How Home Foreclosure Works in Illinois

Today, foreclosure is very much in the news. I get a lot of calls about how foreclosure works. To people confronted with foreclosure, the future looks bleak and hopeless. Therefore, I would like to briefly describe the foreclosure process so that the reader might better understand what the monster really looks like. This is not a detailed legal treaties but a broad overview. People looking for specific answers to specific questions should consult a lawyer.

Plan “A” is to always pay your mortgage on time. For some very good reasons, many people fall behind on the mortgage payments. But, remember this, nobody cares what the reason is. The banks want and are entitled to the payment. The Judges, no matter how sympathetic they might be, must enforce the law and the contract. That’s their job. Therefore, if you start to fall behind on the house payments, Plan “A” is to catch up any way you can. Borrow the money from a relative, sell the motorcycle, take a part time job and put every other able bodied human being in the house to work. If there is anyone in the house over 18 who is not either working or going to school, kick them out. It’s time to get rid of the dead weight.

Generally speaking, a mortgage company will begin the foreclosure lawsuit when you are three months late. When the case is filed, two important things will happen. First, the earliest the mortgage company can take title to the home (and kick you out) is seven months from the date the case is filed. Second, to catch up on the payments, you must pay not only the overdue payments but also the mortgage company’s attorney’s fees and costs – usually about $3,500. (Not fair? Remember, nobody cares.)

When you get the foreclosure papers, don’t just move out. Remember, you still have seven months. That’s time to plot, plan, strategize, catch up on the payments or whatever. Also, don’t sell your house to someone for $100. Remember, you still have seven months. What is seven month’s rent worth? Do the math.

You still have several options which include catching up on the payments, refinancing the house, selling the house, Chapter 13 Bankruptcy and, of course, Plan C. Let’s take the options one by one.

At any time within those seven months you can reinstate the loan by paying the mortgage company all of the back payments, late fees and their attorney’s fees and costs. Maybe it’s time to swallow your pride and call grandma. Maybe it’s time to actually sell the motorcycle. (It’s OK to buy a few lottery tickets. However, stay away from the casinos. You have enough problems.)

If making the mortgage payment on time was hard, catching up three of them and the extra $3,500 may be impossible. Therefore, you might have to go to the other options.

Perhaps refinancing is possible. However, with housing prices falling and most people having their home mortgaged to the rafters already, refinancing may be impossible. Even if you can refinance the property, you will be paying an even higher interest rate and an even higher loan to catch up those back payments.

If refinancing won’t work, consider selling the house. If you have enough equity, selling the house could keep you away from a Bankruptcy and foreclosure. However, remember those seven months. If you are going to net $500 out of the sale and you still have six months to stay there, do the math.

If you just need more time to catch up, Chapter 13 may be the answer. Chapter 13 is a form of Bankruptcy that many people use to save their houses. Basically, this type of Chapter 13 creates a Plan where you make the regular house payment plus enough to catch up the past due payments. Other debts can be included also. There are numerous intricacies and catches to Chapter 13’s but the general idea in a “house saving” Chapter 13 is simply that - just to make the house payment each month plus enough to catch up on the overdue payments. Chapter 13 Plans can last as long as five years. Sometimes a Chapter 13 works well. Sometimes it gives people a breather until they can make a better plan. Sometimes it fails. People in this situation should carefully review this option as soon as they see the problem coming.

Finally Plan C. Doing nothing is always an option. Remember those seven months? Those months can be an extremely productive time in your life. And I don’t mean just a time to discuss with your spouse which of you is more at fault for the mess. Remember, we can’t change the past but we can do a lot to alter the future.

If the house is lost, there’s no equity to sell or borrow against and a Chapter 13 would be futile, stay in the house for those seven months and save your money. If you move you will just have to pay rent somewhere else. For various reasons first mortgage companies rarely come after people for a deficiency after a foreclosure sale. In other words, you won’t owe the bank any money when the foreclosure is over. (That’s not true for second mortgage companies, however.) Also remember, real estate taxes are just a lien on the house. They are not like income taxes which you personally owe. They are more like taxes the house owes. In Plan C, don’t pay them.

For Plan C to work, you must actually save your money. Figure out what rent is going to be when you do move out. Put at least that much away each month. Worried about your credit rating when you go look for an apartment? With $7,000 in your pocket, you’ll find an apartment, trust me. Money always talks.

Plan C allows you to live to fight another day. It allows you to regroup and think about the lessons you’ve learned. It’s not a failure as much as it is experience and education. We all pay dearly for our education, don’t we?

Again I must say that this was not intended as a detailed legal treaties on this area of the law. I only wanted to describe the foreclosure process in a way that most people could understand. Certainly, anyone confronted by the specter of foreclosure should seek legal counsel.

Gary L. Shilts
Attorney at Law
23 Boulder Hill Pass
Montgomery, IL 60538
630-859-8522
630-859-8523
gshilts@earthlink.net