The Appellate Court of Illinois, Third District, recently held in a foreclosure appeal:
1. A borrower’s post-judgment petition, which only sought to modify the order confirming the foreclosure sale, was not barred by the Illinois Mortgage Foreclosure Law, because the borrower did not seek to set aside the foreclosure judgment or the sale of the property.
2. A borrower’s post-judgment petition does not require a showing of due diligence where the petition is in the nature of a bill of review.
3. A mortgagee is entitled to recover post-judgment costs and advances from the date of the foreclosure judgment to the date of the sale where the foreclosure judgment contained language providing that there is no just reason to delay enforcement because under such circumstances, the judgment of foreclosure is considered a final and appealable judgment.
4. A mortgagee may recover its post judgment costs and fees in prosecuting a foreclosure action when the costs and advances, although not itemized, are specifically listed in the sheriff’s report and described in a trial court’s approved and confirmed sale of the property.
A copy of the opinion is available at: http://www.state.il.us/court/Opinions/AppellateCourt/2014/3rdDistrict/3130107.pdf.
The borrower (“Borrower”) owned certain mortgaged real property. The Borrower defaulted on the mortgage. Plaintiff (“Mortgagee”) received an assignment of the mortgage and subsequently filed a complaint to foreclose upon the mortgage.
The Borrower failed to appear in the foreclosure action and the trial court entered a judgment of foreclosure and order of sale of the property. Included in the total amount of the indebtedness listed was the Mortgagee’s reasonable attorney fees of $1,125. In addition, the foreclosure judgment provided that the Mortgagee was entitled to collect any non-reimbursed post-judgment costs that it incurred in connection with the sale of the property and the perfection of the certificate of sale and was also entitled to collect post-judgment interest of 9% per year from the date of the foreclosure judgment until the date of sale.
Prior to the sheriff’s sale, a notice was mailed, provided by publication, and a certificate of publication was filed in the trial court. The Mortgagee purchased the property at the sale, and later assigned the certificate of sale to the United States Department of Housing and Urban Development (“HUD”). The sheriff's report from the sale indicated the remaining balance of $218,436.69 would go to the Mortgagee, which included attorney fees of $1,125 per the judgment of foreclosure and post-judgment advances of $1,006.55.
The Mortgagee moved to confirm the sale and provided notice by mail to the Borrower. An order was entered confirming the sale and approving the disbursement of the proceeds as provided for in the sheriff's report. The order indicated that the trial court found that there was no surplus or deficiency from the sale and that the proceeds of the sale were sufficient to pay the amount due to the Mortgagee in full. The order also contained a Rule 304(a) finding that there was no just reason to delay enforcement or appeal of the order. After the sale was confirmed, the sheriff issued a deed to the subject property to HUD on January 3, 2011, and HUD later recorded the deed on March 25, 2011.
The Borrower filed a post-judgment petition to modify the order confirming the sale. In the petition, the Borrower alleged that she was initially unaware that the property had been sold; that during the spring and summer of 2010, she had participated in loan modification discussions with the Mortgagee and had obtained permission to complete a short sale of the property; that she was later told by her real estate agent that the property had been sold; that upon inquiring further, the Borrower was assured by the Mortgagee that no sale had been conducted; that an examination of the sheriff's report and the order confirming the sale showed that there was a surplus of over $10,000 from the sale of the subject property.
The Borrower further alleged that despite that surplus, the order confirming the sale incorrectly stated: (1) that there was no surplus or deficiency; (2) she was not notified of the surplus or aware of the sale or the surplus; (3) that sometime later, she received a federal income tax notice relating to the sale of the subject property; (4) that as a result of the federal tax notice, the Borrower was required to amend her tax filings and to pay income tax on a surplus from the sale, which she never received; and (5) that because her petition was in the nature of a bill of review to correct an obvious legal error, she was not required to establish due diligence.
In its response, the Mortgagee alleged that the Borrower had failed to show due diligence, that no surplus had been generated, and that the unallocated discrepancy in the amount was attributable to accrued interest of $9,240.21 and additional post-judgment fees, costs, and advances of $1,006.55 to which the Mortgagee was entitled.
In her reply, the Borrower asserted that she had filed the section 2-1401 petition within a reasonable time after she had learned that a sale of the property had supposedly provided her with taxable income; that she was not required to establish due diligence since she was only raising errors of law; that the Mortgagee was not allowed to collect post-judgment interest under the law; that the Mortgagee could not explain away the surplus or why it reported a surplus to the Internal Revenue Service; and that the Mortgagee’s explanation included additional prejudgment fees, costs, and advances of $1,521.50 that were not made a part of the record until plaintiff responded to the petition and post-judgment interest of$9,240.21 that was not permitted under the law.
The trial court found that the Borrower was not required to establish due diligence but ultimately denied defendant's section 2-1401 petition. The Borrower appealed.
The Borrower argued on appeal that the trial court erred in finding that there was no surplus from the sheriff's sale of the property. The Borrower asserted that a surplus existed and that her petition should have been granted because the unallocated amount in the sheriff's report at the confirmation hearing could not have been attributed to the Mortgagee’s post-judgment interest and costs since post-judgment interest was not allowable under the law and since plaintiff presented no evidence as to any additional costs that it had incurred. For relief, the Borrower requested reversal of the trial court's order dismissing or denying her section 2-1401 petition and remand the case for further proceedings, which would include the trial court issuing the surplus amount to the Borrower.
The Mortgagee argued that: (1) the Borrower’s petition was barred as a matter of law under section 15-1509(c) of the Illinois Mortgage Foreclosure Law (“IMFL”) because title to the property had already been transferred to HUD; (2) the Borrower’s petition was properly dismissed or denied as a matter of law because defendant failed to establish that she had exercised due diligence in presenting her claim; (3) Mortgagee was entitled to 9% post-judgment interest as provided for in the foreclosure judgment and as allowed under the law; and (4) the evidence in the record was sufficient to establish that the indebtedness due on the date of the sale was the exact amount that was bid by and that the unallocated amount was attributable to additional funds that were due to the Mortgagee for post-judgment interest and costs.
As to the application of section 15-1509(c), the Borrower responded first that the Mortgagee forfeited that assertion by failing to raise it in the trial court. Second, and in the alternative, the Borrower argued she should still prevail because, although section 15-1509(c) prevents a party from contesting title, it does not prevent a party from contesting the distribution of the sale proceeds. As to Mortgagee’s due-diligence assertion, the Borrower responded that due diligence was not required because her petition was in the nature of a bill of relief, and, if due diligence was required, she presented sufficient factual information to establish that she acted diligently upon learning that she was being assessed a tax liability due to an alleged surplus generated from the sale.
The appellate court first addressed the Mortgagee’s assertion that the Borrower’s section 2-1401 petition was barred as a matter of law under section 15-1509(c) of the IMFL because prior to the filing of the section 2-1401 petition, a deed to the property had been issued by the sheriff to HUD and had been recorded.
However, the appellate court found that the Mortgagee forfeited that assertion by failing to raise it in the trial court proceedings. Norway Tree Farm, Inc. v. Baugher, 8 lll. App. 3d 1061, 1062 (1972). Even if that assertion had not been forfeited, the appellate court noted it would have rejected this argument because the Borrower did not seek to set aside the foreclosure judgment or the sale of the property. The Borrower’s only claim was as to the proceeds from the sale, a claim that was not barred by section 15-1509(c). See First Bank & Trust Co. of O'Fallon v. King, 311 lll. App. 3d 1053, 1058-60 (2000). The appellate court further found that the Mortgagee’s reliance on Prabhakaran was misplaced. Unlike the Borrower in the present case, the mortgagor in Prabhakaran sought to vacate the foreclosure decree and the order confirming sale and did not limit her claim to only an interest in the proceeds from the sale.
Next the appellate court addressed the Mortgagee’s claim on appeal that the section 2-1401 petition was properly denied or dismissed as a matter of law because defendant failed to establish due diligence. While it is true that in general, a section 2-1401petitioner must establish due diligence in both contesting the underlying action and in bringing the section 2-1401 petition, the appellate court agreed with the trial court in finding that due diligence is not required when the section 2-1401 petition is in the nature of a bill of review. Aurora Loan Services, LLC v. Pajor, 2012 IL App (2d) 110899. In reaching that conclusion, the appellate court recognized, that if due diligence had been required, it would have found that the Borrower had satisfied that requirement. The evidence established that the Borrower promptly filed her section 2-1401 petition after she received a tax notice from the Mortgagee relating to the sheriff's sale and learned that there was a possible surplus from the sale and that she had a potential tax liability from that surplus.
The appellate court next addressed the substantive issues presented in the appeal. The appellate court examined whether the Mortgagee was entitled to collect post-judgment interest, which had allegedly accrued from the date of the foreclosure judgment to the date of the sheriff's sale.
Under the IMFL, the appellate court noted there is no specific statutory section that provides for the collection of post-judgment interest from the date of the foreclosure judgment to the date of the sheriff's sale. However, post-judgment interest is addressed in the statutory section on redemption. Under that section, a person who redeems the property within the redemption period must pay post-judgment interest for the period from the date of the foreclosure judgment to the date of redemption at the contract interest rate provided for in the mortgage documents or loan agreement. 735 ILCS 5/15-1603(d)(l)(vi).
However, as you may recall, the IMFL also incorporates and includes application of the provisions of article II of the Code to the extent that those provisions are not contrary to the provisions of the IMFL. See 735 ILCS 5/15-1107(a). Section 2-1303 of the Code provides that “[j]udgments recovered in any court shall draw interest at the rate of 9% per annum from the date of the judgment until satisfied.” 735 ILCS 5/2-1303. Thus, the issue before the appellate court was whether foreclosure judgment was a judgment as referenced in section 2-1303 of the Code, upon which post-judgment interest could be collected. This determination depends on whether the judgment of foreclosure is a final and appealable judgment.
As you may recall, the general rule in Illinois is that a foreclosure judgment (and order of sale) is not a final and appealable judgment because it does not dispose of all of the issues between the parties and does not terminate the litigation. Wells Fargo Bank, NA v. Heritage Bank of Central Illinois, 2013 IL App (3d) 110706.
Rather, it is the order confirming or approving the sale that conclusively establishes the purchaser's right to the property and gives final approval to the proposed distribution of the sale proceeds and that constitutes the final and appealable order in a foreclosure case. Id. That general rule, however, does not apply where the trial court has made a Ru1e 304(a) finding that there is no just reason to delay enforcement or appeal of the foreclosure judgment. See id. Under those circumstances, a judgment of foreclosure is a final and appealable judgment. Verdung, 126 Ill. 2d at 555-56; Fankhauser, 383 Ill. App. 3d at 260.
Here, the foreclosure judgment contained Rule 304(a) language and was a final and appealable judgment. See id. Because there is no provision in the IMFL barring the collection of post-judgment interest and because the IMFL specifically incorporates article II of the Code, section 2-1303 applies and, pursuant to that section, the Mortgagee was entitled to collect post-judgment interest from the date of the foreclosure judgment until the date of the sale. See Carson v. Rebhan, 294 Ill. App. 180, 182-83 (1938); In re Daniels, 102 B.R. 680, 683 (Bankr. N.D. Ill. 1989).
In reaching its conclusion, the appellate court addressed the application of Standard Bank & Trust Co. v. Callaghan, 215 Ill. App. 3d 76 (1991), as relied upon by the Borrower. While in Standard Bank the court rejected a mortgagee's claim for statutory post-judgment interest under section 2-1303 of the Code, it did so based upon a prior version of the mortgage law in lllinois, which allowed for the entering of a conditional judgment of balance due when a deficiency existed. Id. at 81.
According to the appellate court in that case, the conditional judgment was not considered to be a judgment for which the borrower was personally liable (a personal judgment against the borrower) but, rather, was to be interpreted as an alternative decree as to the amount the borrower had to pay to avoid a foreclosure sale of the property. See id. The appellate court found the Standard Bank holding had no application in the present case where neither a conditional judgment nor a deficiency is involved.
Next the appellate court addressed whether the Mortgagee was entitled to certain post-judgment costs and advances without presenting any evidence at or prior to the time of the order confirming the sale as to what specifically those costs or advances were. The appellate court concluded that under the facts of the particular case, reimbursement of the Mortgagee’s post-judgment costs and advances was appropriate. Under section 15-1508 of the IMFL, the order confirming the sale of foreclosed property may also approve a mortgagee's post-judgment fees and costs to the extent that they are provided for in the note and mortgage and sought by a mortgagee in the proceedings. 735 ILCS 5/15-1508(b)(l), 15-1504.
In its complaint for foreclosure, the Mortgagee sought to be reimbursed for its reasonable attorney fees, costs, and advances. Plaintiff's attorney fees and its prejudgment costs and advances were included in the amount of the indebtedness listed in the foreclosure judgment.
In addition, pursuant to section 15-1508 and the provisions of the foreclosure judgment, the Mortgagee was allowed to be reimbursed for its post-judgment costs and advances. See 735 ILCS 5115-1508. The amount of the post-judgment costs and advances, although not itemized, was specifically listed in the sheriff's report and approved by the trial court when the trial court approved and confirmed the sale of the property and the disbursement of the proceeds.
Accordingly, the appellate court affirmed the trial court’s judgment.
The dissenting opinion recognized that mortgagees are entitled to post-judgment interest under section 2-1303, but the dissent took issue with the point of time when post-judgment interest may begin to accrue in this setting. The dissenting opinion noted that pursuant to the statute on judgment interest, interest shall be computed and charged only on the unsatisfied portion of the judgment. 735 ILCS 5/2-1303.
The dissent continued, in a mortgage foreclosure case, there is no determination about whether there is an outstanding judgment until such time as the mortgaged property is sold in accordance with the mortgage foreclosure statute. See 735 ILCS 5/15-1508(b)(2).
It is not until after the sheriff’s sale that it can be determined whether the debt will be satisfied or whether there is some portion that remains due and owing to the mortgagee to which post-judgment interest can be applied.
The dissenting opinion continued, in cases where the proceeds from the sheriff’s sale of the mortgaged property do not satisfy the debt owed to the mortgagee, it is entirely appropriate to calculate post-judgment interest commencing with the date of the entry of the judgment of foreclosure. This is because the sheriff’s sale has determined the fair market value of the property. See Weiner v. Landry, 131 TIL App.2d 221 (1970). If, however, the sale of the mortgaged property fully satisfies the debt, the judgment is likewise satisfied and it is inappropriate to invoke the provisions of the post-judgment interest act.
Because the mortgaged property was of sufficient value to make the mortgagee whole, the dissenting opinion provided that it would find the award of post-judgment interest inappropriate, and would have reversed the judgment of the trial court and remanded to determine the proper allocation of proceeds from the sale of the property.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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