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Illinois: New Statute regarding Arrearage Payments

Posted By USFN, Tuesday, October 10, 2017
Updated: Tuesday, October 3, 2017

October 10, 2017

by Steven Lindberg
Anselmo Lindberg & Associates, LLC – USFN Member (Illinois)

New Law
Illinois has enacted statute 205 ILCS 635/5-8.5, which will become effective on January 1, 2018. The statute states:

Arrearage payments. When a mortgagor is in arrears more than one month, no licensee shall refuse to accept any payments offered by the mortgagor in whole month payment amounts. Such payments shall be applied to the unpaid balance in the manner provided in the licensee’s mortgage with that mortgagor.

Nothing in this Section shall be construed to otherwise impair the ability of the licensee to enforce its rights under the mortgage with that mortgagor; nothing in this Section shall be construed to otherwise impair the obligations of the mortgagor under the mortgage with the licensee.

According to the statute, the mortgagee cannot refuse whole month payments when the mortgage is more than one month in arrears, meaning that regardless of the length of delinquency, the mortgagee must accept the complete monthly payment. One might ask, “Regardless of how delinquent the consumer is, are lenders/servicers expected to take a payment if it equals a whole monthly payment?” The answer is “yes.”

This statute was enacted because a constituent of one of the bill’s sponsors said that she attempted to make a payment on her delinquent loan. The loan was two months overdue and the mortgagor had the amount for just one of the monthly payments. The servicer rejected the partial payment, stating that only the two months in payment would be accepted. The legislator thought that this was wrong, and then proposed the subject legislation. At the hearing on the bill, the Representative stated that this is a “simple bill.” This bill “does not stop a foreclosure when one is pending and it does not stop a mortgagee from filing a foreclosure action.” Therefore, unless the loan is properly reinstated, the mortgage is still in default and the mortgagee can move forward with foreclosure.

Questions Remain, Unfortunately
There are some unanswered questions that arise from this new law. For example, what if the loan is in arrears and a foreclosure action is instituted, but at some point in the foreclosure action the mortgagor tenders all of the arrearage? This tender would represent the “whole monthly payment amounts” since it is a cure. Does the mortgagee have to accept these payments and dismiss the action? It would appear that the simple answer is yes. However, this would seem to conflict with another statute; that is, 735 ILCS 5/15-1602. This is the reinstatement section in the foreclosure act.

Section 735 ILCS 5/15-1602 specifically limits reinstatement to a period prior to the expiration of 90 days from the date of service. Admittedly, not many mortgagees are enforcing this section, yet it still remains. As such, a mortgagor could tender all of the arrears after the 90-day period and, under the new law, the mortgagee would have to accept the funds. However, because the new statute also says that mortgage licensees retain their ability to enforce their rights under the mortgage, the foreclosure action may continue until the borrower also pays all other outstanding amounts necessary to fully reinstate the mortgage. For instance, if the borrower is 12 months in arrears, and the borrower tenders 12 months of payments, the servicer must accept and apply those payments. Even after those payments are applied, the loan will remain in default unless all of the foreclosure-related expenses and advances, such as attorneys’ fees and costs, are also tendered to the servicer.

Another question is presented in light of the new legislation: What happens when a loan is in default and a breach letter is sent? Then, subsequent to the breach letter and prior to the filing of a foreclosure, the mortgagor tenders only one payment, not the entire arrearage. Does a new breach letter have to be sent? It would seem from the language of the statute — which is vague — and the testimony at the hearing on the bill, that another breach letter would be unnecessary because the default has not been cured. Nevertheless, it is foreseeable that courts could rule that a new breach letter would be necessary in this scenario. Because this issue likely depends on the individual viewpoint of each particular judge, this is not a question with a definitive answer.

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