Illinois Supreme Court Weighs in on Mortgage Foreclosures and Notices to Grain Elevators March 4, 2013 - - - On February 22nd, the Illinois Supreme Court adopted new Rules affecting mortgage foreclosure practices in Illinois. A summary of the Court’s rules appears below. Circuit court mediation programs (New Rule 99.1): For those counties in Illinois with circuit (i.e., county) courts that already have adopted mediation programs, new Supreme Court Rule 99.1 authorizes such county courts to expand those mediation programs to cover mortgage foreclosure cases. Similarly, the Rule authorizes county courts that have not yet adopted mediation programs to adopt programs addressing mortgage foreclosure mediation. New Rule 99.1 specifies components that must be included within mortgage foreclosure mediation programs, including resources directing homeowners to HUD-certified counseling services; resources to provide homeowners with access to pro bono legal representation; specification of the costs that may be charged to a participant in mortgage foreclosure mediation; a plan for long-term funding of the county court’s mediation program; and details regarding the training of judges and other personnel who may be involved in a mortgage foreclosure mediation. A county court’s proposed mediation program for mortgage foreclosure cases must be submitted to and approved by the Administrative Office of the Illinois Courts. New requirements for judicial foreclosure cases (New Rule 113): In addition to the existing legal procedural requirements for bringing a foreclosure action against a mortgagor under Article XV of Illinois’ Code of Civil Procedure, new Supreme Court Rule 113 will require that a foreclosure complaint be accompanied at the time the complaint is filed by a copy of the note (including all indorsements, whether on the promissory note or unambiguously affixed thereto). New Rule 113 establishes the following mandatory components to be included within “prove-up” affidavits (affidavits submitted on behalf of the mortgagee-lender in support of the foreclosure case): (1) identity of the affiant and explanation of whether (s)he is custodian of the mortgagee-lender’s records or otherwise how (s)he is familiar with the mortgagee-lender’s business and its mode of operation; (2) identification of all books, records, and other documents that the affiant reviewed and/or relied upon in drafting the affidavit, “specifically including records transferred from any previous lender or servicer.” Also, in cases where the mortgagor-defendant has filed an appearance or responsive pleading to the foreclosure complaint, the loan’s payment history must be attached to the affidavit; (3) identification of any computer program or software relied upon to record and track mortgage payments, including the source of the information, the method and time of preparation to establish that the computer program accurately tracks and reveals payment history; and an explanation as to why the records should legally qualify as “business records.” The prove-up affidavit should also describe or contain any additional evidence in support of the mortgagee-lender’s right to enforce the note. The affidavit shall not have a stand-alone signature page when the affiant’s signature could begin on the last page of text of the affidavit. New Rule 113 includes a sample form of a legally sufficient prove-up affidavit, which CBAI member banks can obtain upon request from CBAI General Counsel Jerry Cavanaugh [phone (800 736-2224 or e-mail firstname.lastname@example.org] or CBAI Paralegal Levette Shade [e-mail email@example.com]. New Rule 113 also requires that in a foreclosure action in which the mortgagor-borrower is defaulted by court order, a Notice of Default and Entry of Judgment of Foreclosure must be prepared by mortgagee-lender’s attorney within two business days after entry of the default to be mailed by the Clerk of the Circuit Court. Again, the Rule includes a sample Notice of Default and Entry of Judgment of Foreclosure form that can be obtained from CBAI General Counsel Jerry Cavanaugh or Paralegal Levette Shade at the phone number or respective e-mail addresses mentioned previously upon request by a CBAI member bank or the bank’s attorney. With respect to judicial sales of foreclosed properties, the Rule requires that the attorney for mortgagee-lender must send written notice of the sale to all defendants (including any who have defaulted). The notice shall disclose the date, time and location of the foreclosure sale, and must be mailed at least ten business days in advance of the scheduled sale date. Under New Rule 113, if there are any surplus funds from a judicial foreclosure sale that exceed the amount owing as established in the foreclosure judgment, the mortgagee-lender’s attorney must send written notice to all mortgagors-defendants advising them of the surplus and enclosing a form for a motion to petition the court for the surplus funds. Sample forms for the notice of surplus to be sent to mortgagor-defendants and for the mortgagor’s-defendant’s motion to petition the court for turnover of the surplus funds are set forth in the Rules and again available to CBAI members upon request. Finally, New Rule 113 specifies that in foreclosure cases where the mortgagor-defendant is deceased and no estate has been opened, the circuit court shall, on motion of a party to the foreclosure action, appoint a legal representative to act in the deceased mortgagor’s-defendant’s stead. Loss Mitigation Efforts (New Rule 114): New Rule 114 will apply in any case in which the mortgagor-defendant has entered an appearance or filed an answer or some other responsive pleading. This Rule requires the filing of an affidavit by the mortgagee-lender prior to moving for a judgment of foreclosure. The purpose of the affidavit is to document that any applicable State, federal, or in-house mortgage loan loss mitigation programs for which the loan subject to foreclosure was eligible (i.e., the standard for applicability of New Rule 114 is whether the loan in question met the minimum threshold requirements for eligibility in a loss mitigation program, not whether the access to such a loss mitigation program has been granted or is guaranteed) have been complied with by the mortgagee-lender. Once again, New Rule 114 includes a sample Loss Mitigation Affidavit that is available to CBAI members upon request. New Rules 113 and 114 were originally scheduled to go into effect on March 1, 2013, but the Supreme Court has now delayed the effective date until May 1. In other Supreme Court news…. Coincidental to the February 22nd adoption of the Rules described above, on February 22nd the Illinois Supreme Court also published its opinion resolving the case of State Bank of Cherry vs. CGB Enterprises. This case involved a grain elevator that paid a farmer for crops without honoring the bank’s security interest in the crops by at least naming the secured bank as a dual payee on the check from the grain elevator. There was no doubt that the grain elevator had received timely notice from the bank of the bank’s secured interest in the growing crops, but the question was whether the bank’s notice was legally defective, and therefore not binding on the grain elevator, because the bank’s notice of its secured interest did not specify the counties in which the crops were growing. Illinois’ Third District Appellate Court had ruled in January of 2012 that the federal Food Security Act of 1985 was the controlling law and that law’s instruction that a notice of a security interest in growing crops must identify the county or counties in which the crops were growing required strict compliance. Because State Bank of Cherry had relied on language such as “all crops wherever growing” instead of specifying precisely the counties where the bank’s borrower had crops, the Appellate Court found that the grain elevator was not liable to the bank for paying the farmer-borrower without honoring the bank’s secured interest. On February 22nd, the Illinois Supreme Court upheld the Appellate Court’s decision and reasoning, thereby conclusively putting Illinois lenders with secured interests in growing crops on notice that it is mandatory to list specifically the county or counties in which the crops are growing when delivering your notice of secured interest to the buyer(s) of the customer’s crops (E.g., grain elevators).