Surely, Groucho was trying to elicit laughter, but he also makes a good point – time flies. Today, all at once, time is a luxury, a necessity, an evil, a blessing and an unknown. How long with the recession last? When does my loan mature? When will the stimulus package have an effect? One common question we receive these days is “How long does it take for a lender to foreclose?” As such, we thought it might be helpful to explain, in general terms, the foreclosure timeline for Illinois projects. Disclaimer Alert: This timeline is not statutory and is just an estimate based on our experience. Also, this is for commercial foreclosures – residential is a different animal.
The foreclosure process can be roughly divided into four sections:
Pre-Foreclosure Period – This period begins the day the lender identifies your loan as a problem. It can last a few weeks to a few months depending on lender aggressiveness and project specifics. Instead of foreclosure, the parties may enter into forbearance arrangements or restructuring amendments during this period. Absent those circumstances, though, this period should last about 21-30 days while parties discuss alternatives, serve demand letters and prepare the foreclosure papers. Time Summary: 21 to 90 days
Pre-Judgment Period – Once the lender decides to foreclose, a lawsuit is filed in the county where the project is located. The complaint is filed against the borrower, any guarantors and anyone else subordinate to the lender’s mortgage. The defendants have 30 days to answer the complaint after being served (which can take some time). While not automatic, a defendant can usually obtain a one-time extension of that period. This is also the point that the lender usually asks for a receive to be appointed in commercial cases, usually right after the case is filed. If a defendant’s answer alleges defenses to the lawsuit, this period can last several months while the parties litigate. If there are no defenses (or no answer is filed), the lender will quickly ask for a judgment soon after the answer period expires. Time Summary: 45-90 days (unless defenses - then ???)
Judgment – Once answers are filed and any defenses are overcome by the lender, the court will enter a judgment ordering the sale of the property. The law provides for a 90 day redemption period after judgment during which the borrower can repay the entire debt, but this is waived nearly 100% of the time (but you should check). Assuming redemption was waived, the sale is published for about 30 days. Note, the judgment may include a personal judgment against any guarantors. If so, the lender can begin separate collection proceedings against other assets of the guarantor immediately. Time Summary: 30 days (if redemption not waived – then 90)
Sale, Confirmation and Recording – Once the sale is held and a winner declared, the lender asks the court to approve the sale. Once approved, the sheriff issues a deed to the winner (usually the lender – See DRR Issue #5 from 1/28/09) which is then recorded to formally transfer title to the winning bidder. If necessary, the winner may evict any party whose interest was terminated through the foreclosure (the borrower or maybe a defaulted tenant). If the lender waited to get a judgment against a guarantor until after the sale, the lender can now get a personal judgment against a guarantors for the difference between the auction price and the mortgage debt. Time Summary: 15-30 days
This process has the potential of being quick in Illinois if you have an aggressive lender, an uninterested borrower and an open court docket. In a perfect world, the it could take less than 5 months. However, we don’t live in that world and it usually takes at least 7-8 months - even in uncontested situations. The time-line varies depending on relationships (or lack thereof) and other factors like: project quality and distress level, availability of guarantor recourse, property risks (successor developer liability, environmental, tenant), available defenses to foreclosure, etc.
Back to the issue of time. Whether 5 months or 10 months is long enough, no one can tell. However, time is rarely the enemy of a distressed property owner. Time gives you the opportunity to attempt create solutions and alternatives to foreclosure. Finding the opportunities to increase the time you have to save a project is crucial. On the flip-side, knowing when the time has run out can save you significant dollars. Knowing the foreclosure time-line generally can help each person in the process find opportunities.
© 2009 Levenfeld Pearlstein, LLC© 2013 Levenfeld Pearlstein, LLC