Common issues for lawyers doing foreclosure cases Lawyer Manual

Below are listed some common issues that attorneys doing foreclosure defense work often run into.

Vacating judgments for foreclosure

In a foreclosure, it is the order confirming the judicial sale rather than the judgment of foreclosure that operates of the “final” and “appealable” order. Absent a special finding under Supreme Court Rule 304 that there is no just reason for the delay in a judgment for foreclosure, the foreclosure judgment is not a “final” judgment for purposes of vacating pursuant to 735 ILCS 5/2-1301. When the foreclosure judgment lacks a special finding of finality and “appealability,” the defendant may seek to vacate a judgment of foreclosure under the standards set forth in 735 ILCS 5/2-1301(e) any time prior to a motion to confirm the judicial sale is filed. EMC Mortgage Corp. v. Kemp, 982 N.E.2d 152 (Ill. 2012); Wells Fargo v. McCluskey, 999 N.E.2d 321 (Ill. 2013); Citibank N.A. v. Monroe, 985 N.E.2d 682 (2d Dist. 2013) Noting the distinction between a motion for confirmation and a notice of hearing.

Foreclosure of deceased mortgagors

In Illinois, under the IMFL, the mortgagor is a necessary party in a foreclosure action. 735 ILCS 5/15-1501. However, in Illinois, it is also not possible to file a lawsuit against a deceased person. Thus, the Illinois Supreme Court established a method to resolve this quandary by requiring the appointment of a “special representative” in the foreclosure action.

Typically, the special representative is appointed to represent the deceased mortgagor’s interests in the foreclosure and to file a report naming all parties with interests in the foreclosed property. After the appointment of the special representative, the plaintiff must file an amended complaint adding the special representative and the parties identified by the representative as having interests in the property.

A special representative is not necessary in cases where there is a living person that holds a 100 percent interest in the foreclosed property by virtue of being the deceased mortgagor’s surviving joint tenant or surviving tenant by the entirety. No deficiency may be sought against a deceased mortgagor. 735 ILCs 5/15-1501(h). ABN AMRO Mortgage Group, Inc. v. McGahan, 931 N.E.2d 1190 (2010).

Under federal regulations promulgated by the CFPB, loan servicers must also now establish policies and procedures to identify and communicate with “successors-in-interest” of a deceased borrower in part to facilitate the loss mitigation process with the identified successor. Depending on the “type” of the loan or whether Fannie Mae or Freddie Mac own the loan, the successor in interest may be treated “as if” he or she is a borrower and allowed to pursue loss mitigation options to retain the home.

For instance, in cases where a husband and wife own the home as joint tenants, but only the husband is a borrower on the loan, the loan servicer may refuse to speak with the wife after her husband’s death. The loan servicer, should, however, now have policies and procedures in place to recognize that the wife is the successor-in-interest to the house, by operation of law as joint tenants, and to communicate and coordinate with her to pursue loss mitigation. Some loss mitigation may require the successor to “assume” personal liability of the debt where no liability previously existed. This is something attorneys should carefully advise clients about. Complicated cases may require a separate probate action to establish the new successor in interest. Consulting with a probate attorney is advised.

For transfers prior to death, attorneys should familiarize themselves with the “due-on-sale” provisions contained in most mortgage contracts as well as the federal Garn-St. Germain Depository Institutions Act, which preempts enforcement of due-on-sale clauses under certain exempt transfers. 12 U.S.C. 1701j-3.

“Requests for information” and “notices of error”

The former “Qualified Written Request” was replaced and divided into two separate categories – Requests for Information (RFI), and Notices of Error (NOE). The process for sending and responding to an RFI or NOE is still regulated by RESPA and Regulation X. 12 C.F.R. 1024.35. 12 C.F.R. 1024.36. The scope of requests or error resolution is limited to the enumerated categories, but may be used for “any other error relating to the servicing of a borrower’s mortgage loan.” An RFI or NOE may be useful to obtain basic information about the owner of the loan, payment history, closing documents, prior loss mitigation, or to dispute fees or charges or loss mitigation errors. A servicer’s failure to properly respond to an RFI or NOE may give rise to private enforcement.

RFI’s and NOE’s must be sent to a specific address established by the servicer. Servicers should publish the appropriate address on their websites and/or on the monthly billing statements.

Beware of “foreclosure scams”

Many mortgage foreclosure scams exist. Homeowners threatened with foreclosure receive a flood of mail offering “quick fixes” and advice. Homeowners should be warned about this mail and told to discard it all. Typically, scams involve offers to refinance (at an exorbitant interest rate or with hidden fees) and offer to buy the property, pay off the mortgage and resell the property to the homeowner, usually at an inflated price or on terms guaranteed to cause a default.

Example: Caller tells the client that they have excellent credit and can get a mortgage on the property. They will allow the client to deed the property over to them, and lease it back to the client. Of course, they own the property then and the client is evicted. For more information, or to report a scam, you may wish to contact the Illinois Attorney General Consumer Fraud Hotline or visit the Illinois Attorney General’s website.