Friday, January 23, 2015

FYI: Ill App Ct Vacates Foreclosure Due to Alleged HAMP Violation, But Rejects Borrower's Challenge to Notice of Sale

The Illinois Appellate Court, First District, recently vacated an order confirming a foreclosure sale and remanded the matter for an evidentiary hearing, where the mortgagee allegedly moved forward with a foreclosure sale despite an allegedly pending FHA-HAMP application.


However, the Appellate Court also held that the borrower's allegations that she did not receive notice of the foreclosure sale failed, because the mortgagee complied with the statutory requirements for notice.   


A copy of the opinion is available at:


A mortgagee filed a foreclosure action against a borrower.  Prior to the foreclosure sale, the mortgagee allegedly sent the borrower a letter indicating that she was not eligible for the Federal Housing Administration Home Affordable Modification Program ("FHA-HAMP") due to insufficient income.  


A few days later, the mortgagee allegedly sent the borrower an additional letter indicating that it was evaluating her for a foreclosure prevention program, and would likely need 30 days to review.  The foreclosure sale took place a few days after the date of the second letter. 


The borrower filed a motion to set aside the sale, alleging among other things that she did not receive the required notice of the sale, and that the sale was improper in light of her pending FHA-HAMP application.  


The lower court confirmed the sale, denied the borrower's motion, and also denied a subsequent motion to reconsider.  The borrower appealed. 


As you may recall, Illinois law provides that a foreclosure sale shall be set aside if:


The mortgagor proves by a preponderance of the evidence that (i) the mortgagor has  applied for assistance under the Making Home Affordable Program [(MHAP)] established by the United States Department of the Treasury pursuant to the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009, and (ii) the mortgaged real estate was sold in material violation of the program's requirements for proceeding to a judicial sale.


735 ILCS 5/15- 1508(d-5).


The Appellate Court began by considering the borrower's allegations concerning notice of the foreclosure sale, and had little difficulty in rejecting this argument.  The Court explained that because the mortgagee's notice complied with the requirements of the applicable statute, the borrower's allegations that she never received the notice were irrelevant, as the statute and related Illinois Supreme Court Rules do not require receipt of the notice by the mortgagor, but rather only require conformity with the requirements for sending such notice.  See 735 ILCS 5/15-1507(c)(3) (West 2012); Il. S. Ct. R. 11, 12 (eff. Dec 29, 2009). 


However, the Appellate Court found merit in the borrower's allegations concerning her allegedly pending FHA-HAMP application.  The mortgagee argued that the borrower had not met her burden of proof to establish that she had applied for assistance under FHA-HAMP,  in that the borrower failed to attach her related application to her motion.  However, the Appellate Court disagreed.  It noted that the borrower provided a copy of the mortgagee's letter indicating that she was ineligible for assistance under FHA-HAMP, and other letter from the mortgagee stating the borrower’s loss mitigation application was under review, which proved "by a preponderance of the evidence" that the borrower had applied for such assistance. 


Next, the Appellate Court scrutinized the requirements of FHA-HAMP, noting that a mortgagee shall not proceed with a foreclosure sale "until the mortgagor has been evaluated for the program and, if eligible, an offer to participate in the FHA-HAMP has been made." 


The Appellate Court then examined the record, and determined that the borrower had been evaluated for assistance under FHA-HAMP, found to be ineligible, and informed of same by letter.  However, the Court noted that a few days after that letter was sent, the mortgagee sent the borrower an additional letter, indicating that it had received the borrower request to participate in a foreclosure review program, and would likely need 30 days to complete its review. 


The Appellate Court observed that the letter did not specifically state that the mortgagee was evaluating the borrower for an FHA-HAMP application, but the Appellate Court also noted that "the record...demonstrated that [the mortgagee] presented no evidence, and that the circuit court made no inquiries" as to whether the letter's mention of a "foreclosure assistance program" might refer to FHA-HAMP. 


The Appellate Court also noted that the statements in the mortgagee's letter indicating that the borrower was being considered for foreclosure assistance were "completely contradictory to [the mortgagee's] position in moving ahead with the foreclosure sale." 


Accordingly, the Appellate Court vacated the lower court's order approving the sale, and remanding the matter for limited discovery and an evidentiary hearing as to whether the property was sold in "material violation" of the FHA-HAMP requirements. 





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


Admitted to practice law in Illinois





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