Illinois Security Deposit Return Act amended to protect tenants from foreclosure

State of IllinoisThe Illinois Security Deposit Return Act was amended over the weekend.  House Bill 1674 amends both the the Illinois Mortgage Foreclosure Law and the Illinois Security Deposit Return Act.  The law is intended to protect the security deposits of tenants whose landlords go into foreclosure by first amending the foreclosure law to require that for mortgaged real estate, a court ordering a Sheriff’s foreclosure sale shall also require that the foreclosed property owner shall transfer all security deposits received and interest thereon to the foreclosure purchaser along with an accounting of the deposits that includes the name and address of each  tenant whose money is held.

Basically, this means that if a landlord is foreclosed upon, the landlord needs to turn over all security deposits and interest to whoever wins the property at the Sheriff’s sale.

This law has some holes in it and we will have to see how it is implemented.  First, many foreclosures are “uncontested”.  That is, the property owner does not appear in the lawsuit or participate.  How will the Courts be enforcing their turnover order?  Will it be the foreclosing bank who pursues the foreclosed property owner?  Can the tenant?  We will have to see.

The second part of the legislation adds a new section (section 1.2) to the Illinois Security Deposit Return Act that requires that when a landlord transfers a security deposit and interest to a foreclosure buyer, that buyer shall be liable to the tenant for the deposit and interest and goes on to require that within 21 days after the transfer of the security deposits and receipt of the name and address of any lessee who paid a deposit, the foreclosure purchaser shall post a written notice on the primary entrance of each dwelling unit at the property stating that the purchaser has acquired the security deposit paid by the former owner.

In a press release, Governor Quinn’s office says:

House Bill 1574, sponsored by Rep. Elizabeth Hernandez (D-Cicero) and Sen. Jacqueline Collins (D-Chicago), protects tenants in foreclosed properties by requiring a mortgagor to transfer security deposits and accumulated interest to the purchaser of rental properties with five units or more.

Prior to this legislation, the security deposits of tenants in foreclosures that became bank-owned were not protected under Illinois law. The new law requires all new owners of rental properties – including banks following a foreclosure – to assume liability for any transferred security deposits. Residents of the purchased property must be notified within 21 days that their security deposit has been transferred to the purchaser. The legislation was proposed by the Sargent Shriver National Center on Poverty Law.

“This legislation represents an important step towards protecting innocent tenants in foreclosed properties,” said Sam Tuttle, Housing Staff Attorney from the Sargent Shriver National Center on Poverty Law.

The laws goals are admirable but I can’t find any statutory teeth that will make a landlord in foreclosure (not the best target for a tenant lawsuit) actually turn over security deposits to the foreclosing bank.  Time will tell as to whether this law protects tenants or just adds another step of bureaucracy to the foreclosure law.

About Richard Magnone

Co-founding member of Reda | Ciprian | Magnone, LLC, attorney at law and Illinois licensed lawyer since 1996.
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