Friday, October 23, 2020

FYI: 7th Cir Rejects FDCPA Claims That Collection Letters Falsely Implied Future Interest and Late Fees

The U.S. Court of Appeals for the Seventh Circuit recently held that factually accurate collection letters that did not make explicit or implicit suggestion about future outcomes did not violate the FDCPA as they would not confuse or mislead the reasonable unsophisticated consumer.

 

A copy of the opinion is available at:  Link to Opinion

 

A consumer defaulted on a debt which was then placed with a collection firm. The first collection firm handling the debt sent a collection letter to the consumer stating "The amount of your debt is $425.86. Please keep in mind, interest and fees are no longer being added to your account. This means every dollar you pay goes towards paying off your balance."

 

The consumer understood this to mean that the debt had been "charged-off" and would no longer accrue late charges, or other fees for any reason.

 

The debt was then placed with a second collection firm who mailed the consumer a letter informing him of the new placement and providing an itemized balance along with an offer to resolve the debt which included a notice that stated "no interest will be added to your account balance through the course of [collection firms] collection efforts concerning your account." The itemized breakdown showed a zero balance for "interest" and "other charges."

 

Upon receipt of the letter, the consumer filed suit alleging the letter misleadingly implied that the creditor would begin to add interest and possibly fees to the previously charged-off debt if the consumer failed to resolve his debt with the collection firm.

 

Specifically, he alleged that he was confused by the discrepancy between the first collection firm's letter that "interest and fees are no longer being added to your account" and the second collection firm's implication that the creditor would begin to add interest and possibly fees to the debt once the second collection firm stopped its collection efforts.

 

The consumer alleged the letters violated the FDCPA by supposedly using false, deceptive, and misleading representations or means to collect a debt, and by supposedly failing to disclose the amount of the debt in a clear and unambiguous fashion.

 

The trial court granted the collection firms' motion to dismiss finding that the second letter had accurately and correctly disclosed the amount of the debt, and did not imply fees or interest would be added to the debt in the future.  In addition, the trial court noted that even if the second letter did imply that fees and interest would begin to accrue at a later date if the debt remained outstanding, the statement was not false or misleading given that Wisconsin law provided for the assessment of fees and interest on "static" debts in certain circumstances.

 

The consumer appealed.

 

The Seventh Circuit began its review noting the FDCPA requires debt collectors to send consumers a written notice disclosing "the amount of … debt" they owe. 15 U.S.C. § 1692g(a)(1). This disclosure must be clear. See Janetos v. Fulton Friedman & Gullace, LLP, 825 F.3d 317, 319 (7th Cir. 2016) ("If a letter fails to disclose the required information clearly, it violates the Act, without further proof of confusion.").

 

The Seventh Circuit acknowledged there is no dispute that the letter disclosed the amount owed, but rather the pertinent question was whether the second letter, by providing a breakdown of consumer's debt which showed a zero balance for "interest" and "other charges," violated 15 U.S.C. §§ 1692e and 1692g(a)(1) by implying that interest and other charges would accrue if the debt remained unpaid.

 

The Court noted that a debt collector violates § 1692e by making statements or representations that "would materially mislead or confuse an unsophisticated consumer" defined as a consumer who is "uninformed, na├»ve, or trusting" but "nonetheless possesses reasonable intelligence, basic knowledge about the financial world, and is wise enough to read collection notices with added care." Koehn v. Delta Outsource Grp., Inc., 939 F.3d 863, 864 (7th Cir. 2019).

 

The Seventh Circuit then examined its ruling in Koehn where it found a similar claim could not proceed. In Koehn, the consumer claimed the phrase "current balance" was misleading because it implied that her balance could grow even though her account was actually "static."

 

Rejecting this argument, the Court explained that "dunning letters can comply with the Fair Debt Collection Practices Act without answering all possible questions about the future. A lawyer's ability to identify a question that a dunning letter does not expressly answer ("Is it possible the balance might increase?") does not show the letter is misleading, even if a speculative guess to answer the question might be wrong."

 

The Seventh Circuit applied this logic to the letter at issue here noting that it merely detailed, correctly, that no interest or other charges had accrued from the date the creditor charged off the debt to the date of the letter. Except for the accrual of interest, the letter was totally silent as to the future and any inference made by the consumer was entirely speculative.

 

Moreover, the consumer's complaint relied heavily on the first collection firm's statement that "interest and fees are no longer being added," and the Court noted that even that statement did not say that interest and fees could never be added to the account.

 

Therefore, the Seventh Circuit found that the itemized breakdown, which made no comment whatsoever about the future and did not make an explicit suggestion about future outcomes, did not violate the FDCPA.

 

Next, the Seventh Circuit applied the same analysis to the consumer's argument that the letter attempted to mislead him when it stated "Please note that no interest will be added to your account balance through the course of [the second collection agency's] collection efforts concerning your account."

 

The Seventh Circuit held that the letter simply informed the consumer that no interest would accrue while the collection firm pursued its debt collection efforts but did not address in any way whether interest would accrue in the future after it no longer controlled the debt. The fact that a debtor may incorrectly speculate as to a possible outcome does not render a letter misleading.  Instead, it is only when a letter at least implicitly points to a possible outcome that it can become misleading.

 

Accordingly, the Seventh Circuit found that the letter complied with both §§ 1692e and 1692g and affirmed the judgment of the trial court.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 603
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Wednesday, October 21, 2020

FYI: 11th Cir Holds Debtor Cannot Use State Law to Revive Time-Barred FDCPA Claim

The U.S. Court of Appeals for the Eleventh Circuit, in an unpublished opinion, affirmed a trial court order dismissing a consumer's lawsuit holding that Georgia's renewal statute, O.C.G.A. § 9-2- 61, did not save a claim that is otherwise time-barred under the federal Fair Debt Collection Practice Act (FDCPA), 15 U.S.C. § 1692 et seq.

 

A copy of the opinion is available at:  Link to Opinion

 

On April 26, 2019, a consumer filed a complaint against a debt collector in Georgia state court alleging various FDCPA violations.  The debt collector removed the case to the United States District Court for the Northern District of Georgia.  The consumer then voluntarily dismissed the lawsuit without prejudice under Rule 41(a)(1)(A) of the Federal Rules of Civil Procedure.

 

On November 27, 2019, the consumer refiled the complaint in Georgia state court and the debt collector again removed the case to federal court.  The debt collector moved to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure claiming that the FDCPA's one-year statute of limitation barred the alleged claims.

 

As you may recall, the FDCPA provides that "[a]n action to enforce any liability created by this subchapter may be brought in any appropriate United States district court without regard to the amount in controversy, or in any other court of competent jurisdiction, within one year from the date on which the violation occurs." 15 U.S.C. § 1692k(d). 

 

Here, the debt collector argued that the FDCPA's statute of limitation barred the claims because the alleged violations occurred on May 1, 2018, May 25, 2018, and July 23, 2018, more than one year before the consumer filed the second lawsuit

 

In response, the consumer asserted that Georgia's renewal statute, O.C.G.A. § 9-2-61 served to save his otherwise time-barred claims.  The trial court dismissed the case finding that the FDCPA one-year statute of limitation controlled because "where Congress has set a specific statute of limitations, it cannot be extended by operation of state law." 

 

This appealed followed.

 

The consumer argued that Georgia's renewal statute should control despite the FDCPA's clear one-year statute of limitation.

 

Georgia's renewal statute provided in relevant part that: "[w]hen any case has been commenced in either a state or federal court within the applicable statute of limitations and the plaintiff discontinues or dismisses the same, it may be recommenced in a court of this state or in a federal court either within the original applicable period of limitations or within six months after the discontinuance or dismissal, whichever is later."

 

The Eleventh Circuit noted that the appealed turned solely on this one issue because if the renewal statute does not control, then the FDCPA's one-year statute of limitation barred the consumer's claims.

 

The Eleventh Circuit had little trouble rejecting the consumer's argument because the "case law is clear that, where Congress has set an express statute of limitations, state law cannot otherwise extend it."  This same general principal applies to the FDCPA.  In enacting the FDCPA, "Congress specifically provided for a one-year limitations period for FDCPA claims." 

 

The Court held that incorporating Georgia's renewal statute into the FDCPA as the consumer seeks, "would undermine the uniform application of this federal limitation." Thus, the Eleventh Circuit held "that Georgia's renewal statute does not extend the FDCPA's one-year statute of limitation."

 

The consumer also argued the Eleventh Circuit should apply the same rational that in enunciated in Arias v. Cameron, 776 F.3d 1262 (11th Cir. 2015) to this case. Arias held that it was not an abuse of a trial court's discretion to permit a plaintiff to voluntarily dismiss their state law tort claim that the defendants had removed to federal court, even where the dismissal might prejudice the defendants by eliminating their statute of limitation defense. 

 

The Eleventh Circuit determined that Arias did not help the consumer here because it involved a state law tort claim where the state legislature enacted the statute of limitation, not a federal claim like this FDCPA claim where Congress set a specific limitation period. 

 

Thus, because the Georgia renewal statute does not apply to federal claims "where Congress expressly set a limitations period, such as the FDCPA," the Eleventh Circuit affirmed the trial court's dismissal of the complaint.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 603
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Sunday, October 18, 2020

FYI: 4th Cir Reverses Dismissal of Servicer's RESPA Tax Escrow Disbursement Claim

The U.S. Court of Appeals for the Fourth Circuit recently reversed the dismissal of a borrower's claims that the servicer of his mortgage loan violated the federal Real Estate Settlement Procedures Act, 12 U.S.C. § 2601, et seq. ("RESPA") by failing to timely make his tax payment from the loan's escrow account.

 

In so ruling, the Fourth Circuit rejected the servicer's argument that it was the responsibility of the loan's prior servicer who received the borrower's payment to escrow to make those payments on time, holding that RESPA requires taxes to be paid by the entity responsible for servicing the mortgage at the time the tax payment is due.

 

A copy of the opinion is available at:  Link to Opinion

 

A homeowner ("Borrower") obtained a refinance home mortgage loan (the "Loan").  The Loan's mortgage ("Mortgage") required the Borrower to make his property tax payments to the lender ("Lender"), for placement in the Loan's escrow account, triggering requirements for the Lender — who at the time was also the Mortgage servicer — to timely pay the Borrower's property tax bill.  See 12 U.S.C. § 2605(g); 12 C.F.R. § 1024.17(k)(1). 

 

The Lender sold the Loan to a new entity who also took over servicing rights and responsibilities from the Lender (the "Mortgagee"), effective October 31, 2017 with the Borrower's first monthly installment due November 1, 2017.

 

Before the service transfer of the Loan, funds tendered by the Borrower for payment of property taxes due to his local municipality taxes were deposited into the Loan's escrow account, then overseen by the Lender. 

 

However, the Mortgagee failed to timely pay the Borrower's November 2017 real estate taxes and did not disburse the tax payment until 2018, leading the municipality to assess $895 in late payment penalties (ultimately paid by the Mortgagee), and allegedly resulting in a loss of tax savings to the Borrower for his 2017 income taxes.

 

The Borrower filed a putative class action suit against the Mortgagee, on behalf of himself and all others similarly situated, alleging that its failure to timely pay his municipality taxes: (i) violated RESPA , (ii) breached the Mortgage, and; (iii) the Mortgagee was negligent. 

 

The Mortgagee moved to dismiss the Borrower's complaint, arguing that it was not under the "servicer" responsible for the 11/15/17 tax payment under RESPA's statutory definition, and that the responsibility to timely pay taxes fell on the prior servicer -- here, the Lender. 

 

The trial court agreed that the Lender was, indeed, the "servicer" under RESPA and granted the Mortgagee's motion to dismiss for failure to state a claim.  The instant appeal followed, with the Borrower electing to only pursue his RESPA claims on appeal.

 

As you may recall, subsection 12 U.S.C. § 2605(g) of RESPA establishes the obligation for a servicer to make payments from the escrow account for taxes, while subsections 2605(i)(2) and 2605(i)(3) define the terms "servicer" and "servicing," respectively.

 

Specifically, subsection 2605(g) provides that "[i]f the terms of any federally related mortgage loan require the borrower to make payments to the servicer of the loan for deposit into an escrow account for the purpose of assuring payment of taxes, insurance premiums, and other charges with respect to the property, the servicer shall make payments from the escrow account for such taxes, insurance premiums, and other charges in a timely manner as such payments become due."

 

Here, this subsection applied to the Borrower's Loan because it is both a "federally related mortgage loan" and the "terms" of the loan "require the borrower to make [tax] payments.. into an escrow account," thus triggering the Mortgage servicer's responsibility to "make [tax] payments from the escrow account" as they "become due"—that is, the date at which payment is required.  see Due, 4 Oxford English Dictionary 1105 (2d ed. 1989). 

 

The Fourth Circuit read the relevant provision to mean that the obligation for the servicer to make payment is triggered by the "terms of . . . [the] loan" and the date at which a payment "becomes due," not the date that a payment is received for escrow, and does not contemplate when (or whether) a payment is received into escrow from a borrower. 

 

The Court held that the natural reading of this subsection contemplates that whoever "the servicer" is when a payment becomes due shall make that payment.  Accordingly, the Court was tasked with identifying who was "the servicer" under RESPA on November 15, 2017.

 

Applying RESPA's definition of a "servicer" — "the person responsible for servicing of a loan" (12 U.S.C. 2605(i)(2)) — to subsection (g), it followed that the person "responsible for servicing" the mortgage at the time a payment is due must make that payment.  The term "servicing" itself is further defined in subsection (i)(3) as:  "receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan, including amounts for escrow accounts . . . , and making the payments of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan."

 

The Mortgagee's arguments on appeal were unavailing. 

 

First, the Mortgagee argued that because the definition of "servicing" includes "making the payments of principal and interest and such other payments with respect to the amounts received from the borrower," that the Lender was the "servicer" because it received the Borrower's escrow payment.  The Fourth Circuit rejected this argument as confusing the definition of "servicing" with the statutory definition of "servicers," who are obligated to make timely payments from an escrow account connected to the terms of the loan and the date a payment is due — not when a payment is received from a borrower nor when a bill is received from the taxing authority. Accord Marks v. Quicken Loans, Inc., 561 F. Supp. 2d 1259, 1264 (S.D. Ala. 2008). 

 

Moreover, the Mortgagee's underlying assumption that a middleman that receives payment should be responsible for forwarding that payment along to the ultimate recipient conflicts with statutory interpretation of a servicer's control of an escrow account and transferring of same pursuant to a servicing transfer (12 C.F.R. § 1024.17(b), (e), (i)(4)(ii)), and the relevant loan purchasing agreement between the Lender and Mortgagee (the "Purchase Agreement"), expressly included a transfer of "all right, title and interest," including "Related Escrow Accounts."

 

Second, the Mortgagee argued that the Purchase Agreement reaffirmed the Lender's designation as the "servicer" responsible for the November 2017 tax payment.  Specifically, the Purchase Agreement provided that "[Lender] shall pay or cause to be paid, from the applicable Related Escrow Account, all real estate taxes on the Mortgaged Properties (and all interest, late payments and penalties in connection therewith) (x) for which either (i) a tax bill has been received, [or] (ii) a tax bill was issued on or prior to the Servicing Transfer Date . . . , and (y) that have due dates . . . prior to or within (30) days after the Servicing Transfer Date."  Thus, the Mortgagee reasoned that the Lender "was obligated to ensure payment of taxes billed with due dates before or within thirty days of October 31, the effective date of the transfer."

 

This argument, too, was rejected by the Fourth Circuit, noting that a transferor's contractual responsibility to apply a tax payment before the transfer of servicing has no effect on the transferee's statutory obligation or what a previous servicer already should have done.

 

Here, because the Borrower's complaint properly alleged that the Mortgagee was "responsible for servicing the loan" on November 15, 2017 (when the tax payment became due), the Fourth Circuit determined that it plausibly alleged that the Mortgagee was obligated to make the payment as the supposed servicer. 

 

The Fourth Circuit further noted that this allocation of responsibility is reinforced by the broader statutory structure of section 2605 which imposes servicing obligations with a focal point on the "effective date of transfer," or the "the date on which the mortgage payment . . . is first due to the transferee servicer of a mortgage loan pursuant to the assignment, sale, or transfer of the servicing of the mortgage loan" (12 U.S.C. § 2605(i)(1); 12 C.F.R. § 1024.2(b) (same)) and, further, was consistent with the terms of the Purchas Agreement between the Lender and Mortgagee, who acquired "all right, title and interest of [Lender] . . . as Servicer under the Servicing Agreements" and "the related Servicing obligations as specified in each Servicing Agreement" as of November 1, 2017.

 

Because the Borrower's complaint adequately alleged that the Mortgagee was responsible for servicing his mortgage when the November 15, 2017 tax payment was due, and its failure to do so violated RESPA, the trial court's dismissal for failure to state a cause of action was reversed.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 603
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Wednesday, October 14, 2020

FYI: California Attorney General Proposes Additional Modifications to CCPA Regulations

The California Office of the Attorney General issued a Notice of Third Set of Proposed Modifications to its regulations relating to the California Consumer Privacy Act on Oct. 12.

 

A copy of the Notice is available at:  Link to Notice

 

Written comments will be accepted until 5 pm on Oct. 28, 2020.

 

There are four modifications, which the AG summarizes in its notice. 

 

First, "[p]roposed section 999.306, subd. (b)(3), provides examples of how businesses that collect personal information in the course of interacting with consumers offline can provide the notice of right to opt-out of the sale of personal information through an offline method."

 

This proposed modification is not surprising since the examples are similar to how § 999.305(b) and (c) describe how a business that interacts with consumers offline can provide the notice at collection with printed forms, signage or orally by telephone.  The notice provided by an offline method must "facilitate[] consumers' awareness of their right to opt-out."  Section 999.306(d) still provides that the opt-out notice is not required if the business does not sell personal information and so states in its privacy policy.

 

Second, "[p]roposed section 999.315, subd. (h), provides guidance on how a business's methods for submitting requests to opt-out should be easy and require minimal steps. It provides illustrative examples of methods designed with the purpose or substantial effect of subverting or impairing a consumer's choice to opt-out."

 

This proposed modification explains that it must be easy for consumers to opt-out of the sale of their personal information, and that it can take no more steps to opt-out than it takes to opt-in.  There can be no language intended to dissuade opt-out, the opt-out link cannot force consumers to search through text to find the mechanism for submitting a request, and only personal information necessary to complete the request may be collected. Additionally, no confusing language may be used, and the AG provides this example of a double-negative: "Don't Not Sell My Personal Information."

 

Third, "[p]roposed section 999.326, subd. (a), clarifies the proof that a business may require an authorized agent to provide, as well as what the business may require a consumer to do to verify their request."

 

The current regulations provide that when a consumer submits a request through an authorized agent, the business may require that the consumer "[p]rovide the authorized agent signed permission to do so."  This proposed modification shifts the business's focus to the agent, who may be required "to provide proof that the consumer gave the agent signed permission to submit the request."

 

Fourth, "[p]roposed section 999.332, subd. (a), clarifies that businesses subject to either section 999.330, section 999.331, or both of these sections are required to include a description of the processes set forth in those sections in their privacy policies."

 

Section 999.332 relates to notices that must be provided when consumers are under the age of 16.  This proposed modification is simply a clean-up that changes an "and" to "and/or."  Section 999.330 pertains to the opt-in process when a business "has actual knowledge that it sells the personal information of a consumer under the age of 13 . . ."  Section 999.331 applies when consumers are 13 to 15 years of age.

 

Overall, these proposed modifications seem straightforward and likely won't be the cause of much consternation, particularly in comparison to the looming ballot initiative vote on the California Privacy Rights Act of 2020.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 603
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


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Sunday, October 11, 2020

FYI: Ill App Ct (1st Dist) Rejects Borrower's Foreclosure Challenge After Title Vested in Third Party

The Court of Appeals of Illinois, First District, recently held that a homeowner's attempt to vacate a foreclosure sale was barred by the Illinois foreclosure statute where title to the property had vested by deed to a third party.

 

However, the Court also held that the statute did not bar the homeowner from disputing the surplus proceeds of the sale.

 

A copy of the opinion is available at:  Link to Opinion

 

A mortgagee filed a foreclosure action in April of 2017 against a homeowner for failure to make payment. The homeowner was served by publication and a default judgment was entered in May 2018 when the homeowner failed to appear.

 

The homeowner filed an emergency motion to stay the judicial sale the day before the sale was to take place. The homeowner's argument was that he believed he was under a loan modification since the mortgagee was accepting his payments.

 

The mortgagee voluntarily agreed to stay the sale and a pro se motion stayed the next sale. Thereafter, the mortgagee notified the homeowner's counsel of the next sale date where the property was sold to a third-party bidder in June 2019.

 

After the sale, the homeowner filed an emergency motion to stay and vacate the sale, again arguing that he believed he was in a modification agreement with the mortgagee as it had been accepting his monthly mortgage payments.

 

Thereafter both the third-party bidder and the mortgagee filed motions to confirm the sale.

 

The trial court held a hearing on a motion to confirm the sale where the homeowner presented his argument that he had completed a trial payment plan and signed and returned the modification agreement which the mortgagee allegedly breached by proceeding with the foreclosure sale.

 

The mortgagee confirmed that the homeowner made all the required payments under the trial plan but alleged the final modification agreement was never signed and returned. No affidavits were included with either party's briefs.

 

The trial court entered an order approving the sale, and the homeowner appealed.

 

On appeal, the Appellate Court began its analysis noting the four grounds which exist to disapprove of a foreclosure sale: "(i) a notice required in accordance with subsection (c) of Section 15-1507 was not given, (ii) the terms of sale were unconscionable, (iii) the sale was conducted fraudulently, or (iv) justice was otherwise not done." 735 ILCS 5/15-1508(b).

 

In his appeal, the homeowner maintained that the trial court erroneously confirmed the sale of the property where justice was not otherwise done under section 15-1508(b)(iv).

 

The Appellate Court acknowledged that the statutory framework of foreclosure law reveals that "once a motion to confirm the sale under section 15-1508(b) has been filed, the court has the discretion to see that justice has been done, but the balance of interests has shifted between the parties. At this stage of the proceedings, objections to the confirmation under section 15-1508(b)(iv) cannot be based simply on a meritorious pleading defense to the underlying foreclosure complaint." Wells Fargo mortgagee, N.A. v. McCluskey, 2013 IL 115469, ¶ 35.

 

"To vacate both the sale and the underlying default judgment of foreclosure, the borrower must not only have a meritorious defense to the underlying judgment, but must establish under section 15-1508(b)(iv) that justice was not otherwise done because either the lender, through fraud or misrepresentation, prevented the borrower from raising his meritorious defenses to the complaint at an earlier time in the proceedings, or the borrower has equitable defenses that reveal he was otherwise prevented from protecting his property interests." Id. ¶ 26.

 

The Appellate Court explained that the homeowner did not assert that the mortgagee prevented him from raising a meritorious defense, but instead that he was prevented from protecting his property interest where he entered into a modification agreement with the mortgagee. Accordingly, confirming a judicial sale where such an agreement was in place would be inequitable and would arguably fall within the "justice not otherwise done" clause of section 15-1508(b)(iv).

 

However, the Appellate Court also acknowledged that where, as here, there is a question as to whether the parties entered into a loan modification agreement, the equitable result is to, at a minimum, conduct an evidentiary hearing on the issue but neither party provided affidavits to authenticate their positions as to the status of the loan modification.

 

Finally, Section 15-1509 of the Illinois foreclosure statute provides that a deed shall be promptly executed and any vesting of title by deed, unless otherwise specified in the judgment of foreclosure, "shall be an entire bar of (i) all claims of parties to the foreclosure and (ii) all claims of any nonrecord claimant who is given notice of the foreclosure." 735 ILCS 5/15-1509(c).

 

Here, the deed conveying title to the property was executed following the confirmation of the sale and recorded. Pursuant to section 15-1509(c), the title to the property had vested by deed to a third party and, therefore, "all claims of the parties to the foreclosure" are barred.

 

Accordingly, pursuant to section 15-1509(c), the Appellate Court was precluded from vacating the order approving the sale as it pertains to defendant's loan modification argument.

 

Next, the Appellate Court examined the homeowner's challenge to the amount of the surplus awarded in the order approving the sale.

 

The mortgagee argued that the homeowner forfeited this argument by failing to raise the issue before the trial court.

 

The Appellate Court agreed that issues not raised in the trial court generally are forfeited and may not be raised for the first time on appeal. Village of Lake Villa v. Stokovich, 211 Ill. 2d 106, 121 (2004). The forfeiture rule, however, is an admonition to the parties and not a limitation on the jurisdiction of the appellate court. Pennymac Corp. v. Jenkins, 2018 IL App (1st) 171191, ¶ 23. Thus, an appellate court may overlook forfeiture where necessary to obtain a just result or maintain a sound body of precedent. Id.

 

The Appellate Court then explained that one exception to the bar presented by section 15-1509(c) is if there is a dispute involving the surplus proceeds from the sale. Brewer, 2012 IL App (1st) 111213, ¶ 15; 735 ILCS 5/15-1509(c) (West 2018).

 

In addition, the Appellate Court found that while neither party has presented competent evidence as to the exact amount of funds paid by the party's allocation of those funds, a hearing should be conducted regarding the proper amount of the surplus.

 

Accordingly, the Court of Appeals affirmed the judgment of the trial court, confirming the sale of the property, and remanded the matter for further proceedings regarding the amount of the surplus.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
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Chicago, Illinois 60602
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Email: rwutscher@MauriceWutscher.com

 

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