September 9, 2013
by Lee Perres & Nick Schad
Pierce & Associates, P.C. – USFN Member (Illinois)
Illinois Senate Bill 56 (SB56), effective November 19, 2013, has passed and has been signed by the governor. This legislation changes how the law applies to tenants in foreclosed properties with “bona fide leases,” along with other changes to the Illinois Mortgage Foreclosure Law. A copy of the new law can be viewed here.
Impact on “Bona Fide Leases”
SB56 adds a new section to the Illinois Code of Civil Procedure Forcible Entry and Detainer Law to include 735 ILCS 5/9-207.5, entitled “Termination of Bona Fide Leases in Residential Real Estate in Foreclosure.” This new section is directed towards the purchaser of residential real estate at a judicial sale (including a mortgagee or holder of certificate of sale) who will not use the property as a primary residence. The purchaser at sale may only terminate a bona fide lease at the end of its term, with no less than 90 days written notice, or in the case of a month-to-month or week-to-week lease, by no less than 90 days notice.
The sole exception is that “an individual who assumes control of residential real estate in foreclosure pursuant to a judicial sale and who will occupy a dwelling unit of the residential real estate … as his or her primary residence may terminate the bona fide lease for the dwelling unit subject to the 90-day notice requirement ….” SB56 makes Section 9-207.5 the sole procedure for terminating a bona fide lease in residential real estate at a judicial foreclosure sale. This means that one can no longer name a tenant in a foreclosure to terminate the tenant’s interest.
SB 56 defines “residential real estate” as “real estate, except a single tract of agricultural real estate consisting of more than 40 acres, which is improved with a single family residence or residential condominium units or a multiple dwelling structure containing single family dwelling units for one or more families living independently of one another, for which an action to foreclose the real estate: (1) has commenced and is pending; (2) was pending when the bona fide lease was entered into or renewed; or (3) was commenced after the bona fide lease was entered into or renewed.” A “bona fide lease” is defined as the lease of a dwelling unit in residential real estate in which:
1. the tenant is not the “mortgagor or the child, spouse, or parent of the mortgagor”1;
2. “the lease was a result of an arms-length transaction”;
3. the lease requires the payment of rent that “is not substantially less than fair market rent for the property or the rent is reduced or subsidized pursuant to a federal, State, or local subsidy”; and
a. the lease was entered into or renewed prior to the filing of the lis pendens in relation to the foreclosure, or
b. the lease was entered or renewed after the date of the lis pendens but before the date of the judicial sale and the period of the lease is for “one year or less.”
If a lease was entered into after the lis pendens (notice foreclosure), but before the judicial sale of the property, and the lease is for more than one year, assuming the lease is determined to be bona fide pursuant to Section 15-1224(a), the lease shall be “deemed to be a bona fide lease for a term of one year.” In the event the lease is an “oral lease” and it is entered into before the date of the judicial sale, and the tenant is determined to be a bona fide tenant the lease shall be “deemed to be a bona fide lease for a month-to-month term.” If, however, the lessee can prove by a preponderance of evidence that the lease was for more than a month-to-month period, the lease may be allowed to continue for a period of up to one year. If any lease, written or oral, is entered into after the judicial sale, but prior to the court confirming the sale, and the lease is considered a bona fide lease the lease shall be deemed a month-to-month lease.
As added protection to a tenant of a foreclosed property, no order of possession issued under the Illinois Mortgage Foreclosure Law, “shall be entered against a lessee with a bona fide lease of a dwelling unit in residential real estate in foreclosure, whether or not the lessee has been made a party in the foreclosure.”
SB56 expands what may be included in the statutory written notice already required to include “instruction on the method of payment of future rent, if applicable.” Property receivers and mortgagees in possession shall also provide notice to all known occupants providing “instructions on the method of payment of future rent, if applicable.”
Changes with Respect to Special Representatives
SB56 amends 735 ILCS 5/15-1501, which sets forth the necessary parties for a foreclosure action. Specifically, SB56 amends what is required when a mortgagor is deceased and the property is held by another, living individual. “The Court is not required to appoint a special representative for a deceased mortgagor for the purpose of defending the action, if there is a living person that holds a 100% interest in the property that is the subject of the action, by virtue of being the deceased mortgagor’s surviving joint tenant or surviving tenant by the entirety.” See 735 ILCS 5/15-1501(h). SB56 does not expand any contract liability to the living party that holds a 100% interest in the property, specifically stating that “no deficiency judgment [may] be sought or entered in the foreclosure case … against a deceased mortgagor.” See 735 ILCS 5/15-1501(h).
Changes with Respect to Sealing Eviction Orders
SB56 requires the sealing of court files when a forcible entry and detainer action (eviction) is brought under the forcible entry and detainer statute (735 ILCS 5/9-207.5) or Illinois Mortgage Foreclosure Law (735 ILCS 5/15-1701).
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1 However, if the “child, spouse, or parent of the mortgagor” can prove that the “written or oral lease otherwise meets the requirements of Section 15-1224(a),” the lease will be determined to be a bona fide lease and the requirements of 735 ILCS 5/15-1224 will apply. See 735 ILCS 5/15-1224(e).