Foreclosure

Foreclosure is a complex legal process whereby the owner of a property forfeits their claims to the property due to:

1. Failure to make mortgage payments (the most common reason);
2. Failure to pay property taxes;
3. Personal bankruptcy; or
4. Seizure of the property by the government due to illegal activities by the owner.

Failure to make mortgage payments triggers a series of legal actions that ends with the termination of the present owner’s rights to the property and sale, typically at public auction.

Illinois regulates three types of foreclosure: Judicial Foreclosure, Deed in Lieu of Foreclosure and Consent Foreclosure.

• Judicial Foreclosure: In this method, the court rules that the owner is in default (i.e., they have not paid their mortgage) and the property is to be sold at public auction. Properties are listed with the Cook County Circuit Court’s and on foreclosure listing Websites such as Foreclosure.com, Foreclosure Free Search and Foreclosure Net. See the previous section, Auctions, for information on public auctions.

• The exception to this rule is for properties financed with a federal government-backed mortgage, such as a VA Loan. In this situation, the government agency that sponsored the loan will secure the property and sell it according to its own auction procedures. How to purchase government-owned property is discussed in greater detail later in this chapter. 

• Deed in Lieu of Foreclosure: The mortgage borrower gives the deed to the property, as well as his/her interest and claims, to the lender, who then sells the property. The deed is the legal document that transfers title of the property to the lender, and the title is the legal document that denotes ownership. How to purchase property through lenders is discussed in greater detail later in this chapter. 

• Consent Foreclosure: The court gives absolute title to the lender.

In addition to the above methods, you can approach a property owner on the verge of foreclosure to craft a purchase agreement with them and their lender. In this situation, everyone wins. Not only are you able to purchase property below market value -- the owner doesn’t have to face a foreclosure, and the lender gets a return on their investment.

Properties on the verge of foreclosure are also listed with the Cook County Circuit Court, and might be called probate properties. If you pursue this route, you have from the time the property is listed with the Court until it is sold at public auction to purchase it.

For additional information on how the foreclosure process works, see Defaulting on Your Mortgage in Chapter 8: Buying Real Estate.