In the “Liability after Foreclosure” section on page 5 of the Closing Disclosure, should we indicate that “state law may protect you from liability for the unpaid balance” or that “state law does not protect you from liability for the unpaid balance”?

Lenders extending mortgage loans in Illinois should check the box on the Closing Disclosure indicating that “state law does not protect you from liability for the unpaid balance” to reflect that a borrower may remain responsible for any deficiency after foreclosure under Illinois law.

The Illinois Mortgage Foreclosure Law states that a foreclosure does not affect a mortgagee’s rights to obtain a personal judgment against a borrower in the event of a deficiency, and it expressly permits mortgagees to seek personal judgments against borrowers for “any balance of money that may be found due to the plaintiff, over and above the proceeds of the sale,” provided certain prerequisites are met. Additionally, several Illinois courts that have permitted a mortgagee to pursue a money judgment against a borrower for a deficiency after the foreclosure.

For resources related to our guidance, please see:

Regulation Z, 12 CFR 1026.38(p)(3) (Requirement in Closing Disclosure to include a “brief statement of whether, and the conditions under which, the consumer may remain responsible for any deficiency after foreclosure under applicable State law, a brief statement that certain protections may be lost if the consumer refinances or incurs additional debt on the property, and a statement that the consumer should consult an attorney for additional information, under the subheading ‘Liability after Foreclosure.’”)

Illinois Mortgage Foreclosure Law, 735 ILCS 5/15-1511 (“Deficiency. Except as expressly prohibited by this Article, foreclosure of a mortgage does not affect a mortgagee’s rights, if any, to obtain a personal judgment against any person for a deficiency.”)

Illinois Mortgage Foreclosure Law, 735 ILCS 5/15-1504(f) (“Request for Deficiency Judgment. A request for a personal judgment for a deficiency in a foreclosure complaint if the sale of the mortgaged real estate fails to produce a sufficient amount to pay the amount found due, the plaintiff may have a personal judgment against any party in the foreclosure indicated as being personally liable therefor and the enforcement thereof be had as provided by law.”)

Illinois Mortgage Foreclosure Law, 735 ILCS 5/15-1508 (“Deficiency Judgment. In any order confirming a sale pursuant to the judgment of foreclosure, the court shall also enter a personal judgment for deficiency against any party (i) if otherwise authorized and (ii) to the extent requested in the complaint and proven upon presentation of the report of sale in accordance with Section 15-1508. Except as otherwise provided in this Article, a judgment may be entered for any balance of money that may be found due to the plaintiff, over and above the proceeds of the sale or sales, and enforcement may be had for the collection of such balance, the same as when the judgment is solely for the payment of money. Such judgment may be entered, or enforcement had, only in cases where personal service has been had upon the persons personally liable for the mortgage indebtedness, unless they have entered their appearance in the foreclosure action.”)

Metrobank v. Cannatello, 964 N.E.2d 656, 663 (1st Dist. 2012) (The Illinois Mortgage Foreclosure Law “provide[s] the foreclosure court with the authority to enter personal judgments for any deficiencies after sale of the real estate where defendant has been personally served or has appeared.”)
St. Ange v. Chambliss, 71 Ill. App. 3d 658, 660 (1st Dist. 1979) (“In accordance with this statute, the Illinois cases hold that in any foreclosure proceeding the creditor may proceed against the property and in addition may obtain a money judgment in personam for any deficiency.”)