Please see the following article written by Mr. Michael S. Bablo, Esq, associate in the Real Estate Default Group of the Chicago office focused on foreclosure services for Weltman, Weinberg & Reis Co., L.P.A

New Requirements for Mortgage Lenders & Servicers in Illinois

The Governor of Illinois has officially signed Bill 2513 into law, which provides new requirements on lenders and servicers.  The new requirements are effective immediately.  Therefore, the new requirements must be adhered to beginning on April 6, 2009. 

Applicable to Loans Secured by Borrower's Principal Residence Only
The law will apply to all loans secured by residential real property, except for those loans that the borrower has previously filed bankruptcy or which the property is not the borrower's principal residence.  The law will apply only once per loan (i.e. if the law is complied with for a previous default, there is no requirement to comply with the law on any subsequent defaults). 

Required Thirty Day "Grace Period Notice"
If a residential real property loan falls into default by more than thirty days, the mortgagee must send a "Grace Period Notice."  This Notice must be sent as a separate letter than any default or breach letter, but can be sent at the same time as those other letters.  A foreclosure cannot be filed once the law goes into effect unless this Notice has been sent.  We advise sending the "Grace Period Notice" in a separate envelope than the breach or demand letter.

The Notice must be formatted in a specific way: headed in 14-point type, entitled "GRACE PERIOD NOTICE" and including the date it was sent.  The Notice must further state the following in 14-point type:

"YOUR LOAN IS MORE THAN 30 DAYS PAST DUE.  YOU MAY BE EXPERIENCING FINANCIAL DIFFICULTY.  IT MAY BE IN YOUR BEST INTEREST TO SEEK APPROVED HOUSING COUNSELING.  YOU HAVE A GRACE PERIOD OF 30 DAYS FROM THE DATE OF THIS NOTICE TO OBTAIN APPROVED HOUSING COUNSELING.  DURING THE GRACE PERIOD, THE LAW PROHIBITS US FROM TAKING ANY LEGAL ACTION AGAINST YOU.  YOU MAY BE ENTITLED TO AN ADDITIONAL 30 DAY GRACE PERIOD IF YOU OBTAIN HOUSING COUNSELING FROM AN APPROVED HOUSING COUNSELING AGENCY.  A LIST OF APPROVED COUNSELING AGENCIES MAY BE OBTAINED FROM THE ILLINOIS DEPARTMENT OF FINANCIAL AND PROFESSIONAL REGULATION."

No other language should be included in the body of the Notice, but it must also include the following information:

1. The consumer hotline number of the Illinois Department of Financial and Professional Regulation:  800-532-8785;
2. The web address of the Illinois Department of Financial and Professional Regulation: http//www.idfpr.com
3. A phone number for contacting the mortgagee;
4. A fax number for the mortgagee; and
5. The mailing address of the mortgagee.
   

The Notice must be sent via first class U.S. Mail and addressed to the borrower at the property address securing the loan.

Possible Second Thirty-Day Grace Period
The law further imposes a second grace period that could extend the original grace period by up to an additional thirty days.  If at any time during the above described thirty day original grace period, an approved counseling agency provides written notice to the mortgagee that the borrower is seeking counseling services, no foreclosure action may be initiated for thirty days after the date of the counseling agency notice.  An approved counseling agency is defined as one that has been approved by the U.S. Department of Housing and Urban Development.

During this thirty-day period, it is expected that the mortgagee and counseling agency will work towards agreeing to a "sustainable loan workout plan."  A "sustainable loan workout plan" may include, but is not limited to, the following:

1. Temporary suspension of payments;
2. Lengthened loan term;
3. A lowered or frozen interest rate;
4. A principal write down;
5. A repayment plan to pay the existing loan in full;
6. Deferred payments; or
7. Refinancing into a new affordable loan.

Effect of the Law
Once the mortgagee sets up procedures to comply with this law, we do not expect it to result in substantial delays.  If the "Grace Period Notice" is sent contemporaneously with the breach or default letter, the new thirty day grace period will be merged into an existing grace period that most mortgagees already have established with the breach letters. 

However, since the law goes into effect immediately upon signing and since no new foreclosures can be filed without first complying with the required "Grace Period Notice," an expected thirty day delay will occur.  This delay could be extended to a total of up to sixty days if the mortgagee receives notice that the borrower is working with an approved counseling agency. 

Therefore, we urge you to begin sending the "Grade Period Notice" on each and every account that a breach or demand letter is sent to a borrower. Further, the "Grade Period Notice" should be mailed immediately on all accounts that have been referred for foreclosure so that there is no further delay beyond the thirty days required by the statute. These two steps will greatly minimize any further delays. 

If you have any questions on this information, please contact Mr. Michael S. Bablo, Esq.

Michael is an associate in the Real Estate Default Group of the Chicago office focused on foreclosure services for Weltman, Weinberg & Reis Co., L.P.A. He can be reached at (312) 253-0617 or via e-mail at mbablo@weltman.com.   

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