The Illinois Mortgage Foreclosure Law has been amended effective as of October 29, 2009, by adding new protections for occupants of dwelling units1 in properties that are in foreclosure. These protections will apply to projects which were rental housing from the outset, and to for-sale housing projects in which units are being rented pending sale or which have been converted to rental housing.  

Notice to Occupants by Receivers and Mortgagees in Possession

The amendments to the Illinois Mortgage Foreclosure Law provide that within 21 days after an order is entered appointing a receiver, the receiver must “make a good faith effort to ascertain the identities and addresses of all occupants of dwelling units of the property.” The phrase “good faith effort” is not defined in the statute.  

Within that same 21-day period, the receiver is required to notify all occupants in writing that the receiver has been appointed. The form of the notice to be used is in the statute. The notice is to be delivered to the occupant personally, or by leaving it with a person 13 or older residing in the premises, or in possession of the premises, or by first class mail.  

If the receiver ascertains the name and address of an occupant more than 21 days after being appointed as receiver, the receiver is to provide the notice within seven days of ascertaining the name and address. If the required notice is not given as described above, the receiver may not collect rent from a known occupant or terminate a lease for the non-payment of rent, until the receiver has served the notice. After serving the notice, the receiver may collect all unpaid rent and terminate a lease for the non-payment of rent if the receiver is otherwise entitled to do so.  

In addition to delivering the notice, the receiver is required to post the same notice on the entry of each dwelling unit within 21 days of being appointed as receiver. It does not appear that there is a penalty for failing to post the notice.  

Under the Illinois Mortgage Foreclosure Law, a lender may elect to be placed in possession of the mortgaged property as a mortgagee in possession, rather than having a receiver appointed. The amendments to the Mortgage Foreclosure Law impose notice requirements on mortgagees in possession which are the same as those outlined above which apply to receivers.

Notice to Occupants After Foreclosure Sale

There are also new notice provisions in the amendments which apply after a foreclosure sale. The post-sale notice requirements are essentially the same as those outlined above which apply to receivers and mortgagees in possession. The 21-day period for ascertaining the identities and addresses of occupants and giving the notice begins to run on the date the court enters an order confirming the foreclosure sale. The notice is to be given and posted by the grantee under the deed conveying the property as a result of the sale, or by the holder of the certificate of sale if the deed has not yet been issued, or by the purchaser at the sale if neither a deed nor a certificate of sale has been issued.  

However, if the person who would otherwise be required to give and post the post-sale notice is a mortgagee in possession at the time of the confirmation of the sale, and if that person has already complied with the notice requirements in its capacity as mortgagee in possession, that person is excused from complying with the post-sale notice requirements.  

If the post-sale notice is not given, the holder or purchaser may not collect rent from a known occupant or terminate a lease for the non-payment of rent, until the holder or purchaser has served the notice. After serving the notice, the holder or purchaser may collect all unpaid rent and terminate a lease for the non-payment of rent if the holder or purchaser is otherwise entitled to do so. As in the case of pre-sale notices, the restriction on collecting rent does not appear to be triggered by a failure to post the post-sale notice on the entry of the dwelling units.  

Protection for Payment of Rent to Mortgagor or Other Authorized Party

The amendments provide that an occupant who previously paid rent for the current rental period to the mortgagor or other entity with the authority to operate, manage and conserve the property, shall not be held liable for the payment of that rent by a receiver, mortgagee in possession, or holder of a deed or certificate of purchase or purchaser at the sale, and that the occupant’s tenancy shall not be terminated for non-payment of rent for that rental period.  

Protection Against Increase in Rents

The amendments add a new provision to the Mortgage Foreclosure Law which restricts rent increases by receivers and mortgagees in possession. A receiver or a mortgagee in possession may not charge an occupant a rental amount above that which the occupant had been paying prior to the appointment of a receiver or mortgagee in possession, unless the receiver or mortgagee in possession obtains the approval of the court. The court may allow a rent increase if the court finds by a preponderance of the evidence, that the increase is necessary to operate, manage, and conserve the mortgaged real estate. A list of the current rents for each unit in the mortgaged real estate, and a list of the proposed rent increase for each of those units, must be attached to a motion for a rent increase. All occupants who may be affected by the motion for a rent increase, if not otherwise entitled to notice in the foreclosure case, must be notified in writing of the nature of the motion, the date and time of the motion, and the court where the motion will be heard. The notice is to be given by personal service or first-class mail. In the event that the receiver or mortgagee in possession and an occupant agree to a rent increase, the receiver or mortgagee in possession is excused from these requirements. These restrictions on rent increases do not apply to the purchaser at the foreclosure sale.

Applicability to Pending Foreclosures

The amendments to the Mortgage Foreclosure Law become effective on October 29, 2009. The Act which adopted the amendments does not speak to how the amendments apply to foreclosures which are already pending on October 29, 2009. The conservative approach is to assume that the amendments apply to pending foreclosures and that after October 29, 2009, a receiver, mortgagee in possession and foreclosure sale purchaser cannot lawfully collect rent until the notice to occupants has been given, and that a receiver and a mortgagee in possession cannot lawfully increase rents without an order from the court, unless the occupant agrees to the increase.