The Foreclosure Process: An Overview

1. Foreclosure Defined: A Court proceeding to extinguish all rights, title, and interest of the Owner(s) of property in order to sell the property to satisfy a lien against the property.
2. Foreclosure Trigger and Initial Steps:
   1. Trigger: Three to Five missed payments, varies depending on actions of Borrower.
   2. Lender notifies Foreclosure Attorneys.
   3. Lender's Attorney reviews the subject property's title to discover what liens exist.
   4. Liens: Property Taxes, Mortgages, Judgments, Mechanic's Liens, etc.
3. Foreclosure Complaint is Filed and Summons is Issued
   1. The Foreclosure Complaint is typically prepared within a month of a Trigger, usually in the fourth month after first missed payment.
   2. Complaint: The Complaint is requesting the Court to deliver possession of the subject property due to a Borrower's violation of the terms of the mortgage and other remedies.
   3. Summons: The Summons is a notice served personally by the Sheriff or by publication.
   4. The Borrower has thirty days to respond to the Complaint. Response time is Critical.
4. Lis Pendens
   1. Filed with Recorder of Deeds.
   2. The purpose of the Lis Pendens is to notice the public that there is litigation pending related to the subject property.
5. Right of Reinstatement
   1. The Borrower also known as the Mortgagor has the statutory right to Reinstate the mortgage within 90 days of the Summons being served or the first date of publication being published.
   2. Must pay all costs and expenses required by mortgage to cure default (must get current on mortgage).
   3. The Lender may extend the time periods in some circumstances.
6. Initial Court Date
   1. The Mortgagor will have to answer or otherwise plead (argue) to what is alleged in the complaint.
7. Judgment of Foreclosure
   1. Court awards Foreclosure Judgment if Mortgagor loses at trial, or if Borrower defaults (does not appear in court).
      1. Unfortunately, this is what occurs in the vast majority of cases. By not appearing in Court or hiring an Attorney the Borrower will lose their home.
   2. Foreclosure Judgment awards property ownership rights to the Lender, but not actual title. The Borrower will retain title until the subject property is properly advertised and a sale is conducted and an order of possession in favor of the Lender is issued.
   3. The Redemption period continues for Ninety (90) Days from issuance of Foreclosure Judgment.
8. Right of Redemption: Redemption is the act of paying off the delinquent loan in full. Redemption is paying everything that is owed: principal, interest, cost of collection and Foreclosure (Court Costs of Lender) and Attorney fees.
   1. Borrower (Also Known as Mortgagor) may Redeem the subject property as follows:
      1. If the subject property is the Borrower's primary residence, the Borrower may Redeem the subject property within Seven (7) Months from the date the Borrower was served with summons or by publication or no later than Three (3) Months after the Judgment of Foreclosure is entered, whichever is later.
      2. If the subject property is not the Borrower's primary residence the Borrower may Redeem the subject property within Six (6) Months from the date Borrower was served with summons or by publication or no later than Three (3) Months after the Judgment of Foreclosure is entered, whichever is later.
      3. Regardless of whether the Borrower resides in the subject property or not, the Redemption period may end earlier if:
         1. The value of the real estate as of the date of the judgment is less than 90% of the amount required to Redeem and;
         2. The Lender waives any and all rights to a Deficiency Judgment against the Borrower - within the right of reinstatement period (7 months from service or 3 months from judgment whichever is later) or 60 days after the date of the Foreclosure Judgment, whichever is later. This typically occurs if the subject property was investor owned, and the Borrower did not file an appearance before the Court.
      4. If the Court determines that the property is abandoned, the Right of Redemption period ends Thirty (30) Days after the date of the Foreclosure Judgment is entered.
      5. A Borrower may Redeem the subject property by paying the Foreclosure Judgment amount plus other expenses authorized by the court.
      6. A commercial property owner can (and usually does) waive their reinstatement and redemption rights in exchange for something; waivers for residential properties are not valid. Most commercial mortgages have a specific provision whereby the Borrower/Mortgagor waives all Redemption Rights.
      7. Special Right To Redeem: Pursuant to Section 15-1604 the owner of the special right of redemption will have the right to purchase the property for the sale price plus all additional costs and expenses incurred by the mortgagee set forth in the report of sale and confirmed by the court (rather limited comparatively) and interest at the statutory judgment rate from the date the purchase price was paid or credited as an offset if;
         1. (a) the purchaser at the sale was a Mortgagee/Lender who was a party to the foreclosure or its nominee and (ii) the sale price was less than the amount specified in subsection (d) of Section 15 1603 (Judgment Amount or Redemption Payoff), then, and only in such circumstances, an owner of redemption/Borrower has the right to redeem the property for that amount within 30 days of after the date the sale is confirmed, by paying to the mortgagee the Judgment Amount or Redemption Payoff.
9. Foreclosure Sale
   1. Upon expiration of Reinstatement and Redemption periods or entry of a Foreclosure Judgment and waiver of all Redemption rights, a foreclosed property may be sold.
   2. Notice of sale must be published at least Three (3) Weeks in a row, once per week, in a newspaper circulated to the general public.
   3. Notice of the sale may be given prior to the expiration of the Reinstatement or Redemption period.
   4. Notice of sale does not need to be given to the Borrower if he/she is in default due to not filing an appearance. Very critical nuance.
10. Report and Confirmation of Sale
    1. After the Sale, the Lender will file a motion including a report of the sale with the Court to confirm the validity of the Sale.
    2. The Court conducts a hearing on the Sale (generally two weeks after the Sale has occurred) and will approve the Sale unless notice was not given properly, the sale was otherwise not conducted property, or that the Sale, if confirmed would cause an injustice.
11. Deficiency Judgment and The Special Right to Redeem
    1. If the subject property is sold for less than the amount necessary to Redeem, the Lender may enter a Deficiency Judgment against the Borrower. A Deficiency Judgment is the difference from what the subject property sold for at the Sale and the balance owed to the Lender.
    2. If the Lender purchased the subject property and the Sale price was less than the redemption amount, the Borrower has the Special Right to Redeem.
    3. The Special Right to Redeem expires within Thirty (30) Days after the Sale is Confirmed and is satisfied only if the Sale price plus any Court approved costs are paid to the Mortgagee/Plaintiff.
12. Deed in Lieu of Foreclosure/Short Sale:
    1. The Borrower/Homeowner "gives back" the property to Lender without need for further Judicial Action. In the case of a Short Sale, it is roughly the same, but instead of giving back the subject property, the Lender agrees to a reduced payoff so that the Borrower can actually sell to a third party.
    2. Both the Lender and the Borrower have to agree.
    3. No Deficiency Judgment against the Borrower.
    4. Because a completed Foreclosure action destroys all other "Secondary" liens, and the Deed In Lieu of Foreclosure does not, this procedure is not popular with the Lenders.
13. Credit Score Impact: All Negative, But To What Degree May Vary.
    1. Foreclosure Judgment: Negative Impact.
    2. Bankruptcy: Negative Impact.
    3. Short Sale: Negative Impact. It is likely that the Borrower had missed payments. The downside is that the Borrower may end up homeless if its primary residence.
    4. Deed in Lieu of Foreclosure: Negative Impact. It is likely that the Borrower had missed payments. The downside is that the Borrower may end up homeless if its the primary residence.
    5. Side Note: The Credit Scoring system to a large degree is what entered us all into this mess. The Credit Scoring system as it stands today is not the end all be all of measuring an individual's creditworthiness. For example, according to the New York Times, American Express is adjusting a cardholders creditworthiness based upon where the cardholder makes purchases. If card is used at the Clubhouse in Oak Brook your good. If it is used at the local auto repair shop you may suffer a credit limit reduction or risk the card being canceled. As of February 2009, American Express is offering $300 to cardholders if they pay off their balances and close their account. Yes, this is the new reality.

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