06/30/2010 05:12 am ET | Updated May 25, 2011

Illinois Legislature Passes Bill to Protect Homeowners

On April 29, 2010, the Chicago Tribune reported that the number foreclosures reaching completion in the Chicago area was higher in the first quarter of 2010 than in any other period during the past five years. This is according to Woodstock Institute data released the same day.

While the worsening crisis in the Chicago region certainly highlights the shortcomings of federal foreclosure prevention programs like the Home Affordable Modification Program (HAMP), HAMP servicers have also been failing Illinois homeowners. Advocates report that homes are being lost to foreclosure even while homeowners are still trying to modify their loans under HAMP, in violation of the program. Indeed, the National Consumer Law Center and the National Association of Consumer Advocates reports that in a recent survey of over 100 consumer advocates, nearly 95% of the surveyed advocates have represented homeowners in cases where a servicer tried to proceed with a foreclosure sale without a completed review under HAMP. HAMP can hardly be successful if homeowners who apply to the program are losing their homes because the program is violated. Illinois homeowners deserve the opportunity to try and benefit from federal foreclosure prevention programs, even if they are not as effective as was hoped.

Recognizing the need to improve the effectiveness of the HAMP program, the Treasury Department issued new directive 10-02 on March 24, 2010 that, among other things, (a) clarifies that servicers must inform homeowners who meet basic criteria about the HAMP program, (b) prohibits referrals to foreclosure until either the homeowner has been evaluated and determined ineligible for HAMP or reasonable solicitation efforts have failed; and (c) requires that a servicer of a mortgage potentially subject to HAMP certify to the foreclosure attorney or trustee that the homeowner is not HAMP-eligible before a home can go to foreclosure sale.

Although these new rules give foreclosure attorneys better guidance about when to file cases and proceed to sale, the directives still rely on the compliance of servicers. In order for the HAMP program to truly benefit homeowners, they must be able to stop foreclosure court proceedings when the HAMP program is violated before their homes are lost.

A proposed Illinois law may help. HB 5735, spearheaded by former Representative Deborah Graham, Representative Al Riley, and Senator Jacqueline Collins, makes clear that if a home goes to foreclosure sale in violation of the Making Home Affordable Program (of which HAMP is a major component), the homeowner can have the court set aside the sale, so that the owner can continue to work through the federal program. HB 5735 should be heading to Governor Quinn's desk shortly. We implore Governor Quinn to sign the important protections of HB 5735 into law.