Archive for the ‘Strategic Default’ Category

Consent Foreclosures in Illinois

In many instances a consent foreclosure is much better than a Deed-In-Lieu of Foreclosure, a Short Sale and even a bankruptcy.

What is a Consent Foreclosure

Illinois has a special statute that lays out the Consent Foreclosure Procedure, specifically it is 735 ILCS 5/15-1402 and it states:

(a) No Objection. In a foreclosure, the court shall enter a judgment satisfying the mortgage indebtedness by vesting absolute title to the mortgaged real estate in the mortgagee free and clear of all claims, liens (except liens of the United States of America which cannot be foreclosed without judicial sale) and interest of the mortgagor, including all rights of reinstatement and redemption, and of all rights of all other persons made parties in the foreclosure whose interests are subordinate to that of the mortgagee and all nonrecord claimants given notice in accordance with paragraph (2) of subsection (c) of Section 15-1502 if at any time before sale:

(1) the mortgagee offers, in connection with such a judgment, to waive any and all rights to a personal judgment for deficiency against the mortgagor and against all other persons liable for the indebtedness or other obligations secured by the mortgage;

(2) such offer is made either in the foreclosure complaint or by motion upon notice to all parties not in default;

(3) all mortgagors who then have an interest in the mortgaged real estate, by answer to the complaint, response to the motion or stipulation filed with the court expressly consent to the entry of such judgment;

(4) no other party, by answer or by response to the motion or stipulation, within the time allowed for such answer or response, objects to the entry of such judgment; and

(5) upon notice to all parties who have not previously been found in default for failure to appear, answer or otherwise plead.

This is full of large amounts of legal jargon, but the essence of this legal procedure is that you agree to waive all of your rights in the foreclosure process, agree to give the bank a judgment for foreclosure, and in return the bank agrees not to pursue you for a personal deficiency judgment after the foreclosure. This is very important as it protects the homeowner immensely.

What is a Personal Deficiency Judgment in a Foreclosure?

A deficiency judgement essentially what you owe after the bank has sold the house and taken its money, it is everything you owe leftover, the deficiency.

In order for a bank to take a home in foreclosure it must prove you owe it money and that you haven’t paid the mortgage. Once it has proven this, it gets what is called a judgment of foreclosure. In this judgment, the bank will include all unpaid principal and interest, attorney’s fees, and other miscellaneous costs. That is the judgement amount.

The bank can then set the house for auction. This foreclosure auction will take place at least 90 days after the judgment has been entered. The bank will set the minimum bid and other individuals from the public can bid on the property.

The difference between what the house sells for at auction and what is owed on the foreclosure judgement is what is called the deficiency, which in most instances is tens of thousands of dollars. Upon confirmation of sale, this deficiency can be entered into a memorandum of judgment, and this judgment once signed by a judge is immediately collectible against you personally.

So although you just lost your house in foreclosure, the bank can still chase you around in collection court for whatever amount is on that judgment. This seems unfair, but its the law, and it is my job to prevent this from happening.

As a side note, I would say in around 80% of all auctions the bank buys the house back. This is because either the minimum bid is too high or there are so few borrowers that can actually get the funds together to buy the property (auctions require full payment within 24 hours of sale), but its usually a combination of the two.

How Can a Consent Foreclosure Help Me?

If you are looking to get rid of a property, as part of a strategic default or otherwise, a consent foreclosure is an ideal practice for multiple reasons:

1. Speed – In order to do a consent foreclosure you must have an open foreclosure case, there must be a case number assigned, although you do no necessarily need to be served. But once the consent foreclosure process has been started it can be done in as fast as 60-90 days. Sometimes longer depending on other factors such as second liens and government interests.

2. Simplicity – A Consent Foreclosure is a much simpler process than a Deed-In-Lieu of Foreclosure or a Short Sale. And the reason is simple, there is much less paperwork involved. You don’t have to submit any bank statements, pay stubs and you don’t have to speak with the bank. All of the negotiations are done between the attorneys. In addition, by not having to submit bank statements or pay stubs you keep your finances away from the prying eyes of the bank. This gives high net worth individuals the ability to get rid of unprofitable properties in a simple and inexpensive manner. Not to mention, the bank waives any right to collect the deficiency judgment post foreclosure.

3. Immediate Recording – Once the Consent Foreclosure judgment is signed by the judge, the bank takes it to the Recorder of Deeds and records it, and this immediately takes the property out of your name. This is the fastest way to get a property out of your name which may be vacant, boarded up and just asking for code violations from the city. This gets rid of your property headaches immediately.

4. Tax Consequences – In many if not all instances I have encountered in my practice, upon completion of a consent foreclosure and the subsequent waiver of deficiency by the bank, the homeowner will not receive a 1099C for cancellation of debt. I understand the IRS may consider a foreclosure sale a cancellation of debt which may be taxable as income, but in most if not all circumstances homeowners do not receive these forms once tax times comes around. Regardless a good accountant will be able to get you out of this burden with the insolvency exception.

What are the downsides?

First of all, this probably reports on your credit as a completed foreclosure. It will probably hurt your credit more than a Short Sale or a Deed-In-Lieu. There are conflicting reports but supposedly a short sale will report to your credit as “debt settled for less than what is owed”, yet a consent foreclosure is technically a completed foreclosure which shows up in the public record section of the credit report.

If you have questions about your options regarding consent foreclosure call my office for a free phone consultation at 312-493-6912

The End of an Era: Home Affordable Modification Program (HAMP) Ends

As of December 31st, 2016 the US Trasury’s Making Home Affordable Program or HAMP as most people call it will officially come to an end after seven fairly successful years. Born out of the Great Recession, the US Treasury unveiled this program to not only make save homes from foreclosure but to also prevent some houses from entering foreclosure altogether. HARP or Home Affordable Refinance Program, which helps homeowners to refinance their mortgages to a lower interest rate, was extended until September 30, 2017.

The main benefit to a Loan Modification under HAMP was that the Mortgage Servicers and Investors recieved an incentive from the Government for helping borrowers stay in their homes. In many instances, a HAMP modification was able to help borrowers who were struggling financially, mainly because of these incentive payments. It was estimated that in 2016 50% of all loan mods were under the HAMP program.

What Are My Options Now?

Well, there has always been what is called an “In House Loan Modification Program” or a “Proprietary Modification Program” which was essentially a set of criteria and modification underwriting standards that are set in place by specific mortgage investors, such as Fannie Mae and Freddie Mac. Not all Government Sponsored Enterprises (GSE’s) have in house Loan Modification Programs, it mainly varies from investor to investor, but there are a fair amount of private investors who do offer such programs. For the most part, a mortgage investor would rather keep a borrower in their home and earn interest from them, than take the house back in foreclosure and hope to sell it for a fair price. It’s a much safer proposition for a lender, but only if you have income and they deem you qualified to make monthly payments.

How Does This Affect My Mortgage?

If you are behind on your mortgage, this actually may affect you substantially. The lapse of HAMP essentially removed any governmental incentive servicers and investors were getting for modifying loans, which should theoretically make it harder to get a modification. But as I have noted above there should still be In House programs under which you can apply. This article also seems to suggest that there may even be a lack of consistency in the modification programs throughout the industry. I.E. Wells Fargo may seek to modify your mortgage to 31% of your income and Chase could do 28%, but these are just guesses. Also, it appears that the timeline for modifications will be sped up, since homeowners will no longer be considered for the HAMP program. This may increase the effectiveness of modifications, since in my experience one of the greatest determining factors is the length of the modification process and the arrears accrued at the end of the process.

It yet remains to be seen how the housing market will react to this change, and whether the lapse of the HAMP program will bring a new wave of foreclosures in Cook County and around Chicago. If you or someone you know if facing foreclosure or has missed a mortgage payment call Steven Grace at 312-493-6912 for a free phone foreclosure consultation.

Cook County Foreclosure Rate Slows

Cook County Foreclosure Sale Rate Lower by 75%

Although Foreclosure rates in Cook County and the surrounding counties has decreased I have recently seen a few cases that have been in the courts for years hoping for a conclusion. Many times, the homeowner has been struggling with the bank to work out a modification and may have even gone through a Chapter 13 or even a Chapter 7 bankruptcy already in hopes of saving the home. I have even in cases of high mortgage balances, seen Chapter 11 bankruptcies to save a home.

To complicate the foreclosure picture further, many people are now facing increases on their Making Home Affordable (HAMP) Loan modification interest rates which increases the monthly payment amount. For many people even a small increase could mean losing a home. The question as to whether the foreclosure rate will remain low remains to be seen.

Furthermore, real estate values haven’t rebounded in many areas. The affluent neighborhoods have seen increases, but there are many areas around Chicago that have built zero equity since the Great Recession. As a result, many homeowners are still making the decision to stop paying their mortgage payment or to make a strategic default on their mortgage. Dealing with a losing investment such as an underwater home could potentially be the best decision of your life. There are substantial legal risks associated with such a default and you need a competent legal advisor to guide you through.

Chicago Strategic Default, Loan Modification and Foreclosure Defense Attorney

If you would like to speak further about your issues affecting you and you mortgage call The Law Offices of Steven J Grace at (312) 493-6912 today for a free 15 minute phone consultation.

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At The Law Offices of Steven J. Grace, based in Chicago, Illinois, we represent clients throughout Chicagoland, including the cities of Deerfield, Jefferson Park, Lisle, Northbrook, Oak Brook, Park Ridge, Schaumburg, St. Charles and Warrenville; and other communities in Cook County, Dupage County, Will County, Grundy County, Kendall County, Kane County, LaSalle County and Lake County.