A lot of people going through foreclosure wonder if they will be able to buy a new home after the foreclosure case concludes. This blog post is designed to be a guide for when and how you can purchase your next home after a foreclosure and/or bankruptcy.

Hoping to buy your next “Home, Sweet Home” after a foreclosure or bankruptcy? You may have to wait. Here’s how long you should expect to wait before you can qualify again.

Note: These guidelines change frequently. These guidelines are good as of the date this post is published, but you should double-check with your lender before assuming that you will qualify for a loan. 

Conventional Mortgage Guidelines

Conventional mortgages are insured by Fannie Mae. If Fannie Mae is unwilling to insure the risk that you will not repay your mortgage, then you likely will not qualify. You can reapply for a conventional Fannie-Mae-insured mortgage in the following circumstances:

• 7 years after your foreclosure case is concluded, as is reported on your credit reports.
• 4 years after a deed in lieu of foreclosure or short sale is completed.
• 4 years after your Chapter 7 bankruptcy is discharged.
• The shorter of 2 years after your Chapter 13 bankruptcy is discharged or 4 years after your Chapter 13 case is dismissed.

Fannie Mae’s guidelines are listed here. You also need good credit and a re-established payment history on your credit report.

FHA Guidelines

You can reapply for a FHA-insured mortgage in the following circumstances:

• 3 years after FHA pays the claim for insurance to your previous lender as the result of a foreclosure, short sale, or deed in lieu of foreclosure.
• 2 years after your Chapter 7 bankruptcy discharge (which is not the date you filed your petition).
• 1 year after your Chapter 13 bankruptcy discharge (which is not the date you commenced the Chapter 13 case).

In addition to the waiting period, you need a good credit score and a re-established payment history. Here are the guidelines promulgated by the FHA. Review the following sections of the above link for more information: 4155.1 4.C.2.g (relating to Chapter 7 bankruptcies), 4155.1 4.C.2.h, (relating to Chapter 13 bankruptcies), and 4155.1 4.A.2.g (relating to foreclosures).

Your foreclosure defense attorney told you all of this, right?

I prefer to give my clients as much information as possible so that they can determine whether defending a foreclosure, seeking loss mitigation, short selling the house, or pursuing alternative options is right for them. My primary goal with every foreclosure defense client is to help them get their life back on track. Let me help you get your life back on track. I offer a no-obligation-or-cost initial consultation for anyone in bankruptcy who thinks they may need an attorney’s assistance. Give Dickson Law Group a call at 815-317-5193 to set up an appointment.

If your home is in foreclosure, odds are you are having a difficult time paying all of your bills. The bills you receive for condo association assessments or homeowners’ association assessments can be very high, sometimes several hundred dollars per month. Many Illinois homeowners facing tough financial times wonder whether this is one of the bills they can safely stop paying. However, because Illinois law gives condominium associations and homeowners’ associations special remedies under the Forcible Entry and Detainer Act (which is the law we use to evict people from homes), your failure to pay your assessments could result in you being evicted from your home by your condo association or homeowners’ association. If you want to continue living in your home while you work things out with your mortgage company, you need to keep paying your assessments.

Don’t lose your condo to your association over unpaid assessments. Even if your home is in foreclosure, it is important that you keep paying your association if you want to keep living in the property.

The law says your association can evict you from the property to recover unpaid assessments.

The Illinois Condominium Property Act (765 ILCS 605/1, et seq.), which governs condominium associations, and the Illinois Common Interest Community Association Act (765 ILCS 160/1-1, et seq.), which governs homeowners’ associations and other forms of property associations, each give your association the power and obligation to assess to each property owner in the association the costs and expenses of maintaining the common areas of the community. These assessments are how, for example, they pay for the common areas to be mowed, landscaped, and plowed.

The obligation to pay these assessments attaches to the property and is a liability of the unit owner personally. So, for example, even if you lose the property in a foreclosure, you still would have liability for the assessments that went unpaid while you were the owner of the property.
Because the debt attaches to the property as well as to you personally, Illinois law gives your condominium or homeowner’s association the power to move against the property as well. Section 9-102 of the Code of Civil Procedure provides that:

[Your association is] entitled to the possession of lands or tenements may be restored thereto under any of the following circumstances:
(7) When any property is subject to the provisions of the Condominium Property Act, the owner of a unit fails or refuses to pay when due his or her proportionate share of the common expenses of such property, or of any other expenses lawfully agreed upon or any unpaid fine.

* * *

(8) When any property is subject to the provisions of a declaration establishing a common interest community and requiring the unit owner to pay regular or special assessments for the maintenance or repair of common areas owned in common by all of the owners of the common interest community or by the community association and maintained for the use of the unit owners or of any other expenses of the association lawfully agreed upon

735 ILCS 5/9-102.
What these two sections mean is that your condo association or homeowners’ association can evict you or anyone living in the property, take possession of the unit, and rent the unit to a third party to recover their past-due assessments. Moreover, because it is nearly impossible to find a short term month-to-month tenant, your association can lease out the property for as long as they need to (typically in increments of one year) to get paid in full.

Evictions proceed much quicker than foreclosure cases. Your association will be able to evict you before your foreclosure case concludes.

Many people believe that because their foreclosure case has been pending for months or even years that because an eviction suit is filed against them that the foreclosure will wrap up long before the eviction case concludes. It would be a mistake to believe this. The typical eviction case in McHenry County, Illinois takes about three weeks from the date the eviction case is filed until an eviction order is entered. Even if you show up to the first court date for the eviction case, the judge will grant you no more than two weeks to hire an attorney and will promptly set the case for trial after the next court date. You should not expect to be able to drag out an eviction case against you similarly to the way your foreclosure case has been dragging out.

How you should proceed if your home is in foreclosure and you have assessments to pay.

Some condo and homeowners’ associations are quick to use the eviction remedy to recover unpaid assessments. Others are extremely reluctant to use this remedy. If it is your intention to stay in your home while the foreclosure case is pending (so that you can, for example, buy some time to work on a loan modification or short sale), you should take the risk and need to keep paying your assessments. If your home is in foreclosure, you need to speak with an experienced foreclosure defense attorney. There are many other pitfalls other than the trap created by not paying your assessments. Some bills like assessments you need to pay, and other bills you can put off paying without jeopardizing your right to possess and occupy your home. I can help you make these decisions, and I offer a free initial consultation for clients whose homes are in foreclosure to help them work out these issues.

A common question that I am asked by foreclosure defense clients is whether they will face a money judgment after the foreclosure case is concluded. The answer to that question is probably, but not necessarily. Read on to try to ascertain whether you will owe money after the foreclosure.

Facing a personal deficiency judgment from your foreclosure case? Don’t be like this guy and bury your head in the sand.

Basics of deficiency judgments.

A common misunderstanding among Illinois homeowners is that their liability for a mortgage is limited to losing the house. That is not usually true. Your traditional mortgage has two components: (1) a promissory note by which you promise to repay the money loaned to you by the bank, and (2) a mortgage permitting the bank to foreclose your house if you fail to make your payments.

If your house is sold at a foreclosure sale, it might sell for 80-cents on the dollar of what it is worth today. So, if the house you purchased for $250,000 in 2005 is worth $150,000 today, then you can expect the house to sell at the foreclosure sale for less than $150,000 and probably around $120,000. The bank will apply the proceeds of the foreclosure sale (the $120,000 the purchaser pays at the foreclosure sale) to the loan balance. If you owe more than the money paid at the foreclosure sale, then the bank will obtain a personal judgment against you for the balance. This is called a “deficiency judgment” because it represents the deficiency between what you owe and what the house sold for.

Not everyone receives a deficiency judgment.

If you filed bankruptcy after you took out the mortgage loan, and if you received a discharge in your bankruptcy, and if you did not “reaffirm” the mortgage loan in the bankruptcy case, then your personal liability for the deficiency (if any) has been discharged. You should speak with the attorney that assisted you with your bankruptcy to confirm that this is correct.

Also, sometimes banks do not seek deficiency judgments from homeowners. There is no rhyme or reason to whether or not the bank will seek to obtain a personal judgment against you. If you are lucky enough that the bank did not obtain a judgment against you at the end of your foreclosure case, congratulations.

Even if the bank did receive a personal judgment against you for the deficiency in your foreclosure case, there is also the possibility that the bank will not attempt to collect it from you. Again, there is no clear rhyme or reason as to whether the bank will seek to collect against you. You could get lucky and the bank will never try to collect. However, because there is a judgment against you for a significant amount of money, your credit score will likely be ruined until you pay the judgment off or file bankruptcy to discharge the judgment debt.

Be proactive about your deficiency judgment.

All judgments in Illinois accrue interest at the rate of 9% per year (see 735 ILCS 5/2-1303). 9% per year adds up quickly. If the bank sits on a $100,000 judgment for five years, you would owe $145,000 at that time. If the bank sits on it for ten years, you would owe $190,000. A mid-sized judgment can become a very large judgment in only a few years.

Because of the incredible rate that judgment debts accrue interest, you should think about resolving this sooner rather than later. Bankruptcy is an option for many. Attempting to negotiate with the bank to take less money is also an option. Sticking your head in the sand like an ostrich and hoping that the problem goes away is not an option.

I help debtors with all types of debt defend attempts to collect and to negotiate a reasonable payment of that debt. Although I cannot guarantee that my efforts will succeed (because the court case conclusively proved that you owe the money), I have had success in assisting debtors deal with problem judgments. Give me a call at 815-317-5193 to discuss your options. There is no obligation or fee for the first time we talk.

This post talks about the Illinois-specific solution to foreclosures called the “deed in lieu.” If you are reading this for advice for a property not located in Illinois, this probably will not be relevant to your case.

When people are deeply underwater on their home and are in (or about to be) in foreclosure, most do some internet research and learn of the possibility of a “deed in lieu” of foreclosure. The mechanics of a deed in lieu are simple in theory. Section 15-1401 of the Illinois Mortgage Foreclosure Law (735 ILCS 5/15-1401) sets forth a process by which (1) you offer to give the foreclosing bank the deed to your house, and (2) in exchange for the deed, you get to walk away from the home with no personal liability. It sounds like a good deal, and for the homeowners who want this solution and succeed at obtaining it, it is in fact a very good deal.

Turning over the keys to your house with an Illinois deed in lieu seems like the best solution to your financial problems. This blog post outlines some issues with the deed in lieu process.

Why you should not think that a deed in lieu will solve your problems.

What’s the catch then? Well, the catch is that banks hate giving you a deed in lieu of foreclosure for several reasons. First, a deed in lieu is only an option when it makes financial sense to the bank. You wouldn’t leave a $100 bill on the ground, and banks won’t give up the opportunity to collect against you unless it is sure that it would be financially worse off by attempting to collect against you. That means that you have to provide income and other financial disclosures to the bank so that the bank knows for sure that they have little chance of ever collecting a dime against you. If you have income or assets that the bank can collect, it will probably desire to attempt to collect it.

Second, banks dislike the deed in lieu process because they get cleaner title to the property following a foreclosure sale. Upon confirmation of the foreclosure judgment and sale, all regular liens on the property (including your second mortgage, any liens recorded on the property from past lawsuits, etc.) are eliminated, giving the bank squeaky-clean title to the property. When you purchased the home, hopefully your real estate attorney explained to you the importance of having clear title lest a previous lienholder seeks to sell the house out from under you because the previous owner did not pay. This process of lien elimination does not result from accepting a deed in lieu. Because the title to the property that the bank receives after the foreclosure sale is cleaner, it is worth more to prospective buyers and therefore a completed foreclosure is more valuable to the bank.

You still should ask the bank for a deed in lieu despite what I just told you.

Don’t let this dissuade you from asking for a deed in lieu from the bank if you want it. You might get lucky and find that the bank is willing to accept a deed in lieu. That said, luck is what you are going to need because having a bank accept a deed in lieu of foreclosure is an uphill battle.

Hope for a deed in lieu, prepare yourself in case it is rejected.

Owners of underwater homes have many other and more realistic options than the deed in lieu of foreclosure. Bankruptcy is an option if you qualify. Forms of loss mitigation such as the short sale and loan modification are options. Defending the foreclosure case if you have a good faith defense to the case is an option. Even walking away and giving the keys to the bank is an option.

If you are facing foreclosure, I encourage you to give me a call to discuss these options. There is no obligation or fee for the first time we talk. I can review the documents you have received from the bank or court and let you know where you stand. I will also let you know what help I can give to you. You shouldn’t face your foreclosure alone, and even if you walk out of our meeting with a better understanding of the process, you will sleep better at night.

Looking over my recent blog posts and the traffic generated by my past posts on stopping foreclosures in Illinois, it would seem that more people than ever facing foreclosure have questions relating to the process. I primarily practice foreclosure defense and debt relief in McHenry County, Lake County, Kane County, and DuPage County, but this advice may be relevant in other counties and judicial circuits.

Your home is in foreclosure. You can stop your foreclosure and save your family’s home.

Basics of a residential mortgage loans in Illinois.

You have a mortgage, a second mortgage, and/or a home equity line of credit. The loan itself is documented by a promissory note by which you personally promise to repay the loan in a certain time period with certain finance charges (usually fixed or variable interest over the life of the loan with the occasional up-front finance charge). This loan must be repaid by making minimum timely payments. The failure to make the payments as called for by the terms of the note is an event of “default,” meaning that you breached the contract (and a promissory note is nothing more than a special type of contract). Although rare, the defense of payment—i.e. that you actually performed your payment obligations pursuant to the terms of the promissory note—occasionally comes up. If you actually have made all of your payments, that is the most effective defense to stop a foreclosure in Illinois. The burden is on you to prove that you actually made these payments (you can’t just walk in to court and prove that the bank did not receive your payments), so you will need some evidence other than your word to succeed on this defense.

The promise to repay the loan is secured by a mortgage. A mortgage is a document that grants the lender a lien on your real estate property. When it is alleged that you have failed to pay on your loan as called for in the promissory note, the mortgage will also grant the lender the right to foreclose on your property. Mortgages are fairly standardized across the country (Fannie Mae publishes forms that are used in 99.9% of mortgages), and defects in the drafting of these documents are rare. However, if you are interested in stopping your foreclosure, reviewing the mortgage attached to the foreclosure complaint is worth a shot.

If the promissory note and mortgage are in line, there are still defenses to your foreclosure case.

Notice requirements prior to filing a foreclosure complaint in Illinois.

Illinois has generous protections for home owners that must be completed before your lender can file a foreclosure suit against you. One of these protections is the obligation of your lender to give you a significant amount of advance notice prior to filing suit.

The first type of these notices is probably set forth in the promissory note (which will be attached to the complaint). Most promissory notes give the lender the right to “accelerate” the balance due on the note in the event of a default, which basically means that if you miss payments, instead of only being able to demand the past-due payments, the lender can demand that you pay the entire thing. Most promissory notes contain a provision that requires that the lender send you one or more written notices that your account is past due and that the lender will consider the balance to be accelerated if you do not bring the loan current within a certain number of days. If your promissory note contains this language (and it probably does) and if you did not receive such a notice from the bank in the manner set forth in the note, this is a potent defense to a foreclosure lawsuit. The argument is basically that the lender had an obligation under the contract created by the promissory note to give you notice, and the lender cannot strictly enforce the contract if it did not strictly adhere to the obligations imposed upon it by the contract.

Another notice is required by the Illinois Mortgage Foreclosure Law. Section 15-1502.5 of the Illinois Mortgage Foreclosure Law (735 ILCS 5/15-1502.5) imposes an obligation on lenders to send you a “Grace Period Notice” alerting you of your right to seek housing counseling and forbidding the lender from initiating a foreclosure suit until that grace period has expired. Lenders occasionally forget to send the Grace Period Notice out, and if you did not receive such a notice that is another defense to your foreclosure case. As of the date of this blog post, this is still good law in Illinois, but it is currently scheduled for repeal on July 1, 2016. If you are reading this blog post after that date, you should check the statute to see if it is still good law.

A third notice is set forth in the Code of Federal Regulations and applies only to federally-insured mortgages. Title 24, Part 203.604 of the Code of Federal regulations (24 CFR 203.604) imposes an obligation on the lender for a federally-insured mortgage to have a face-to-face meeting with the borrower before initiating foreclosure proceedings. I have never defended a foreclosure case where the lender has actually complied with this obligation. Illinois courts will dismiss foreclosure cases based upon the failure of the lender to comply with this federal obligation. See, e.g., Bankers Life Co. v. Denton, 458 N.E.2d 203 (3d Dist. 1983). If you have a mortgage insured by HUD, and if your lender did not attempt to have a face-to-face meeting with you, you have a good chance to stop your foreclosure case.

Does the entity suing you have the legal right to?

The ability of a company or person to sue you is called “standing.” Even if you have in fact defaulted on your obligation to pay your mortgage, few entities have the right to drag you into court to obtain a judgment against you.

Standing (or, more importantly, the lack of it for the company suing you) used to be a much bigger issue in the heyday of residential mortgage foreclosures from about 2008 until 2014. Today? Not so much.

There used to be a big problem with lenders receiving the rights to a mortgage loan and executing the documents necessary to effectuate that transfer after the fact. In response to this issue, Illinois Supreme Court Rule 113 was added to our laws to govern the handling of foreclosure complaints. Effective as of May 1, 2013, all foreclosing lenders have to attach a copy of the promissory note as it exists at the time to their complaint. If the promissory note is not endorsed in blank or endorsed to the company suing you, it is readily apparent on the first reading of the complaint. As a result, pretty much every foreclosure case filed in Illinois since May 1, 2013 has included a properly-endorsed promissory note to the complaint.

The company suing you may make a mistake, so it is worth it to review the promissory note to determine whether the company suing you has the right to sue you. If this is the case, the company’s lack of standing to prosecute the lawsuit is another potent way to stop your foreclosure.

Can the company prove that you actually defaulted on your obligation to repay the loan?

If the upfront defenses of the lack of notice or standing are not present in your case, not all is lost. You can still force the company suing you to prove their case. The way to accomplish this is more technical than the other defenses, and I will not begin to explain it here. It usually involves some combination of written discovery (interrogatories, requests to admit, and requests for production of documents), oral discovery (depositions of bank officers), and the presentation of evidence in response to summary judgment. In the hands of experienced mortgage foreclosure defense attorneys, many cases can be won at this stage.

Is bankruptcy an option?

You have rights under the federal bankruptcy laws. If you are a good candidate for a Chapter 7 or Chapter 13 bankruptcy, you can either propose a plan to bring the mortgage current or discharge the debt you owe before or after the foreclosure case concludes. Bankruptcy is strong medicine that should not be taken lightly. If you are interested in talking about bankruptcy, give me a call to set up an appointment to chat about whether it is a good fit for you. Bankruptcy will temporarily stop a foreclosure case with the automatic stay set forth in the bankruptcy laws, and if your Chapter 13 plan is successful, it can end the entire case.

How I can help.

I have experience successfully defending residential and commercial foreclosure cases. In addition to the common defenses I have sketched out in this blog post, I have other tricks up my sleeve that I would not post publicly because the attorneys working for the banks can read this, too. I can help you short sell your house, apply for a loan modification, seek a deed in lieu of foreclosure, or present you other options that would enable you to stop your foreclosure case. In most cases, I can work out a predictable monthly payment plan with my foreclosure defense clients that will avoid you being sideswiped with a $2,000 bill after I need to do a lot of work for you in that month. If we can work out a monthly payment arrangement, it will almost certainly be less than the amount you were paying on your mortgage.

I am happy to sit down and speak with you at no cost or obligation to discuss whether we are a right fit for to help you stop your foreclosure. Give me a call at 815-317-5193 to set up an appointment.

Before the recent economic downturn, very few attorneys had experience defending foreclosures (or effectively prosecuting them, for that matter). As thousands and thousands of residential foreclosures flooded into our courts, the attorneys that picked up the foreclosure defense cases churned out hundreds of innovative arguments, and most went down in flames spectacularly. The “no note, no foreclosure” defense was among the most popular defenses, and our appellate courts quickly put an end to it. The Seventh Circuit, however, may have resurrected the “no note, no foreclosure” defense in limited circumstances.

How the “no note, no foreclosure” defense used to work.

During the real estate boom of the 90s and early 2000s, when everyone and their dog could qualify for a no-down-payment mortgage loan, many mortgage originators were very sloppy. They were too busy originating new mortgages to be as careful as they should have been, and important documents were occasionally lost. The most important documents for a mortgage loan are the promissory note (which contains the promise to repay in exchange for the money) and the mortgage (which grants the bank the right to foreclose if you fail to repay). The mortgage document itself is never lost because immediately after the loan closes the mortgage document is mailed to the county recorder of deeds and recorded.

The promissory notes, on the other hand, were lost quite frequently. The originators would mail them to the bank, and the bank would stuff the notes into a dusty file cabinet in a basement somewhere, and with the huge volume of loans being made these things were lost all of the time. This problem was compounded by the fact that as the bottom of the economy dropped out, several major mortgage lenders went belly up and their assets (99% of which were these promissory notes) were scattered to the wind to any bank with room on its balance sheet for more loans. In the process of divvying up failed lenders’ assets, some promissory notes were outright lost, others were miss-filed at the new bank, and the end result was that in a fair number of cases, the foreclosing bank’s attorneys were unable to produce the original promissory note to the court.

Attorneys who defended foreclosures salivated at the possibility of the lending having lost the promissory note because promissory notes are (supposed to be) special. They are like checks where the original document has significance in itself and you should not be able to cash (in the case of a check) or negotiate (in the case of a promissory note) a photocopy because what would keep you with making a hundred photocopies and trying to cash them all?

Well, seeing the havoc this would create in our domestic real estate market, our Illinois Appellate Courts have fairly consistently ruled that a promissory note is not like a check in that respect, and the original promissory note is only evidence of the debt obligation. If other evidence of the debt obligation can be produced, the absence of the original promissory note is not fatal to the foreclosing lender’s case.

The Seventh Circuit Court of Appeals resurrects the “no note, no foreclosure” defense somewhat.

Last month the Seventh Circuit handed down its opinion in State Bank of Toulon v. Covey (In re Duckworth), Nos. 14-1561 and 14-1650 (7th Cir. Nov. 21, 2014), which considered a very similar question–what happens if the promissory note is still in existence but the important parts were left blank? In State Bank of Toulon, the debtor, David Duckworth took out a $1.1 million loan from the State Bank of Toulon that was supposed to be secured by an Agricultural Security Agreement on certain farmland and crops. The security agreement, however, did not reference the note specifically by date, and the dollar amount of the security agreement was left blank. The bank tried to prove that it was the $1.1 million promissory note that was secured by the mortgage with parol evidence (a lawyer term for evidence about what a document means that is not contained within the document itself). The Seventh Circuit shot that argument down but carefully limited to apply only to the efforts of bankruptcy trustees to avoid liens.

Fighting your foreclosure in the bankruptcy court is now something you should consider.

The Duckworth case may have resurrected the “no note, no foreclosure” defense for Illinois foreclosure defense

If your lender was as sloppy as the State Bank of Toulon lender was, and if there are major terms left blank in the promissory note for your foreclosure case, taking your foreclosure to the bankruptcy court by filing bankruptcy is not so bad of an option. Federal courts will follow this law, and for once it works to the homeowner’s advantage.

Short answer: In 99% of all cases, yes, you have to keep paying your condominium association or homeowners’ association dues. Read on for an explanation of why it is a good idea to keep paying your Illinois condominium association dues even if your unit is in foreclosure.

Is your Illinois condominium in foreclosure? This blog post explains when you should continue paying your condominium assessments and fees and when you can safely stop paying.

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