporting.  For instance, failure to accurately report or update a borrower’s credit report to reflect loss mitigation agreements may give rise to claims under the FCRA.   

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 prior to three missed payments, 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).  This reasoning arguably extends to other government-insured loans with similar servicing requirements.

Illinois Fairness in Lending and Illinois High Risk Home Loan Act:  Attorneys should be aware of the applicability and requirements of Illinois statutes governing mortgage loans.  IFLA prohibits, for example, equity stripping and loan flipping – common “predatory” lending practices.  Be aware of whether federal law preempts the application of an Illinois statute.

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 holder’s agent.

Breach of Contract:  Perhaps most commonly used to enforce trial period modifications that the servicer failed to convert into a permanent loan modification.  There may also be breach of contract claims for violations of other loss mitigation agreements, or if the servicer has somehow failed to abide by the terms of the mortgage (i.e. failing to apply payments in the order prescribed in the mortgage).  

Breach of Covenant of Good Faith and Fair Dealing:  Every contract in Illinois contains a covenant of good faith and fair dealing.  Oftentimes the covenant of good faith and fair dealing is used as a tool of interpretation to scrutinize a party’s exercise of contractual discretion.  

Equitable Maxims:  Foreclosure is an equitable remedy.  Traditional maxim of equity are available in defense of foreclosure.  For instance, the maxim “he who seeks equity must do equity” or “unclean hands” may be available if the inequitable conduct arises from or relates to the loan transaction.  

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.

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.

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.

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.

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.

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.


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Mediation Programs

Some counties have established mandatory mediation for residential mortgage foreclosure cases.  Attorneys should check whether the local county has established a mediation program.  Each mediation program has its own rules, which must also be reviewed.  For instance, in some counties, the client’s responsive pleading may not be due until after mediation has terminated.  Even if mediation has terminated, good cause may exist to refer the case back to the mediation program. Mediation often provides the most conducive environment to pursue a loss mitigation option.

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Tenants in Foreclosed Property

Federal Law

Protecting Tenants at Foreclosure Act of 2009 (PTFA). The PTFA expired on December 31, 2014. 

Illinois Law

735 ILCS 5/15-1701

During foreclosure, the lease agreement remains in full effect.  The tenant must continue paying rent, but the landlord is still responsible for maintaining the premises.  If rent must be sent to a new location or paid to a new entity, the tenant should receive notice.  For instance, within 21 days of any order placing the mortgagee in possession, a mortgagee in possession must serve and post notice to the occupants providing instructions on the method of payment of future rent.

Until proper service of such notice upon known occupants, the mortgagee in possession may not collect any rent due or terminate the occupant’s tenancy for non-payment of such rent.

A tenant’s rights depend largely on when the lease was entered, the term of the lease, whether the lease is written or oral, and whether the lease is “bona fide.”

Under the IMFL, there are several factors that determine whether a lease is “bona fide”:

  • The lease is the result of an “arms-length” transaction 
  • The rent amount is not substantially lower than fair market rent
  • The tenant, with some exception, cannot be the child, spouse, or parent of the landlord

In order for the lease to be “bona fide” it must have been entered or renewed before the lis pendens was filed for the foreclosure action, or the lease was entered or renewed after the lis pendens was filed but the term of the lease is for one year or less.

Bona fide tenants cannot be evicted through a “supplemental petition” in the foreclosure case.  735 ILCs 5/15-1701(i).  Evictions of bona fide tenants must proceed in a separate action under the Forcible Entry and Detainer Act.  735 ILCS 5/9-207.5.  Under the Forcible Entry and Detainer Act, unless other grounds for eviction exist, a bona fide lease may only be terminated by no less than 90 days’ written notice at the end of the lease term, or by no less than 90 days’ written notice in the case of a bona fide month-to-month or week-to-week tenancy.  

Remember, the length of the bona fide lease may be impacted depending on when the lease was entered in relation to the foreclosure process.  735 ILCS 5/15-1224.

For tenants without “bona fide” leases the new owner of the property, within 90 days after confirmation of sale, must proceed in the foreclosure case with a “supplemental petition” or file a separate action under the Illinois Forcible Entry and Detainer Act.  735 ILCS 5/15-1701.  735 ILCS 5/9-101, et seq.  If the occupant is current on his or her rent, or has made good-faith efforts to make rental payments, any order of possession must allow the occupant to retain possession of the property for the shorter of 120 days or the duration of the lease.  

The Right to Seal the Court Record:  If a tenant is taken to eviction court because his dwelling is in foreclosure, he has the right to seal the court file/record in order to protect hiscredit report and ability to rent in the future.  Indeed, where the tenant is current on rent, timely notice of where to pay rent was not provided to the tenant, or where the tenant made good faith efforts to make rental payments, the court record relating to a supplemental petition “shall be” sealed.  735 ILCs 5/15-1701(h)(6).  Similarly, in a forcible entry and detainer action brought against a tenant who would have lawful possession of the premises but for the foreclosure on the property, or a bona fide lease holder, shall be sealed pursuant to Section 15-1701.

Security Deposits:  Upon confirmation of sale, the landlord must transfer the security deposits, including applicable statutory interest, still held to the new owner of the property and shall provide an accounting of the transfer.  The new and former owner are both responsible for the return of the security deposit until it has been transferred to the new owner and the tenant  has been notified.  

Chicago Ordinance

Residents of Chicago may be afforded additional protections under the Residential Landlord and Tenant Ordinance (RLTO) and Keep Chicago Renting Ordinance (KCRO). 

RLTO 5-12-095

Within 7 days of being served a foreclosure notice, an owner or landlord of the premises that is subject to the complaint shall disclose, in writing, to all tenants of the foreclosed premises that a foreclosure action has been filed.

RLTO 5-12-080(e)

Successor landlord is liable for tenant's security deposit.

RLTO 5-12-030(h)

Defines "successor landlord." A court-appointed receiver is not a successor landlord. 

KCRO 5-15-40

No later than 21 days after a person becomes the owner of a foreclosed rental property, the owner shall make a good faith effort to ascertain the identities and addresses of all tenants of the rental units in the foreclosed property and notify, in writing, all known tenants of such rental units that, under certain circumstances, the tenant may be eligible for relocation assistance. The notice shall be given in English, Spanish, Polish, and Chinese.

KCRO 5-14-050 For "qualified tenants":

  • The owner of a foreclosed rental property shall pay a one-time relocation assistance fee of $10,600, or
  • The owner must offer an option to renew or extend the tenant's current rental agreement with a capped annual rental rate. 

 KCRO 15-14-020 Defines "qualified tenant":

  • A tenant in a foreclosed rental property on the day that a person becomes the owner of that property; and
  • Is a bona fide lease holder (see definition above).

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A Note on Vacating Judgments for Foreclosure

 In a foreclosure, it is the order confirming the judicial sale rather than the judgment of foreclosure that operates of the “final” and “appealable” order.  Absent a special finding under Supreme Court Rule 304 that there is no just reason for delay in a judgment for foreclosure, the foreclosure judgment is not a “final” judgment for purposes of vacating pursuant to 735 ILCS 5/2-1301.  When the foreclosure judgment lacks a special finding of finality and “appealability,” the defendant may seek to vacate a judgment of foreclosure under the standards set forth in 735 ILCS 5/2-1301(e) any time prior to a motion to confirm the judicial sale is filed.  EMC Mortgage Corp. v. Kemp, 982 N.E.2d 152 (Ill. 2012); Wells Fargo v. McCluskey, 999 N.E.2d 321 (Ill. 2013); Citibank N.A. v. Monroe, 985 N.E.2d 682 (2d Dist. 2013) (noting distinction between motion for confirmation and notice of hearing).

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Foreclosure of Deceased Mortgagors

In Illinois, under the IMFL, the mortgagor is a necessary party in a foreclosure action.  735 ILCS 5/15-1501.  However, in Illinois, it is also not possible to file a lawsuit against a deceased person.  Thus, the Illinois Supreme Court established a method to resolve this quandary by requiring the appointment of a “special representative” in the foreclosure action.

Typically, the special representative is appointed to represent the deceased mortgagor’s interests in the foreclosure and to file a report naming all parties with interests in the foreclosed property.  After appointment of the special representative, the plaintiff must file an amended complaint adding the special representative and the parties identified by the representative as having interests in the property.

A special representative is not necessary in cases where there is a living person that holds a 100 percent interest in the foreclosed property by virtue of being the deceased mortgagor’s surviving joint tenant or surviving tenant by the entirety. No deficiency may be sought against a deceased mortgagor.  735 ILCs 5/15-1501(h).

ABN AMRO Mortgage Group, Inc. v. McGahan, 931 N.E.2d 1190 (2010).

Under federal regulations promulgated by the CFPB, loan servicers must also now establish policies and procedures to identify and communicate with “successors-in-interest” of a deceased borrower in part to facilitate the loss mitigation process with the identified successor.  Depending on the “type” of loan or whether Fannie Mae or Freddie Mac own the loan, the successor in interest may be treated “as if” he or she is a borrower and allowed to pursue loss mitigation options to retain the home.  

For instance, in cases where a husband and wife own the home as joint tenants, but only the husband is a borrower on the loan, the loan servicer may refuse to speak with the wife after her husband’s death.  The loan servicer, should, however, now have policies and procedures in place to recognize that the wife is the successor-in-interest to the house (by operation of law as joint tenants), and to communicate and coordinate with her to pursue loss mitigation.  Some loss mitigation may require the successor to “assume” personal liability of the debt where no liability previously existed.  This is something attorneys should carefully advise clients about.  Complicated cases may require a separate probate action to establish the new successor in interest.  Consulting with a probate attorney is advised.

For transfers prior to death, attorneys should familiarize themselves with the “due-on-sale” provisions contained in most mortgage contracts as well as the federal Garn-St. Germain Depository Institutions Act, which preempts enforcement of due-on-sale clauses under certain exempt transfers.  12 U.S.C. 1701j-3.  


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“Requests for Information” and “Notices of Error”

The former “Qualified Written Request” was replaced and divided into two separate categories – Requests for Information (RFI), and Notices of Error (NOE).  The process for sending and responding to an RFI or NOE is still regulated by RESPA and Regulation X.  12 C.F.R. 1024.35.  12 C.F.R. 1024.36.  The scope of requests or error resolution is limited to the enumerated categories, but may be used for “any other error relating to the servicing of a borrower’s mortgage loan.”  An RFI or NOE may be useful to obtain basic information about the owner of the loan, payment history, closing documents, prior loss mitigation, or to dispute fees or charges or loss mitigation errors.  A servicer’s failure to properly respond to an RFI or NOE may give rise to private enforcement.  

RFI’s and NOE’s must be sent to a specific address established by the servicer.  Servicers should publish the appropriate address on their websites and/or on the monthly billing statements.


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Beware of “Foreclosure Scams”

Many mortgage foreclosure scams exist.  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.

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.

For more information, or to report a scam, you may wish to contact the Illinois Attorney General Consumer Fraud Hotline or visit the Illinois Attorney General’s website.

Consumer Financial Protection Bureau
Clients may also submit complaints to the CFPB related to loss mitigation process, applying for a mortgage, being approved or denied credit, or other related problems.  Complaints can be submitted on the CFPB’s website.  After submitting a complaint, the CFPB forwards the complaint to the company and works to get a response.  This may be an effective tool to report loss mitigation or other servicing errors or abuses.


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