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Illinois debt collection attorney foreclosure

While the mortgage, rent, and income protections provided for in last spring’s original Coronavirus Aid, Relief, and Economic Security (CARES) Act have long since been exhausted, many states, including Illinois, have continued to offer their own executive orders and legislation to assist residents during this unprecedented time. In addition, many mortgage companies have developed their own programs for homeowners to help them avoid foreclosure, at least for the time being. However, that is not to say if you are looking to eventually collect on the debts owed from these properties that might be in preforeclosure, you should not be prepared to take action. Foreclosure debt collection will be inevitable post-pandemic, despite the latest COVID relief package being signed into law. In that sense, you, as a mortgage lender or servicer who deals with foreclosures, must remain focused on your job, collecting and documenting everything necessary to make the preforeclosure and foreclosure processes go smoothly whenever the time comes.

Advice to Mortgage Lenders When Prepping for Foreclosure During the Pandemic 

With the vaccines only starting to be administered and with the latest COVID-19 economic relief bill signed into law nine months after the CARES Act, you cannot expect things to get back to normal immediately. Therefore, the negative impact of COVID-19 on the economy, including housing, will persist far into 2021. Due to this, you need to be prepared for continual increases in foreclosures, including from residents of normally good standing with your mortgage lending or servicing company. To better prepare for an influx of foreclosures in the new year, consider the following tips:

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Chicago Mortgage Loan Servicer AttorneysWith many reports claiming that the COVID-19 pandemic could continue well into 2021—and some reports even suggesting that it could last into 2022—the economic impact is likely to remain substantial and adverse. Illinois alone approximately has more than a 20 percent unemployment rate since the start of the pandemic. All this job loss and financial strife means more foreclosures, mortgage loan modifications, workouts, and other adjustments to mortgages are bound to occur, at least eventually. With echoes of the Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law this past March still being felt today, mortgage lenders and mortgage servicers might be considering their responsibilities at this time in offering new—or extending prior—COVID-19 forbearance plans for their borrowers. Here is an overview for your reference. 

Mortgage Lender Responsibilities Per the CARES Act, Then and Now

Provided the mortgage being serviced is federally backed, mortgage lenders and servicers are required by law at this time to offer the following forbearance policies to eligible homeowners:

  • The CARES Act enables forbearance of mortgage payments for up to six months in which interest accrues and the payments are only postponed.
  • The lenders have the right to extend the forbearance another six months for a total of one year of a forbearance in mortgage payments due to the COVID-19 pandemic.
  • During these forbearances, servicers cannot charge fees or interest beyond what would have been provided for with the homeowners’ usual monthly on-time mortgage payments.
  • An important new interpretation of the CARES Act from federal regulators confirms that servicers cannot require repayment of the missed mortgage payments in one lump sum at the end of the forbearance.
  • When the forbearance period ends, the lender will work with the homeowner to devise a loan modification, workout, or other plan that will allow them to pay back the missed payments over time.

Why Expanding COVID-19 Forbearance Policies Might Be a Good Idea

According to the U.S. House Committee on Financial Services, nearly 70% of all homeowners have federally-backed loans that qualify for these forbearance policies, which means you as a lender technically are not required by law to offer it to all your borrowers. However, despite this, you might want to consider the expansion of your COVID-19 forbearance policy to all homeowners and not just those with federally backed loans. Reasons to do this include:

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Chicago Debt Collection LawyerAn unsecured creditor can secure their claim on a debt by receiving a judgment lien. If a court finds in favor of the creditor in a lawsuit, the creditor can request that a lien be put on the debtor’s property – most often their home. If the debtor tries to sell the house, the buyer or seller must pay the lien before ownership can be transferred. The lien would also make them a junior creditor if another creditor foreclosed on the property. As a creditor with a judgment lien, you may wonder whether you can initiate a foreclosure on the property. While you do have that right, there are several reasons why foreclosing on a judgment lien may not be worth your effort:

Sale Process: Forcing a sale on a home will cost both time and money. You will need to publish a listing of the sale and pay a fee to the local sheriff’s department to hold the property. You will also need to hire a real estate attorney to ensure that the sale is legal. Once you are able to sell the property, you will be required to give the debtor time to repay the lien. The whole process could take the better part of a year, with no guarantee of success.

Homestead Exemption: Each state offers a homestead exemption to protect a homeowner’s equity in their primary residence. In Illinois, the exemption is $15,000 for a single person and $30,000 for a married couple. This means that the first $15,000 or $30,000 from the foreclosure sale will go back to the debtor. You will get nothing out of foreclosing on a home if the debtor’s equity is less than the exemption.

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When You Can Foreclose on a Reverse MortgageOlder homeowners can use a reverse mortgage as a source of income or credit. While borrowers qualify for regular mortgages based on their income, a reverse mortgage is based on the borrower’s equity in their home. People age 62 and older are eligible to take out a reverse mortgage on their principal residence as long as they own it outright or have enough equity in it. The mortgage balance is not due until a qualifying event occurs. If the borrower or their heirs do not repay the mortgage, the lender may foreclose on the property.

When Can a Reverse Mortgage Become Due?

According to Illinois’ Reverse Mortgage Act, there are five ways that the balance on a reverse mortgage can become due:

  • The borrower or last remaining tenant dies;
  • The property is sold;
  • The borrowers no longer use the property as their principal residence;
  • The reverse mortgage contract included a maturity date; or
  • The borrowers failed to meet their contractual obligation to maintain the home.

When the borrowers die, their heirs will determine whether to repay the reverse mortgage, sell the home or allow a foreclosure. The borrowers may leave or sell the home if it does not meet their needs in old age. However, a lender may foreclose on a borrower’s home while the borrower still lives there if the borrower cannot pay property taxes and home insurance or maintain the value of the property. Unlike with other foreclosures, lenders often cannot seek deficiency judgments against borrowers of reverse mortgages if the property sells for less than the balance of the mortgage.

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Options for Junior Creditors During ForeclosureJunior creditors are at a disadvantage when senior creditors decide to foreclose on a debtor’s mortgage. The senior creditor has priority in the foreclosure sale, and the junior creditor may receive little or no compensation for what the debtor owes it because its debt is often unsecured. A junior creditor can be:

  • A lender that gave a second mortgage to the debtor with the property as collateral; or
  • A party that received a judgment lien against the debtor’s property as the result of winning a lawsuit against the debtor.

A junior creditor can put itself in a position to receive some compensation from a foreclosure by participating in the foreclosure process. It may also file a lawsuit against the debtor to collect money still owed from its lien.

Sale Surplus

A junior creditor may claim the surplus from a foreclosure sale as long as it establishes its lien on the foreclosed property during the process. This requires the junior creditor to:

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Utilizing Mortgage Foreclosure to Collect DebtFor mortgage lenders, property foreclosure is a complex yet effective method of retrieving debt when borrowers fail to make mortgage payments. A successful foreclosure can allow the creditor to sell the property and recover a large share of the borrower’s debt. In Illinois, all foreclosures must go through a court. A judicial foreclosure allows legal protections for both sides but can draw out the process. A creditor must follow a set of legal procedures in order for a court to approve the foreclosure.

When to Foreclose

If you are a mortgage lender, you may start considering foreclosure when a borrower misses a scheduled mortgage payment. However, you must give the borrower amble opportunities to pay the mortgage before you can request foreclosure in court:

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