Illinois Governor Pat Quinn recently signed a bill into law that will delay the ability of mortgagees from foreclosing on mortgages secured by residential real estate. This new law is referred to as the Illinois Homeowner Protection Act ("Act") and became effective April 6, 2009. This Act requires mortgagees to give a Grace Period Notice to mortgagors who are 30 days delinquent on their loans and to consider sustainable loan workout plans. This Act potentially gives residential mortgagors a 90 day stay from foreclosure. The new law was codified as 735 ILCS 5/15-1502.5. Below is a summary regarding the provisions of the new Act as well as answers to a couple common questions mortgagees may have regarding this new Act.

1. Grace Period Notice: This law requires that mortgagees send a 30 day "Grace Period Notice" to mortgagors of residential property once the loan is more than 30 days delinquent. The statute prescribes the exact language and information that should be provided in this notice. This notice advises the delinquent mortgagor that: 

                1. their loan is more than 30 days past due; 

                2. the mortgagor may be in financial difficulty; 

                3. they have a 30 day grace period to obtain approved housing counseling; 

                4. they may have an additional 30 day grace period if they obtain housing counseling.

The Grace Period Notice must provide the Illinois Department of Financial and Professional Regulation's current consumer hotline and website. It must also provide the telephone number, fax number and mailing address of the mortgagee. It must also have the date the Grace Period Notice was mailed.

2. Service of Notice: The Grace Period Notice is served on the mortgagor by sending via first class mail addressed to the mortgagor at the common address of the residential real estate securing the mortgage.

3. Counseling Notice: Within 30 days of the date of the Grace Period Notice, the mortgagor has the opportunity to contact an approved housing counselor. They must have a face to face meeting with the counselor unless the mortgagor can show they have a hardship, at which point the meeting can take place over the phone. Assuming a meeting takes place, then the counseling agency must send a notice to the mortgagee ("Counseling Notice") within the 30 day grace period. If the mortgagee receives a timely Counseling Notice, then there is another 30 day stay of the foreclosure for the parties to to attempt to negotiate a loan workout plan.

4. Sustainable Loan Workout Plan: If a counseling agency becomes involved then an addition 30 days is given to the mortgagor to try to negotiate a "Sustainable Loan Workout Plan" with the mortgagee. The Act defines Sustainable Workout Plan as "a plan that the mortgagor and approved counseling agency believe shall enable the mortgagor to stay current on his or her mortgage payments for the foreseeable future when taking into account the mortgagor income and existing and foreseeable debts." The Act states that it is up to the mortgagor to determine whether to accept the proposed Sustainable Loan Workout Plan.

5. Miscellaneous: 

                    A. Principle Residence: This Act shall apply only if the mortgagor is using the real estate as their principle residence. Therefore if the mortgagor has abandoned the property or is otherwise not using the property as their principle residence, then the mortgagee does not have to send the Grace Period Notice. 
                    
                    B. Bankruptcy: If the mortgagor has filed bankruptcy then the Act does not apply. The mortgagee can move to lift the bankruptcy stay and proceed to foreclose. 

                    C. Writing: The Sustainable Loan Workout Plan must be in writing and signed by the parties if it is accepted by the mortgagee. 

                    D. Automatic Repeal: This Act is set to be automatically repealed on April 6, 2011. 

                    E. Waiver: The provisions of this Act cannot be waived by the mortgagor.

1. Question: When Does the Homeowner Protection Act Apply to a Mortgage?

Answer: The Act is only applicable to residential real estate which the mortgagor occupies as his/her principle residence. Therefore if the mortgagor is not actually living in the property as his/her principle residence, then the Act does not apply.

2. Question: Is the mortgagee required to accept a "Sustainable Loan Workout Plan" that is offered by the mortgagor or counselor?

Answer: No. The Act states that "it is up to the mortgagor to determine whether it will accept the proposed sustainable loan workout plan." However, being that this Act is intended to benefit residential mortgagors, it would be prudent for the mortgagee to have good reasons for not accepting any proposed plan. Mortgagors or their counsel may try to use the denial of a proposed sustainable loan workout plan as an affirmative defense in the future foreclosure action.