The Code of Civil Procedure has been amended to require a mortgagee (lender) to respond to a mortgagor’s (borrower) short sale offer within ninety (90) days. Senate Bill 1259 passed both houses on October 26, 2011 and was signed into law by Governor Pat Quinn on January 13, 2012 as Public Act 097-0666. It defines a “short sale” as a sale of mortgaged real estate for less than the amount owed on the mortgage. The new law applies only to residential real estate where the mortgagee has instituted a foreclosure action. It requires simply that the mortgagee respond within ninety (90) days to a mortgagor’s written request to the mortgagee to approve the short sale on the terms offered by the potential buyer. It does not require that the mortgagee accept the offer. Nor does the new law stay or delay the pending foreclosure in any way.
Compared to its original version introduced in the Senate, the law passed by both houses provides substantially less protection for the homeowner. The original version required the mortgagee to respond within 30 days and required the mortgagee to accept the short sale unless there was a reasonable justification to not do so. Reasonable justification could not include that the proceeds of the short sale would be insufficient to satisfy the mortgage note. Further, under the original version, if the mortgagee accepted the offer, the mortgagee was also deemed to agree (i) to termination of the mortgagor’s interest in the property and acceptance of the sale proceeds in full satisfaction of the mortgage; (ii) to relieve from personal liability all persons who may owe payment under the note and mortgage; and, (iii) to waive all rights to a personal deficiency judgment against any and all persons liable under the mortgage.
Neither version, however, penalizes a mortgagee who fails to respond within the 90-day period. Ostensibly, a mortgagor could bring a motion to compel in the foreclosure action seeking an order from the judge directing the mortgagee to respond. The mortgagor, as part of the motion, could request relief in the form of sanctions. Absent an order for sanctions, there is no legislative incentive for the mortgagee to respond within the 90-day period.
The bill was intended to streamline the short sale process and relieve mortgagors from personal liability under a mortgage. In reality, it suggests the former and fails the latter. In fact, the heightened pressure on mortgagees to respond could result in the mortgagee simply rejecting the offer to beat the deadline. Nevertheless, short sales remain a viable option for homeowners who wish to avoid a foreclosure judgment and potentially even avoid a personal deficiency judgment.