What Are Some Defenses To The Foreclosure Process In Illinois?

Generally, defenses to the foreclosure deal with substantive challenges to the validity of the mortgage loan or other claims of lender misconduct in making the loan and claims and defenses based on servicer misconduct in the servicing of the mortgage.

Different defenses arise at different points on the timeline of the loan. Let’s start with the origination of the loan. When a loan is originated, there are all sorts of federal rules and regulations like the Truth in Lending Act and the Real Estate Settlement Procedures Act (RESPA) that govern the disclosures that need to be made. There are defenses that can arise during the origination of the loan. For example, suppose the lender doesn’t give you the proper disclosures regarding the interest rate being charged or rescission rights that you may have. In that case, you might be able to void or rescind the loan.

Other defenses could arise during the servicing of the loan. The servicers primarily collect and process payments. They are also responsible for sending monthly statements, keeping track of account balances, handling escrow accounts, and engaging in loss mitigation. There are a whole host of federal laws that govern lender’s conduct in the servicing of the loan. The Consumer Financial Protection Bureau issues regulations, plus those laws found in RESPA, the Fair Debt Collection Practices Act, and the Fair Credit Reporting Act. If the lender misbehaves, if they violate any one of these regulations or federal statutes, then we can use those issues as defenses or claims in the foreclosure case, one being a shield in your defense and the other being a sword to go on the offense against the lender. To illustrate, let’s say you get a mortgage statement in the mail that’s incorrect because the lender has asked for more money than is owed—that could be a violation of the Fair Debt Collection Practices Act. Let’s say the lender receives a payment from you but doesn’t apply it to the loan in the way that the loan documents dictate—that could be a breach of contract by the lender. Let’s say you make your monthly mortgage payments on time to the lender, yet they report late payments to the three credit bureaus—that could be a violation of the Fair Credit Reporting Act.

After you have missed a loan payment, the lender’s conduct starting from the day you defaulted can create a defense. If the lender wants to call a default or to accelerate your loan, generally they have to give you a very specific type of notice, as required by the loan document. This is especially the case with government-backed loans like FHA loans, VA loans, or reverse mortgage loans. These required notices can take different formats. One format would be in writing, which requires the lender to send you a letter that has very precise language in it, either by First Class US Mail or by certified mail. The notice could also take the form of an actual face-to-face meeting or an attempt to conduct a face-to-face meeting. With FHA loans or VA loans for veterans, both loans that are insured by the federal government, the bank has to conduct a face-to-face meeting with the homeowner or attempt to do so in good faith, meaning they have to show what efforts were made to meet. During the meeting, the lender basically counsels the homeowner on how they can get out of their default situation. If either of those notices is not done properly, then the lender has no right to file a foreclosure lawsuit and, consequently, no right to accelerate the debt by demanding it all in one lump sum. These failures to give proper notice are, therefore, defenses to a foreclosure action.

The consequences of a lender’s noncompliance with notice requirements could be devastating to its ability to finish the case. Even when there is no dispute that a lender served a notice, courts have found the notice invalid for several reasons. For example, a notice may be ineffective because it failed to identify the breach of the mortgage. It may have inaccurately stated the amount due or was sent in violation of timing or address requirements in the mortgage.

Let’s move on to the defenses that might arise during the foreclosure case. If the default has not been cured and the bank is ready to file the foreclosure lawsuit, it may be required to give notice to local government agencies. For example, if your home is in the city of Chicago, the bank has to notify the local alderman of the fact that a foreclosure case has been filed in that ward or that region of the city. Additionally, there are requirements that notices be given to the Illinois Department of Finance and Professional Regulation, and once the foreclosure case gets filed, there are all sorts of procedural requirements that would lead to defenses if not followed. For example, if the summons and the complaint aren’t served correctly, you can raise a defense of lack of jurisdiction and file a motion to quash service of process. Sometimes, lenders use unlicensed individuals to serve process, which is illegal, so that is a defense. You have to use either a sheriff or a licensed detective from a licensed detective agency (called a special process server) to serve the summons and complaint. Those are some of the legal defenses during the post-default period.

As you can see, there are numerous legal defenses that arise at various points in the life of the loan, but there are also legal claims. In the scenario where the lender demands too much money in a mortgage statement (which, as we said, would be a violation of the Fair Debt Collection Practices Act), you would have, in addition to a defense, a legal claim, meaning you could sue the bank for their misconduct.

For more information on Legal Defenses to Foreclosure in Illinois, an initial consultation with our office is your best next step. Get the information and legal answers you need by calling (312) 600-8815 today.