Secured lenders benefit from proposed changes to Illinois' Civil Asset Forfeiture Law

According to a report published by the American Civil Liberties Union of Illinois and the Illinois Policy Institute, law enforcement agencies have seized and ultimately took permanent possession of more than $319 million in vehicles, land and other private property in the State since 2015 through civil lawsuits. The process governing these seizures, known as the Civil Asset Forfeiture Law, is on course to see major changes in Illinois.

On June 23, 2017, House Bill 303 (the Bill), which proposes extensive changes to Illinois’ civil asset forfeiture laws, passed through the House of Representatives by a near unanimous vote. While most outlets have highlighted the Bill’s obvious benefit—making it more difficult for the State to successfully acquire permanent possession of seized property—several of the Bill’s proposed changes benefit secured lenders that, through no fault of their own, are deprived of interests in their collateral through the forfeiture process.

Currently, secured lenders are regularly forced to protect their interests in assets that debtors pledge as collateral for loans and later subject to seizure by the State. In order to prevent its rights from being forfeited, a secured lender is required to post a bond for 10 percent of the value of the seized property and participate in a civil asset forfeiture trial. These trials are generally continued until the underlying criminal cases are concluded, causing long delays before a lender can ultimately obtain possession of property they have become entitled to. Moreover, the Illinois law expressly prohibits replevin, detinue and other repossession actions until the forfeiture trial is complete. Thus, secured lenders are forced to incur attorneys’ fees, court costs and collateral depreciation even when the underlying loan documents provide for the immediate right to repossession of collateral.

The Bill alleviates several problems currently faced by secured lenders. The Bill eliminates the requirement for secured creditors to post a bond in order to protect their interest in seized collateral. More importantly, the Bill allows secured lenders who didn’t have knowledge or reason to know of a borrower’s propensity to commit a crime with the collateral to obtain repossession of its seized collateral earlier through “Innocent Owner Hearings.” Rather than wait until the end of the underlying criminal case, secured lenders who did not know or have reason to know of a debtor’s criminal behavior will be allowed to file a motion with the court before the forfeiture trial and quickly obtain possession of the seized property. Secured lenders will need to prove their innocence by “a preponderance of the evidence.”

Gov. Rauner is currently reviewing the Bill which is set to become effective July 1, 2018.

Please check back for updates and to learn how Chuhak & Tecson’s banking attorneys can help secured lenders protect their interests.

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client alert authored by: Michael D. Leifman, Associate.