The Illinois Appellate Court, Fifth District, recently upheld a default judgment of foreclosure and order approving a foreclosure sale where a borrower, seeking relief from the judgment and sale, failed to pursue a potential lack-of-standing argument based on supposedly defective mortgage documentation prior to entry of judgment or to set forth specific factual allegations showing that her failure to discover and present a defense was not a result of her own mistake or negligence.
In so ruling, the court reasoned that: (1) because any alleged defects in the mortgage documentation existed at the time the foreclosure action was filed, the borrower failed to exercise due diligence in defending against the foreclosure action; and (2) because the borrower also failed to plead any facts showing that her mortgage documentation was defective, she also failed to demonstrate that she had a meritorious defense to the foreclosure.
A copy of the opinion is available at: http://www.state.il.us/court/Opinions/AppellateCourt/2013/5thDistrict/5110475.pdf.
After a borrower defaulted on her mortgage loan, the loan owner ("Bank") initiated foreclosure proceedings. Bank unsuccessfully attempted to personally serve Borrower with process and ultimately served Borrower by publication. Borrower never answered Bank's foreclosure complaint or otherwise responded. Consequently, Bank moved for default judgment, which the lower court granted.
Four months later, Borrower filed a pro se motion to vacate the default judgment, but did not set the motion for hearing. Consequently, Borrower filed a second motion to vacate the default judgment and a notice of hearing.
One day before the hearing on Borrower's pro se motion to vacate, an attorney entered an appearance on Borrower's behalf, but did not appear at the hearing on Borrower's motion to vacate. The lower court thus denied the motion with prejudice, issuing an order incorrectly stating that no counsel had entered an appearance. Borrower's attorney filed a motion to reconsider the denial of the motion to vacate, pointing out that he had in fact filed both his appearance and a motion for continuance the day before the hearing on the motion to vacate and further asserting that Borrower had a meritorious defense.
The lower court denied the motion to reconsider, finding that Borrower failed to present a meritorious defense. The property was subsequently sold at public auction to Bank for the unpaid balance of the debt, and the court ultimately entered an order approving the sale.
Citing the existence of a Consent Order involving Bank, involving Bank and the federal Office of Thrift Supervision and related to alleged mortgage servicing practices and supposed foreclosure improprieties ("Consent Order"), which was issued only about a month before the sale of Borrower's property, Borrower moved for reconsideration of the order approving the sale or to stay the execution of the order. In so doing, Borrower alleged essentially that Bank lacked standing to initiate a foreclosure action, because the assignment of the mortgage to Bank, as well as other mortgage documentation, was potentially defective and that Bank may have improperly foreclosed on mortgages that were being considered for loan modifications.
The lower court denied the motion for reconsideration. Appearing again pro se this time, Borrower filed a petition seeking to vacate the judgment of the lower court and asserting the same lack-of-standing argument as she did previously.
Following a hearing on the petition at which Bank argued that Borrower had shown neither diligence in bringing the petition, nor the existence of a meritorious defense, the lower court denied Borrower's petition, concluding that Borrower had failed to show the existence of a meritorious defense that was likely to succeed. Borrower appealed.
The Appellate Court affirmed, reasoning that Borrower failed to demonstrate due diligence in pursuing her defense prior to judgment or the existence of a meritorious defense, as any alleged defect in Borrower's mortgage documentation existed at the time Bank filed the foreclosure action.
As you may recall, a party seeking vacatur of an order or judgment under Section 2-1401 of the Illinois Code of Civil Procedure must show: (1) the existence of a meritorious defense or claim that would have prevented the original judgment if the facts had been of record when the judgment was entered; (2) due diligence in pursuing that claim or defense before judgment; and (3) diligence in pursuing the claim or defense after judgment. ILCS 5/2-1401. See also Malkin v. Malkin 301 Ill. App. 3d 303, 310 (1998)(noting exception to 30-day period for review of judgment); Smith v. Airoom, Inc. 114 Ill. 2d 209, 220-21 (1986)(petitioner must affirmatively set forth specific factual allegations supporting each element).
The appellate court rejected the Bank's argument that the court lacked jurisdiction to hear the appeal in this case, and instead addressed each element of a Section 2-1401 petition. The Appellate Court noted that due diligence requires the petitioner to have a reasonable excuse for failing to act prior to entry of judgment. Specifically, as the Court pointed out, the petitioner must demonstrate that the failure to defend against the lawsuit was not the result of her own mistake or negligence, and that she acted reasonably under the circumstances in failing to challenge the judgment. See Smith, 114 Ill. 2d at 222.
Stressing that setting aside a judgment based on newly discovered evidence requires that the evidence be such that it could not have reasonably been discovered at the time of or prior to judgment, the Appellate Court noted that Borrower presented no excuse for her failure to answer or otherwise respond to the complaint or to present the lack-of-standing argument -- i.e., the alleged faulty assignment and defective documentation referred to in the Consent Order -- prior to the entry of the default foreclosure judgment. In so doing, the Court pointed out that the defense Borrower sought to raise on appeal was available prior to the entry of judgment had she only made the effort to appear and contest the foreclosure, as the alleged defects in the mortgage documents would have existed at the time Bank initiated the foreclosure action. Accordingly, the Appellate Court concluded that Borrower failed to demonstrate due diligence in pursuing the standing argument prior to judgment.
The Appellate Court also concluded that Borrower failed to plead facts showing the existence of a meritorious defense to the foreclosure. In so doing, the Court noted that Borrower failed to affirmatively set forth specific factual allegations to support her assertion that Bank lacked standing to foreclose due to the supposedly defective documentation. Notably, as the Court pointed out, Borrower's Section 2-1401 petition merely suggested that the documentation relating to mortgages other than hers might be defective, but that she pleaded no facts demonstrating that the documentation relating to her own mortgage was in fact somehow defective.
Finding that Borrower presented no "newly discovered" evidence or other excusable reason for her failure to raise any meritorious defenses to the foreclosure action prior to the entry of judgment or after judgment, the Court concluded that the lower court properly denied Borrower's Section 2-1401 petition. Accordingly, the Appellate Court affirmed.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
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.
Our updates are available on the internet, in searchable format, at: