Tuesday, September 4, 2012

FYI: Ill App Ct Holds Foreclosure Borrower Should Have Been Granted Evidentiary Hearing on Motion to Void Service

The Illinois Appellate Court for the First District recently reversed a trial court's order denying a borrower's motion to quash service by publication in a foreclosure action, holding that an evidentiary hearing was warranted to determine whether the loan servicer undertook both diligent inquiry and due inquiry to locate borrower prior to moving for service by publication.
Defendant-borrower ("Borrower") obtained a mortgage loan on a small apartment building, and authorized his attorney to act on his behalf with respect to matters related to the mortgage.  As part of the initial mortgage application, Borrower provided the address and contact information for his place of employment. 
The mortgage was later assigned to plaintiff loan servicer ("Plaintiff Loan Servicer"), which confirmed the power of attorney in a letter to Borrower.   
After Borrower defaulted on the mortgage, Plaintiff Loan Servicer filed a foreclosure action against him. Plaintiff Loan Servicer used a special process server to attempt to personally serve process on Borrower.  Two employees of the special process server submitted affidavits stating among other things that after due search, careful inquiry and a total of 19 diligent attempts, they were unable to serve Borrower at either Borrower's main residence or his alternate residence.  The affidavits included statements purportedly describing the two properties, and claimed that none of the doorbells or mailboxes at the alternate residence listed Borrower's name, that a neighbor of the main residence claimed not to know Borrower, and that neither address appeared to be vacant.  
Relying in part on these affidavits, Plaintiff Loan Servicer moved for service by publication.   Plaintiff Loan Servicer supported its motion with an affidavit stating in part that "upon due inquiry," Borrower could not be found and that upon "diligent inquiry," the last known place of residence could not be ascertained. 
The trial court granted Plaintiff Loan Servicer's request for service by publication, and later entered a default judgment against Borrower.  The property was sold to a junior lien holder at the subsequent foreclosure sale.   
Borrower filed a motion to vacate the foreclosure judgment and judicial sale and to quash service by publication, claiming that upon due inquiry, Borrower could have been located at either the main residence or alternate residence.  In support of his motion, Borrower submitted an affidavit stating among other things that the process servers incorrectly swore that Borrower's name did not appear on the doorbells at the alternate residence and or on any of the mailboxes, and that on one of the dates in question, Borrower was at the main residence attending an outdoor party.  Borrower supported his affidavit with statements from neighbors and with photographs indicating in part that the process servers' property description and statements regarding the circumstances of service were inaccurate.  Borrower also argued that Plaintiff Loan Servicer never attempted to locate him through his attorney or place of employment. 
Denying Borrower's motion to vacate and to quash service, the trial court entered an order confirming the sale of the property.   
Borrower moved for reconsideration, requesting an evidentiary hearing to determine whether Plaintiff Loan Servicer had exercised due diligence in attempting to locate and serve him.  The trial court denied Borrower's motion and request.  Borrower appealed. 
The Appellate Court reversed and remanded for an evidentiary hearing to determine whether Plaintiff Loan Servicer had conducted both diligent inquiry and due inquiry in its effort to locate Borrower prior to the court's granting leave for service by publication.
As you may recall, the Illinois Code of Civil Procedure provides in part that "[w]henever, in an action affecting property . . . plaintiff or his or her attorney shall file . . .  an affidavit stating that the defendant resides or has gone out of this State, or on due inquiry cannot be found . . .  so that process cannot be served upon him or her, and stating the place of residence of the defendant, if known, or that upon diligent inquiry his or her place of residence cannot be ascertained, the clerk shall cause publication to be made in some newspaper published in the county in which the action is pending."  735 ILCS 5/2-206(a). 
Focusing on Borrower's arguments that publication service was invalid because Plaintiff Loan Servicer had failed to conduct due inquiry in ascertaining Borrower's whereabouts, the Appellate Court noted that Section 2-206(a) requires both "diligent inquiry in ascertaining a defendant's residence and "due inquiry" in ascertaining the defendant's whereabouts and that a defendant may file his own affidavit showing that upon due inquiry, he could have been found.  See, e.g., Bell Fed. Sav. & Loan Ass'n v. Horton, 59 Ill. App 3d 923, 927-28, 376 N.E.2d 1029, 1033 (1978)(ruling that before a plaintiff may execute an affidavit stating that the defendant cannot be found both types of inquiries must be conducted); Household Fin. Corp. III v. Volpert, 227 Ill. App. 3d 453, 455, 592 N.E.2d 98, 99 (1992).
In so doing, the Appellate Court observed that Illinois courts have historically ruled that where the defendant has raised a significant issue as to the truthfulness of the affidavit filed by the plaintiff, the trial court should hold an evidentiary hearing to establish that due inquiry was made to locate the defendant.  See First. Fed. Sav. & Loan Ass'n v. Brown, 74 Ill. App. 3d 901, 907-08, 393 N.E.2d 574, 579 (1979).  Thus, noting that Borrower raised "sufficient factual statements which differed from the assertions of [Plaintiff] and were highly suggestive of a conflict" with the affidavits upon which the trial court relied, the Appellate Court stressed that while the trial court was not required to hold an evidentiary hearing, "the trial court could then have used a hearing to resolve the factual conflicts."  
Pointing out that the tests for due inquiry and due diligence differ, the Court noted that "due inquiry" consists of more than mere diligence, and requires "an honest and well-directed effort to ascertain the whereabouts of a defendant by an inquiry as full as circumstances can permit," such as checking employment records and court records.   City of Chicago v. Leakas, 6 Ill. App. 3d 20, 27, 284 N.E.2d 449, 455 (1972). 
Distinguishing the various cases cited by Plaintiff Loan Servicer, the Appellate Court ruled that in order "to properly execute an affidavit in support of its motion for service by publication, it must conduct both diligent inquiry in ascertaining the defendant's residence and due inquiry in ascertaining the defendant's whereabouts."  The Court further explained that although "ascertaining the defendant's residence is an important factor in determining whether due inquiry and diligent inquiry were accomplished, it is not the only factor that the court must consider."  
Accordingly, citing the parties' conflicting statements, including their assertions as to the property description, whether Borrower was on the property at the time of attempted service, and whether Plaintiff Loan Servicer knew where Borrower was employed, the Court noted that even though Plaintiff Loan Servicer appeared to have fulfilled the requirement to conduct diligent inquiry by attempting to serve Borrower 19 different times and speaking with a neighbor who did not know Borrower, Borrower  presented sufficient facts to challenge the process server's affidavits to conclude that an evidentiary hearing was warranted.

Significantly, the Appellate Court agreed with Borrower that as part of its due inquiry, Plaintiff Loan Servicer should have attempted to contact Borrower's attorney in order to locate him.  The Court explained that, while Plaintiff Loan Servicer was not required to attempt to serve Borrower's attorney, Plaintiff Loan Servicer "had an alternative and more reasonable vehicle for locating [Borrower] for service" and thus "certainly could have made the minimal effort to contact [Borrower's Attorney] to locate" Borrower.   See 735 ILCS 5/2-203.1 (allowing an alternative method of service upon plaintiff's motion and affidavit stating that personally serving defendant is impractical and that upon due inquiry defendant cannot be found and reasonable efforts at service have been unsuccessful). 
The Court thus remanded to the lower court for an evidentiary hearing as to whether Plaintiff Loan Servicer satisfied the requirement to conduct both diligent inquiry and due inquiry in attempting to locate Borrower prior to requesting service by publication.

Ralph T. Wutscher
McGinnis Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
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Mobile: (312) 493-0874

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