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Mortgage Foreclosure Alert – Alternative Means to Sell Property Under Illinois Mortgage Foreclosure Act

March 28, 2013
Eric (Rick) S. Rein
Chair | Litigation Group

For many foreclosure sales, the typical sale process - selling the property at a court-ordered auction - is sufficient.  The result of most such sales is the bank "credit bidding" against its debt.  In certain cases, however, a traditional judicial auction may not be appropriate.  For example, the bank may not want to take title to the property or the sales price may be increased by the utilization of traditional real estate marketing efforts.  Illinois law allows banks leeway in the manner in which the property is sold - as long as the process is clearly set forth in the judgment of foreclosure.

Pursuant to the Illinois Mortgage Foreclosure Act, we have successfully appointed a receiver as the selling officer to conduct a sealed bid public auction of the property.  In such circumstances, the bank sets a minimum bid amount and the receiver markets the property using traditional methods and communicates with prospective purchasers as would a real estate broker.  As with a real estate broker, the receiver receives a commission on the sale.  Prospective purchasers then submit bids to the receiver, with the highest bidder being awarded the property after confirmation of the sale by the Court.

Although utilizing a non-traditional sales method may allow the bank to receive a higher sale price, the receiver will almost certainly command a higher commission than a traditional sales officer. This also results in a higher deficiency judgment (should there be one) which, in turn, may cause a court to closely examine whether or not a non-traditional sales method should be used.  Such concerns are reduced, however, in situations where the bank is not pursuing a deficiency judgment or where the bank believes that a sealed bid auction will result in a higher sales price.

In short, utilizing non-traditional methods to sell foreclosed property can be a useful tool to increase interest in a property and to avoid the typical scenario of a bank "credit bidding" against its debt at a judicial auction.

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