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Foreclosure Defense (Mortgage Modifications)

Foreclosure—Frequently Asked Questions


What does "in foreclosure" mean?

The answer is that it depends. If you are simply behind on your payments or otherwise in default under the terms of your loan with your lender, "in foreclosure" may only refer to which department is handling your loan for your Lender. Just as a loan modification request may find your loan being handled by the loss-mitigation department, your loan may be in the foreclosure department for non-payment in preparation of a foreclosure lawsuit. Should this be your situation, a request to seek Modification may stop the referral to an attorney and allow the lender to process your request. A successful Modification would avoid the entire process.

"In foreclosure" can also mean subject to filed Complaint in Foreclosure. This is the legal proceeding that can result in the loss of your home via Sheriff’s Sale. You must, however, be served with the Complaint, have the opportunity to defend against the Foreclosure, are entitled to a right of reinstatement as well as a right of redemption to save the house, and can be put out only after a duly noticed Sheriff’s Sale with a court order of eviction. Pursuant to statute, you have an additional thirty (30) days from any judicial approval of such a Sale in which to vacate before you can be evicted.


What can I do to avoid the filing of a Complaint in Foreclosure?

There are a number of options:

  • Bring the loan current by curing the default. This is called Reinstatement. Per the terms of most Mortgages, there is a statutory right to reinstate that will continue for ninety (90) days after service of Summons.

    When looking for funds to save the home, care should be taken to avoid unknown or unintended consequences. Actions should never be taken in desperation without a full understanding of the implications of that action. While it is possible that money could be secured from a 401(k) retirement account either by a loan or a hardship withdrawal, this will adversely impact your future retirement and result in a withdrawal of funds that would otherwise be protected from creditors. Such a withdrawal may also have significant adverse tax implications to your household. Consultation with a financial planner, accountant or attorney is highly recommended before any such action is taken.
  • Transfer the property via Deed back to the Lender. This is called a Deed in Lieu of Foreclosure. Many lenders will not accept such a Deed unless the property has been previously listed for sale. Additionally, a Lender, especially a junior lien-holder, may require a Note (new legal promise to pay) back from you for all or some of the short-fall (known as a deficiency). Although this option can be considered, there are potential tax and financial implications that should be first discussed with a foreclosure or real estate attorney.

    More information can be found in our Real Estate section.
  • Pay the loan in full. This can be done via a re-financing or sale of the property. Either option would pay-off the loan, but only the refinancing would allow you to stay in the property. Important note here: Care should be taken to avoid scams. A supposed “Investor” may offer to help you by paying the loan with you keeping the property. What may, however, happen is that ownership was transferred and you could be forced to leave what is no longer your home. Any financing should, therefore, be only through reputable and licensed home lenders.
  • Sell the property via a Short Sale. This occurs where the Buyer attempts to buy the property without providing enough funds to pay the Mortgage(s) in full. More information can be found in the Real Estate section (click here).
  • File for a Chapter 13 Bankruptcy. This type of Bankruptcy is commonly referred to as a Wage Earner’s Plan. Such a filing will immediately stop any foreclosure and force your lender to accept monthly payments. Any other lawsuit or collection activity will also stop immediately. You will have up to five (5) years to pay the arrears and will be able to reorganize all of your other finances as well. Since Chapter 13 may be able to restructure your car loan, allow for no interest on credit card payments, remove junior mortgages from your property, and even provide for payment to creditors at cents on the dollar, a Chapter 13 Bankruptcy may be the best option to secure you and your family a “fresh start.” Should you wish more information regarding Bankruptcy, please refer to our BANKRUPTCY SECTION* for both an overview of Bankruptcy options and procedures as well as finding our on-line questionnaire. A confidential free, initial consultation can be obtained.

    *NOTE: The Law Offices of June, Prodehl, Renzi & Lynch, LLC is a Federal Debt Relief Agency that provides Bankruptcy representation to individuals.
  • Modify the loan. In additional to federal programs such as HAMP (Home Affordable Modification Programs), your lender may have internal modification programs. A call to your lender will tell you what programs are available and what is needed to start the process.

    Modification is not an easy process. Documents tend to get lost, become stale, or require further explanation/documentation. This can be very frustrating. Help can be found through attorney, such as our office with extensive backgrounds in real estate, bankruptcy and foreclosure. Additionally, there are HUD approved counselors that can, at no cost to you, assist you in the Modification process.


Is there any assistance available for moving expenses?

If you are moving pursuant to your Lender’s acceptance of a Deed in Lieu of Foreclosure, there is a Federal Program under HAFA (Home Affordable Foreclosure Alternatives) that does provide eligible individuals with up to $3,000.00 in relocation expense monies. The basic requirements can be found at the HAFA website.


What other resources exist that would be helpful in dealing with my lender?

The federal government has a number of programs as does the State of Illinois. An initial internet search can begin with the U.S. Department of Housing and Urban Development (HUD), which has an extensive website that provides a number of useful tools and information. In addition to addressing loan modifications, the Home Affordable Modification Program website provides other valuable information and resources.


Are there any defenses to a Foreclosure?

There are a number of potential defenses that could delay, if not halt, a foreclosure action. An attorney experienced in Foreclosure can review of your closing documents, loan history with your lender and any loan servicing agents, and your Mortgage and Note to determine what, if any, defenses would be available in your situation. It is, therefore, important to contact a foreclosure attorney immediately upon service of the Complaint in Foreclosure. Although you can look to represent yourself, the importance of a timely consultation with an attorney cannot be understated. Some defenses are time-specific and are subject to waiver. Other defenses may missed by the untrained Defendant. Solely for information purposes, a brief overview of such potential defenses is provided:

  • Accepting of Mortgage Payments by Lender after Foreclosure is filed: Should the lender accept payments after filing foreclosure, there may be a technical defense to the foreclosure. One exception would be if the mortgagor is in Bankruptcy. Another exception, which will most likely apply, is where loan documents stated that the acceptance of such payments has no limiting effect on any foreclosure. A review of your Mortgage is required as most documents contain language that such acceptance of payment is neither a waiver of its legal rights nor an act of forebearance by the Lender. By signing the Mortgage and Note, you accepted such a term, which would then preclude this defense.
  • Failure of the Lender to Accelerate the NOTE prior to Foreclosure: Your “loan” is actually made up of two documents the NOTE (your personal promise to pay) and the MORTGAGE (the pledge of your house as security). The loan cannot be foreclosed and no Complaint filed until the loan is accelerated. Your loan documents may require notice to you of acceleration. If it does, and no such notification is given, this failure to send the notice of loan acceleration may defeat the foreclosure. Additionally, if the loan is subject to a Pooling and Servicing Agreement, there may be additional defense of lack of authority as the notice may be from the wrong party.
  • FHA-Insured Loans have special guidelines involving Foreclosure: This defense may not apply to your situation as not all house loans are FHA-insured. If you do have such a loan, there are special servicing requirements that include the mailing of a counseling notice to the mortgagor within 45 days of default. The Code of Federal Regulation further requires a face-to-face meeting with the borrower within 90 days of default as well as a notice of available counseling.
  • Force-placed Insurance improperly obtained by the Lender: Home Insurance is a standard mortgage requirement, but due to error of the lender as well as inadvertent omission by either the mortgagor or the insurance company, lenders obtain such insurance (at exceptionally high premiums) in the erroneous belief that the homeowners have allowed the policy to lapse. The cost of such coverage becomes an additional claim for monetary damages in the Foreclosure. Where such insurance exists on the property, an argument can be made that the mortgagor should not have to pay for the unnecessary and expensive force-placed insurance.
  • Fraud, Abuse, Collusion or related acts by the Lender: There is the possibility that your Lender (or the Loan Originator) engaged in some form of improper and/or predatory loan practices. Although such cases are rare, the Note and/or Mortgage should be reviewed if you have any concerns about your loan. These loans tend to be in the form of second (or junior) mortgages, but can be found in some refinanced Mortgages. The Mortgage and Note as well as your closing documents should be reviewed to see if the loan transaction was somehow abusive or coercive. If so, this may allow for an allegation of fraud to be pled or an equitable defense raised to the foreclosure.
  • Lack of standing by Plaintiff to file the Foreclosure: There is a loan with a Lender as that is how you purchased your home. However, the actual Lender (and, therefore, the proper party in interest) may or may not be the Plaintiff (the party that filed the Foreclosure). To commence a Foreclosure, the Plaintiff needs to hold an interest in the property and be entitled to Foreclosure. With various loan servicing agreements, repeated loan “transfers,” and pooling and servicing agreements, the true party in interest may or may not be the Plaintiff. There may not have been a valid Assignment (transfer of the loan), whereby the Plaintiff has no legal authority to compel the sale of your house.

    These issues require investigation in the form of discovery (written demands for information and/or documents governed by statute) and are best left for attorneys experienced in foreclosure. Additionally, such defenses need to be pled affirmatively, which is generally best left to an experienced Foreclosure attorney.
  • Lost Payments by the Lender: With the different methods of payment – online, wire transfer, account deduction, credit card, personal check, money order, and in-person, it is possible that not all payments were properly and timely credited to your loan. This is especially true where there are one or more loan servicers involved in collecting payments. As a result, the amount alleged to be due should not simply be accepted as correct in any Foreclosure. In addition to being “lost,” it is possible that not all of the loan payments have been applied. For example, funds can be held in suspense. An experienced Foreclosure attorney would explore this issue via discovery to obtain payment records to compare with your personal records of payment.

    As stated, this is not the definitive listing of defenses. Additionally, there is the potential for Truth-in-Lending defenses that may be able to void a refinanced transaction as well as Fair Debt Collection claims against the mortgage company attorneys.
Please NOTE: This listing is not dispositive of all potential defenses. The list is not provided as legal advice. It is simply provided for informational purposes to illustrate that Judgment and Sale do not automatically follow once a Foreclosure is filed.

While it may be unlikely that these defenses can be asserted against your Lender’s Complaint in Foreclosure, the possibility of such defenses should be explored with an experienced foreclosure attorney. These issues should also be the subject of discovery (the ability to compel the production of document and answer written questions) to determine if one or more of these defenses can be asserted in your case.


Will we be forced to leave our home when the Foreclosure is filed?

No. While the timetable varies case to case, most foreclosures require many months to complete.

The Lender must proceed through a number of steps, each of which takes time before you can be forced to leave your home. While each case proceeds through the judicial system at its own pace, there are a number of time related statutory requirements. For example, you will be given an opportunity to respond to the Complaint of 30 days during which time no Judgment can be taken against you. After entry of Judgment, there is a period of redemption, during which you retain the right to redeem (i.e. save your home) via payment. This period varies between seven (7) months from service to three (3) months from Judgment, whichever is longer.

Only after a Sale, which must be noticed and then approved by the Court, can you be evicted. Additionally, the law provides individuals with a thirty (30) days period from the approval of the Sale and issuance of Deed before you must vacate. Only then can a Sheriff evict you.


What actions should be taken when served with a Complaint in Foreclosure?

It depends. No specific legal advice can be given as a consultation is required. A law firm, such as our office, that practices in Foreclosure matters can review all of your documents and provide you with specific legal advice. We urge you to schedule a consultation at your earliest opportunity. A delay in either seeking certain relief or taking certain legal actions may result in those once available options being waived or time barred.

Should you wish to contact our office to set up a confidential free initial consultation, please do so here.


Can we simply represent ourselves?

Defendants have the right to represent themselves. You do so, however, at your own peril. With the likely result being the loss of your home and the potential for a deficiency judgment for any unpaid money after the sale, representation by an attorney experienced in foreclosure matters is highly recommended.

Whatever actions you take, you should, however, not ignore the Summons. The case can continue to move forward whether or not you elect to show up for court and even if there is an issue to whether or not you were properly served with the Summons. Any dispute needs to be presented to the Judge. Even though you have appeared in front of the Judge, the case may still move forward as if you failed to show up for court. A failure to file the appropriate and required pleadings with the Clerk of the Court can result in a default order just as if you never were present in court.

Care and caution must be taken as you are looking to save your home or secure additional time before you need to leave. As such, please remember that the Judge is bound by the specific requirements of the law and the attorney that filed the suit represents the Lender and not you. At times, the lender may also not completely and timely share information with the attorney, especially in matters of pending modifications. You should, therefore, look to secure a foreclosure attorney that can represent you and your interests.


We have a Modification pending that will resolve the Foreclosure, so why should we worry about court?

The simple reason is because the Lender filed a legal action seeking to take your house from you. While you hope that you will obtain the requested modification, it may take longer than you envisioned. The foreclosure could conclude prior to you consummating the Modification, whereby the house may be lost at sale.

The Lender may also not have informed the attorney. This could be due to miscommunication or because the Lender’s policy is to pursue foreclosure unless and until a final Modification is approved and signed. Care and caution should always be exercised and assumptions never made in the absence of full information. A foreclosure attorney can provide the needed insight and obtain the needed information to help you secure the desired Modification and slow the Foreclosure process to obtain additional time to finalize the Modification.


Does Will County have a special Mediation process?

Yes. Unlike other counties in Illinois, no foreclosure judgment can be entered in Will County until the matter has proceeded through the Mandatory Mediation Program. The Summons will contain a hearing date and include a financial packet for the Defendant. Completion of the information and attendance at this hearing are critical to saving your home as a Modification can be secured with the aid of the court appointed mediators.

This process is in addition to any prior Modification requests with your Lender. It can also include other Foreclosure avoidance options, such as Deeds in Lieu of Foreclosure and Short Sales. The Lenders are required to negotiate in good faith with the Defendants before being allowed to return to Court.

Our office has been quite successful in working with our clients and securing Modifications through this process. For a copy of the Court packet, please click here.


Deficiency: What is it and how does it apply in Foreclosure cases?

A Deficiency is the difference between the bid price and the Sheriff’s Sale and the total amount of money owed to your Lender(s). The successful bidder at the Sheriff’s Sale need only be the highest bidder, there is no requirement that the offer equal or exceed the actual value of the property. Any such shortfall to any Mortgage holder becomes known as the deficiency.

When the case returns to court for the Judge’s approval, the Lender(s) can seek either an in rem (against the property) or in personam (against the individual) deficiency judgment. Should the Court approve the request for an in personam deficiency, a cash judgment award will issue against the Defendant(s). Such a Judgment would then become subject to collection, which the Lender(s) may or may not elect to pursue.


What is a Mortgage Modification?

A Modification is just that, it modifies (changes) the terms of your Mortgage. The Lender agrees to alter the original terms of your Mortgage. A Final Modification will allow for the dismissal of the Foreclosure. This is because you and your Lender have agreed upon new financing provisions that avoid the prior default. This document is recorded with the County as was your original Mortgage and you are bound to the terms of that Modification.


Do Mortgage Modifications differ?

Yes. Some Lenders look to implement an initial or Temporary Modification. These agreements are without prejudice to any Foreclosure. They tend to be three (3) to four (4) months in duration. A payment amount will be set that may or may not reflect the monthly payment in any proposed Final Modification.

During this period, you will need to make all required payments in a timely fashion. Unlike your Mortgage, which may carry a fifteen (15) day grace period, there is no such grace period in most Temporary Modifications. As a result, if the payment is due by the 1st, it is a good idea to have payment to the Lender a few days before the 1st of the month.

A Final Modification can take many forms. Care should be taken in reviewing the documents closely and insuring that you understand your duties and obligations under the new agreement. The variations tend to be as follows:

  • AMOUNT: The Lender may agree to modify the loan and not require payment of the arrears that led to the filing of the Foreclosure. The Lender could propose the following:
    1. Defer all of the arrears into a new Mortgage balance that becomes the basis of the monthly payment
    2. Waive or write off the arrears by setting the Mortgage at the current fair market value of the property. While this offers the greatest benefit to the homeowner, such terms are rare.
    3. Defer the arrears into a lump sum due upon sale of the property. The new Mortgage payments do not include these arrears, thereby resulting in a lower payment. However, unlike option #2, the Lender still expects payment of these arrears, which will occur upon sale or refinancing of the property. It is also possible that a future date for this lump sum payment may also be included in the new Mortgage.
  • TERM: Most Modifications, but not all, extend the loan for forty (40) years from the date of execution. This has two (2) practical implications. First, the Mortgage will not be paid in full for another 40 years. Secondly, since the total amount of interest to be paid is a function of both term and rate, this 40 year extension will result in a significant amount of interest being paid, despite whatever rate of interest is shown on the Modification.
  • RATE: A significant interest rate reduction is generally given. It is possible to see rates offered between 3 and 5 percent. While this will provide needed financial relief from a higher rate mortgage, the extended term will provide a longer amortization period. It is also possible that the interest rate is not fixed, but will change (increase) at a future time.
  • Should you desire to compute projected mortgage payments, click here:
    www.hsh.com/calc-amort.html


Do I need an attorney to review my Mortgage Modification?

No, but it is highly recommended. The Modification may be right for you, but you should insure that you are making an informed decision before signing any document as important as a Mortgage Modification. You should also explore your other options as detailed above. All of which can be done in a consultation with an attorney experienced in real estate and foreclosure matters. At June, Prodehl, Renzi & Lynch, LLC, we pride ourselves on providing quality legal consultation and representation to our clients and would gladly meet with you to review any Modification—temporary or permanent.

Please feel free to contact our office!


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