Thursday, May 30, 2013

FYI: Ill App Ct Reverses Default Foreclosure Judgment for Failure to Make Due Inquiry for Personal Service on Corporate Defendant

Reversing the lower court's default judgment, the Illinois Appellate Court, Third District, recently ruled that the lower lacked jurisdiction in a mortgage foreclosure action, as the dissolved corporate defendant was entitled to an evidentiary hearing to establish plaintiff bank's due inquiry efforts at personal service prior to substitute service by publication and through the Illinois Secretary of State. 


In so ruling, the Appellate Court noted that the mortgagee was statutorily required to send notice to an address where the defendant corporation was likely to receive actual notice, and that the corporation had presented facts challenging the mortgagee's due inquiry efforts, including that the mortgagee allegedly knew where the corporation's registered agent and owner resided and the parties were already involved in other litigation in which the corporate defendant had been personally served.


A copy of the opinion is available at:


After defendant corporation ("Corporation") defaulted on its mortgage loan with plaintiff bank ("Bank"), Bank filed a foreclosure complaint against Corporation and others in Will County, Illinois.  Allegedly, Bank unsuccessfully attempted to serve Corporation through an individual who was Corporation's registered agent, president and owner.  


The special process server's affidavit of due and diligent search and inquiry indicated that the residence of the subject person was unknown, no telephone listing for Corporation could be located, the Illinois Secretary of State ("Secretary") records showed that Corporation had been dissolved, and that service was attempted at the registered office but Corporation no longer occupied the office space.  Additionally, an affidavit of compliance for service on the Secretary was filed, stating among other things that a copy of service had been mailed to Corporation at its Chicago address.  Finally, an affidavit for service by publication was also filed, stating in part that upon diligent inquiry, Corporation's residence could not be ascertained and its last known address was unknown. 


Notice by publication appeared in regional papers and a copy of the notice was mailed to Corporation's Chicago address but was returned as undeliverable.


Bank moved for default judgment of foreclosure and sale, which the lower court granted.  Several months later, Corporation moved to vacate the default judgment, alleging that it had not received notice of publication, that the same parties and attorneys were involved in other pending lawsuits, and that the parties in those actions had been personally served, including Corporation's registered agent. 


At the hearing to vacate, Corporation argued that service by publication was improper because Bank failed to conduct a diligent inquiry to personally serve it.  The lower court denied the motion to vacate.  Bank purchased the mortgaged property at the subsequent foreclosure sale. 


Corporation filed a motion for reconsideration, arguing that the lower court lacked jurisdiction due in part to Bank's failure to satisfy the requirements for service by publication.  Corporation's registered agent submitted an affidavit attesting in part that he had a business relationship with Bank, that he had been close friends with Bank's loan officer who had been to his home and knew where his office was located, and that Bank previously served him as Corporation's officer in another action in which Bank was represented by the same attorney. 


Denying the motion to reconsider, the lower court ruled that service on Corporation was proper, and approved the foreclosure sale of the property to Bank.  Corporation appealed.  The Appellate Court reversed and remanded.


As you may recall, in an action affecting property, service may be made by publication where the plaintiff files an affidavit attesting that the defendant "on due inquiry cannot be found" and that "upon diligent inquiry" the defendant's place of business cannot be ascertained.  735 ILCS 5/2-206(a).  Also, a trial court may set aside a final judgment entered against a defendant served by publication who did not receive a copy of the complaint or statutory notice by mail "as appears just" after a hearing.  735 ILCS 5/2-1301(g). 


In addition, a corporation is served "by leaving a copy of the process with its registered agent or any officer or agent of the corporation found anywhere in [Illinois]" or by any manner permitted by law, and it may be notified by publication and mail in the same manner and with the same effect as individuals."  735 ILCS 5/2-204. 


Moreover, the Illinois Business Corporation Act ("BCA") permits service of process on the Secretary of State when the "registered agent cannot with reasonable diligence be found at the registered office in [Illinois]" or, when the corporation has been dissolved, the registered agent cannot be found at the registered office and a civil action is instituted against the corporation within five years of its dissolution.  805 ILCS 5/5.25.  In addition, the BCA requires that notice of the service be sent to the corporation by registered or certified mail at its last registered office "[a]t such address the use of which the person instituting the action . . . knows or, on the basis of reasonable inquiry, has reason to believe, is most likely to result in actual notice."  805 ILCS 5/5.25(c)(2(ii).


Focusing primarily on service by publication and observing that both due inquiry and due diligence are statutory requirements for such service, and that the party claiming substitute service bears the burden of showing strict compliance with the statute, the Appellate Court pointed out that an evidentiary hearing should be held in cases where there is a question as to whether the plaintiff made such due and diligent inquiry.  See, e.g., Citimortgage, Inc. v. Cotton, 2012 IL App (1st) 102438 ¶ ¶18, 33 (where no such hearing was conducted, the court's judgment should be reversed and the matter remanded to determine whether diligent and due inquiry were conducted in order to locate the defendant prior to service by publication); Bank of New York v. Unknown Heirs and Legatees, 369 Ill. App.  3d 472, 476 (2006); Equity Residential Properties Management Corp. v. Nasolo, 364 Ill.App. 3d 26, 32 (2006); First Fed. Sav. & Loan Ass'n of Chicago v. Brown, 74 Ill. App. 3d 901, 905 (1979) (concluding that default judgment is void for lack of jurisdiction when service fails to comply with the statutory requirements for substitute service). 


Rejecting Bank's assertion that Bank's obligation to make further inquiry ended once it attempted to serve Corporation at its registered address, the Appellate Court stressed that Bank was required to send notice to Corporation at an address where it would likely receive actual notice.   In so doing, the Appellate Court noted Corporation's allegations that:  Bank could have located Corporation's owner and registered agent with minimal effort since Bank knew where Corporation's owner lived and worked; there were pending lawsuits between the parties with the same attorneys in which Corporation had been personally served; and that there was nothing in the record to show that Bank ever attempted service on Corporation through Corporation's owner at his residence or new business address.


Thus, because Corporation had presented evidence that with either minimal effort or due and diligent inquiry Bank could have personally served Corporation, the Appellate Court concluded that the lower court should have granted Corporation's request for an evidentiary hearing and required Bank to establish due inquiry.  See National Wrecking Co. v. Midwest Terminal Corp., 234 Ill. App. 3d 750 (1992); Brown, 74 Ill. App. 3d at 906.  As the Appellate Court explained, the failure to establish Bank's due inquiry efforts at personal service rendered the substitute service in this case invalid, thus depriving the lower court of jurisdiction. 


Accordingly, ruling that the lower court erred in denying Corporation the opportunity to challenge substitute service of process, the Appellate Court reversed and remanded.



Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
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Chicago, Illinois 60602
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