The Journal of The DuPage County Bar Association

Back Issues > Vol. 23 (2010-11)

Advising Distressed Homeowners
By Hon. Robert G. Gibson

Housing experts estimate that 45% of all residential sales in 2011 will be distress sales, with lenders either directly involved, or with homeowners short-selling their homes in order to satisfy the lender.  Every attorney should have some knowledge of the issues involved, since the possibility of friends, neighbors, clients, and even family members seeking such counsel will likely continue to increase.  Land mines for the unwary lurk everywhere.  What follows are general rules of engagement when dealing with a potential or actual residential foreclosure situation.

Rule # 1.  Don’t Give up Too Early.  The housing crisis remains both unprecedented and fluid, meaning that new developments arise constantly, usually to the benefit of the homeowner.  Homeowners often underestimate the possibility of securing a loan modification, and also underestimate the time it takes for the lender to complete the foreclosure process.  Even unemployed homeowners hope to become employed in the future, which could in an instant transform the homeowner’s prognosis from dismal to promising.  The federal government even has a Home Affordable Unemployment Program (UP) for unemployed homeowners.  I will repeat a truism:  the bank does not want your home.  If the homeowner can manage to navigate the loan modification process -- fraught with Kafkaesque bureaucracy as well as lender understaffing, employee turnover, and/or incompetence at the frontline level -- a favorable result can often be achieved.  Interest rates vary for loan modifications, with some homeowners scoring interest rates as low as 2%!  To put a 2% interest rate in perspective, for a $200,000 mortgage, that translates into a monthly interest payment of only $342.  The same homeowner with a 6% interest rate prior to the loan modification would owe more than $1,000 in monthly interest.  The savings is more than $660 per month.  Most people will not be fortunate enough to secure a 2% interest rate, but one cannot discount the fact that prevailing interest rates at the time of this writing have never been lower, with some fixed rate loan products less than 4%.

Rule # 2.  Determine Whether the Home Is Worth Saving.  The homeowner who owes, for instance, $300,000 on a property now worth $150,000, has to make a determination at the outset whether the home merits saving.  The analysis mixes financial and personal factors.  The following chart lists some of the factors to consider in this analysis:



 Homeowner is unemployed or severely underemployed for the foreseeable future so that no payment plan will likely be affordable.

Don’t want to uproot family.


Starting fresh in a new residence with a less expensive monthly obligation makes more sense.

Homeowner may have an opportunity to reestablish good credit by making the new mortgage payments.

The possibility exists that home prices will continue to drop in the near future so that one’s negative equity will get worse rather than better.

Don’t lose the opportunity to gain an attractive interest rate, as well as  interest and property tax deductions on future income tax returns.

If the homeowner decides not to pursue a loan modification to save the home, the goal should then become avoiding a deficiency judgment.  The homeowner’s options at that point include a short sale, a deed in lieu of foreclosure, a consent foreclosure, or a foreclosure judgment that does not contain deficiency language.

Rule # 3.  Don’t Give Upfront Money to a Foreclosure Rescue Company.  In America in the year 2010, we have people who call themselves “foreclosure rescue companies,” who justly belong in Dante’s Ninth Circle.[1]  They target desperate homeowners facing foreclosure, often those with limited English skills, with phony pitches like, “We can stop your foreclosure,” or “Guaranteed to save your home.”  They request large upfront sums, often $2,000, and once the trusting homeowner pays the money, they disappear without performing any work.  The homeowner appears in court, having lost both time and precious funds, begging for a continuance of his or her foreclosure case.  In one morning in courtroom 1003, five different homeowners humbly asked for a continuance, and only upon questioning by the Court did each homeowner haltingly describe paying a foreclosure rescue company that promised to help get the homeowner out of foreclosure.  A different company fleeced each of the five homeowners.

Much better alternatives exist for the homeowner.  He or she can find a reputable attorney with expertise in this area of law.  The DuPage County Bar Association maintains a lawyer referral service ( which includes a free one half hour consultation with an attorney.  HUD has certified counseling agencies listed at  Locally, the DuPage Homeownership Center (, a not-for-profit organization, provides assistance to homeowners seeking a loan modification.  Prairie State Legal Services (, a not-for-profit organization, with real estate attorneys on staff, may also be able to assist the distressed homeowner with little or no funds, depending on whether the homeowner meets financial eligibility requirements.  Nationally, many homeowners swear by the Neighborhood Assistance Corporation of America (NACA), found at, a not for profit organization with its highly publicized “Save the Dream” tour.

Rule # 4.  Know How Much Time You Have to Stay in the Home.  Many distressed homeowners live with the anxiety of not knowing whether the Sheriff or the Bank may show up at the residence and evict them on any given day.  Homeowners often have no idea of the time frame and process for foreclosure.  At a minimum, a knowledgeable advisor can assure the homeowner that the Sheriff will not be evicting the homeowner without notice, and can advise the homeowner regarding approximate time frames in the foreclosure process.  The amount of time between the date the homeowner stops making mortgage payments and the date the lender initiates a foreclosure lawsuit varies widely.  For the purpose of illustration, if the homeowner stopped making payments in the months prior to March 1, 2011, is served with the foreclosure Complaint and Summons on March 1, 2011, and does not appear in court or file any papers, the fastest disposition of the case would be as follows:

March 1, 2011: Homeowner served with Complaint and Summons.

March 31, 2011: Homeowner must file an Appearance and Response to the Complaint

April 10, 2011: Bank files a motion for default judgment.

April 20, 2011: Bank obtains a default judgment.

June 1, 2011: Homeowner’s right of reinstatement expires.[2]

October 1, 2011: Homeowner’s right of redemption expires.[3]

November 11, 2011: Court enters an Order approving (confirming) the Sheriff’s Sale.[4]

December 11, 2011: Homeowner must vacate the property.[5]

In short, in a worst case scenario with the lender moving much faster than is typical, where the homeowner does absolutely nothing, the homeowner served with the Complaint and Summons on March 1, 2011, will likely remain in the home until at least December, 2011.  Typically, the homeowner served on March 1, 2011 would have stopped making mortgage payments in the latter months of 2010.  This means that the homeowner who stops making mortgage payments will normally occupy the home for more than one year thereafter.

Rule # 5.  Help from the Federal Government Has Arrived!   For the average homeowner, a knock on the door and an announcement:  “We’re the Federal Government and we’re here to help you,” might send the homeowner scrambling to hide in the nearest closet.  But the “Making Home Affordable Program” (the “Program”), a plan to stabilize the housing market which the Obama Administration introduced in February, 2009, provides a host of protections to homeowners facing foreclosure.   Unfortunately, the regulations are complicated and beyond the scope of this article.[6]   Suffice to say, a homeowner working with a lender who is participating in the Program obtains protection from unnecessary foreclosure by the lender.[7]  The end goal for the homeowner is to obtain a permanent loan modification from the Program.  Even if the homeowner does not obtain a permanent modification, the homeowner typically will have a longer amount of time living in his or her home than the amount of time set forth in the chart above.  Since short-staffed lenders are prone to losing homeowners’ documents, forcing multiple submissions of the same paperwork, homeowners face a time-consuming process.  At the same time, homeowners cannot ignore their court case and need to attend every court date and file appropriate papers to inform the court as to the status of the loan modification and assert any valid defenses.  This can prove daunting, but also potentially worthwhile. 

Rule # 6.  Don’t Be Afraid to Consult a Bankruptcy Attorney.  The term “bankruptcy” at one time conjured up nightmares of people jumping out of buildings in final defeat.  It also suggests the idea of not honoring valid debts.  However, many bankruptcies, known as Chapter 13 bankruptcies, are in reality more accurately termed “reorganizations,” or “repayment plans.”   These plans have the potential to allow the homeowner who earns regular wages to keep his home, despite financial setbacks, by stretching arrearages over a three to five year period.  The homeowner who foresees foreclosure looming ahead needs to be armed with information, and an experienced bankruptcy attorney can be worth his or her weight in gold.

Rule # 7.  Put Your Time and Energy Where it Will Do the Most Good.  Many homeowners face foreclosure by putting their heads in the sand, ignoring reality until it is too late.  Others appear in the court case and put their energy into pursuing supposed defenses, such as the “vapor money” theory, which they copy from the internet.  The publicity surrounding the disclosure of sloppy business practices by lenders has also distracted homeowners from their primary avenues of success, as outlined above, in favor of pushing the mortgagee to demonstrate that it owns the mortgage.[8]  While homeowners should certainly explore and pursue any valid defenses available, and should appear in court regularly on their own foreclosure case, homeowners who pursue this tact to the exclusion of the course of action outlined above, will miss an opportunity to gain a lasting solution rather than a temporary delay.

Attaining a loan modification or a short sale can be frustrating and time-consuming and requires patience, steadfastness, and often the assistance of third parties.  Homeowners shouldn’t hesitate to consult with reputable professionals in order to determine a game plan for achieving a concrete objective.  New developments arise virtually every day, and the possibility of a homeowner knowing everything he or she needs to know, without assistance, is virtually non-existent.  Real estate in America now travels on an unchartered course, but a strong sentiment prevails that distressed homeowners must be helped, and certainly cannot be ignored.

Conclusion.  Distressed homeowners facing foreclosure must either seek competent counsel or must educate themselves in order to navigate the labyrinthine maze of possibilities and options.  Armed with accurate information, distressed homeowners have opportunities now available to weather the current financial tsunami and come through the storm with a successful outcome. 

[1] In Dante Alighieri’s masterpiece, “Divine Comedy,” hell consists of nine concentric circles, each gradually increasing in both wickedness and in suffering.  In the center of hell, condemned for treachery against God, is Satan.  Next to Satan, in the Ninth Circle, Dante envisions the scheming traitors who commit treachery on earth, who deliberately betray people with whom they have a trusted or special relationship.

[2] The right of reinstatement is the homeowner’s right to pay the past due mortgage payments along with late fees, attorney’s fees, unpaid real estate taxes and costs, so that the loan becomes current again.  The Bank will then dismiss the case, and the homeowner will resume making monthly mortgage payments to the lender as before.  See 735 ILCS 5/15-1602.

[3] The right of redemption is the homeowner’s right to pay off the entire loan, usually by selling the property or refinancing the property.  See 735 ILCS 5/15-1603.  For an exception to the general rule, see 735 ILCS 5/15-1604.

[4] Upon entry of the Court Order approving the Sheriff’s Sale, the homeowner no longer owns the property.

[5] The lender could seek possession earlier, even prior to judgment, but rarely does so in the current  economic climate.  See 735 ILCS 5/15-1701.

[6] Mortgages fall under several classifications, one of which is Non-GSE Mortgages.  GSE means a government sponsored enterprise, such as Fannie Mae or Freddie Mac.  The Handbook for Servicers of Non-GSE Mortgages (the “Handbook”) is 77 pages long and contains an alphabet soup of acronyms (e.g., MHA, HAMP, UP, HAFA, 2MP, etc.).

[7] See page 27 of the Handbook.

[8] Critics have attacked lenders for largely ignoring the county recording system of registering mortgage assignments (thereby depriving county recorders of large sums of money) and instead creating the Mortgage Electronic Registration System (MERS), a non-public system of convenience for lenders.  Critics have filed class action lawsuits against MERS in several states.  The ownership of loans has become more complicated anyway due to the modern system of securitizing loans and packaging them for sale to investors.  Critics correctly suggest that lender’s current practices result in confusion as to who actually owns the mortgage, which in turn frustrates the Making Home Affordable Program, as well as the possibility of contacting the lender to get a short sale approved. Some critics emphasize the possibility that the confusion may result in different entities bringing separate collection actions for the same indebtedness against a homeowner.  In the author’s opinion, this scenario remains unlikely to occur to the detriment of homeowners.  Lenders and investors know that the entire secondary mortgage market and the value of all mortgages sold on that market depend on that not happening.  If a purported owner of a mortgage found itself left with a valueless security due to a mistake (certainly a possibility given the volume of transactions), lenders and investors would be forced to handle the problem internally without adverse effect to the homeowner, or face a system collapse.

Hon. Robert G. Gibson received a BA in Government from the University of Notre Dame and a JD from the University of Illinois College of Law, where he was named the outstanding oral advocate in the school’s national moot court competition and was also awarded best brief.  The Illinois Supreme Court appointed him as a Circuit Judge in July and he took the bench on August 2, 2010.  He currently serves in the Chancery Division.  Judge Gibson’s caseload includes the residential mortgage foreclosure call.  He also sits on the Illinois Supreme Court Rules Committee.

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