SPRINGFIELD – Mortgage lenders in Illinois will have to prove to judges that they've offered underwater homeowners a variety of options – including modifications to their loans – before foreclosing, the state Supreme Court said Friday.
The court issued a new set of foreclosure rules formulated by a committee that began work nearly two years ago when lending institutions were being scrutinized for what some regulators said were questionable practices that fueled the nation's financial crisis.
The new rules will "ensure homeowners who have been thrown out of work during the years of a troubled economy are aware of their rights and where to turn for help," Chief Justice Thomas Kilbride said in a statement.
Before seeking a foreclosure judgment against a borrower, the lender will have to provide an affidavit to the judge explaining what had been done to help the property owner, such as providing information explaining foreclosure's process and consequences, loan modification, improved legal notice and mediation services in counties that offer them.
The rules apply to all lenders. They take effect March 1 in most counties. Cook County and six others with mediation procedures – Will, Peoria, Madison, Bond, McLean and Kane – will have until June 1 to adapt their local rules to those issued by the state's highest court.
Justice Mary Jane Theis recommended forming the committee nearly two years ago in response to concern about deceptive lending practices nationwide, court officials said. The group's 14 members included judges, bankers and their lawyers, and a public interest attorney.
According to real estate information company RealtyTrac, Illinois has the fifth-longest foreclosure process, averaging nearly two years from foreclosure filing to completion. The company says 139,000 Illinois homes are currently in foreclosure, compared to 179,000 in California, 325,000 in Florida, 70,000 in New York and 79,000 in Ohio.
Daniel Lindsey, the public interest attorney, said lenders often give borrowers the "runaround."
"The lender is telling them one thing on the phone – 'Don't worry, we'll work with you' – and then their lawyers are barreling ahead with the foreclosure in court," said Lindsey, a lawyer for LAF, formerly the Legal Assistance Foundation of Metropolitan Chicago.
The rules set new procedures for notifying homeowners about the foreclosure they are facing. Lenders must send a specific notice of the sale date to individual homeowners, instead of just advertising it in newspapers.
The new rules include various measures that circuit courts should consider when trying to implement a foreclosure mediation program for borrowers. A provision dictates that in foreclosure cases where a defendant is living at the property, the borrower must have access to housing counseling approved by the federal government and free legal representation.
The state's Supreme Court would have to authorize the mediation program of each circuit court. In written comments on the new rules, however, the committee recognized that not all lower courts have the money to establish a mediation program. Therefore, courts interested in such programs will have to explain to the highest court how they will pay for it.
Committee members also attempted to eliminate the "robo-signing" practice of major lending companies. The group established that lender representatives must provide a certified affidavit that at a minimum shows the amount of the loan default and the computer program the lender uses to automatically record and track mortgage payments.
This affidavit also must include the names of all lenders that have owned the mortgage in question.