IBA Compliance Connection

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We have a commercial farm loan, and the farmland securing the loan has been the subject of litigation due to title issues for several years (the bank, the title company and the borrower are all parties in the lawsuit). The borrower now has stopped making payments, and we would like to file a foreclosure action. The borrower is a sole proprietor, and his primary residence is located on the land securing the loan. Are we precluded from sending a cure letter to the borrower because of the ongoing lawsuit? Also, are we required to send the homeownership counseling notices?

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Please note that this answer discusses the Illinois grace period notice requirement, which expired on July 1, 2016, pursuant to a sunset provision. Please see 735 ILCS 5/15-1502.5.

We are not aware of any prohibition against sending a cure letter to a borrower who also is involved in litigation involving title to the property. While this answer would change (under current law) if the borrower had filed for bankruptcy, that is not the case here.

You also should send the required Illinois counseling notice along with the HUD homeownership counseling and SCRA notices, in addition to the cure letter, since the loan is partly secured by the borrower’s principal residence.

You can find a sample Illinois counseling notice and related procedures in the IBA Forms Library. The most recent version of HUD’s homeownership counseling notice is available here, and the most recent SCRA notice is available at here. 

For resources related to our guidance, please see:

  • [Please note that this provision of Illinois law expired on July 1, 2016, pursuant to a sunset provision.] Illinois Code of Civil Procedure, 735 ILCS 5/15-1502.5 (“Except for mortgages secured by residential real estate in which any mortgagor has filed for relief under the United States Bankruptcy Code, if a mortgage secured by residential real estate becomes delinquent by more than 30 days the mortgagee shall send via U.S. mail a notice advising the mortgagor that he or she may wish to seek approved housing counseling. . . .”)
  • Homeownership Counseling Act, 12 USC 1701x(c)(4) (The requirement to send a borrower a homeownership counseling notice applies if “the home loan is secured by property that is the principal residence (as defined by the Secretary) of the homeowner; . . .”)
  • Homeownership Counseling Act, 12 USC 1701x(c)(5) (The requirement to send a borrower a homeownership counseling notice applies if “the home loan is secured by property that is the principal residence (as defined by the Secretary) of the homeowner; . . .”)
  • FDIC Compliance Examination Manual, Homeownership Counseling Act, page 1 (“In addition, the original purpose of the loan is not relevant to the notification requirement. Therefore, a mortgage on the primary residence or a commercial or agriculture loan that includes the primary residence as collateral would also be subject to this notification requirement.”)