Wednesday, June 19, 2013

FYI: Ill App Ct Rejects Borrower's Challenge to Foreclosure Based on Failure to Register under Illinois Collection Agency Act

The Illinois Appellate Court, First District, recently upheld a lower court's order denying a borrower's motion to challenge service and vacate the trial court's entry of default judgment and judgment of foreclosure against the borrower.


In so ruling, the Court held that:  (1) a party submits to the court's personal jurisdiction by filing an untimely answer; and  (2) that Illinois Collection Agency Act does not apply to banks and their affiliates and subsidiaries. 


A copy of the opinion is available at:


The mortgagee filed its foreclosure complaint against the borrower following the borrower's failure to make timely payments.  The mortgagee served the complaint on the borrower, but the borrower failed to appear or to file an answer.  Accordingly, the mortgagee filed a motion for default judgment. 


Over eight months after filing its complaint, the borrower appeared, for the first time, in person at the hearing on the mortgagee's motion for default judgment.  The borrower requested an extension of time to answer the complaint, and the court allowed the borrower nearly another month in which to file his answer.  The borrower failed to file an answer within the extended period allowed by the court.  Nevertheless, the trial court again provided an extension for the borrower to file an answer. 


The borrower failed to file an answer within this second extension time period, and the trial court entered a default judgment against the borrower, over ten months after the filing of the complaint by the mortgagee.  Subsequent to but on the same day as the default judgment was entered, the borrower filed a pro se general appearance and verified answer to the mortgagee's complaint, but did not challenge the propriety of service of process. 


Approximately nine months after the entry of default, the property was sold at judicial sale with the mortgagee being the highest bidder.  The sale was approved by the court. 


A year and a half after the filing of the mortgagee's complaint, and approximately one year after the mortgagee's motion for default judgment was filed, the borrower filed a motion to quash service and to vacate the default judgment. 


The borrower presented two arguments: 1) that the court lacked personal jurisdiction over the borrower due to an alleged defect in the service of the complaint; and 2) that the foreclosure judgment and final order approving the foreclosure sale were void as the mortgagee was not a registered debt collector as required by the Illinois Collection Agency Act ("ICAA"), 225 ILCS 425/1 et seq. 


The mortgagee argued that no defect in the service existed, and that the borrower waived any objections to the court's jurisdiction by the filing of its answer without also challenging the service of process or the court's exercise of personal jurisdiction over him.


Additionally, the mortgagee argued that it was exempt from the requirements of the ICAA, as it was a subsidiary of a bank. 


After a hearing and oral arguments on the borrower's motion, the trial court agreed with the mortgagee and denied the borrower's motions. 


The borrower appealed the court's decision, arguing that the trial court erred by: 1) not vacating the default judgment for improper service, based on waiver when only a pro se answer had been filed, and  2) not vacating the default judgment, because the mortgagee failed to register as required by the ICAA.


In addressing whether the borrower waived any impropriety as to service of process, the Appellate Court relied upon the section 5/2-301(a) of the Illinois Code of Civil Procedure, which provides that a party objecting to jurisdiction based upon insufficient process "waives all objections to the court's jurisdiction" by filing the a responsive pleading or motion prior to challenging service.  735 ILCS 5/2-301(a-5).  Following a plain reading of this statute, the Appellate Court held that the borrower's filing of an answer without raising any objection therein to the court's jurisdiction constituted a waiver of any objection to service. 


The Appellate Court rejected the borrower's argument that no waiver occurred due to the fact that the pro se answer was ineffective in preventing the default judgment, and noted that the argument had no basis in the case law or in the statute. 


As to the borrower's argument under the ICAA, the Appellate Court concluded that the plain language of the statute provided a clear answer.  The ICAA provides that it does not apply to "banks, including trust departments, affiliates, and subsidiaries thereof, fiduciaries, and financing and lending institutions (except those who own or operate collection agencies)."  225 ILCS 425/2.03. 


Prior to arriving at its decision, the Appellate Court engaged in a lengthy analysis of whether or not mortgage foreclosures were considered "debt collection" under the ICAA.  Finding no applicable Illinois decisions on point, the Appellate Court surveyed the case law interpreting the federal Fair Debt Collection Practices Act ("FDCPA"). 


The Appellate Court cited favorably to the majority of federal courts which had decided that the FDCPA does not apply to foreclosure actions.  However, the Appellate Court concluded that the FDCPA did not provide a perfect analogy based upon different definitions of "debt collector"   in the two different statutes.


Instead, the Appellate Court noted an "almost identical" corollary for the ICAA in California's "Rosenthal Act," Cal Civ. Code § 1788.2.  The Appellate Court made note of the fact that California courts interpreting and applying the Rosenthal Act have held that the foreclosure of property pursuant to a deed of trust is not debt collection. 


Notwithstanding its thorough analysis, the Appellate Court ultimately determined that it need not decide the issue of whether foreclosure activity constitutes "debt collection" under the ICAA, as it was clear that the ICAA did not apply to the mortgagee.


Accordingly, the Appellate Court upheld the trial court's ruling. 




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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