The Anatomy of a Foreclosure

“So I fall behind on my mortgage payments, the lender says to pay up, I am unable or otherwise unwilling to pay up, the lender takes my home, sells it and kicks me to the curb, right?” asks Fred the delinquent owner.

The concepts outlined in Fred’s statement are somewhat correct, but there are procedures put in place to protect home owners from overzealous lenders along with certain rights implemented to ensure that the process is a just process.  Our foreclosure attorneys will walk you through the different aspects of the foreclosure process in discussing your particular case, but here we will help give you a little information so when you speak with one of our attorneys, you better understand the terminology and the overall process.

Most Used Mortgage/Foreclosure Terms

“Liens, lis pendens, lien theory, security, note?  I thought I just had a house payment?”

There are several legal terms that specifically outline how a house loan in Illinois is constructed.  For starters, Illinois is a “lien theory” state.  The Mortgage is the document that states that the property acts as Security for the loan; hence the lien theory meaning the homeowner holds onto to the title to the property subject to the lien placed by the lender.   The Note actually sets forth the terms of the loan, but the mortgage is what is filed to prove the debt exists.  Lis pendens is a term that you hopefully do not encounter.  It is the recorded document giving public notice that the property is the subject of a foreclosure process.  Deed In lieu of Foreclosure or a Deed in Lieu is pretty self explanatory.  The borrower essentially hands the property back to the lender instead of going through the full foreclosure process.  The catch to a Deed in Lieu is that the property must be equal to or greater than the amount owed on the property by the borrower.  If there is a deficiency, a deed in lieu may not be an option.  A Deficiency Judgment is also something to look out for.  If the public sale of a foreclosed property amounts to less than what the homeowner owes, then the homeowner is still responsible for the remaining debt.

Another important term to note is the Right of Redemption or Right of Reinstatement.  This right gives the homeowner the ability to reclaim foreclosed property by paying all of the unpaid payments along with any costs associated.  This is an important right that our attorneys can best explain and we will most likely tackle this in a future blog, but that is the general concept.    

These terms will help you understand the process outlined below.           

How Does a Foreclosure Work?    

For starters, a lender cannot just take your property in Illinois.  Since Illinois is a judicial foreclosure state, the lender must take the matter up in Circuit Court where the court must issue the final foreclosure judgment.   Your note and mortgage will outline what constitutes grounds for foreclosure, but oftentimes the foreclosure process begins after 3 missed payments.  Once the complaint is filed, you have 90 days from the date you receive notice of the foreclosure to exercise your right of reinstatement.   Once in court, if you lose then you receive the judgment of foreclosure and so the property is no longer yours.  At this point, your right of redemption period begins.  

However, you may contest the foreclosure based on a variety of grounds or may be granted additional time to contest the foreclosure based on judicial discretion.   Before the lender can conduct the foreclosure sale of your property, it must publish notice of the sale in a local newspaper at least 3 weeks in a row.  The lender must also determine if you have not already done so whether or not you qualify for a loan modification under the Home Affordable Modification Program.   At this point, unless additional time was granted for any of the reasons above, almost one year has elapsed.  If you have lost your case, then the lender will conduct the sale after proper notice and the court will confirm the sale.  You will be removed from your home if you have not already left.   If you are curious about the specific timeline for these events, please see one of our previous blog posts.

Do not get to this point.  Our attorneys will explain your rights and the steps to take at each phase of the foreclosure process to ensure that you are not unjustly or illegally foreclosed on and kicked out.  You may think that you have no options left, but we may be able to find a better way out for you.

See Our Related Blog Posts:

Foreclosure, Short Sales, & New Federal Guidelines
Hardest Hit Program Keeps a Bad Day from Getting Worse

The Tax Man is Circling the Block

A recent article in the Chicago Tribune highlights what could be damaging news for many homeowners who are currently underwater on their home. A viable option to escape this predicament for someone owing more than their home is worth is the short sale. Although working with an attorney to short sell your home affects your credit, it is much better than the foreclosure alternative.

In 2007, Congress enacted the Mortgage Forgiveness Debt Relief Act that gives homeowners who short sell their homes a tax break. However, the act is set to expire December 31, 2012 so the gist of the bad news for these homeowners considering a short sale; Be careful, the tax man cometh.

The term “short sale” conjures up different feelings amongst different people. Many real estate professionals have never even heard of a “short sale” while others speak “short sale” as a second language. If you are not familiar with a short sale, here is a quick overview. Let’s say you finance the purchase of a home for $300,000. As a result of the real estate bust, your home is now worth $175,000, but you still owe $300,000. You sell your home through the short sale process for $175,000 and the bank forgives the deficiency. For now, that forgiven debt is not taxed. There is obviously much more to the short sale process that our Oak Park real estate attorneys can explain, but the general idea is to allow homeowners to get out from underwater on their homes and help them get back on their feet.

Mortgage Forgiveness Debt Relief Act of 2007 and How it Helps
Debt that is forgiven through the short sale process must be reported as income to the Internal Revenue Service. If your debt is forgiven due to a drop in your home’s value or a decline in your financial situation, the Act exempts taxes due on forgiven debt up to $2 million. The Act originally was set to expire in 2012, but was extended because the housing market was still in “free fall” at that time.

The measure is important because the intent behind it was to help homeowners get back on their feet. If you short sell your home and are forgiven tens of thousands of dollars in debt, but are then hit with a tax bill for several thousand dollars, then you are not much better off than before. In some cases, the forgiven debt or “shadow income” would actually push an individual into a higher tax bracket and thus compound the problem to an even greater extent.

Act Now!
A bipartisan group of lawmakers continues to push to extend this provision, but feel that a vote is “unlikely” until after the November election. Representative Jim McDermott, D-Wash went as far as saying that “The expiration of that provision is a hidden time bomb.”

Real estate professionals across the country report signs of improvement in the housing market, and they fear that failing to extend these cuts could damage the recovery. With the elections in November, there is a small window between the election and December 31st to try and extend this provision so there is no guarantee it will get extended in time to save the tax cut.

With this in mind, it is important for homeowners who are considering short selling their home to speak with foreclosure or short sale attorney who can explain the process as well as the ramifications of the sale. There are both legal and financial ramifications that must be explained and assessed by a professional. It is important to address your situation with your home sooner rather than later because later may be too late.    

Hardest Hit Program Keeps a Bad Day from Getting Worse

Different people will argue different points regarding the improvement or lack thereof with the economy.  But many homeowners and renters continue to struggle with the combination of a monthly mortgage or rent and either no job or a job that pays less than what they are qualified for.  Many of these “underemployed” or unemployed individuals just need temporary assistance so they can stave off foreclosure and the foreclosure lawyers here are working with a program that can provide the much needed assistance.   This program, The Illinois Hardest Hit program utilizes federal funds to help support people who need assistance with their monthly mortgage payments due to “unemployment or underemployment.”   The assistance comes through the program bringing the loan and all the past payments and penalties current and by paying monthly mortgage payments for up to 18 months or $20,000.  

A recent article in The State Journal-Register describes the program and gives a few of the guidelines that must be met for someone to utilize the program.  The Hardest Hit program is “a component of the Illinois Foreclosure Prevention Network administered through the Illinois Housing Development Authority.”  Different not-for-profit organizations partner with the Illinois Housing Development Authority to work with this new program and administer aid to the qualified applicants.  The need is apparent as Illinois currently sits at number 8 among states in the number of foreclosures.  Our Oak Park and River Forest foreclosure lawyers know all too well this statistic as they work with clients every day who are either facing foreclosure or are on the verge of it.

A few of the requirements for the Hardest Hit Program include:

-       Property must be a primary and only residence located in Illinois
-       Household must have a documented income reduction of at least 20% due to unemployment  or underemployment through no fault of their own
-       Arrearage caps of $20,000-25,000 depending on the county
-       Principal loan balance of mortgage cannot exceed $500,000
-       Household liquid assets cannot exceed $10,000 or $12,500 depending on the county
-       The current servicer of the mortgage must agree to accept payments from IHDA on the borrowers behalf
-       Borrowers must  not have been convicted of a mortgage related felony in the past 10 years

Additional requirements and details are found at www.illinoishardesthit.org.

The requirements explain a great deal about who the program is designed to help and who it is not designed to help.  It is not for people who are looking to get out of investment properties.  It is strictly for those people who through no fault of their own are in difficult financial situation.  

Our foreclosure lawyers work with these types of people each day who are not in a difficult situation due to greedy real estate deals or large spending sprees, but because the job market has not recovered and the mortgage must be paid or they are on the streets with their families.
This program is more than an ATM for needy homeowners.  It provides a support system that provides counseling and step by step updates to ensure the homeowners have the best chance for success.  This program works to keep families in their homes and have the best chance to stay there while they get back on their feet and move forward with their family.

See Our Related Blog Posts:

How Long Will Your Foreclosure Take?
Att. Gen. Madigan Announces $3 Million for Foreclosure Mediation Programs, but will They be Effective?

Short Sale Scam Letters

If you are one of the many homeowners having difficulty paying your mortgage, you may be considering a short sale of your home. A short sale is when your lender agrees that you can sell your property to a buyer for less than what you owe on it. As the number of homeowners and buyers considering short sales increases, so does the number of incidents of possible short sale fraud. 
For example, last month three California men were arrested by federal authorities for allegedly running a scam involving short sales that caused more than $10 million in losses. It was reported that the case involved various crimes including identity theft, creating phony bank documents, and bribing bank insiders. The FBI searched the defendants’ homes and businesses in Los Angeles and Orange counties and the loot recovered is a testament to the lucrative nature of the scam All told authorities seized more than $1.7 million held in bank accounts, half a million dollars in cash, two Bentleys, a Mercedes, and various jewels, including diamond-encrusted watches.

As with similar real estate scams, the defendants preyed on distressed homeowners. The scammers claimed to have insiders working at the bank, who, in exchange for cash, would authorize short sales for far less than fair market value, according to court documents. The alleged scammers used short sale approval letters that had been entirely fabricated to convince the unwitting homeowners of the authenticity of the situations.

Of course, this is just another reason why it is important not to cut corners when it comes to these real estate matters. Help exists for distressed homeowners, but it doesn’t come in the form of shady deals or hidden programs.

Scams with Short Sale Approval Letters Homeowners and title insurance companies are being warned about possible mortgage fraud that involves bogus short sale approval letters from Bank of America. For example, one of the largest title insurance underwriters in Florida sent an alert out recently that scammers are copying the giant lender’s approval letters, right up to similar language and the bank’s logos. In response, Bank of America is asking those who receive their letters in any jurisdiction, to call and verify the letter’s authenticity by calling their 800 number (866-880-1232, option 1).

Bank of America said that although the scams in Florida and California generally involve high end homes, with mortgages over $500,000, they will confirm any letter no matter what the amount of the mortgage. The scams appear to be fueled by a breakdown of communication between the title company and the bank. Florida tops the nation in mortgage fraud; more than $260 million in bank fraud was investigated in the Sunshine State in the first quarter of this year. However, any jurisdiction could be affected, and it is absolutely crucial for homeowners to be careful when dealing with these issues.

In our area, it is always prudent to consult a Oak Park real estate lawyer when working on short sales or other transactions to ensure things are done right every time.

Short Sales Popularity Continues to Rise

Pre-foreclosure sales, or short sales, are on the rise according to new national data released recently by RealtyTrac.   A short sale is also referred to as a pre-foreclosure sale because it requires a lender’s approval before the seller (homeowner) can sell a house for less than what the seller owes on the mortgage.

Short Sales – No Sign of Slowing
According to the Chief Executive Officer of RealtyTrac (an online market for distressed property), lenders are approving more competitively priced short sales, which lead to more successful short sale transactions. This may be good news for homeowners looking for a plausible solution to get out of their home without strings attached.

In a recent foreclosure sales report, it states that sales of homes that were in some stage of foreclosure or bank owned accounted for approximately 26% of all US residential sales during the first quarter of the year. This figure is up from the fourth quarter of last year when only 22% of all sales were such, and the first quarter of 2011 when they were 25%. According to the report from RealtyTrac, first quarter pre-foreclosure sales were at their highest level since the first quarter of 2009 and pre-foreclosure sales reached 12% of all sales during the first quarter, up from 10% of all sales in the prior quarter and 9% of all sales in the first quarter of 2011.

Lenders may be working off a large inventory of pre-foreclosure homes, making it more advantageous for a homeowner in distress to contact the banks and work on the short sale process. It’s all part of national trend.

“Lenders are approving more aggressively-priced short sales, which in turn is resulting in more successful short sale transactions,” said notes the CEO of RealtyTrac. Banks are becoming more amenable to short sales as the housing slump drags on through its fifth year, as shown by the statistics. Homeowners are also becoming more familiar with short sales and contacting our area  Oak Park real estate lawyers to get assistance with this process, instead of waiting for the sheriff to show up with an order to vacate the property. Another reason why short sales are on the rise is because real estate agents may be getting better at selling them.

Credit Realities with a Short Sale
One of many reasons struggling homeowners pursue a short sale involves the credit benefit.  For example, FICO, the credit scoring company, notes someone with a good credit score, say 720, may see it drop to 570 to 590 after a foreclosure. A short sale, without personal recourse against the seller, will drop it to 605 to 625. But a short sale without forgiveness has the same effect as a foreclosure.

Of course, a less serious impact on one’s credit is just one of many reasons that homeowners stand to benefit from these sales.  In our area, be sure to get in touch with our Moorestown short sale attorney to learn more.