Illinois’ Right to Possess Statute Aims to Protect Tenants from Landlord Foreclosure

With real estate foreclosures at near record levels, more and more renters are forced to move prematurely because their landlords are unable to stay out of foreclosure. Foreclosed rental properties are quite common.  For example, 44% of the repossessed properties sold in California last August were not owner-occupied. [1] After foreclosure, banks are not contractually obligated to let tenants occupy the premises and in most cases, tenants receive very little notice of the need to vacate. [2]  In response, the Illinois legislature recently passed a law limiting a bank’s ability to force a tenant out after the property has been foreclosed. [3]

Prior to the newly enacted Right to Possess law, a tenant had limited information about ongoing foreclosure proceedings and little time to vacate the property after judgment.   Since a landlord is not obligated to tell his or her tenants about the potential of foreclosure, most tenants did not receive notice of the need to move until the process was well underway. [4]  In many cases, the bank names the occupying tenants as defendants in the foreclosure suit to have the right to evict them after the property forecloses. [5]  The tenants are then obligated to continue paying rent to the landlord or the court-named Receiver of Rents to avoid eviction prior to foreclosure. [6]  The tenants are also obligated to file an appearance form with the court to continue receiving information about the proceeding.  [7]  If a court enters judgment in favor of the bank, the tenant may have as little as 24 hours notice before eviction.  [8]  On the day and time set forth in the Execution of Judgment, a marshal or county sheriff has the right to remove the tenant from the property and move his or her possessions to a storage facility.  [9]

The Illinois legislature recognized the problems with the current system and passed the Right to Possess law which goes into effect January 1, 2008. [10]  It specifies that a bank may only evict a tenant 120 days after notice of the foreclosure hearing or through the duration of the lease, whichever is shorter. [11]  While opponents of the statute argue the newly imposed restriction will make it more expensive for banks to do business and result in higher mortgage rates, proponents contend that the statute adds much needed tenant protection to the foreclosure process.  Some disagree with both positions, arguing that the law does very little.  Since the statute gives tenants 120 days from the notice of the hearing, not the judgment of the court, it has almost no effect on the rights of the tenants since the judgment may come months after initial notice of the hearing and the tenant is still left guessing as to the outcome. 

A law that focuses on giving tenants time to relocate after the day of judgment instead of the initial hearing would certainly be more effective than a law that gives 120 days following the notice of hearing in protecting tenants’ rights.  Nevertheless, the Right to Possess puts tenants in a better position than they were in before.  At the very least, tenants are now aware of the minimum number of days they will be permitted to occupy the premises even if the property is foreclosed.

Sources:

[1] Sue McAllister, Renters Feel the Heat of Landlord Foreclosure, MONTEREY COUNTY HERALD, Oct. 25, 2007.
[2] Legal Assistance Resource Center of Connecticut, Is Your Landlord Going Through Foreclosure?, http://www.larcc.org/pamphlets/housing/is_landlord_foreclosing.htm (last visited Nov. 3, 2007).
[3] Right to Possess, 735 ILL. COMP. STAT. 5/15-1701 (2007).
[4] Supra note 2.
[5] Id.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] Supra note 3.
[11] Id.

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