by Steven A. Leahy
Deficiency judgments in Illinois are created when a homeowner loses their home to foreclosure, and the forced sale does not generate enough money to payoff the outstanding mortgage balance. Illinois is a recourse state. That means mortgage companies have recourse; they can recover the deficiency from the homeowner, even after the house is lost to foreclosure sale.
Illinois is also a judicial foreclosure state. That means mortgage companies must go to court, receive a judgment, and hold an auction in order to foreclose on a homeowner’s property. Generally, judicial foreclosures give the homeowner much more time before the home is lost. The two concepts (recourse and judicial) are complementary. Some states do not require court action to foreclose on a home. But, in those states, generally mortgage companies can’t go after the homeowner should a sale result in a deficiency (non-recourse states).
In non-recourse states, homeowners often implement a plan called “strategic default.” That’s when homeowner’s stop making mortgage payments – for whatever reason (e.g. the mortgage is far greater than the value of the home, the homeowner has been transferred to another part of the country, etc.) – and the mortgage company takes the property in foreclosure (usually rather quickly). The homeowner leaves the property free and clear of any financial obligation to the mortgage company.
Homeowners in Illinois must be careful with a strategic default, because a deficiency judgment may arise and the financial obligation to the mortgage company may survive the foreclosure. There are options to avoid a deficiency in Illinois – a judicial, non-recourse state.
My office has helped clients avoid deficiency judgments in Illinois in a number of ways, including:
1. Deed-in-Lieu of Foreclosure;
2. Short sale of the property;
3. Consent foreclosure;
4. Reduced redemption period;
5. In Rem Judgment;
6. Deficiency Waiver;
In the last several months I have helped a number of homeowner’s, in similar situations, avoid a deficiency judgment in Illinois. The homeowners have a good income, but their mortgage is much greater than the value of the property. To add to the problem, family members have not paid their fair share of the mortgages, creating a tremendous hardship. The homeowners have been battling this situation for some time; but recent changes in circumstances have made it nearly impossible to continue. Each has found themselves falling behind on the mortgage payments.
In one case, the homeowner is also faced with a mountain of additional debt. Trying to stay current with the mortgage payments has meant neglecting other debt payments, and creating new obligations. Eventually, the other creditors start taking legal action for payment. In this case, bankruptcy is the best option. The homeowner is protected from the deficiency and is granted a discharge of the other debts. While the foreclosure is pending, the homeowner will have a little time to get back on track, save a little money and be in a position to move to a new home.
The second case is in the earliest stages of foreclosure. The homeowner doesn’t really have other debt, but a large deficiency looms, should the home go to a foreclosure sale. For a number of reasons, a consent foreclosure is the best option in this case. By statute (735 ILCS 5/15-1402) a consent foreclosure will protect the homeowner from the deficiency. A consent foreclosure will mean surrendering the property fairly quickly; but the peace of mind and financial certainty far outweigh the inconvenience.
Every case is as different as each client. The best way to resolve each situation begins with discussing the goals of each client and analyzing their financial situation in detail. Only then can the correct remedy be determined. Often the best remedy isn’t available, because the mortgage company will not agree. So, you need a plan B, C and D, just in case.
If you are facing foreclosure, and you need some direction, make sure your attorney understands all the options available. A comprehensive investigation should be completed before you decide which option is best for you. Before you do anything, you should give me a call. We can discuss your options in fighting a foreclosure deficiency in Illinois. – Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.