Wednesday, May 15, 2013

FYI: Ill App Ct Dismisses Borrower's Foreclosure Appeal for Failure to Provide Notice to Junior Lienholders and Third-Party Purchasers

The Illinois Appellate Court, First District, recently dismissed a borrower's appeal of an order denying his motion to quash service, concluding that borrower's "blatant, unexplained" violation of appellate rules in failing to provide notice of the appeal to either the parties of record or parties in interest seriously prejudiced those parties with interests connected to the foreclosure sale.  


In so ruling, the Court noted that, although the plaintiff bank was not prejudiced by the lack of notice because it was aware of the appeal, the parties who had received surplus funds through the foreclosure sale of the mortgaged property and the third-party purchasers of the property would be adversely affected if the sale were reversed on appeal due to the alleged improper publication service on the borrower.   


A copy of the opinion is available at:


Defendant ("Borrower") defaulted on a home mortgage loan on property located in Chicago, Illinois.   The lending bank ("Bank") filed a foreclosure action, naming as defendants Borrower's wife ("Wife"), a judgment creditor ("Judgment Creditor"), a junior mortgagee ("Junior Mortgagee"), and others. 


After Wife and Junior Mortgagee had been served with process, a special process server executed an affidavit stating among other things that Borrower and Judgment Creditor had not yet been served, and that, after making certain inquiries to find an alternate address for Borrower, his residence remained unknown.   Bank accordingly filed an affidavit for service by publication pursuant to Section 2-206 of the Illinois Code of Civil Procedure.   


Bank eventually served Borrower and Judgment Creditor by publication, and the lower court subsequently entered a judgment of foreclosure and sale against Borrower.  Almost a year later, the property was sold to third-party purchasers and yielded a surplus.  Around the same time, however, Borrower's attorney filed an appearance in the foreclosure action, and, on the same date on which Bank moved to approve the sale of the property, Borrower filed a motion to quash service, arguing that service by publication was improper because Bank had made only one attempt to serve him.  To support his motion, Borrower attached an affidavit stating that since he lived at the property at all pertinent times, he could have been found and served there.   In response, Bank argued that service by publication was valid because it complied with all the requirements of Section 2-206(a).


The lower court denied Borrower's motion to quash and entered an order approving the sale of the property, and also ordered that the property be turned over to the third party purchasers and the surplus funds given over to the court clerk.  Borrower moved for reconsideration.  Denying the motion for reconsideration, the lower court ordered the court clerk to release the surplus funds to Judgment Creditor and Junior Mortgagee.  


Borrower appealed.  The Appellate Court dismissed the appeal, ruling that Borrower violated Rule 303(c) by failing to serve notice of the appeal on any of the parties of record or the parties in interest, especially the third party purchasers of the property, as well as the Judgment Creditor and Junior Mortgagee.


As you may recall, Rule 303(c) states in pertinent part "[t]he party filing the notice of appeal . . . shall, within 7 days, file a notice of filing with the reviewing court and serve a copy of the notice of appeal upon every other party and upon any other person or officer entitled by law to notice."  Ill S.Ct.R. 303(c). 


In noting that, absent evidence of prejudice to a party, an appeal will not be dismissed for failure to serve the notice of appeal on an opposing party, the Appellate Court stressed that dismissal of an appeal may be proper where, as here, parties may be adversely affected by the appellate court's decision.  See Leyden Fire Protection District v. Township Board of Leyden Township, 26 Ill. App. 3d 569, 572-73(1975).


Pointing out that Borrower offered no explanation for his failure to serve any of the parties with the notice of appeal, the Appellate Court also observed that Borrower should have notified all parties in interest, "as best practices would dictate."  Specifically, because Borrower's interests were adverse to the interests of Judgment Creditor and Junior Mortgagee, they were "substantive appellees" who, being officially unaware of the appeal, were significantly prejudiced by Borrower's failure to serve a notice of appeal upon them, as a reversal of the lower court's judgment would force them to repay the surplus funds.  Moreover, the Appellate Court further noted that the purchasers of the property would also be seriously prejudiced by their inability to participate in the appeal to defend their interests in the property. 


Accordingly, due to the Borrower's "blatant, unexplained violation of Rule 303(c)," the Appellate Court dismissed the appeal.




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


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