Illinois Laws on Deficiency Judgments

If you lose your home to a foreclosure in Illinois, you might have to pay a deficiency judgment.

If you lose your home to foreclosure in Illinois, your liability for the mortgage debt might not end when the lender sells your property to a new owner at a foreclosure sale. Should your home sell for less than you owe the lender, you just might get stuck with a hefty bill in the form of a deficiency judgment.

A "deficiency judgment" is a money judgment for the difference between the foreclosure sale price and the total mortgage debt. The deficiency judgment allows the lender to collect the debt through standard collection methods, like garnishing your wages or levying your bank account.

How Does the Lender Get a Deficiency Judgment After a Foreclosure?

In some states that use judicial foreclosure procedures, the lender can get a deficiency judgment as part of the foreclosure lawsuit itself. In other places, the lender has to seek a deficiency judgment by filing a separate lawsuit after the foreclosure.

Deficiency Judgments After Foreclosures in Illinois

Illinois foreclosures are judicial. The lender files a lawsuit against the borrower and obtains a judgment from the court.

In Illinois, the lender can get a deficiency judgment as part of the foreclosure action if:

  • the borrower has been personally served in the foreclosure, or
  • the borrower isn't personally served, but enters an appearance in the foreclosure action, like by filing an answer to the complaint. (735 Ill. Comp. Stat. § 5/15-1508(e)).

But courts in Illinois sometimes refuse to enter a deficiency judgment in foreclosure cases, even if personal service is obtained, due to reasons of fairness, reasonableness, and equity.

In Personam and In Rem Deficiency Judgments in Illinois

The two types of deficiency judgments in Illinois are in personam deficiency judgments and in rem deficiency judgments. "In personam" means that the judgment is against the borrower, and "in rem" means the judgment is against the property.

In Personam Deficiency Judgments

The type of deficiency judgment that borrowers need to be concerned about is an in personam deficiency judgment.

With an in personam deficiency judgment, the lender is entitled to collect the monetary amount from the borrower personally, which it can do by garnishing wages, seizing bank accounts, taking non-exempt assets, or collecting against the estate if the borrower is deceased.

You might be able to eliminate this kind of deficiency judgment by filing for bankruptcy. A Chapter 7 bankruptcy can eliminate the deficiency judgment, but with a Chapter 13, you might have to repay a portion of the debt.

In Rem Deficiency Judgments

An in rem deficiency judgment generally has no effect on the borrower personally. It's entered as part of the foreclosure judgment in case the borrower chooses to exercise the right of redemption.

If the borrower redeems the property after the foreclosure sale, the in rem deficiency judgment preserves the lender's right to a lien on the property for the balance that remains after the redemption amount is paid. (735 Ill. Comp. Stat 5/15-1604).

How to Find Out the Type of Deficiency in Your Case

The deficiency judgment will be entered at the foreclosure sale confirmation hearing following the sheriff's sale, which occurs at the completion of the foreclosure process.

To determine which type of judgment has been entered in an Illinois foreclosure, review the Order Confirming Sale. This document will have a paragraph describing the type of judgment and the dollar amount of the deficiency.

Will the Lender Come After Me for a Deficiency Judgment?

Some lenders routinely go after borrowers for deficiency judgments, especially if the borrower has sufficient assets to pay the judgment. Or the lender might sell the deficiency debt to a debt collector, which then might file a suit against the borrower.

Other times, the lender chooses to avoid lawsuit costs and forgives some or all of the debt. But if the lender forgives some or part of the deficiency and issues you an IRS Form 1099-C, you might have to include the forgiven debt as taxable income. In some cases, an exception or exclusion might save you from having to report canceled debt as part of your income. If you have tax questions, consider talking to a tax lawyer or other tax professional.

Talk to a Lawyer

If you're an Illinois homeowner who's behind in mortgage payments and want to learn whether the lender is likely to seek a deficiency judgment, if you have any defenses to a foreclosure, or need information about different ways to avoid a foreclosure, consider talking to a lawyer.

If you can't afford an attorney, a HUD-approved housing counselor can tell you about foreclosure avoidance options.

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