Mastering Junior Lien Strategies in Illinois Foreclosure Proceedings

Gain valuable insights into handling junior lien issues in Illinois mortgage foreclosures with this comprehensive guide. Learn how to navigate the complexities of junior liens, understand their impact on foreclosure proceedings, and explore strategic options for both plaintiffs and defendants.

‍Perspective as a Plaintiff with a Senior Lien

‍In General

A junior lien is defined as lien that holds a lower priority than that of the foreclosing mortgage. Typically, a lien that is recorded after the foreclosing mortgage and bears a recording number that is greater than foreclosing mortgage holds a lower priority. Under certain circumstances, a lien that was recorded prior to the foreclosing mortgage and has a recording number lower than the foreclosing mortgage holds a lower priority. This occurs when the lien is subject to a valid, recorded subordination agreement. There are limited circumstances where a lien recorded after the foreclosing mortgage and bears a recording number greater than foreclosing mortgage has a senior priority by law, for example a mechanic’s lien. A plaintiff would still name the holder of the mechanic’s lien as a defendant in their foreclosure.

Naming Junior Liens in a Foreclosure

To obtain clear title in a mortgage foreclosure, you must clear all junior liens by naming them as defendants and obtaining judgment against them. The legal authority to name them as defendants under the Illinois Mortgage Foreclosure Act is found in 735 ILCS 1501(b)(10) which allows a plaintiff to name, “Any other mortgagee or claimant” in its complaint. There are some exceptions where a junior lien does not need to be named. The most common example is when a junior lien has expired. Most non-mortgage liens expire seven years after they are recorded. Mortgages, according to 735 ILCS 5/13-116 of Illinois Mortgage Foreclosure Act, expire 20 years after the maturity date of the mortgage, or if there is no maturity date on the face of the mortgage, 30 years after the date of the mortgage. A plaintiff may also name a prior recorded lien to challenge its priority.

Common Foreclosure Issues

During a foreclosure, there are several common issues that may arise from junior lien holders. A junior lien holder will commonly file an appearance to monitor the foreclosure or file an answer with a prove up affidavit to prove up the amount of its lien to claim surplus funds from the sale, if any. However, a junior lien holder can file affirmative defenses to assert, for example, that its lien is not secured by the subject property, and it should be dismissed. Or the junior lien holder can dispute priority.  

Junior Liens are Sale

At sale, a junior lien holder may take one of a few actions. A junior lien holder can bid at the senior’s foreclosure sale to purchase the subject property. If the junior lien holder has proven up its lien, it is allowed to cash bid up to the amount owed on the senior’s judgment and credit bid to the extent that their bid exceeds the amount of the senior’s judgment. If the junior lien holder has the winning bid, it will become the owner of the subject property. If the junior lien holder has proven up its lien during the foreclosure, the amount owed on its lien is added to the report of sale.

Junior Liens Post Sale

If not a winner at the sale, a junior lien holder can petition for the surplus funds from the sale of the subject property, if any. To do so, it would have had to have filed its appearance, answer and proven up the amount of its lien in the senior’s foreclosure case and be listed as valid and sustaining junior lien in the senior’s entered judgment of foreclosure.  

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Perspective as a Defendant with a Junior Lien

Options in a Senior Lien’s Foreclosure

A junior lien holder has serval options to approach the foreclosure of senior mortgage. The decision on how to proceed is a business decision. The first option is to only monitor the case of senior mortgage. To participate, an appearance can be filed at any time during the senior mortgage’s case. The second option is to file an answer and prove up affidavit to prove up the amount it is owed and to preserve its right to claim a surplus, if any, or credit bid at the sale. While the timing of when an answer and prove up affidavit must be filed varies from jurisdiction to jurisdiction, and even sometimes from judge to judge within a particular jurisdiction, it is a best practice to file an answer and prove up affidavit as soon in the case as possible. If done after judgment, the plaintiff’s judgment will need to be amended by motion. As a general rule, the cut off to file an answer and prove up affidavit is before the entry of the order approving sale. However, waiting until after the senior has entered judgment runs the risk of causing extra litigation if the motion to amend is challenged by the borrower or another lien holder.

At Sale

A junior lien holder can bid on and purchase the subject property at sale. If the junior lien holder is the successful bidder, it will own the subject property. If a junior lien holder did not prove up its lien, the entire bid must be a cash bid. If a junior lien holder proves up its lien in the senior’s judgment, it can cash bid up to the amount of the senior’s judgment and credit bid for any amount beyond up to the amount of its proved up lien and include the amount of its lien in the report of sale.

Post Sale

If a junior lien holder has proven up its lien and chosen not to bid at sale, a junior lien holder can petition the court to claim the surplus funds, if any. The petition for surplus funds is filed after the entry of the order to approve sale.

Other Options and Defenses

A junior mortgage can also file its own foreclosure. This foreclosure will proceed as a separate case from the senior mortgage’s case and can be filed before or during the senior lien’s case. The purchaser of the subject property at the sale will own the subject property subject to any senior liens. The senior lien holder would not be named in the junior’s foreclosure.

A junior lien can file affirmative defenses to assert, for example, that its lien is not secured by the subject property, and it should be dismissed, or to dispute priority of any of the senior liens.  

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Key Takeaways

1. Understanding Junior Liens: Junior liens in Illinois are those that hold a lower priority than the foreclosing mortgage. They can be recorded either before or after the foreclosing mortgage, with their priority determined by the recording number and any subordination agreements.

2. Handling Junior Liens in Foreclosure: To obtain clear title in a mortgage foreclosure in Illinois, all junior liens must be cleared by naming them as defendants and obtaining a judgment against them. There are exceptions, such as when a junior lien has expired.

3. Options for Junior Lien Holders: Junior lien holders in Illinois have several options when dealing with a senior mortgage foreclosure. They can monitor the case, file an answer and prove up affidavit, bid at the sale, or file their own foreclosure. Each option has its own implications and should be considered carefully.