Foreclosure Defense – Deficiency Protection II

By Steven A Leahy

Foreclosure is the process necessary for a mortgage lender (i.e. mortgagee) to take possession of a property because the borrower (i.e. mortgagor, homeowner) defaults on a contractual obligation to the mortgage lender, usually a default in payments. In Illinois, Mortgage foreclosures are governed by the Illinois Mortgage Foreclosure Law (IMFL) 735 ILCS 5/15-1101 et seq. (2013).

Illinois is a recourse state. The IMFL allows the public sale of property to pay a debt. If the public sale of the property does not generate enough money to pay off the borrower’s obligation to the mortgage company, the remaining balance is defined as a deficiency. Recourse loans allow the mortgage company to hold the homeowner (borrower) personally liable should the sale result in a deficiency.

If the homeowner is unable, or unwilling, to resolve the foreclosure case through reinstatement, redemption, litigation, loan modification, or Chapter 13 bankruptcy, the homeowner should concentrate on protecting themselves from a deficiency. There are at least six (6) ways to avoid a deficiency: Short Sales, Deed-in-lieu of foreclosure, consent foreclosure, shortened redemption, In rem judgment, & bankruptcy. This article will discuss consent foreclosures, shortened redemption and In rem judgments.

These three options are addressed in the IMFL: consent foreclosure, shortened redemption, and In Rem Judgment. Each protects the homeowner from a deficiency judgment. First, a consent foreclosure is an agreement between the parties to end the litigation by agreement. The homeowner agrees to a judgment and IMFL provides in return the mortgage company will “waive any and all rights to a personal judgment for deficiency against the mortgagor and against all other persons liable for the indebtedness or other obligations secured by the mortgage.”

Second, a shortened redemption period may be a remedy to protect the homeowner. The parties can agree that “the value of the mortgaged real estate as of the date of the judgment is less than 90% of the amount specified” and shorten the redemption period to 60 days rather than 3 months. If this order is entered, again, the mortgage company “waives any and all rights to a personal judgment for a deficiency against the mortgagor and against all other persons liable for the indebtedness or other obligations secured by the mortgage.”

Finally, an In Rem judgment is a judgment against the property, rather than the individual. “In rem” is a Latin term that means “against or about a thing.” So the judgment is directed toward the property, rather than toward a particular person (in personam – directed toward a particular person). If the judgment does not name a particular person, the mortgage company can’t collect the deficiency from the homeowner.

There are several reasons why one of these options may be used rather than a short sale or deed-in-lieu. First, if there are additional liens on the property, the mortgage company must go through with the foreclosure process in order to remove those liens from title. Because all parties are named in a foreclosure action, a judgment would be effective against all lien holders, thereby giving the buyer at auction (often the mortgage company) a clear title. In a short sale or deed-in-lieu, the lien holders can hold up the transfer and seek compensation for releasing the lien.

Another reason why one of these options may be desirable from the homeowner’s perspective is because the homeowner can avoid an investigation into their finances. If the homeowner has some assets that they prefer not to disclose, these judgments allow them to escape the deficiency to the mortgage company and maintain their privacy.

If you are facing foreclosure, you should take action. You need an attorney to help you sort through your options and choose the best remedy. Never hire a firm to help you with your foreclosure unless the firm is experienced in helping homeowners with all the possible remedies, loan modification, short-sales, deed-in-lieu, consent foreclosures, and bankruptcy. Before you do anything, you should give me a call. We can discuss all your options. Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

Foreclosure Defense – Deficiency Protection I

By Steven A Leahy

Foreclosure is the process necessary for a mortgage lender (i.e. mortgagee) to take possession of a property because the borrower (i.e. mortgagor, homeowner) defaults on a contractual obligation to the mortgage lender, usually a default in payments. In Illinois, Mortgage foreclosures are governed by the Illinois Mortgage Foreclosure Law (IMFL) 735 ILCS 5/15-1101 et seq. (2013).

Illinois is a recourse state. The IMFL allows the public sale of property to pay a debt. If the public sale of the property does not generate enough money to pay off the borrower’s obligation to the mortgage company, the remaining balance is defined as a deficiency. Recourse loans allow the mortgage company to hold the homeowner (borrower) personally liable should the sale result in a deficiency.

If the homeowner is unable, or unwilling, to resolve the foreclosure case through reinstatement, redemption, litigation, loan modification, or Chapter 13 bankruptcy, the homeowner should concentrate on protecting themselves from the deficiency. There are at least six (6) ways to avoid a deficiency: Short Sales, Deed-in-lieu of foreclosure, consent foreclosure, shortened redemption, In rem judgment, & bankruptcy. Because short sales and a deed in lieu are similar transactions, this article will discuss the first two options.

A short sale and a deed-in-lieu require the cooperation of the mortgage company. In both instances, the mortgage company typically conducts an investigation into the finances of the homeowner. That investigation resembles the process of a loan modification. The homeowner is asked to provide, bank statements, pay advices, tax returns, household budget and a hardship letter, along with other financial disclosures. The cooperation of the mortgage company often depends on the outcome of that investigation.

A short sale involves the sale of real estate where the proceeds of the sale fall short of the balance of the debts secured by liens against the property, and the lien holders agree to take less than the balance to release their lien. For example, Homeowner has a balance due the mortgage company of $150,000.00. But the sales price of the property is $110,000.00. Normally, this sale would not close without the homeowner making up the difference. However, in a short sale, the mortgage company agrees to accept the $110,000.00 and releases the lien on the property so the buyer receives a clear title.

A deed-in-lieu of foreclosure is an agreement whereby the mortgage company accepts the deed to the real estate outright instead of seeking a foreclosure judgment and sale. Often, the mortgage company will insist that a short sale be pursued before considering a deed-in-lieu, but not always. Placing the property on the market allows the mortgage company to determine the market value. In addition, should an offer be made on the property, the mortgage company will not have to take possession of the property, but realize the proceeds of the sale much faster than a deed-in-lieu would allow.

Short sales and deeds-in-lieu do not necessarily release the homeowner for the deficiency (the difference between the balance due and the amount the mortgage company accepts, $40,000.00 in our example). So, if you are considering a short sale or deed-in-lieu, read the agreement carefully to make sure you understand the consequences. Also, there may be tax implications to accepting these options, So, keep that in mind when making a decision.

If you are facing foreclosure, you should take action. You need an attorney to help you sort through your options and choose the best remedy. Never hire a firm to help you with your foreclosure unless the firm is experienced in helping homeowners with all the possible remedies, loan modification, short-sales, deed-in-lieu, consent foreclosures, and bankruptcy. Before you do anything, you should give me a call. We can discuss all your options. Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.