Consent Foreclosures in Illinois
All mortgage foreclosures in Illinois are subject to a process known as
judicial foreclosure. A judicial foreclosure is the process in which a
lender goes through formal proceedings to obtain possession of a property
after a homeowner falls behind on their mortgage payments. A lender seeking
to foreclose on an Illinois property must file a lawsuit, obtain a judgment
of foreclosure and sale, conduct a sheriff's sale and have that sale
confirmed by the court.
In Illinois, judicial foreclosures are governed by the Illinois Mortgage
Foreclosure Law (IMFL). A less well-known provision of the IMFL - which
can often be better for the homeowner - is a process
called a consent foreclosure.
In a consent foreclosure, a judgment is issued by the court giving the
property to the lender, and can be requested once foreclosure proceedings
have begun. This process allows the homeowner to consent to the judgment
of foreclosure to be entered without having to go through all of the formal
One of the greatest benefits associated with a consent foreclosure is that
in exchange for the consent judgment, the homeowner doesn't face the
possibility of a deficiency judgment. With a traditional foreclosure,
when a home sells for less than what remains on the mortgage, the homeowner
may be held liable for the remaining balance and the lender may obtain
a deficiency judgment to collect the remaining balance - which isn't
the case in a consent foreclosure.
However, one potential downside to a consent foreclosure is that there
may be tax implications resulting from the forgiven debt. For tax purposes,
the IRS considers forgiven debt as income. Thus, when a lender forgives
a mortgage the home owner may have to pay taxes on the debt forgiven.
In direct response to this issue and the recent housing crisis, Congress
enacted the Mortgage Debt Relief Act of 2007. Under this piece of legislation,
homeowners generally do not have to report as income mortgage debt that
is forgiven - but this Act is set to expire later this year.
Consent Foreclosure and Tax Implications in Real Life
To further illustrate the benefits of an Illinois consent foreclosure,
imagine a couple named Blake and Crystal purchased their dream home on
lovely Sheridan Road for $600,000, with a $500,000 initial mortgage. Although
they could initially afford the mortgage payments every month, Crystal
recently lost her job and the payments are beginning to eat away at their
savings. As their savings run out, they begin to miss mortgage payments.
Blake and Crystal find an experienced Illinois foreclosure defense attorney
to represent them. After discussing and carefully considering their options,
they decide to pursue a consent foreclosure. The process does have a negative
impact on their credit; however, they will not liable for any deficiency
judgment. If the lender is only able to sell the home for $350,000 but
Blake and Crystal still owe $400,000 on the mortgage at the time of the
consent foreclosure, then they are not liable for the difference. With
a traditional foreclosure, the lender may be able to pursue Blake and
Crystal for this $50,000 deficiency.
Determining the best financial option is unique for each situation. As
a result, if you or a loved one is struggling to make mortgage payments
it is wise to seek the counsel of an experienced Illinois foreclosure
defense attorney to discuss all your options.