Banking Law Bulletin
New "Expedited Foreclosure Law"
How Fast, How Expensive and What Else?
On February 7, 2013, Governor Quinn signed into law Public Act 097-1164 (the "Act") touting the new law as one which would expedite mortgage foreclosures with respect to "abandoned residential property". What does this Act, effective June 1, 2013, mean for community bankers?
- Faster Resolution of Cases. The heart of the Act is an expedited foreclosure procedure for real estate found to be "abandoned residential property" as defined by the Act. Various criteria must be met or exist for property to be considered "abandoned residential property" (like utilities being shut off, the house boarded up, property vacant). If the real estate is so found, then a process and procedure for obtaining an expedited judgment of foreclosure, a shortened redemption period (thirty (30) days) and early sale and confirmation of sale can be pursued at the mortgagee's request. Most significantly, a sale can be confirmed immediately following the foreclosure sale, as opposed to having to wait thirty (30) days, as is now the case, with possession of the property also being given thereupon. Further, the mortgagee, after requesting the expedited process, may enter the property to secure and maintain the same. Overall, the expedited process should shorten the timeline by thirty (30) to sixty (60) days allowing a foreclosure of "abandoned residential property" to be concluded in four (4) to five (5) months as opposed to six (6) months or more as is now the case. Provision is also made for disposing of personal property left on the real estate. In short, quicker benefits banks by facilitating the property's ultimate disposition sooner rather than later.
- Increased Court Costs. The benefit of a faster process is offset, to some extent, by increased court filing costs under the Act. In order to raise money for borrower credit counseling and to reimburse municipalities and counties for costs incurred in maintaining, cleaning up and protecting abandoned residential properties, new filing fees for residential foreclosures are imposed. The exact amount of the additional fees (effective until January 1, 2018) will range from $50 per case to up to $500 per case depending upon the number of foreclosures the mortgagee has filed in the preceding calendar year. If a mortgagee has filed more than 174 foreclosures on residential real estate located in Illinois during the preceding calendar year, the additional court costs are $500 per case. Increased court costs will make residential foreclosures more expensive. A negative for banks.
- More Notices. The Act also requires additional notices be given, including posting at the property a form set out in the Act indicating the property is abandoned residential property. The Act further requires that the order of confirmation be sent to the last known insurer of the property. Specific direction as to where notices should be sent to municipalities or counties upon commencement of the case and confirmation of sale are set out as well in the Act. Increased notice requirements are a burden to banks and their counsel, but must be diligently given.
- Form of Mortgage - Clarification. Finally, an important feature of the Act is to clarify what detail regarding a promissory note must be set out in the mortgage it secures. The Conveyance Act has long stated that a mortgage should include the amount of indebtedness secured thereby, the maturity date thereof and the rate of interest thereon. Many, many mortgages do not provide all this detail. More troubling, a recent bankruptcy case in Central Illinois held that a recorded mortgage was voidable, i.e. could be set aside by a bankruptcy trustee, where the mortgage failed to include the maturity date and interest rate of the note. The Act overrules that decision by stating that the mortgage provisions set out in the Conveyance Act are permissive and not mandatory and that the failure to include either the interest rate and/or the maturity date of the note does not affect its validity or priority of the mortgage. This part of the Act should calm some nerves and is a positive for banks.
SUMMARY: The preamble to the Act states that it is designed to speed up foreclosures of "abandoned residential property" that now take up to two (2) years to conclude in some parts of Illinois. Foreclosures in counties throughout Central Illinois move along to conclusion in far less time than that and in some instances as quickly as six (6) months. Under the expedited process set out in the Act, a case involving "abandoned residential property" might now be concluded in as little as four (4) to five (5) months. However, court costs are increased and more notices will need to be sent out in such cases. At the front end, when the residential loan is made, the details as to the promissory note secured by the Mortgage need not include the stated interest rate or the maturity date in order to be valid. Those terms are permissive not mandatory. Overall, the Act is a positive for community banks: A FASTER FORECLOSURE PROCESS FOR ABANDONED RESIDENTIAL PROPERTY, WITH MORE COSTS AND NOTICES AND SOME PEACE OF MIND AS TO THE FORM AND CONTENTS OF A MORTGAGE.
The foregoing is not intended to be legal advice, but rather, to provide accurate information regarding banking law and regulatory matters. For more information regarding any of the foregoing items, please contact any member of our banking practice group: Dennis W. Gorman (firstname.lastname@example.org), William G. Keller, Jr. (email@example.com), James A. Rapp (firstname.lastname@example.org), William M. McCleery, Jr. (email@example.com), Ted M. Niemann (firstname.lastname@example.org), Michael A. Bickhaus (email@example.com) or Andrew K. Cashman (firstname.lastname@example.org), at (217) 223-3030 or visit us on the web at www.srnm.com. We invite and welcome all questions and comments.