By Steven A Leahy
When a person borrows money to buy a home, the loan is memorialized with 2 documents, a promissory note and a mortgage. The promissory note is a written promise to repay the money borrowed to purchase the home. The promissory note spells out the amount of the loan, the interest rate charged, the term of the loan (number of years), and how to define a default.
The mortgage is the document that provides security for the loan detailed in the promissory note. The mortgage details the property used as collateral for the promise to pay including, the property address, property identification number and legal description. The mortgage is recorded in the county where the property is located. If the borrower defaults on the promise to pay, the property detailed in the mortgage may be sold to cover the debt in a process known as foreclosure.
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. Mortgage foreclosures are governed by State law. Generally, there are two kinds of mortgage foreclosures – judicial and non judicial. Twenty-two states use primarily judicial foreclosures – Twenty-eight, non-judicial foreclosures. Several states actually provide both ways to foreclose on a mortgage loan.
In non-judicial states, the mortgage company does not file an action in court. Rather, the mortgage company simply sends a notice to the homeowner and, in most non-judicial states, records a Notice of Default with the county. Once a prescribed time elapses without cure, a Notice of Sale is mailed to the homeowner and the date and time of such sale is published in local newspapers and recorded with the County. The homeowner may object to the foreclosure with appropriate court action. Without an objection, the property is sold to the highest bidder at a public auction.
For a judicial foreclosure, the mortgage company must file a mortgage foreclosure complaint with the court in the county where the property is located, and go through litigation in order to receive permission from the court to conduct a public sale. State law governs the foreclosure process and procedures.
State law also governs whether a mortgage loan is a recourse or non-recourse loan. 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. If the sale generates more than the borrower’s obligation, a surplus is created and the surplus is paid to the borrower. Recourse loans allow the mortgage company to hold the homeowner (borrower) personally liable should the sale result in a deficiency. Non-recourse loans do not allow the mortgage companies to hold the homeowner (borrower) responsible. The debt is forgiven, and the homeowner is protected.
Often non-judicial foreclosures are also non-recourse. Non-judicial foreclosures usually occur fairly quickly and judicial foreclosures can take many months. It appears that in return for a quick foreclosure process, states protect the homeowner from a deficiency. Conversely, judicial foreclosures may take many months, but homeowners may be held liable for a deficiency.
Illinois allows only judicial foreclosures and allows recourse against the borrower. In Illinois, a mortgage lender must file a law suit against the homeowner (borrower), and complete the litigation process as laid out in the Illinois Mortgage Foreclosure Law (IMFL) 735 ILCS 5/15-1101 et seq. (2013).
If you are facing foreclosure, there are options. Which option is right for you depends on your specific circumstances. Never hire a firm to help you with a foreclosure unless the firm can help with all your options, foreclosure defense, deed-in-lieu of foreclosure, short-sales, deficiency protection and bankruptcy. Before you do anything, you should give me a call. We can discuss your 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.