Here in Illinois, the foreclosure process can be long and trying – and, for some borrowers, there may be financial effects that will continue to be felt, even after the completion of the foreclosure sale. In Illinois, it is possible for lenders to get a deficiency judgment against borrowers, in order to attempt to attain the outstanding balance of the borrower’s loan after their property has been foreclosed. 

What Are Deficiency Judgments? How Do They Work?

A deficiency judgment may be sought when total mortgage debt exceeds the sale price at foreclosure. In other words, if the foreclosed property sells for an amount that is insufficient to cover the borrower’s debts, the lender may turn to the courts, in order to make the borrower liable for paying the remaining balance. 

Here in Illinois, we use a judicial foreclosure process, meaning that the bank or lender must file a lawsuit in court in order to foreclose on a home. In most cases, the foreclosure process is long and winding. Broadly speaking, the process begins when the bank files a complaint with the court, and gives notice of the suit by serving the borrower, who is then given an opportunity to respond. 

Ultimately, in situations where the foreclosure process plays out and the bank prevails in the suit, the court generally enters a judgment that the home must be sold in a foreclosure sale or auction. At this point, the bank (or another interested party) typically bids on the home and becomes the owner. 

A deficiency occurs when the winning bid at the foreclosure sale is less than the entire outstanding mortgage debt. At this point, the bank or lender may seek a personal judgment against the borrower in order to make up the difference (that is, the amount of the deficiency). 

When the bank successfully attains a deficiency judgment, they may be able to collect the deficiency amount directly from the borrower by garnishing wages, levying a bank account, or taking a lien on the borrower’s personal property. The bank may also sell the judgment to a collection agency, which will then take action to collect. 

Deficiency Judgments In Illinois: Key Things to Know

It’s important to keep in mind that while deficiency judgments are legal in Illinois, they are prohibited in other states, some of which have passed laws preventing banks from seeking deficiency judgments after foreclosure. 

It’s also important to remember that there are multiple types of deficiency judgments. Broadly speaking, the two types of deficiency judgments available are known as in personam and in rem deficiencies. With an in personam deficiency, the judgment is issued against the borrower; with an in rem, the judgment is on the property itself.

An in rem deficiency generally comes into play during the foreclosure process if the borrower redeems the property, which they can do by paying the amount owed to the bank, typically along with additional fees and interest. In this case, the in rem judgment allows the lender to place a lien on the property for any remaining balance on the debt following redemption. 

With an in personam deficiency judgment, the borrower is personally liable for the deficiency, and the lender may collect by garnishing wages, taking non-exempt assets, or collecting from a bank account. In Illinois, an in personam deficiency judgment may be entered when the borrower has been personally served, or if the borrower makes an appearance in the case. 

It’s also worth noting that a bank may also seek a deficiency judgment in the event of a short sale – unless the short sale agreement expressly states that the lender will relinquish its rights to the difference between the amount of the short sale and the borrower’s total debt. In Illinois, a lender is generally prohibited from seeking a deficiency judgment following a deed in lieu of foreclosure, unless the deed in lieu or a similar agreement has specific language to the contrary. 

In the event of an in personam deficiency judgment, a borrower’s most effective course of action may be to file for bankruptcy, which can allow debtors to eliminate a deficiency judgment in some cases. Chapter 7 bankruptcy can allow debtors to completely eliminate the deficiency judgment, while Chapter 13 may require repaying part of the debt, as part of a structured, long-term payment plan. 

Understanding Your Options in Foreclosure

The foreclosure process can be complex and daunting, even in the best of circumstances. Consulting with an experienced local attorney may be one of the very best ways to understand the foreclosure laws for your area, as well as all of the courses of action available to you, depending on your unique circumstances.

From ensuring that your paperwork is filed correctly and on time, to finding a practical solution tailored to your needs, an attorney can be a vital resource throughout every step the foreclosure process, helping you navigate this intimidating procedure with the insights you need. 

If you have any more questions about deficiency judgment laws, foreclosures, or bankruptcy in Illinois, don’t hesitate to get in touch with the attorneys and staff of the Gunderson Law Firm.

Based in Chicago’s Roscoe Village, the Gunderson Law Firm possesses unparalleled expertise and insight on real estate, bankruptcy, and foreclosure in Chicagoland, reinforced by years of experience and long-term connections throughout Chicago’s real estate, finance, and insurance industries.

Above all else, we are committed to providing the advocacy you need without the attitude you don’t. If you have found other lawyers to be more about their egos than about your case, talk to Gunderson Law Firm. Our attorneys are not only highly knowledgeable and experienced, but very down-to-earth. We’re all about great representation and timely results, tailored to your unique circumstances. Drop us a line whenever you’re ready to keep the conversation going.