While the specifics of mortgage loans—and the associated paperwork—can be quite complicated, one thing is easy to understand: If you do not make your scheduled payments, your lender will eventually file a foreclosure action and take back your home. Just to be clear, foreclosure is the legal process that a lender uses to take possession of a property from a borrower who did not keep up with their obligations as specified in the mortgage loan agreement. Other things could cause a lender to initiate foreclosure, but the vast majority of foreclosures stem from borrowers defaulting on their payments.

The process of foreclosure can be overwhelmingly difficult for many homeowners, and it is extremely easy to make expensive mistakes under such stress. An error in the process could cost you a great deal, but if you are aware of where most people make mistakes, you can be sure to avoid them. A qualified foreclosure defense lawyer can also help.

Do Not: Ignore Your Lender

Under the law in Illinois, your lender cannot start a foreclosure action until you are at least 120 days delinquent on your mortgage payments. More than likely, however, your lender will start calling and sending you letters within a few days of your first missed payment. As you inch closer to defaulting, your lender will probably reach out more often—possibly every day.

If you are struggling to make your mortgage payments, the threat of losing your home can be a terrifying thought. Once a mortgage is in default, the lender can sue to have the right to sell the property in what is known as a foreclosure sale. In 2021, lenders initiated more than 92,000 foreclosures—the lowest number in many years. In fact, 2009 saw more than 2 million foreclosures initiated by lenders looking to resolve defaulted mortgages. If you are facing the potential foreclosure of your home, you should be sure to understand the procedures that will be followed and the legal options available to you.

The Foreclosure Process

When a mortgage has not been paid for several months and has fallen into default, a lawyer from the lending institution may begin a lawsuit by filing a complaint in court. After that, a summons and complaint are delivered by a process server or a sheriff. The summons is a notification of a court hearing, and it will specify when and where the hearing will be held. Within 30 days of receiving the summons, you must either file an answer and court appearance or a motion of your own.

During the hearing, the bank’s lawyer will update the assigned judge regarding the status of the property. At this time, you may be able to request mediation, during which you and a representative of the lender will meet with a mutual third party to discuss loss mitigation. This means that options other than foreclosure can be discussed, and you may be able to work out an arrangement that will allow you to stay in the home through solutions such as a repayment plan or loan modification. There are also options in which you may be able to sell the home without going into foreclosure.

Originally published: July 19, 2019 -- Updated: November 8, 2021

UPDATE: A consent foreclosure, as described below, may be a beneficial way for a person to relinquish ownership of their home and avoid a deficiency judgment. However, homeowners who are considering a consent foreclosure should be sure to understand how this will affect their credit. The completion of a foreclosure will be included in a person’s credit report, which could affect their ability to secure a mortgage in the future. If this will be a concern, a homeowner may need to determine whether completing a short sale or using a deed in lieu of foreclosure will be a more beneficial option.

Homeowners should also understand how junior liens such as a second mortgage or home equity line of credit may affect their ability to complete a consent foreclosure. A consent foreclosure will remove all liens from the title of the home, and a mortgage lender will waive their right to pursue a deficiency judgment to collect any additional amounts owed on a mortgage. All lenders who have an interest in the property must consent to this type of foreclosure. Because junior mortgage lenders may not be able to recover what is owed, they may object to a consent foreclosure. If objections prevent a homeowner from completing a consent foreclosure, they may need to consider other options. In some cases, a judicial foreclosure may be completed.

Anyone can encounter financial problems that affect their ability to meet their obligations. Homeowners who are struggling to pay bills may be concerned about what will happen if they get behind on their mortgage payments. Those who are worried about the possibility of foreclosure will want to understand their options, and in some cases, they may qualify for mortgage relief through the Flex Modification Program. 

Eligibility for the Flex Modification Program

To determine whether they qualify for the Flex Modification Program, homeowners will need to understand who owns their loan. This program is available for mortgages owned or guaranteed by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). While a mortgage may have originated with a bank or another private lender, many mortgages are sold to other investors, including Fannie Mae and Freddie Mac. While these loans may then be sold to another investor, they will often be guaranteed by Fannie Mae or Freddie Mac, allowing homeowners to take advantage of relief through the Flex Modification Program.

To qualify for the Flex Modification program, a homeowner will need to meet certain requirements. The mortgage must have originated at least one year prior to being evaluated for relief, and a loan must be a conventional first mortgage, giving the lender the right to be repaid first if a foreclosure sale is completed. A homeowner may seek relief if they are more than 60 days delinquent on mortgage payments, although if the property is the homeowner’s primary residence, they may seek relief if they are current on mortgage payments or are less than 60 days delinquent, including in cases where a lender determines that they are in “imminent default” and will no longer be able to make monthly mortgage payments based on their financial circumstances. While a homeowner will usually be required to provide documentation of financial hardship, proof of income, and other information, those who are more than 90 days delinquent may qualify for streamlined procedures that will allow them to receive a modification more quickly and with fewer documentation requirements.

Many families in the United States face the threat of foreclosure due to financial difficulties related to the COVID-19 pandemic. Fortunately, most of these families have been able to avoid losing their homes thanks to the moratorium on foreclosures that was put in place in March of 2020. This moratorium has been extended several times, and while it was scheduled to expire on June 30, 2021, it has been extended once again. Homeowners may be able to make use of provisions that will allow them to maintain ownership of their homes.

Foreclosure Relief for Federally-Backed Mortgages

The federal foreclosure moratorium has been extended through July 31, 2021. This moratorium applies to homes financed through USDA Single-Family Housing Direct and Guaranteed loans, as well as single-family mortgages backed by Fannie Mae and Freddie Mac.

In addition to this extension, the Consumer Financial Protection Bureau (CFPB) has implemented a new rule that will provide protections for homeowners facing foreclosure while also offering options for financial relief that will allow them to resume mortgage payments and continue owning their homes. This rule will go into effect on August 31, 2021, and it will last until January 1, 2022. This will ensure that homeowners will have protections during foreclosure proceedings that take place after a borrower is delinquent on mortgage payments by at least 120 days.