There are several types of deficiency judgments Illinois allows lenders to pursue when a homeowner defaults on their mortgage loan. Each occurs after the debtor defaults on their mortgage and either the lender forecloses on the property, or the debtor seeks another type of solution. These laws allow the lender to recoup the difference between the mortgage loan amount and the value of the property that secured it. For a homeowner, this can be an expensive claim, often worth tens of thousands of dollars. It would be to their benefit to find alternatives to foreclosure so they can avoid this expensive result.
Foreclosing on a Home in Illinois
Mortgage documents generally contain agreements whereby the lender can reclaim, or foreclose, on a home in order to recoup the amount of the mortgage loan. In Illinois, as a lien theory state, the property is security for the mortgage loan. If the homeowner defaults, the lender has the right to take them to court to obtain a judicial foreclosure, at which time the lender generally sells the home at auction to recoup their mortgage loan amount.
In addition, a homeowner may request a consent foreclosure in Illinois. This shortens and simplifies the mortgage process. The homeowner loses their home, but Illinois prohibits deficiency judgments in consent foreclosures.
Homeowner’s may also offer the deed to their home to their lender in lieu of foreclosure. This generally does not represent the same amount that remains on the mortgage loan, but Illinois law prohibits deficiency judgments on deed in lieu of foreclosure actions as well.
Finally, the homeowner may attempt to sell their home, but only receive an offer that is less than the mortgage amount, called a short sale. If they can negotiate an agreement with the lender to accept that offer as full payment for their remaining mortgage, and obtain that agreement in writing, they will not face a deficiency judgment. However, if they do not obtain that agreement in writing, the lender may, at any point in the future, decide to sue them for the difference in the sale price and the mortgage price.
Other Alternatives
Some homeowners may be able to avoid deficiency judgments entirely if they qualify for bankruptcy and their attorney advises them that this is a good choice. The two types include
- Chapter 7, which is generally liquidation of some property and a discharge of most unsecured debt, including mortgages and deficiency judgments. However, if the mortgage is not paid on a regular basis after filing, the lender may still be able to repossess.
- Chapter 13, which helps the debtor reorganize their finances and bills and work out a repayment plan for those bills that are in arrears. At the end of a three- to five-year period, they may have any remaining consumer debt discharged, as well.
Getting Legal Help with Illinois Deficiency Judgments
Illinois allows deficiency judgments against defaulted homeowners in several situations. Deficiency judgments, or even the threat of them, can haunt a former homeowner for decades. However, with the help of an experienced foreclosure attorney, they may find alternatives to foreclosure, or the best way to negotiate with lenders to avoid deficiency payments entirely and move on into their financial future debt-free.
