estate planninglegal analysis

Illinois Court & AG Provides Life Preserver to Underwater Homeowners

By July 4, 2016No Comments

Philadelphia Redlining Map from 1936In our probate practice, my firm occasionally provides services to individuals who inherited homes but can’t afford the existing mortgage. Depending on the circumstances, we either assist the estate administrator in obtaining a loan modification or selling the home because a loan modification isn’t feasible or wise. These circumstances usually arise because someone died intestate, i.e., without a will.

Unfortunately, thousands of Illinois homeowners are still recovering from the sub-prime lending crisis and own homes that are “underwater,” where the balances on home mortgages exceed actual home values.Consequently, they seek loan modifications in order to prevent their homes from being foreclosed upon or to mitigate the stress on their budgets.

Still, even in the wake of millions of people losing employment and homes, predatory subprime service providers haven’t stopped. Nefarious actors can no longer offer subprime loans without impunity, so they now offer subprime loan modification services, instead. And to add insult to injury, in a recent Illinois case, wrongdoers argued that they could not be found liable for their misdeeds because they weren’t providing loans.

Well, the Illinois Appellate Court in the First District disagreed.

In People v. Wildermuth, the Illinois Attorney General sued lawyer and non-lawyer business partners who “aggressively” targeted African American and Latino communities to obtain clients who were faced with losing their homes. The pair falsely promised above-average loan modification results, while charging thousands of dollars for average results or worse.

On behalf of Illinois citizens, the Illinois AG hauled the 2 into court on the grounds of reverse redlining, which the AG argued was a violation of the Illinois Human Rights Act. Redlining is the infamous discriminatory practice of refusing to provide mortgages in certain communities, such as minority communities. Reverse redlining is extending credit on unfair terms in “redlined” communities. The Illinois Human Rights Act protects citizens from such commercial discriminatory practices.

The defendants in Wildermuth argued that because loan modifications didn’t involve new loans, i.e., they weren’t providing mortgages, that the reverse redlining theory didn’t apply to them.

The Illinois Appellate Court, siding with the Illinois Attorney General, rejected their argument, stating that

[R]everse redlining includes a broader scope of discriminatory practices involving real estate transactions and “target[ing] distressed African American and Latino homeowners … with regard to loan modification services and other actions including negotiation and procurement of loan modifications and short sales” was, included within that scope.

So, Illinois citizens who suffer from predatory reverse redlining practices now have a remedy available when they fall victim to such practices.

  • Lesson 1: The most basic of estate planning tools – life insurance that is sufficient to pay off the mortgage – would eliminate this issue for beneficiaries.
  • Lesson 2: If it seems too good to be true, it usually is.

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