Foreclosure proceedings are often defined by complex legal frameworks that require significant specialized knowledge, especially as rules and regulations may vastly differ from state to state. In Illinois, the legal framework for foreclosures is defined by the Illinois Code of Civil Procedure 735 ILCS Article 5. As a judicial foreclosure state, Illinois handles foreclosures within the court system, meaning lenders must sue deficient borrowers to foreclosure on delinquent loans.
An Illinois borrower taking on a mortgage loan will also a sign a promissory note – a legally binding document which contains the terms of the loan, such as the repayment timeline, late fees and the borrower’s promise to repay the lender per the terms of the agreement.
Typically mortgage loans in Illinois will feature a 10- to 15-day grace period after missing the first payment. If the grace period passes, the lender will start charging a late fee on the missed payment, terms of which are usually detailed on the promissory note, but usually stands at 5% of the overdue payment.
If a borrower misses several payments, the lender will start reaching out to homeowner to try and recuperate the missed payments. If the delinquent borrower fails to bring the loan current – paying all late fees and missed payments – and/or fails to reach an agreement with the lender on how to bring the loan current, the lender or their representative may sue them for foreclosure. Legally, the suit may be filed no sooner than 120 days after the first missed payment. This is generally the best time for a homeowner struggling to keep up with mortgage payments to explore loss mitigation options.
The lender must also send a breach letter or notice of breach to the borrower at least 30 days before filing the foreclosure suit. The breach letter must contain the defaulted amount and the action and date by which it must be cured. It must also contain the consequences of not satisfying the default – usually the lender will accelerate the mortgage, demanding the whole borrowed amount. If the homeowner cannot cure the accelerated debt, the property may be sold during a judicial sale.
Some Illinois counties also offer the possibility for foreclosure mediation as an additional tool for avoiding foreclosure. During foreclosure mediation, the borrower and lender or their representative will meet in a formal setting with an impartial mediator to explore foreclosure avoidance options, such as a loan modification, payment plan, forbearance agreement, or, in more extreme cases, a short sale, or a deed-in-lieu of foreclosure agreement.
The latter involves the owner simply handing over the property deed to the lender to avoid being foreclosed upon, losing all property rights. The advantage from a delinquent borrower’s perspective is, that if the lender agrees to this method of curing the delinquent loan, they may not pursue a deficiency judgement against the former owner afterwards.
The lender’s foreclosure complaint is served to the borrower along with a homeowner notice – a document informing the borrower of their rights during the foreclosure process – and a summons. If the borrower avoids being served, Illinois law allows that they be served via publication – with a notice printed in a local publication. The complaint is served with a summons as well, giving the borrower 30 days to answer. If the borrower fails to answer or misses the deadline, the lender may file for and receive a default judgement against the borrower, automatically winning the case.
If the homeowner does answer, the lender may not receive a default judgement, but may take the case to trial, or file for a summary judgement. If the lender pursues the latter, the summary judgement will request the court to rule in favor of the lender, as the borrower cannot dispute the major facts of the suit. The borrower may file an opposing motion with the court to as a countermove to a summary judgement. If the court hand down a summary judgement, or the borrower loses the trial, the court will issue a final judgement of foreclosure against the homeowner.
According to Illinois law, a borrower can pursue reinstatement up to 90 days after they have been served with a summons. In order to be reinstated, the borrower must bring the loan current by balancing all missed payments and outstanding late fees and charges. Effective January 1, 2018, lenders must accept payments from delinquent borrowers even after a foreclosure lawsuits is filed. If the payments do not equal the outstanding debt, the lender may continue with foreclosure proceedings and the property goes to auction.
All Illinois borrowers have the right to redemption under state law, even after a judgement has been issued in favor of the lender. This means the borrower may redeem their property rights by paying the principal balance, interest and various costs. The redemption period is calculated as the longest term of either 3 months from the day the judgement was handed down, or 7 months from the day the borrower was served with the lender’s foreclosure complaint. However, if the foreclosed property has been abandoned, the redemption period can be as short as 30 days.
Foreclosed properties are sold as part of judicial sales in Illinois, and properties are either won by the highest bidder or revert to lender and become real estate owned (REO).
An Illinois property may be sold at a foreclosure auction if a notice of sale was mailed to the homeowner no less than 10 days before the trial. The notice must also be published in a locally-circulated newspaper no more than 45 days prior to the sale, and must be published weekly for at least 3 consecutive weeks.
Illinois borrowers may have an additional 30-day redemption period even after the property was sold at a foreclosure auction, if it was bought by the lender at the auction for a price lower than the total outstanding debt – this includes the outstanding loan, interest, late fees, charges and foreclosure expenses.
30 days after the foreclosure auction, a motion to approve the sale is filed. The court usually agrees and issues an order of approval of sale, as well as an eviction order for the former owner with a 30-day grace period. 30 days after the sale is approved by the court, the new owner gains right of possession.
If the foreclosure sale price is lower than the total outstanding debt, many states allow a lender to sue the former homeowner for the difference by asking the court for a deficiency judgement. Illinois allows lenders to pursue a deficiency judgement if the homeowner was personally served with the foreclosure lawsuit or has appeared in court. If a deficiency judgement is handed down, it can be an in personam or in rem judgement.
An in personam deficiency judgement holds the borrower personally accountable for the remaining debt and can satisfy it by taking certain assets, cashing wages or levying bank accounts – removing funds from personal bank accounts with the court’s agreement. An in rem deficiency judgement holds the property accountable for the remaining debt, and as such, can be pursued by the lender only of the borrower redeems the property.
If the former owner does not voluntarily vacate the property before the new owner gains right of possession, the new owner may offer a cash-for-keys deal in which the former owner receives a financial incentive to voluntarily vacate the property. The new owner may simply opt for eviction, asking the sheriff’s office to execute the stayed eviction order, and the former owners may face forcible removal from the property.
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