Mortgage lenders in Illinois are required to use the judicial process to obtain collateral and enter deficiency judgments against borrowers. In February 2013, Illinois crafted two new rules adding additional requirements to the judicial process. The rules were set to become effective March 1, 2013, but the effective date was subsequently postponed to May 1, 2013.
The Genesis of the New Rules
The Illinois Supreme Court, concerned by what appeared to be abuses in the system, convened a committee to study changes to the mortgage foreclosure rules. The committee was comprised of lawyers, public officials and professionals in the mortgage industry. After 21 months and numerous public hearings, the committee recommended several changes to the rules.
The Rules Apply to All Foreclosures
Although clearly targeted at foreclosures of owner-occupied homes, the rules make few distinctions between commercial property and owner-occupied residential property. Hence, even lenders pursing commercial foreclosures must comply with most of the new rule requirements.
Three New Rules
The following is a general description of the major requirements of each of the three new rules — Rule 99.1, Rule 113 and Rule 114:
- Rule 99.1 created mortgage foreclosure mediation programs in courts where they did not exist before.
- Rule 113 requires specific supporting documentation be provided with each complaint to show ownership of the loan by the foreclosing institution, including:
- a copy of the note and any amendments
- a copy of any assignments of the note
The rule also requires that each motion to enter a judgment or default be accompanied by the following:
- a "prove up affidavit" that explains how the affiant knows what they are saying, explains amounts due, identifies the books and records consulted to determine the amount due, and identifies the computer software program that tracks payments (if used)
- a copy of the loan payment history, if any defendant has appeared
The rule also prohibits "stand alone" signature pages for the affidavit and requires that the signature appear directly after the text.
There is a form affidavit provided in the rule, but the form should be supplemented with the information listed above.
If a default is entered for failure to appear or respond, the lender's counsel must prepare a notice of entry of default and deliver copies to the court clerk for mailing within two business days after entry.
Finally, the lender must provide notice of the foreclosure sale to all defendants (even if they are in default or have not appeared). The notice must include the foreclosure sale date, time and location, and be sent at least 10 business days before the sale.
- Rule 114 requires the lender engage in "loss mitigation efforts" when the borrower appears, prior to moving for entry of a judgment. The lender must provide an affidavit specifying the loss mitigation efforts taken and the status of those efforts.
The loss mitigation effort and disclosures apply to any program for which the mortgage loan is "eligible" by meeting threshold requirements, such as the Making Home Affordable Program, the 2012 National Attorney General Settlement, or the FHA, VA, or USDA insured loan programs.
The new rules are intended to prevent any possible "robo signing" problems. The information that will need to be supplied to comply with the new rules usually already exists and should not create a significant burden for most lenders. Experienced counsel can provide guidance to ensure compliance and address any issues that arise.