Illinois Legislative Update - Mortgage Foreclosure Law Grace Period Notice May Be Coming Back

Sen. Iris Y. Martinez has introduced three similar amendments to a senate bill, proposing to reenact and amend Section 15-1502.5 of the Illinois Mortgage Foreclosure Law governing the so-called “Grace Period Notice.” 735 ILCS 5/15-1502.5. The amendments were introduced on May 5, 2017, to senate bill 568 (“SB 568”). As a reminder, Section 15-1502.5 became ineffective on January 1, 2016, because it contained an internal repealing date. Prior to its expiration, the mortgagee had to send a notice to the mortgagor who is more than 30 days late on its payment advising the mortgagor of certain rights. The mortgagee could not take any legal action until 30 days after the mailing of the notice, during the so-called “grace period.” During that time, the mortgagor has an option of seeking counseling or just buying time to reinstate the loan. Under the original version, the notice had to be sent only once during the life of the loan, unless any mortgagor had previously filed for bankruptcy; this was called the “bankruptcy exception.” Non-compliance or an inability of the mortgagee to prove compliance with the section is an affirmative defense to a foreclosure action. The section only applied to residential real estate that was occupied as the mortgagor’s primary residence.

Under the proposed amendments, most of the original homeowner protections would remain intact, with an introduction of a few additional protections. For example, under sub-section (b), the “bankruptcy exception” would be eliminated. In other words, the mortgagee would have to comply with the grace period notice requirement before instituting an action, even though, the mortgagee had previously filed for bankruptcy. Under sub-section (c), the “one time rule,” which meant that the grace period notice only had to be sent once during the life of the loan—irrespective the number of times the mortgagor may have defaulted, would also be eliminated. This would impose a burden on the mortgagee to send the grace period notice each time it seeks to file a foreclosure action. Additionally, under this sub-section, if a bankruptcy is filed, the duty to send the grace period notice is tolled until relief from the automatic stay in the bankruptcy case is obtained. The mortgagee would be required to mail the notice in order to satisfy the new requirements only after the automatic stay is lifted. Furthermore, under the third amendatory version, the 30-day grace period would be extended to 120 days, which would effectively bar the filing of an action until 120 days passed from the date of default. Under sub-section (j), the section would not apply only if the mortgagor did not occupy the property as the primary residence at the time the duty to mail the grace period notice arose. Finally, the newly introduced sub-section (k), under the third version of the bill, imposes the duty on the mortgagee to provide the grace period notice to the mortgagor who is in default during the pendency of a bankruptcy case, subject to narrow exceptions.

So based on the proposed changes, it’s clear that the intent of the new legislation would be to provide additional protection to homeowners that was not available prior to July 1, 2016. The amendments seek to take away the exceptions that allowed the mortgagees not to comply with the section, and instead place an additional burden on the foreclosing mortgagee to provide the grace period notice, and extend the grace period during which an action cannot be taken against the defaulting mortgagor.

It remains to be seen if the proposed amendments will be engrossed into SB 568. As it currently stands, the bill has been read on the floor and the amendments assigned to a committee for consideration. But there’s certainly a high likelihood that we’ll see the reenactment of the section governing the grace period notice, in some form, sooner than later.