There have been two Bills, of note, that have been introduced and passed both Houses of the Illinois Legislature that affect foreclosures and the subsequent REO.
The first bill, Senate Bill 2664, sponsored in the Senate by Sen. John Mulroe (D-Chicago) and Rep. Sam Yingling (D-Hainesville), is designed to prevent abuses by condominium associations by limiting the fees that can be applied to the buyer of a foreclosed property and to facilitate the sale of the property to the new buyer.
Senate Bill 2664 stops the current practice in which purchasers of distressed condominium units are stunned to discover at closing that they owe back assessments to the association—sometimes in sizable sums. These back assessments may also be loaded up with special assessments and attorney’s fees incurred and unpaid by the previous owner. Senate Bill 2664 protects innocent owners from being put in this position and eliminate the ambiguity that is causing sales of distressed units to be impeded or delayed, often resulting in litigation or a threat of litigation.
Senate Bill 2664 creates a clear and fair formula for calculating the amount to be paid by these purchasers and gives them notice of this obligation. It clarifies and caps the total amount the purchaser may be liable for—no more than an amount equal to the unit's unpaid regular monthly assessments for the nine-month period immediately preceding the judicial foreclosure. This maximum amount can include attorney's fees and costs incurred by the association prior to closing because of the nonpayment of these assessments.
The new measure limits the fees that can be applied to the sale to nine months of "regular monthly assessments." This is a known amount. The mortgagee (if the successful bidder at the sale) has the obligation to pay monthly assessments commencing after the foreclosure sale, so it will already know how much the monthly assessments are at the time it hires a broker. The broker will include this amount in the listing sheet. A prospective purchaser can easily multiply the amount of the regular monthly assessment by nine to calculate the maximum exposure under the proposed amendment.
The provisions of the bill will apply to distressed units in a purchase at a judicial foreclosure sale (other than by a mortgagee) and a purchase from a mortgagee that acquired title through a judicial foreclosure, a consent foreclosure, a common-law strict foreclosure, or the delivery of a deed in lieu of foreclosure.
Senate Bill 2664 also improves the notice provisions to prospective purchasers to be more clear and timely by requiring the board of managers to produce for the seller and the prospective purchasers within 14 days information about the condominium unit. This would include a copy of the condominium instruments, amounts due, and any rules and regulations. If the association is self-managed, it allows 21 days. Current law allows 30 days that is often too slow, and the proposal allows the Board the flexibility to do it either electronically or in writing.
This Bill easily passed the Senate but was lobbied hard by condo associations and passed the House by a narrow margin. It will be certified within the next thirty days and sent to the Governor. Once this happens the Governor will have 60 days to act on the bill. It is expected that the Condominium lobby will continue to work hard to get the Governor to veto the Bill. This Bill is a huge benefit to mortgage servicers and we encourage all of our clients to contact their governmental affairs units to press for its signing.
The second Bill is SB 2730, Strict Foreclosure.
There are times when a foreclosure has been completed only to find that there is a junior lienholder who was not named in the foreclosure action. This can happen due to a mistake by the title company when reviewing the title for the foreclosure action. It could happen due to a mistake by the law firm in failing to name the junior lienholder. In either of these situations the subsequent REO sale has a defect and it provides a windfall to the omitted junior lienholder to request that its interest be paid since its interest has not been terminated. The omitted junior lienholder understands that its lien can be terminated but only if the senior mortgagee files another foreclosure action and follows the process and time lines. The cost for this might be such that a payment will be made to the omitted junior lienholder in some amount.
This Bill seeks to level the playing field. In the event an omitted junior lienholder is discovered, this Bill creates an expedited way to terminate that interest. It sets forth that the junior lienholder, once served can either pay the senior lienholder and take title to the property, effectively exercising redemption rights, or have its lien terminated. This is a relatively quick process and as a result the advantage that the junior lienholder had in terms of time is removed.
This Bill will allow law firms, on behalf of their clients, to clear any title issues that may crop up after the foreclosure, in an expeditious manner. As of this writing, technical amendments added to the bill in the House must be approved by the Senate, but the bill is expected to be approved by both chambers and the Governor.