Monitoring strategic default cases in Illinois

Last year, I did a lot of phone consultations with clients about their underwater homes and condos.  About 80% of those I talk with have already decided to strategically default. They could continue to pay the mortgage, but choose not to,  because the property is $80k to $100k underwater.  Usually, they are   completely  freaked out that the lender will immediately seize their assets or garnish their wages.  Fear of the mythic deficiency judgment is deep and wide.

The reality of it is that deficiency judgments in Illinois are almost nonexistent, the lender will not take any of your assets ( unless you have a second mortgage), and frequently you will be paid the leave the property in a cash for keys arrangement at the end of the foreclosure.

Foreclosure is terribly confusing  and clients have a lot of questions through the process,  so I began offering to monitor the foreclosures of clients who wanted explanation and guidance through the case. I charge a fee of $50 per month billed to the client’s credit card. At the start of every month, I check the case status and email the client. If the client wants me to review court documents, I do that too. The client can cancel at any time.  This has worked out pretty well and it seems to ease the anxiety of those going through foreclosure.

Monitoring is most popular with clients who are trying to stay in the property until the end of the case. In Cook County, most lenders are waiting about 6 months from the first missed mortgage payment to file a foreclosure. After the case if filed,  the actual foreclosure case takes about  12 to 14 months, so it’s a long process.   Those that move out of the property early in the foreclosure process usually are not interested in having the case monitored.

In Cook County, the  status of court cases is listed on the clerk’s website under “Chancery.” You just type in your name and the case status pops up. But it’s hard to interpret what’s going on in the case, so the raw data is of little use to most people. Lake County has no usable website and the other collar counties have sketchy websites  at best.

When the foreclosure is close to the end, the sheriff’s sale is scheduled. The problem is that the court websites don’t give any information on the sheriff’s sale. There are two mega-foreclosure law firms in Illinois that handle most of the foreclosures. Both of them are pretty responsive and will answer questions and will respond to calls or emails. One has a site that gives great, up- to-date information on the sheriff’s sale, but the other large firm has no website with sheriff’s sale information. Copies of motions and other court documents are always mailed to the homeowner in all foreclosures cases, so there is no lack of communication.  It’s figuring out what the motion or hearing means that’s important.

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20 thoughts on “Monitoring strategic default cases in Illinois

  1. Hello,
    I am so confused as to what to do. I purchased a home in Illinois in 2003. I took out an 80/20 loan, both through Wells Fargo. I lived in the home until 2009 when I had to relocate to Florida. I was unable to sell the home due to the market and ended up renting it. I am still renting now almost 3 years later. The rent does not completely cover the expenses of keeping the home, so I do pay about $100 a month just to stay current on everything. I have never missed a payment. I am now pregnant and due 3 months after my renter’s lease is up. Obviously after having the baby I will not be able to work, and I don’t see how I can continue to pay the extra $100 a month in addition to my other bills. So do I try for a deed in lieu of foreclosure? Do I just let it go to foreclosure? Try a short sale? I live in Florida and the property is in Illinois and I can’t afford to fly up there to arrange things with a realtor. I’m so stressed about a deficiency judgement. Any advice would be appreciated. Thanks!

  2. Angie, A deed in lieu of foreclosure is still very rare. I don’t really consider in an option because the lenders rarely approve them. I generally suggest trying a short sale once the tenant leaves the property. We are still seeing no deficiency judgments in Illinois, so that is unlikely. The second mortgage does present a problem, since Wells is an active collector of second mortgages. I would be happy to talk over your situation and see if we can come up with a solution. Thanks. Tom

  3. Hi Tom-

    I see that you mention that rarely in Illinois are deficiency judgements being entered. Do you mean that they are not being recorded at all and that means the bank can NEVER come after us for a deficiency? Or do you just mean they are being entered but not pursued? We are wondering if we’ll have to file chapter 7, and we would prefer not to. It’s my husband’s property (in his name only) we are defaulting on and we currently live in mine, which is also underwater but we can stick it out for longer. We are hoping not to be served in person with papers because then they can’t file a deficiency against him, but I don’t know how likely that will be. The sheriff made their first attempt this past weekend to serve papers to my cousin we have living in the property for the moment (without a lease etc), but he told them he just didn’t know my husband personally. Thanks!

    Steph

  4. Stephanie,

    Deficiency judgments are allowed in Illinois, but are rarely entered.

    Generally, you only need a chapter 7 if you have high credit card debt ($7k or more) AND a second mortgage.

    I can’t make an exact recommendation without knowing more about your case. Please call if you want to discuss further. Thanks.

    Tom

  5. Hi Tom,
    We have a first mortgage with Wells Fargo for about 237k and a second with GMAC for about 28k, our house is worth around 175k. Both mortgages are current and this is our primary residence. We are thinking of moving to Florida and buying a home there, while staying current with our payments here. Once we close on the Florida house, we would stop making payments here. My question is, once we buy a new house in Florida, should we file for chapter 7 immediately or wait for the official judgment from the 2nd mortgage? From what I have read, it’s pretty likely that GMAC will come after us for the 28k.

    Thanks!

  6. Shannon,

    Some clients choose to do what I call a “preemptive” chapter 7 to knock out the second mortgage. You have to meet the means test (income restriction) to do that. In your case, since it sounds like you qualify for two mortgages at once, your income may be too high to qualify for the means test, which means you could not file a chapter 7. I would need more details to let you know for sure.

    Many lenders offer to settle on second mortgages, sometimes as low as 10%-30% of the mortgage balance.

    I would have to know more about your finances to recommend whether it’s better to file a chapter 7 now or later. Sorry to be so vague, but if you want to call I can discuss it with you further.

    Best of luck.

    Tom

  7. My situation is similar to Angie’s. I bought a two-flat as a primary residence, but then had to move after a change in work – My tenants have not been paying their rent for more than 4 months, I called BOA and let them know the situation. My property is now more than 100K underwater, and I am behind on my mortgage. I originally offered BoA that I wanted a DIL but they want all types of financial records – Why? We know that foreclosure/eviction takes more 1.5 years in Cook County- My credit score is getting killed and I want to get out of whole mess ASAP to take advantage of the write down tax law that will expire at the end of 2012. Should I send them my tax returns, 4560, and 6 months of bank records- What possible benefit is that to me? Aren’t I just exposing myself to a future judgment,since this is not my only property? Btw, the mortgage on this property is only in my name and not in my wife’s; can they come after her for any deficiency judgment?

  8. Hi,

    I have had no luck with deeds in lieu of foreclosure. You do have to furnish income data and tax returns. The lenders always seem to reject the request. I am not a fan of even trying a deed in lieu. Furnishing financial info is just part of a deed in lieu (just like a short sale). The lender does not use this info to “come after” you. If there is only a first mortgage the lender is going to pursue you and certainly can’t pursue your wife since she is not on title. I would need more details to make exact suggestions for you.

    Sorry to report that you can’t really speed up a foreclosure. They are really slow, but that’s just the way it is.

    It looks like the Mortgage Debt Forgiveness will be extended to the end of 2014, but that’s not passed yet.. I just put up a post on that.

    Best of luck. Please call or email if you would like to set up a phone meeting.

    Tom

  9. Laura, Yes, I monitor Kane cases. Kane has a good website for court cases, but it’s hard to interpret the legalese. Thanks. Tom

  10. Hey Tom,
    In your response to Stephanie in February, you mentioned that “Deficiency judgments are allowed in Illinois, but are rarely entered.” Is this because lenders don’t want to deal with the hassle of collecting or are there statutory restrictions that make deficiencies not worth going after? Hoping you could shed some light on this issue. Thank you for your help. Great website!

  11. David, Illinois is a recourse state, but foreclosing lenders don’t want to deal with the difficult process of obtaining and collecting deficiency judgments. There are no statutory restrictions on them. Thanks. Tom

  12. Hello Tom,

    I am trying to figure out what to do with my current situation. I was just laid off from my job yesterday. My first mortgage is at 300k with a smaller bank and I have a second with Harris at 50k. I am in cook and last appraisal came back at 230k so I am upside down a good deal. I have maybe 15k in revolving debt an great credit at the moment.

    I received about 6 months severance but not sure how long it will take me to find work. Rather then use all my savings to keep me in a house that isn’t worth anything I am considering foreclosure. Do you think I should be talking to a bankruptcy attorney because of the second? I am thinking it may be better to try and file chapter 7 while I am unemployed rather then waiting to do a 13 if they come after me later. Thanks for any advice in advance.

  13. Greg, You might consider filing a chapter 7, which would eliminate credit card debt and your liability on the second mortgage. You would surrender the house, which means you could live there about 20 months until the foreclosure was done. I would have to know more about your overall circumstances before recommending this. I’ll be happy to discuss it with you by phone. Thanks. Tom

  14. Hi Tom, Thanks for all the great info on your web site. I have a question regarding what is considered a “second” mortgage. I currently an considering walking from my current property which I purchased on an 80/20 3 year arm with %5 down. Is that considered a “second” mortgage? will the bank that rhymes with “race” come after me for the deficiency on the loan(s)? Also if it matters, the bank never sold my loan to fannie or freddie, and supposedly they still hold it. Thanks again for all the great information.

  15. Hi,

    It does sound like you have a second mortgage, otherwise known as a home equity line of credit. Second mortgages were common sidecars from 2003-2006. You porbably got on for 15% of the sales price. Chase is an active collector (i.e. has been known to file lawsuits) of second mortgages. You might try a short sale in order to get a release of the first and second mortgage so you can move on. I’ll be happy to discuss it further with you. Thanks.

    Tom

  16. I have wells fargo and went trough forecloser for the 2nd time.When the house didnt sell in short sale they went right for forecloser.I ended up paying almost 20,000(which I borrowed) to get it out and clear went 4 months through the modification process only for them to denie me and raise my payment.I’m in forecloser and got a letter from daily center with court date and threat of judgement but have not been served personally.What are the chances thier going to seek one against me? I’ve been disabled and unemployed for 2 years

  17. Hi, Sorry to hear about the hard time you have had with the property. There will not be any deficiency judgment in your case since you were not personally served. Best of luck. Tom

  18. My 1st mtg (Lake County) is w/ Chase (foreclosure sale date end of Jan 2013), 2nd w/ Springfield Financial (which we are currently doing a consent judgement with). I read IL usually doesn’t come after you for the deficiency judgement unless you have a 2nd mortgage. If we’ve already made arrangements for the 2nd mortgage will that hopefully prevent them for coming after us for the deficiency? Thanks for your help!

  19. Hi,

    It sounds like you already agreed to the entry of a judgment on the second mortgage because you mention a “consent judgment.” Second mortgages don’t get deficiency judgments, they file separate collection cases sometimes. It sounds like you already resolved the second mortgage, so there would be no further collection efforts as long as you pay as agreed. Thanks.

    Tom

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