Warranty Deed in Lieu of Foreclosure
(Commercial) (Pro-Lender) (IL)

Summary

This template is for a deed in lieu of foreclosure that may be used to transfer title to collateral under a defaulted loan to a lender in Illinois. This template is drafted from the perspective of the lender but also contains guidance for the borrower and the guarantor. This template contains practical guidance and drafting notes. Illinois permits only judicial foreclosures. This means that to foreclose on a property without the consent of the borrower, a lender must file and successfully prosecute a foreclosure lawsuit to judgment and, usually, judicial sale of the property. See Illinois Mortgage Foreclosure Law (IMFL), 735 ILCS 5/15-1101 et seq. Non-IMFL foreclosures are exceedingly rare. Generally, the IMFL is the exclusive remedy for anyone who seeks to foreclose on a mortgage, real estate installment contract, or collateral assignment of beneficial interest made as part of a land trust, provided that the mortgage, installment contract, or land trust was made after July 1, 1987 (the effective date of the IMFL). See 735 ILCS 5/15-1106(1)–(3). The IMFL has rendered power of sale provisions in mortgages or other agreements completely unenforceable (even if they are not required to be foreclosed under the IMFL's provisions). See 735 ILCS 5/15-1405. A quicker and less expensive—albeit riskier—method for a lender to take title to the real property is through the negotiated process of a deed in lieu of foreclosure transaction whereby title to real property is transferred by a defaulting borrower to a secured lender via a deed in lieu of foreclosure. With respect to formatting, the deed in lieu of foreclosure should be formatted in accordance with the document requirements of 55 ILCS 5/4-12002, as well as any county-specific requirements. Transfer and mortgage documents are recorded in the registry of deeds of the county where the land lies. The deed in lieu of foreclosure deed should be recorded in the same place as the mortgage was recorded. In Illinois, both mortgages and deeds of trust are used in commercial real estate financing transactions, but mortgages are the prevailing type. See 765 ILCS 5/11. The term mortgage is used throughout this template but should be revised to reflect the actual documents used. This template is suggested for use in Illinois; however, local counsel should be engaged to ensure that all state-specific requirements are met, and the agreement and ancillary documents comply with Illinois law in all respects. For a detailed discussion of deed in lieu of foreclosure agreements in commercial real estate loans, see Foreclosure of Real Property. For further guidance on commercial real estate financing transactions in Illinois, see Commercial Real Estate Acquisition Loan Resource Kit (IL), Commercial Real Estate Financing (IL), and Commercial Real Estate Financing Transactions (IL). For a discussion of the typical borrower default and lender remedy provisions in commercial real estate financing documentation in Illinois, see Commercial Real Estate Loan Defaults and Remedies (IL). For a template Illinois forbearance agreement, see Forbearance Agreement (Commercial Real Estate Loan) (IL). For a full listing of key content covering commercial and residential foreclosures in Illinois, see Foreclosure Resource Kit (IL). For a detailed discussion of workouts of commercial real estate loans, see Workouts of Commercial Real Estate Loans.