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New Review Process To Potentially Reduce Foreclosures  


As struggling homeowners continue to seek loan modifications, wrongful foreclosures continue to be a problem. Illinois saw 151,304 foreclosures filed in 2010, which represented a double-digit increase from 2009. However, the Chicago Tribune recently reported that homeowners who believe they were wrongfully foreclosed upon may seek an independent review of their cases. The program comes about as part of a settlement reached between the federal government and the 14 largest banks, including JPMorgan Chase, Bank of America, CitiBank and Wells Fargo.


Investigation into Improper Foreclosures

Last fall, federal banking regulators (including the Federal Reserve System, The Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift Supervision (OTS)) initiated investigations into the 14 largest federally regulated banks to root out issues regarding foreclosure practices. Among other concerns, investigators were concerned about the widespread use of "robo-signers" on foreclosure affidavits ostensibly indicating that the signer had personal knowledge of and confirmed the accuracy of the documents accompanying the affidavit. It was believed that some robo-signers had acknowledged 10,000 foreclosure affidavits in one month.


This was especially problematic in states that follow a judicial foreclosure process, where lenders must seek a court order to reclaim property. In Illinois, a lender initiates foreclosure proceedings by filing a Complaint to Foreclose Mortgage with the court. After proper service of the Complaint, a borrower has 30 days to file an Answer with the court. A default judgment may be entered if the borrower fails to file a timely Answer. Once judgment is entered in favor of the lender, the borrower has a statutory 90-day redemption period before a sale can take place. The court also has the authority to extend the redemption period.


However, thousands of foreclosure petitions contained inaccurate information regarding the actual status of the loan. Borrowers applying for loan modifications were especially vulnerable, for the trial payments they made were commonly less than the original mortgage payment. When these payments were misinterpreted as mortgage defaults, lenders would foreclose on the property. False affidavits would bolster the lender's claims before the court, the homeowner would be unable to pay the full default amount, and the home would be lost in foreclosure.


Procedural Deficiencies

Federal regulators found deficiencies in several areas, including the foreclosure governance process, document preparation methods and oversight of third party vendors, including law firms providing foreclosure services. The agencies issued a report indicating that "the weaknesses at each servicer, individually or collectively, resulted in unsafe and unsound practices and violations of applicable federal and state law and requirements." In addition to improper affidavit and notary processes, they also found that servicers had inadequate staffing and training programs to educate employees about the foreclosure process. These deficiencies harmed homeowners, placed undue burdens on the judicial system and caused significant delays in clearing excess inventory from the housing market.


Agency Findings

After issuing its findings, the agencies required mortgage servicers to incorporate a number of corrective actions centered on giving homeowners the opportunity to seek redress for wrongful foreclosures and avoiding future issues. They included:

  • Compliance programs to ensure all foreclosure processes and record-keeping protocols follow state and federal law;

  • Retaining independent firms to review all residential foreclosures pending between January 1, 2009 and December 31, 2010 to determine if any homeowners were harmed by errors or misstatements;

  • Creating dedicated resources for a single point of contact to address customer concerns.

  • Establishing proper procedures for outsourcing foreclosure functions and proper risk management protocols


In explaining the regulatory changes, Acting Comptroller of the Currency John Walsh recently said that "a robust, transparent and accessible complaint process was needed that will give borrowers the opportunity to request an independent foreclosure review." Homeowners harmed by improper foreclosures would be eligible for compensation.


The new rules would be especially helpful to homeowners applying for loan modifications. According to public interest journalist ProPublica, federal regulators had not issued clear rules on how the banks should handle modification applications in the past. However, in accord with the consent decree, banks will now be forbidden from actually selling a home before a final decision is made on a modification. Further, foreclosure proceedings must cease once a homeowner is approved for a modification.


The preceding is not intended to be legal advice. However, an experienced attorney can advise you of your rights and options should you be in danger of losing your home, or if you are applying for a loan modification.


At Illini Legal Services, we offer a free, no-obligation consultation to each of our clients. During your consultation, we will take the time to listen to your financial concerns and assess your case and individual situation. We have five locations to serve you. Contact us today for help!


Illini Legal Services is engaged in the private practice of law and is not a public legal aid agency. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.

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