The foreclosure process generally starts with a missed mortgage loan payment. Once you miss that loan payment, the lender will send you what’s called a notice of default and acceleration. The default notice is a letter that gives you 30 days, generally, to cure the default by paying all past due amounts to make the loan current again. If you make the loan current, problem solved; there is no foreclosure case.
If you cannot make the loan payments, the lender will file a foreclosure lawsuit, usually in the fourth month after you’ve defaulted. When a foreclosure lawsuit is filed, your loan becomes accelerated, meaning the bank now wants the full amount of the loan repaid in a lump sum. You now can suddenly owe $200,000, $300,000, or even $400,000, rather than just the past due monthly mortgage amounts.
The first step when the foreclosure case gets filed is the service of process. The plaintiff (in this case, the lender) has to serve you, the defendant, with a copy of the summons and a complaint. There are four main ways that a process can be served. One way is to serve the homeowner directly. Another way process and be served is through what’s called a substitute service, where the summons and the complaint are handed to a member of the homeowner’s household or a family member (someone over the age of 13).
If a person cannot be served directly or through a substitute service of process, then the plaintiff can serve via publication service of process, meaning the lender can run an advertisement in the legal classified section of a newspaper (which nobody actually reads) for three weeks. The advertisement basically tells the homeowner that a foreclosure case was filed against them and that they now have 30 days to file an appearance in the case or a response to the bank’s complaint.
There are alternative means that a bank can serve process, employed with special permission from the court after the bank has been unable to serve the homeowner directly or through substitute service. These alternative means include sending copies of the summons and complaint through certified mail or FedEx or posting a copy on the door of the property.
Once you are served with process through one of these methods, the case begins. Now, the court has jurisdiction over you and can enter orders that affect you and your property rights. Thirty days after you are served with process, you need to file an appearance and a response to the bank’s complaint. In residential foreclosures, you have an unconditional right, for 90 days after being served, to reinstate the loan, which means paying your lender only the past due amount, including any payments that became due as time passed. You also have what’s called a redemption right, which expires seven months after you have been served with process or three months after the court enters a judgment of foreclosure, whichever is the later of those two dates. Your redemption right is your ability to pay off the loan in full, i.e., a lump sum payment.
Once you file your answer, or response, to the bank’s complaint, the next step—if the case is going to move without any opposition—would be for the bank to file a motion for a judgment of foreclosure. In that motion, the bank would tell the court that there are no issues of material fact and that the bank’s right to foreclose is clear and without any question. Really, what the banks need to prove is that a default occurred and that there are damages.
The most common reason for a default (and resulting foreclosure) is the failure to make monthly payments. The causes for non-payment can vary from unemployment, divorce, or medical issues to interest rate resets or perhaps the loan was simply unaffordable from the start. Defaults can also occur when the homeowner transfers the property to somebody else’ while the loan is still pending. Sometimes, a default can occur when the owner dies (especially in reverse mortgages). A default could be triggered by the filing of a bankruptcy or the failure to pay real estate taxes as they come due, or the failure to maintain property insurance. There are many different ways that a loan can default so that the lender would have the right to initiate the foreclosure process.
When the bank files the motion for judgment of foreclosure, it must present evidence to the court, usually by way of affidavits that prove or try to prove the default and the damages. If the judge agrees with the bank, then the motion for judgment of foreclosure gets granted and a judgment of foreclosure and sale gets entered. In residential foreclosures, you have a 90-day redemption period under the judgment of foreclosure to pay off the loan in full. During that time, the bank cannot sell your property at a judicial auction. Once 90 days have passed, however, the bank can sell your property at an auction after giving notice of that sale.
There are two types of notice of sale. The first type of notice is to the defendant in the case, the homeowner, usually given by mail or email (in the same way a notice of any court filing would be given). The second type of notice is a notice to the public that would be run in a newspaper for three consecutive weeks (again, in the legal classified section, which nobody really checks). Once the third week has concluded, the bank must wait seven more days, and then the bank can finally conduct the sale of the property approximately four weeks after the first day of their advertisement giving notice.
The sale of the property is conducted as a public auction where anyone can bid, including both the bank and the public. When the bank bids, it is allowed to credit bid, which basically means it can bid for free. The amount of the bank’s credit bid is equal to the amount of the judgment of foreclosure that was entered 90 days prior, so the bank can bid up to that amount for free. No money exchanges hands. When the public bids, they have to bid with cash. Whoever is the highest bidder at that judicial auction wins, but they don’t become the owner of the property right away. You’re still the legal owner of the property at the end of the judicial auction.
The next step in the process would be for the court to confirm the judicial sale, around 30 days after the auction takes place. The bank will file a motion to confirm the judicial sale, and in that motion, the bank will summarize when the case was filed, when the judgment of foreclosure was entered, how much the judgment was for, when the judicial auction took place, what was the high bid at the judicial auction, who was the successful bidder, and in whose name the sale should be confirmed. The bank will ask the judge to confirm the auction in favor of the holder of the certificate of sale, which identifies the high bidder. In the majority of scenarios, the bank itself is the high bidder. At this stage, the bank will generally ask for a personal deficiency judgment against you if the proceeds of the sale did not satisfy the judgment.
Whether the property is going back to the bank or to a third-party bidder, your legal ownership of the property is extinguished the day the sale gets confirmed. You’ll be given 30 more days of possessory rights, meaning you have that time to continue living in the home, pack, hire a moving company, and move out. Once your 30 days are up, the county sheriff could come out and do a forceful eviction.
If the sale of the property is confirmed in favor of the bank, meaning the bank was the successful bidder at the auction, and the bid is for less than the judgment amount (say judgment is $100,000, but a bid is $75,000), you have 30 days from the day the sale is confirmed to exercise a special right of redemption. If you, the homeowner, can pay the bank what it bid at the auction, plus any other accrued interests, costs, and fees, then you can get the property back, and the bank has to release its mortgage. However, if the amount that you pay the bank pursuant to the special right of redemption is less than the total amount of the judgment of foreclosure or the total amount of what is owed to the bank, then the bank can still get a deficiency judgment against you and record that deficiency judgment on the property title. In other words, the bank releases its mortgage lien but simultaneously records a judgment lien (also called a memorandum of a judgement) on the property title, which can be foreclosed in a new proceeding just like a mortgage lien.
The special right of redemption is specific to the scenario where the bank is the successful bidder at the auction and the sale gets confirmed in the favor of the bank. If a third-party bidder wins, you have no special right of redemption. This is a very streamlined overview of the foreclosure process.
For more information on Process of Foreclosure in Illinois, an initial consultation with our office is your best next step. Get the information and legal answers you need by calling (312) 815-6842 today.
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Chicago, Illinois 60603
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