If you’re facing foreclosure in Illinois, one of the most important things you should understand is whether the lender has the right to foreclose on your home. This is called standing. In simple terms, standing means the lender must prove that they have the legal authority to take your house because you haven’t paid your mortgage.
Unfortunately, many homeowners don’t realize that a lender’s paperwork isn’t always in order, especially when mortgages are sold or transferred between banks. If the lender can’t prove they own your loan, they might not be able to foreclose. This blog is here to explain standing in clear, easy-to-understand language, so you can know what to look for if your home is in foreclosure.
In Illinois, lenders must follow strict rules to prove they have standing. Knowing about this can give you an advantage in delaying or even stopping a foreclosure. We’ll break down what standing means, how it affects your case, and what steps you can take if you think your lender doesn’t have the proper standing to foreclose on your home.
What Illinois Law Requires for Foreclosure Standing
To initiate a foreclosure in Illinois, the plaintiff must meet specific legal requirements to establish standing. These requirements are governed by the Illinois Mortgage Foreclosure Law and the Illinois Supreme Court Rules.
1. Paragraph N of the Foreclosure Complaint
- Under Illinois law (735 ILCS 5/15-1504), the foreclosure complaint must indicate the capacity in which the plaintiff is acting—whether they are the legal holder of the mortgage, a trustee, agent, or another relevant entity. This clarifies whether the lender has the right to enforce the loan and foreclose.
2. Illinois Supreme Court Rule 113(b)
- Illinois Supreme Court Rule 113(b) requires the lender to attach a copy of the promissory note, including any endorsements or allonges, to the foreclosure complaint.
By meeting these initial requirements, the lender establishes evidence of their standing. However, this evidence can still be challenged, particularly during motions to dismiss, with affirmative defenses or at the summary judgment stage of the foreclosure process, where the court examines whether the lender has met its burden of proof.
How Lenders Prove Standing
In foreclosure cases, lenders must demonstrate standing by showing they have the legal right to collect on the mortgage. This involves two key elements: proving possession of the original promissory note and providing proper documentation of any assignments or transfers of the mortgage.
Holding the Note
The first way a lender proves standing is by showing they hold the original promissory note, which is the document you signed agreeing to repay the loan. This note represents the debt, and the lender must prove they possess it. If the note has been transferred or endorsed to another party, the lender must also show proof of that transfer, called an endorsement, to confirm they are the rightful owner of the debt. Without this, the lender may lack standing to foreclose.
The Uniform Commercial Code (UCC) defines “holder” to mean “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.” 810 ILCS 5/1–201(21)(A).
Notes are unique because they can be either endorsed to a specific party or endorsed in blank. When a note is endorsed in blank, whoever physically holds the original note has the right to collect on the loan. This is why many foreclosure cases hinge on the plaintiff’s ability to produce the original physical note in court, often requiring the transportation of this sensitive document from the lender’s storage to open court.
Assignments of Mortgage
When loans are sold or transferred between companies, the new lender must provide a document called an “assignment of mortgage” to prove the transfer of ownership rights. This assignment is typically filed with the recorder of deeds in the county where the property is located. While recording the assignment is not strictly required to legally transfer the mortgage between parties, it is essential if the lender intends to foreclose on the property. The recorded assignment establishes the new lender’s legal right to foreclose. If the assignment is missing or invalid, it can be a basis to challenge the lender’s standing in court.
How Courts Handle Standing in Foreclosure Cases
Many of the foreclosure laws we rely on today were shaped during the housing crisis of the late 2000s. During the real estate bubble, lenders were focused primarily on originating mortgages and selling them off quickly, often without concern for long-term consequences. To streamline this process, the Mortgage Electronic Registration Systems (MERS) was created. MERS allowed for a single registered agent to facilitate the transfer of mortgages at rapid speeds, enabling loans to be sold and reassigned multiple times with minimal friction.
However, when the housing market collapsed, this rapid transfer process created a significant problem: it was often unclear who actually owned the mortgage. Lenders had been more concerned with originating and selling loans than keeping track of ownership records. As a result, when foreclosures skyrocketed, courts faced the complex task of determining which parties had the legal right to foreclose. This chaos led to pivotal court decisions defining the rules for proving standing in foreclosure cases. Courts began to scrutinize lenders’ claims of ownership more closely, requiring clear documentation before allowing foreclosure actions to proceed.
One of the most significant cases to address this issue was Bayview Loan Servicing, L.L.C. v. Nelson, (2008). This case clarified that lenders must provide more than just an allegation of standing; they must present clear evidence of their right to foreclose, such as holding the note or valid assignments. Courts began requiring lenders to submit proper documentation proving their authority to proceed.
However, while Bayview set an important precedent, later court decisions placed the responsibility on homeowners to raise lack of standing as an affirmative defense and not as a motion to dismiss under 735 ILCS 5/2-615. If the homeowner doesn’t challenge standing in their response to the foreclosure complaint, they may lose the opportunity to contest it, even if the lender fails to provide adequate proof.
The Evolution of Standing Requirements
Courts have faced challenges in establishing consistent guidelines for situations where a lender files a foreclosure complaint without yet possessing the note or where the note hasn’t been properly endorsed. In these cases, courts often look to Illinois Supreme Court Rule 113(b), which permits lenders to file foreclosure complaints with the documents “as they currently exist.” This means that even if the lender doesn’t have the properly endorsed note at the time of filing, they can still move forward by submitting the necessary documentation later.
This approach was reinforced in U.S. Bank Tr. v. Lopez, (2018), where the court allowed the plaintiff to file as a “nonholder in possession of the note with the rights of a holder.” This ruling clarified that as long as the lender later provides evidence, such as the note or endorsement, they can still establish standing to proceed with foreclosure, even if the documents were insufficient at the time of the initial filing.
At a minimum, there must be reliable and competent evidence pointing to the plaintiff as the rightful holder of the note at the time the case is filed. In Deutsche Bank Nat’l Trust Co. v. Gilbert, (2012), the note and mortgage identified Mortgage Electronic Registration Systems, Inc. (MERS) as the mortgagee, not the plaintiff. The assignment of the mortgage to the plaintiff occurred after the foreclosure complaint had been filed, and the plaintiff’s attempt to show an earlier assignment through an affidavit was deemed inadmissible. The court ruled that Deutsche Bank lacked standing at the time the foreclosure was initiated, as the proper assignment was not in place. As a result, the court reversed the judgment of foreclosure, vacated the order approving the sale, and dismissed the foreclosure.
The doctrine of standing requires that the party initiating the foreclosure have a real and direct interest in the outcome. Without this connection, as highlighted in Wexler v. Wirtz Corp. (2004), the court has no basis to consider the case.
How to Defend a Foreclosure Case When the Bank Lacks Standing
Lack of standing must be raised as an affirmative defense, meaning the burden falls on the homeowner to prove the lender doesn’t have the legal right to foreclose.
- Check for Assignments and Endorsements
Carefully examine whether the bank initiating the foreclosure has valid assignments of the mortgage and whether the promissory note has been properly endorsed to them. If these documents are incomplete or invalid, it may provide grounds to challenge the bank’s standing. Pay close attention to the specific language used in the foreclosure complaint, the note, and the assignments. Even minor discrepancies, such as an entity listed as “LLC” on one document and as “NA” or “Inc.” on another, could be sufficient to argue that the bank lacks the legal standing to proceed with the foreclosure. - Raise Lack of Standing in the Answer
Illinois courts have made clear that lack of standing must be raised as an affirmative defense in the homeowner’s answer to the foreclosure complaint. Under cases like Greer v. Illinois Housing Development Authority, (1988), failure to raise this defense early on could result in waiving the right to contest standing later. - Responding to a Motion to Strike Affirmative Defenses When a homeowner raises the issue of standing as an affirmative defense in a foreclosure case, it is common for the bank to file a motion to strike those defenses. The bank will typically argue that the defense is either irrelevant or insufficiently supported. Your response to the motion to strike must directly address why the bank lacks standing. This may involve pointing out gaps or errors in the lender’s documentation, such as missing or improperly endorsed assignments, or discrepancies in the chain of title. Explain in clear and specific terms how these issues affect the bank’s legal authority to foreclose.
Can Challenging Standing Save Your Home?
Challenging a lender’s standing can be a powerful defense in a foreclosure case, but it might not be enough on its own to save your home. When you argue that the lender lacks standing, you are essentially claiming that they don’t have the legal right to foreclose because they cannot prove they hold the note or have a valid assignment of the mortgage. While this can delay or even halt the foreclosure, the lender may be able to fix the issue by simply providing missing documents or correcting errors in the paperwork. In some instances, the lender might voluntarily dismiss the case and refile a new foreclosure action with the appropriate paperwork.
It’s also important to remember that even if the lender’s paperwork is temporarily incomplete, you are still technically in default if mortgage payments haven’t been made for a significant period. Courts and judges are often hesitant to dismiss foreclosure cases permanently based solely on procedural issues, as they are unlikely to grant a “free house” without addressing the underlying debt.
Other Foreclosure Defenses
In addition to challenging standing, homeowners should consider other foreclosure defenses that may better protect their home. Loan modification programs can reduce your monthly payments, although they may not be available in all instances or can be improperly denied. Bankruptcy will halt foreclosure proceedings and provide time to reorganize finances. Exploring these alternatives alongside a standing challenge gives you a more comprehensive defense strategy.
If you’re facing foreclosure, it’s essential to also understand the downsides including deficiency judgments. Consult with an experienced Illinois foreclosure attorney to assess your case, determine whether standing or other defenses apply, and develop the best strategy to protect your home which may include strategic default. An attorney can help you navigate the legal complexities, determine if your case qualifies for removal to federal court, and work toward the most favorable outcome for your situation.
