Recent years have seen a significant rise in foreclosures in Chicago and across the United States. Foreclosure, also known as a repossession, occurs when a property owner does not pay the amount owed to a mortgage lender within a specified time. A lender can then accelerate the note by “calling” the note — to call a note, the lender asks for payment of the past-due amount while at the same time also requires repayment of the entire balance owed on the property.
Most mortgages include acceleration clauses. An acceleration clause may include a stipulation for the property owner to notify the lender in the event that the property is leased with an option to buy or the property is transferred to another owner. If the property owner violates any of these stipulations, the lender has the right to start the repossession process.
Types of Procedures
Repossession of property involves two types of procedures. One procedure occurs through the court system and is judicial. In a judicial process, the lender sues the property owner in the state court, and the property goes up for sale by auction. The other process is non-judicial. In a non-judicial procedure, the lender is not required to file a lawsuit and instead notifies the property owner of the lender’s intent to sell the property. Illinois state law requires a judicial procedure.
Steps that a lender takes to repossess a property in the state of Illinois include the following:
- The lender refers the file or mortgage to an attorney.
- The attorney begins the communication process with the courts.
- A lender or its attorney orders and receives the Title Report on the property. Title Reports show the line of ownership on the property, give the legal description of the property, and identify any liens on the property.
- The lender files the complaint or a Notice of Foreclosure. All parties involved with the property, including any lien holders, must receive copies of the complain or Notice of Foreclosure.
- Service on the state of Illinois occurs. In the event that a state lien exists on the property, the state must get a summons.
The court enters a judgment which clears the lender from all indebtedness on the property, with the exception of an IRS lien. IRS liens must be satisfied when the property is sold. The property owner also receives a judgment from the attorney and the lender.
- The court schedules a sale of the property.
- The parties involved clear the final title on the property to ensure that no other liens were placed on the property during the foreclosure process. This step is often necessary because the entire process may take up to 315 days.
- The sale happens and the highest bidder acquires the property.
A property owner may have several options to avoid repossession of a property. One option requires a short sale, which means selling the property below market value but ensures that the lender will receive payment for the amount owed. Another choice may be to work out a repayment plan or a modification with the lender. In some cases, refinancing is an option. Bankruptcy might be a last resort, but bankruptcy might be the only option possible when a lender has already started the process to repossess a property.