The Illinois Appellate Court, First District, held that in order to side aside a foreclosure sale under the Illinois HAMP compliance requirement at section 15-1508(d-5) of the Illinois Mortgage Foreclosure Law (“Foreclosure Law”), a borrower must prove by a preponderance of evidence that: (1) she submitted a complete HAMP application, with all required documentation; and (2) the property sold was in material violation of HAMP requirements for proceeding to a judicial sale.
A copy of the opinion is available at:
http://www.state.il.us/court/Opinions/AppellateCourt/2014/1stDistrict/1122824.pdf
The borrowers sought assistance through the federal Home Affordable Modification Program (“HAMP”), a component to the United States Treasury’s Making Home Affordable Program (“MHAP”).
The borrowers accepted an offer from their lender to participate in a Trial Period Plan (“TPP”) under HAMP. As you may recall, a TPP is a three month forbearance plan period during which the borrower makes payments that are an estimate of the anticipated modified payment amount. HAMP guidelines permit a servicer to issue a TPP based upon information either provided verbally or through required documentation. Under HAMP guidelines, borrowers are required to submit various forms and documents, and lenders are required to verify the borrower’s income and eligibility before offering a permanent HAMP loan modification.
In this case, the borrowers submitted their first TPP payment along with the TPP agreement and incomplete financial documentation. The lender notified the borrowers of the missing documents and eventually determined the borrowers were ineligible for a HAMP loan modification due to their deficient documentation. As a result, the TPP was terminated after the borrowers made eight payments pursuant to the TPP.
After a judgment of foreclosure was entered and the property sold, the borrowers appeared in the lawsuit for the first time and sought to set aside the foreclosure sale. In their motion, the borrowers argued the sale should be set aside pursuant to section 15-1508(d-5) of the Foreclosure Law (735 ILCS 5/15-1508(d-5) because they executed all relevant documents and made payments pursuant to the TPP, and thus, the lender was mandated to convert their TPP to a permanent loan modification.
The lender argued that the borrowers failed to present evidence establishing their eligibility for a HAMP modification, including various missing documents. For instance, the profit and loss statement submitted by the borrowers was actually a letter from a real estate company stating the co-borrower is self-employed and providing the amount of his commissions.
The circuit court denied the borrowers' motion to set aside the judicial sale and order confirming the sale, as well as the borrowers’ requests for leave to file additional motions and to obtain limited discovery. The borrowers subsequently filed a motion to reconsider which was also denied.
On appeal, the borrowers argued that the circuit court erred in approving the judicial sale because (1) they applied for assistance, and (2) their property was sold in material violation of HAMP. Among other things, the borrowers asserted that the foreclosure plaintiff sold their property in material violation of HAMP because the plaintiff failed to provide written, incomplete-information notices to the borrowers before sending them the denial letter, and that the Illinois statute does not require them to have submitted a complete HAMP application.
The lender argued the borrowers never submitted a complete HMP application with all required documentation, and therefore had not “applied for assistance” under HAMP as required by section 15-1508(d-5)(i) of the Foreclosure Law.
Section 15-1508(d-5) of the Foreclosure Law provides, in relevant part, that a sale may be set aside “if the mortgagor proves by a preponderance of the evidence that (i) the mortgagor has applied for assistance under the Making Home Affordable Program . . . and (ii) the mortgaged real estate was sold in material violation of the program’s requirements for proceeding to a judicial sale.” 735 ILCS 5/15-1508(d-5).
In order to determine whether the borrowers “applied for assistance,” the Court first considered the language of section 15-1508(d-5) and the GSE Guides and Bulletins governing mortgages owned by Freddie Mac, such as the loan to the borrowers. Construing the language of the statute according to its plain meaning, the Court determined that “applied for assistance under MHAP” means to formally apply, usually in writing, for help pursuant to the procedures set forth by HAMP, a component of MHAP.
Although the HAMP Guides and Bulletins do not set forth procedures to “apply” for assistance, the Guide and Bulletins do provide the procedures required to issue a TPP offer (the first step in the loan modification process), specifically that the borrowers must be “eligible” and their income “verified.” Here, the borrowers’ TPP was based on prior, unverified financial information provided by the borrowers over the telephone
The record shows that the borrowers failed to prove by a preponderance of evidence they submitted the necessary documents to establish their eligibility and income, including an executed hardship affidavit, the most recent quarterly or year-to-date profit/loss statement for a self-employed borrower, and separate tax transcript request forms from each borrower.
The borrower’s also argued they never received the required HAMP incomplete information notices. However, because the borrowers failed to establish the threshold requirement under section 15-1508(d-5), and because the argument was waived when the borrowers failed to raise the issue in the lower court, the Court did not reach a determination of whether the property was sold in material violation of MHAP.
The Court held that the trial court did not abuse its discretion in denying the borrowers’ motion and confirming the sale of the property. Accordingly, the judgment of the circuit court was affirmed.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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