The Illinois Supreme Court on Friday announced new rules governing mortgage foreclosures that will require lenders to prove to judges that they have exhausted all efforts to help a borrower before seeking a foreclosure judgment against the homeowner.

The rules, first reported by the Chicago Tribune, are designed to better inform and protect the tens of thousands of Illinois homeowners still at risk of losing their homes to lenders six years after the local housing market’s bubble burst.

Efforts have picked up in the past year to better protect homeowners already in foreclosure and reach out to those headed toward it. The $25 billion national mortgage foreclosure settlement, announced a year ago with the five largest mortgage servicers, sought to curb such wrongs as improperly affixing lender’s signatures to foreclosure documents without reviewing them and dual-tracking, the practice of simultaneously working with homeowners while also trying to repossess their properties. The Consumer Financial Protection Bureau last month released mortgage servicing rules that will take effect in January 2014.

The state Supreme Court rules, almost two years in the making, include some overlap with those initiatives but will take effect in all counties by June 1 at the latest and will apply to all mortgage servicers.

“People still get the runaround, people are still getting confused, people are still subject to dual-tracking,” said Daniel Lindsey, an attorney at LAF, formerly the Legal Assistance Foundation of Metropolitan Chicago. “The servicers have gotten somewhat better, and particularly the big five, but there is still a long way to go.”

Before seeking a foreclosure judgment against a borrower who has appeared in court or filed documents in the case, a lender will have to file an affidavit with the court showing the type of loan modification or alternative programs that were available for that particular borrower, what steps were taken to offer that help, and the status of those efforts.

“Many times, people stand in front of a judge and you’ll tell them that the lender is seeking a foreclosure on their home and they’ll say, ‘I’m working with someone at the bank who’s asking for all these documents to see if I qualify for a modification,'” said Lewis Nixon, supervising judge of the Cook County Circuit Court’s mortgage foreclosure section. “The unfortunate thing is the people (at the bank) they’re working with are not the people (at the bank) in the foreclosure process. This stops right now.”

The new rules are not expected to dramatically shorten the time it takes to foreclose on a property in Illinois — already one of the longest processes in the nation. Certain time requirements are built into Illinois mortgage foreclosure laws, so any change in those would require legislative action.

Also delaying the process here is the long period between when a foreclosed property is ordered to auction and when that sale actually takes place. The new rules reiterate that private companies “may” conduct foreclosure auctions, but in several counties those sales are handled by the sheriff’s department and generate revenue for the county.

The court’s commentary on the rules included its concern that judges who routinely appoint county sheriffs, rather than private companies, to conduct sales are hurting neighborhoods because the backlog of foreclosure cases means it takes almost a year for some sheriffs to bring properties to auction.

Concerns about the state’s foreclosure process by Chief Justice Thomas Kilbride and Justice Mary Jane Theis prompted the formation of a 14-member committee in April 2011 to come up with ways to improve the process and submit recommendations to the court for review.

At the time of the committee’s formation, the court noted that at the end of 2010 there were 70,000 pending foreclosure cases in Cook County. Since then, foreclosures in the Chicago area have bogged down courts even more. At the end of January, there were 77,000 cases pending in Cook County Circuit Court.

It takes an average of 697 days to complete a foreclosure action in Illinois, according to RealtyTrac.

In September, the Federal Housing Finance Agency proposed increasing the guarantee fees that Fannie Mae and Freddie Mac charge for mortgages they acquire in Illinois and four other states because of the extra-long foreclosure processing times in those states and the extra administrative costs borne by the agency. Illinois Attorney General Lisa Madigan opposes the proposal because it could mean higher fees for homebuyers here.

Under the new Illinois Supreme Court rules, lenders also must submit detailed documents at the start of the foreclosure process. Lenders also will be required to follow certain procedures to notify borrowers who have been found in default on their mortgage and to notify them again that the property is headed for sale.

The rules list several things that a circuit court should look at if it plans to seek permission from the state Supreme Court to establish a foreclosure mediation program for borrowers. The court did not mandate the creation of a mediation program in every venue because of budget constraints. “Nobody wanted an unfunded mandate,” said Lindsey, a member of the committee.

Sources:
Chicago Tribune
Illinois Court
Consumer Finance
FHFA
Fannie Mae
Freddie Mac