Blog

Call Us312-704-0771

Chicago debt collection attorneys
Subscribe to this list via RSS Blog posts tagged in mortgage foreclosure

Illinois Mortgage Delinquencies May Rise Due to RecessionLawmakers in the U.S. recognized from the beginning of the COVID-19 crisis that homeowners would need help with mortgage payments in order to avoid a surge in mortgage foreclosures. The Coronavirus Aid, Relief, and Economic Security Act had several provisions for homeowners, including:

  • A moratorium on foreclosure of single-family homes with federally backed mortgages, which the Federal Housing Finance Agency recently extended until at least Aug. 31
  • A mandate that forbearance be provided to homeowners, regardless of their delinquency status
  • The loosening of restrictions on modifying loans

Illinois has issued executive orders that put a moratorium on evictions, though it also said that homeowners are still responsible for making mortgage payments. Housing market analysts are concerned that the downturn in the economy could lead to the state’s worst mortgage delinquency rate since the Great Recession of a decade ago.

Obstacles Facing Mortgage Payments

More than one million Illinois residents lost their jobs due to businesses being forced to close or reduce staff in response to the coronavirus outbreak. Even with unemployment benefits and stimulus payments from the federal government, many homeowners have tighter budgets with which to make mortgage payments. In some cases, homeowners may be forced to choose between staying current on their mortgage payments and paying for other necessary expenses.

...

How the Coronavirus Is Affecting U.S. CreditorsThe coronavirus outbreak in the U.S. is being fought on two fronts: public health and the economy. Government efforts to slow the spread of the virus have caused many Americans to lose their jobs or see their pay drastically cut. Among other expenses, people who are out of work may have more difficulty repaying their debts. Creditors are in a delicate position where they must balance their own interests against the hardships that many debtors are experiencing. As a result, forces in the public and private sector are providing debt relief by allowing some debtors to suspend their payments without penalty.

Government Action

The federal government has recently issued orders in regards mortgages and student loan payments:

  • Mortgages that are backed by Fannie Mae, Freddie Mac, and the Federal Housing Administration are eligible for up to 12 months of forbearance.
  • Lenders cannot charge late fees on the delayed payments.
  • Foreclosures are suspended for 60 days, starting from March 18.
  • The proposed stimulus bill would suspend federal student loan payments until Sept. 30.

Various states have enacted similar suspensions on foreclosure and eviction for mortgages that are backed by state programs. As of March 25, Illinois had not announced any mortgage forbearance period.

...

‘Zombie Foreclosures’ Are Dwindling But Not DeadDuring the Great Recession, so-called “zombie homes” were a common problem for mortgage lenders. Zombie foreclosure is a way of describing a situation where a home is abandoned after the occupants received a foreclosure notice. The number of zombie foreclosures has decreased since the height of the housing market crash. A recent report on foreclosures during the fourth quarter of 2019 found that 3.1 percent were zombie foreclosures, which is down 5.8 percent from the first quarter of 2014. Illinois had the fourth-most zombie foreclosures in the U.S. with 943, which is 4.7 percent of its foreclosures. Abandoned homes are still a problem that can decrease the resale value of the property.

How Zombie Foreclosure Occurs and Why It Is a Problem

When a homeowner receives their initial foreclosure notice, they may decide to abandon the property instead of contesting the foreclosure process. They may believe that they have no hope of paying back the mortgage and that they are better off leaving before the foreclosure is completed. This causes a major problem for mortgage lenders because an unoccupied property will fall into disrepair. In some cases, the previous occupants may have left the home in bad shape.

A zombie home will decrease in value, even if the lender works to maintain its appearance. The lender cannot sell the home until the foreclosure is finished because it is still in the previous occupant’s name. A zombie home will also decrease the property values of other homes in the neighborhood, some of which the lender may be trying to sell.

...

When Mortgagees Claim They Never Received Foreclosure NoticeA mortgagor can complete a foreclosure and sale of a property, all without hearing a word from the mortgagee who is living at the property. However, the mortgagee may object to the foreclosure sale at the last minute, claiming that he or she never received notice of the foreclosure. This may be a delaying tactic or a desperate attempt to hold onto a property. The mortgagee has the burden of proving that the mortgagor failed to properly serve notice of the foreclosure.

Service Methods

A mortgagor tries to directly serve the foreclosure notice to the mortgagee, who confirms receipt with his or her signature. The mortgagor has alternative methods of service when the mortgagee cannot be found, including:

  • Leaving it with someone who lives with the mortgagee at the property;
  • Mailing it to the last-known address of the mortgagee; or
  • Publishing it in a newspaper that the mortgagee is likely to read.

Leaving a foreclosure notice with another party is called substitute service. The server must record the name of the person being served, a physical description, and his or her relationship to the mortgagee. The mortgagor usually follows up a substitute service by mailing the notice to the mortgagee.

...

Weighing Whether to Accept a Short SaleThe Chicago area leads the nation in homeowners who are underwater on their mortgages, according to a recent study. Home values in the area have not recovered as much from the 2008 housing market crash as other metropolitan areas. Underwater homes are problematic for creditors trying to collect from mortgagees because:

  • Mortgagees may walk away from their homes and their mortgage payments because they have no home equity; and
  • Mortgagers may not recuperate the value of the mortgage in a sale if the home’s value is worth less than what the mortgagee owed.

Your mortgagee may ask for you to accept a short sale if he or she cannot afford payments and is underwater on the home. You should be skeptical about approving a short sale because you are forgiving the mortgagee’s debt after allowing him or her to sell the home for less than the value of what he or she owes. However, foreclosure or the mortgagee abandoning the home can also be costly. When a mortgagee suggests a short sale, you should weigh several factors before making a decision:

  1. The Cost of a Foreclosure: Foreclosure often takes longer than a short sale and involves more legal fees. There is also no guarantee how much money you will receive in the foreclosure if the property value is low and the mortgagee is incapable of paying the deficiency.
  2. Property Condition: The mortgagee has an incentive to maintain the home during a short sale to make it attractive to potential buyers. A property can fall into disrepair if the mortgagee abandons the home or knows that he or she will lose it to foreclosure. You will need to pay for repairs and upkeep on the home before you sell it again.
  3. Asking Price: You should assess the value of the home and determine whether the mortgagee is requesting enough money in the short sale. You can reject the sale if you believe you could receive more money by selling the property after foreclosure.
  4. Mortgagee’s Finances: You should accept a short sale only if you are satisfied that the mortgagee cannot afford the mortgage payments. The mortgagee may have multiple debts, limited assets, and a diminished income. However, the mortgagee should not use the short sale to get out of a debt that he or she is capable of paying.

Mortgage Options

In most cases, foreclosure is the best way to recuperate the money owed to you on a mortgage. You can receive a deficiency judgment against the mortgagee if the sale price of the home is less than what was owed to you. A Chicago debt collection attorney at Walinski & Associates, P.C., can advise you on how to use foreclosure in your case. To schedule a consultation, call 312-704-0771.

...

How You Can Collect Rent While Foreclosing on a PropertyAn assignment of rents clause in a mortgage agreement can be helpful when the borrower collects rent from tenants on its property. With the clause, the mortgagee may be able to collect rent payments directly if the borrower defaults on the mortgage. However, it can be difficult to predict how the clause will work in practice because of the vagueness of the law and inconsistencies between different state’s laws. Mortgagees with borrowers in Illinois have used litigation to enforce the clause. U.S. district courts have interpreted Illinois’ law on the assignment of rents to allow the mortgagee to collect rent when it meets certain requirements.

Property Possession

Establishing the possession of a rental property is the clearest way for a mortgagee to assert the assignment of rents clause in a mortgage. The mortgagee can claim actual possession of the property or constructive possession, which means the mortgagee effectively controls the property. In order to take possession of a real property during foreclosure:

...

Illinois Supreme Court Sides with Borrower in Foreclosure CaseA foreclosure case between a bank mortgagee and borrower made its way to the Illinois Supreme Court earlier this year. In Bank of New York Mellon v. Pacific Realty Group, LLC, the courts had been trying to solve two points of contention:

  • Whether service by publication was an adequate means of informing the borrower of a pending foreclosure when the borrower does not have an agent in the state; and
  • Whether the 60-day deadline for a borrower to file a motion to quash a foreclosure should have included a period during which the case was inactive.

The supreme court answered the second question in favor of the borrower and sent the case back to the appellate court in order for it to rule on the first question.

Background

...

FHA Loans Add Extra Steps to Mortgage ForeclosureThe Federal Housing Administration, through the Department of Housing and Urban Development, offers protected loans to help lower income borrowers obtain mortgages. The FHA insures the loan, which gives the lender greater certainty that it will be compensated in case of default. As part of the FHA insurance, the lender must follow federal guidelines in contacting borrowers when they default on the mortgage. Failure to document compliance can halt foreclosure efforts on the property.

In-Person Meeting

According to the Code of Federal Regulations, the lender must have or attempt to have a face-to-face meeting with the borrower before the borrower has missed three months of required payments. If the lender does not have the meeting, it must show that it made a reasonable effort to contact the borrower, including:

...

Fast-Tracking Foreclosure on Abandoned PropertiesWhen a lender concludes that it must foreclose on a mortgage, it likely wants to get through the process as quickly and smoothly as possible. The sooner the lender can reclaim the property, the sooner it can try to find a new buyer and recuperate the cost from the failed mortgage. However, the foreclosure process does not work quickly. While this is inconvenient for all mortgage lenders, the situation is most dire for those trying to foreclose on an abandoned property. Recognizing this problem, Illinois is one of the few states to have a fast-track foreclosure law.

Foreclosure Process

Illinois is a judicial foreclosure state, meaning the lender must go to court to receive a judgment on the foreclosure. The process includes:

...

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:

...

foreclosure- complaints in illinois, chicago debt collection lawyer

A crucial step to ensure your foreclosure complaint is filed quickly is to provide your attorney with the necessary documents for review.  The documents your attorney needs are:

  • Any demand letters, notices, or pre-foreclosure correspondence sent to the mortgagor(s);
  • A copy of the executed Note/Credit Agreement and Disclosure;
  • A copy of the executed and recorded Mortgage/Deed of Trust;
  • All endorsements or allonges;
  • All assignments of mortgage, whether or not they were recorded;
  • Any documents showing acquisition or merger;
  • Any modifications or change in terms agreements;
  • Title report, if ordered;
  • Appraisal, if available; and
  • Current payoff, including principal balance, per diem, past due payment/maturity date, and interest rate.

Also, it is important to advise your attorney whether you have possession of the original Note/Credit Agreement and Disclosure and Mortgage/Deed of Trust.  This ensures you are prepared in the event that the mortgagor(s) raises this issue during the foreclosure proceeding in an answer or discovery.

...
Illinois Creditors Bar Association Chicago Bar Association Illinois State Bar Association
Back to Top