HB3806eng 96TH GENERAL ASSEMBLY

HB3806 Engrossed LRB096 09579 AJO 19740 b

AN ACT concerning civil law.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 5. The Code of Civil Procedure is amended by adding Part 18 to Article XV as follows:

(735 ILCS 5/Art. XV Pt. 18 heading new)

ARTICLE XV Pt. 18. Foreclosure Prevention

(735 ILCS 5/15-1801 new)

Sec. 15-1801. Part title. This Part may be cited as the Mortgage Foreclosure Prevention Law of 2009.

(735 ILCS 5/15-1805 new)

Sec. 15-1805. Definitions. In this Part:

"Part" means the Mortgage Foreclosure Prevention Law of 2009.

"Deferment payment" means the monthly amount that is due to the foreclosing lender by an eligible foreclosed borrower under Section 15-1820 to maintain the right to deferment.

"Deferment period" means the period that begins on the effective date of this amendatory Act of the 96th General Assembly and expires one year following the effective date of this amendatory Act of the 96th General Assembly.

"Deferment right" means the relief provided to an eligible foreclosed borrower in Section 15-1810.

"Eligible foreclosed loan" means a residential mortgage loan for which a foreclosing lender has scheduled a judicial sale under this Article or schedules a judicial sale during the deferment period if it is a subprime loan or a loan with negative amortization for which the required minimum payment of principal and interest increased after the date the loan was originated. An eligible foreclosed loan does not include a loan originated by a State or federally chartered bank, savings bank, or credit union, or an organization majority owned by one or more credit unions.

"Eligible foreclosed borrower" means a borrower who:

(1) is a mortgagor under an eligible foreclosed loan;

(2) resides at the mortgaged property and intends to reside at the mortgaged property at least until the end of the deferment period;

(3) has a household adjusted gross income of less than $250,000 per year according to the borrower's most recent federal income tax return, provided that if the borrower was not required to file a federal income tax return, the borrower must qualify by providing the return that the borrower would have filed if required; and

(4) is a legal United States resident. A borrower does not reside at the property unless the property has been the borrower's primary residence for 6 months prior to the date of the affidavit of deferment.

"Foreclosing lender" means the mortgagee who is foreclosing the mortgage of an eligible foreclosed borrower.

"Fully indexed rate" equals the index rate prevailing at the time a residential mortgage loan is originated, plus the margin that will apply after the expiration of an introductory interest rate.

"Mortgage foreclosure counselor" means an individual who provides mortgage foreclosure counseling on behalf of a nonprofit or government agency.

"Negative amortization" occurs when the borrower's compliance with any repayment option offered pursuant to the terms of the residential mortgage loan is insufficient to satisfy the interest accruing on the loan, resulting in an increase in the loan balance. Negative amortization does not occur when a residential mortgage loan is originated, subsidized, or guaranteed by or through a State, local government, or nonprofit organization, and bears one or more of the following nonstandard payment terms that substantially benefit the borrower: payments vary with income; payments of principal and interest are deferred until the maturity date of the loan or the sale of the residence; principal or interest is forgivable under specified conditions; or where no interest or an annual interest rate of 2% or less is charged in connection with the loan.

"Residential mortgage loan" means a loan secured primarily by either: (1) a mortgage on residential real property; or (2) certificates of stock or other evidence of ownership interest in and proprietary lease from corporations, partnerships, or other forms of business organizations formed for the purpose of cooperative ownership of residential real property.

"Residential mortgage servicer" or "servicer" means a person who engages in the activity of servicing a residential mortgage.

"Residential real property" or "residential real estate" means real property improved or intended to be improved by a structure designed principally for the occupancy of from one to 4 families, whether or not the owner occupies the real property.

"Secretary" means the Secretary of the Department of Financial and Professional Regulation.

"Subprime loan" means, in the case of an adjustable rate loan secured by a first lien on a dwelling that can increase in interest rate but not decrease in interest rate below the fully indexed rate at the time of origination, a loan for which the annual percentage rate (APR) is greater than 2 percentage points above the yield on United States Treasury securities having comparable periods of maturity, as of the 15th day of the preceding month if the rate is set between the first and the 14th day of the month and as of the 15th day of the current month if the rate is set on or after the 15th day.

For all other loans secured by a first lien on a dwelling, the term means a loan for which the APR is greater than 3 percentage points above the yield on United States Treasury securities having comparable periods of maturity, as of the 15th day of the preceding month if the rate is set between the first and the 14th day of the month and as of the 15th day of the current month if the rate is set on or after the 15th day.

For loans secured by a subordinate lien on a dwelling, the term means a loan for which the APR is greater than 5 percentage points above the yield on United States Treasury securities having comparable periods of maturity, as of the 15th day of the preceding month if the rate is set between the first and the 14th day of the month and as of the 15th day of the current month if the rate is set on or after the 15th day.

For purposes of this Section, the annual percentage rate has the meaning given in title 12, Code of Federal Regulations, part 226.

(735 ILCS 5/15-1810 new)

Sec. 15-1810. Right to foreclosure deferment. An eligible foreclosed borrower has the right to defer a judicial sale under this Article until the expiration of the deferment period by providing an affidavit of deferment to the foreclosing lender in accordance with Section 15-1815. A foreclosing lender shall cancel a judicial sale if the eligible foreclosed borrower has submitted to the foreclosing lender an affidavit of deferment prior to or at the time of the judicial sale, unless the lender has served a notice of denial in accordance with Section 15-1825. A foreclosing lender shall also provide written notice of receipt of an affidavit of deferment to all parties with a recorded request for notice of mortgage foreclosure under this Article or who are listed as a holder of a security interest in the subject property in the affidavit of deferment. A lender is not required to cancel a judicial sale if a borrower has previously obtained a deferment under this Part. Upon expiration of the deferment period or the loss of the deferment, a foreclosing lender may schedule a deferred judicial sale by publishing the notice of judicial sale once in the newspaper in which the original advertisement was published and by serving a copy of the notice of judicial sale in a like manner as a summons in a civil action in the circuit court upon the person in possession of the mortgaged premises, if the same are actually occupied, at least 4 weeks prior to the sale.

(735 ILCS 5/15-1815 new)

Sec. 15-1815. Affidavit of deferment.

(a) Affidavit of deferment. The affidavit of deferment shall state the name of the eligible foreclosed borrower, the address of the property in foreclosure, and contain the following statements:

"(1) I am the borrower on a mortgage loan on residential property located at [address of property] (hereinafter "subject property").

(2) A judicial sale has been scheduled on the subject property.

(3) I currently reside at the subject property.

(4) I have resided at the subject property as my primary residence for 6 months prior to the date of this affidavit.

(5) If permitted to reside at the subject property, I intend to reside at the subject property until at least [end of deferment period].

(6) I have sought the assistance of a mortgage foreclosure counselor and during the deferment I agree to continue to use the assistance of a mortgage foreclosure counselor to negotiate in good faith with the foreclosing lender to modify the terms of the mortgage on the subject property.

(7) I believe that the mortgage loan on the subject property is either:

(i) a subprime loan; or

(ii) a loan with negative amortization for which the required minimum payment has increased."

The affidavit shall be signed by at least one eligible foreclosed borrower who is the mortgagor of the residential real property being foreclosed. The affidavit also shall be signed by a mortgage foreclosure counselor solely to certify that the borrower has sought the assistance of the mortgage foreclosure counselor.

(b) Service on foreclosing lender. An affidavit of deferment shall be served by personal service, United States mail, or other reliable delivery service to the address provided in the notice of right to deferment or to the address of the counsel for the mortgagee in the notice of foreclosure.

(c) Acknowledgment by foreclosing lender. Unless the foreclosing lender has served a notice of denial under Section 15-1825, the foreclosing lender shall, within 10 days after receiving the affidavit of deferment, provide to the eligible foreclosed borrower a written acknowledgment that it has received the affidavit of deferment. The acknowledgment shall state the following:

(1) that the judicial sale has been canceled;

(2) the deferment payment amount that is due by the eligible foreclosed borrower;

(3) the date that the first deferment payment is due;

(4) the date that each subsequent deferment payment is due; and

(5) the address to which the borrower should send the deferment payment or the payment delivery methods that are acceptable to the foreclosing lender.

The acknowledgment shall be on a single sheet of paper, shall use plain language, and no other documents shall be included with the acknowledgment. The bottom of the acknowledgment shall include the following disclosure in bold, 14-point type:

"The cancellation of the judicial sale on your property is the result of a law passed by the Illinois General Assembly in 2009. You must make the monthly payment in full by the due dates listed in this letter. If you do not make the payments on time, we will have the right to schedule a judicial sale on your property."

(d) Charges prohibited. A foreclosing lender shall not charge an eligible foreclosed borrower any amount other than the deferment payment for exercising the deferment right.

(735 ILCS 5/15-1820 new)

Sec. 15-1820. Borrower payment and residency requirements.

(a) Borrower payment required. An eligible foreclosed borrower who has a deferment right shall make monthly payments to the foreclosing lender. The payment shall be made no later than the 15th day of each month. The first payment is not due until the 15th day of the month that is a minimum of 30 days after the date that the foreclosing lender sends the acknowledgment required by paragraph (c) of Section 15-1815.

(b) Amount of payment. For an eligible foreclosed borrower with a subprime loan, the amount of payment shall be the lesser of: (1) the monthly payment of principal and interest on the date the loan was originated; or (2) 65% of the monthly payment of principal and interest at the time the borrower defaulted prior to foreclosure. For an eligible foreclosed borrower with a negative amortization loan that is not also a subprime loan, the amount of payment would be the minimum monthly payment on the date the loan was originated.

(c) Payment advice notice. The foreclosing lender shall provide to the eligible foreclosed borrower monthly written payment advice notices. The notice shall be sent by the first day of each month until the expiration of the deferment period or the loss of the deferment under paragraph (d). Each notice shall state (1) the amount of payment owed from the eligible foreclosed borrower; (2) the address to which the borrower should send the deferment payment; and (3) the date that the payment must be received to avoid loss of the deferment right under paragraph (d). The payment advice notice shall be on a single sheet of paper, shall use plain language, and no other documents shall be included with the notice. The bottom of the notice shall include the following disclosure in bold, 14-point type:

"The deferment of the judicial sale on your property is the result of a law passed by the Illinois General Assembly in 2009. You must continue to make the monthly payment in full by the 15th day of each month. If you do not make the payments on time, we will have the right to schedule a judicial sale on your property. The deferment period will end on (last day of deferment period). By the end of the deferment period, you will need to pay the entire amount that has been deferred plus other costs allowed by law in order to avoid a judicial sale."

(d) Borrower failure to pay. An eligible foreclosed borrower who fails to make payments in the amount required and by the date required under this Section shall lose the deferment right.

(e) Borrower residency requirement. An eligible foreclosed borrower loses the right to deferment if the borrower ceases to reside at the mortgaged property during the deferment period.

(735 ILCS 5/15-1825 new)

Sec. 15-1825. Resolution of disputes; effect of deferral.

(a) Dispute as to eligible foreclosed loan status. If the foreclosing lender determines after a reasonable investigation and in good faith that the person submitting an affidavit of deferment is not the mortgagor under an eligible foreclosed loan, the foreclosing lender shall provide a notice of denial of deferment to the person submitting the affidavit of deferment and to all parties with a recorded request for notice of mortgage foreclosure under this Article or who are listed as a holder of a security interest in the subject property in the affidavit of deferment. The foreclosing lender must send a notice of denial by certified mail through the United States mail within 10 business days after receiving the affidavit of deferment. The notice is effective on mailing. The notice of denial shall be on a single sheet of paper and no other documents shall be included with the notice. The notice must include an explanation, in plain language, of the reasons that the loan is not an eligible foreclosed loan. The notice must also inform the person who executed the affidavit of deferment that the person has the right to apply to the court for an order deferring the judicial sale. A copy of the notice also must be sent by any means to the loan counselor who signed the affidavit of deferment.

(b) Other disputes. For any other dispute about the deferment right or other rights or requirements under this Part, other than the arbitration of a dispute of good-faith negotiation under Section 15-1830, a person can apply to the circuit court in the county where the property is located for an order establishing the rights of the parties to the dispute.

(c) Effect of deferral right. Nothing in this Part shall alter contractual rights of the parties to the mortgage loan other than providing the right to defer a judicial sale. A bona fide purchaser of an interest in real property mortgaged by an eligible foreclosed loan takes the interest in the real property not subject to any claims of ownership by a party based on any rights under this Part. No act, agreement, or deferment granted under this Part alters the rights of other parties or lenders with an interest in the subject property. An order confirming a judicial sale is prima facie evidence of compliance with this Part, provided that the eligible foreclosed homeowner has the remedies for monetary relief under Section 15-1840 for a reckless or bad faith violation of this Part.

(d) Mortgage foreclosure counselors. A mortgage foreclosure counselor, and the person employing or paying the mortgage foreclosure counselor, shall not be liable to any person for signing or failing to sign an affidavit of deferment under this Part.

(735 ILCS 5/15-1830 new)

Sec. 15-1830. Right to revoke deferment following good-faith negotiation.

(a) Cancellation of deferment. If the foreclosing lender has negotiated in good faith to modify the eligible foreclosed loan, the foreclosing lender may send a notice of deferment cancellation to the eligible foreclosed borrower and, no less than 30 days after sending the notice, publish a notice of judicial sale in accord with Section 15-1810. The notice shall be on a single sheet of paper and shall include the name and contact information for an employee or representative of the foreclosing lender. The notice must include an explanation, in plain language, of the reasons that the deferment is being canceled. The notice must prominently state the date the notice is mailed to the eligible foreclosed borrower and the bottom of the notice shall include the following disclosure in bold, 14-point type:

"If you do not agree that we have negotiated in good faith to modify your loan, you may request that an arbitrator be appointed to review your case. The arbitrator will be a volunteer who will work at no cost to you. You have until (insert date 30 days after date of notice) to complete and mail the attached request for arbitration form to the address listed on the form. The State of Illinois encourages you to contact a mortgage foreclosure counselor right away to discuss your options."

The foreclosing lender shall include a copy of the written loan modification that the foreclosing lender offered as part of a good-faith negotiation offer under paragraph (b). No documents other than the written loan modification offer and the arbitration request form required by paragraph (b) shall be included with the notice. A copy of the notice also must be sent by any means to the mortgage foreclosure counselor who signed the affidavit of deferment.

(b) Arbitration of disputes.

(1) The eligible foreclosed borrower may dispute a notice of deferment cancellation by sending to the Secretary a request for arbitration form along with a copy of the notice of deferment cancellation, including a copy of the written loan modification that the foreclosing lender asserts is a good-faith negotiation offer under this paragraph (b). The request for arbitration must be delivered or postmarked within 30 days after the date of the notice of deferment cancellation. The deferment continues pending resolution of the dispute.

(2) On receipt of a timely request for arbitration, the Secretary shall appoint a volunteer arbitrator to resolve the dispute as to whether the foreclosing lender negotiated with the eligible foreclosed borrower in good faith. The Secretary may appoint any person the Secretary deems qualified to act as a volunteer arbitrator.

(3) The volunteer arbitrator may request additional documents or appearances from either the foreclosing lender or the eligible foreclosed borrower prior to making a determination. The decision of the arbitrator is binding on both the foreclosing lender and the eligible foreclosed borrower.

(4) The appointed arbitrator shall act as a volunteer and may not charge any person for the arbitrator's services or costs related to the arbitration.

(c) Good-faith negotiation by foreclosing lender.

(1) A foreclosing lender has not negotiated in good faith unless it offers in writing to modify the terms of repayment of the eligible foreclosed loan to permit the eligible foreclosed borrower to make monthly payments that the borrower would have had the reasonable ability to pay as of the date the loan was originated or, if the borrower's income and financial resources have increased since the loan was originated, monthly payments that the borrower has the current reasonable ability to pay.

(2) For purposes of this Section, "monthly payments" include principal, interest, real estate taxes, homeowner's insurance, assessments, and mortgage insurance premiums, as applicable.

(3) For purposes of this Section, "reasonable ability to pay" shall be determined based on the following:

(A) the income and financial resources available to the borrower at the time the loan was originated, provided that tax returns, payroll receipts, bank records, or other similarly reliable documents that verify the borrower's income and financial resources at the time of origination shall replace unverified statements of income or financial resources contained in the loan application, and the verified information shall serve as the basis for computing the borrower's reasonable ability to make monthly payments; or

(B) if the borrower's income and other financial resources have increased since the loan was originated, the borrower's current income and other financial resources to the extent the information can be verified by tax returns, payroll receipts, bank records, or other similarly reliable documents.

(4) There is a presumption that the borrower has the reasonable ability to pay if the monthly payments do not exceed a combined debt-to-income ratio of 41% based on the borrower's documented and verified monthly gross income, provided the borrower has sufficient residual income as defined in title 38, Code of Federal Regulations, Section 36.4337(e).

(735 ILCS 5/15-1835 new)

Sec. 15-1835. Notice of right to deferment.

(a) Notice requirement; form and delivery of notice. Every foreclosing lender shall send to each borrower who has an eligible foreclosed loan a notice of right to deferment. The notice of right to deferment shall be in the form of, and subject to the delivery requirements specified in this Part. The notice of right to deferment must also indicate an address at which the foreclosing lender will accept service of an affidavit of deferment under paragraph (b) of Section 15-1815. No notice is required for a foreclosure commenced on or before the effective date.

(b) Content. The notice required by this Section must appear substantially as follows:

"Emergency Help For Homeowners in Foreclosure:

IMPORTANT: You are eligible to have the foreclosure of your home stopped until at least (end of deferment period).

The State of Illinois recently passed a law that lets homeowners stop a judicial sale.

To qualify, you must currently live at the home in foreclosure and intend to live at the home until the end of the deferment period. You will also need to complete and sign a special form (called an "affidavit") and provide that affidavit to us at the following address: (insert address in the State of Illinois).

There are many government agencies and nonprofit organizations that can help you complete this affidavit. For the name and telephone number of an organization near you, please call the Consumer Hotline of the Illinois Department of Financial and Professional Regulation at (insert telephone number and Web site). The State does not guarantee the advice of these agencies.

Do not delay dealing with the foreclosure because your options for foreclosure deferment end with the judicial sale."

(735 ILCS 5/15-1840 new)

Sec. 15-1840. Bad faith or reckless violation. A foreclosing lender who acts in bad faith or recklessly in violation of Sections 15-1810 to 15-1835 shall be liable to a person injured by the violation for actual damages, statutory damages of up to $25,000, punitive damages in an amount determined by the court, costs, and reasonable attorney's fees.

Section 99. Effective date. This Act takes effect 7 days after becoming law.