Thursday, February 19, 2015

FYI: Ill App Ct Confirms Loan Mods Not Subject to TILA, Rejects Borrowers' Allegations of Failure to Deliver Acceleration Notice

The Illinois Appellate Court, First District, recently confirmed that the federal Truth in Lending Act, 15 USC 1601, et seq. (“TILA”) did not apply to loan modifications, and that the mortgagee’s alleged failure to provide a notice required under the Illinois Mortgage Escrow Account Act did not give rise to a TILA claim.


The Appellate Court also rejected the borrowers’ allegations that the mortgagee failed to provide a notice of acceleration under the terms of the mortgage, holding that these allegations did not give rise to an affirmative defense, and in any event were not supported by admissible evidence.


A copy of the opinion is available at:


The mortgagee (“Lender”) filed a complaint to foreclose mortgage against the mortgagors in February 2012 alleging a default in payment of monthly installments of the loan beginning in October 2011.  Lender attached a mortgage and note dated November 21, 2007 and loan modification agreement executed on June 24, 2010 to its Complaint.  The loan modification adjusted the interest rate on the loan and changed the maturity date. 


The mortgagors each filed answers on August 23, 2012, raising two matters denominated as “affirmative defenses.”


The first defense claimed that that they did not receive a notice of acceleration from Lender.  The mortgagors’ second defense alleged that when the loan was modified and the mortgagors were required to establish an escrow account for the payment of real estate taxes, Lender failed to provide notice of the requirements of the Illinois Mortgage Escrow Account Act, thus supposedly violating TILA.


Lender filed a motion to dismiss the affirmative defenses.  Lender argued that the first affirmative defense was not a proper affirmative defense because it was premised on the claim that a condition precedent to the foreclosure action had not been met.  Further, Lender contended that the mortgagors failed to allege that they had performed as required under the mortgage, note and loan modification agreement.  Lender also attached a copy of the notice addressed to the mortgagors on November 7, 2011 and provided the affidavit of its business operations analyst attesting to the mailing of the notice on that date. 


As to the claimed TILA violation, Lender argued that TILA did not apply to loan modifications and that, in any event, a TILA violation in connection with the loan modification would not invalidate the loan.


The trial court granted Lender’s motion to dismiss the mortgagors’ defenses.  Lender moved for summary judgment.  The mortgagors’ response recited the standards for affidavits under Illinois Supreme Court Rule 191 but made no substantive argument that the affidavits submitted by Lender did not meet those requirements.  The mortgagors also failed to supply any affidavit to support their claimed non-receipt of the acceleration notice. 


The trial court granted Lender’s motion for summary judgment and entered a judgment of foreclosure and sale.  A judicial sale was held in November 2013, and the sale was confirmed in February 2014.  The mortgagors then appealed.


The Appellate Court noted that Lender correctly argued that the proposed “notice defense” was not a proper affirmative defense because it did not “give color” to Lender’s complaint.  Rather, it was an assertion that Lender had not satisfied a condition precedent to its right to bring the suit.  If Lender had not sent an acceleration notice, it would not have been entitled to foreclose.  Thus, the mortgagors’ assertion that Lender failed to send the notice attacked Lender’s ability to maintain the action and did not raise new matter that defeated the claim.  See Hartmann Realtors v. Biffar, 2014 IL App (5th) 130543, ¶ 25. 


In addition, the Appellate Court concluded that the mortgagors’ mere denial that they received the acceleration notice was insufficient to create a genuine issue of material fact, which would defeat Lender’s motion for summary judgment.  The Court noted that a party defending against summary judgment is not entitled to rely on the allegations of a pleading to raise a genuine issue of material fact, but must affirmatively controvert evidenced adduced by the moving party.  See Purtill v. Hess, 111 Ill. 2d 229, 240-41 (1986).  The Appellate Court concluded that unsupported allegations that the mortgagors did not receive the notice was insufficient to create a genuine issue of material fact.


Finally, the Appellate Court noted that TILA did not apply in the context of loan modifications.  See Drake v. Ocwen Financial Corp., 2010 WL 1910337 at *7-*9 (N.D. Ill. 2010).  The Appellate Court found the mortgagors’ appeals to “public policy” unpersuasive, and concluded that Lender’s alleged failure to provide a notice pursuant to the Illinois Mortgage Escrow Account Act did not give rise to a TILA claim.


Accordingly, the Court affirmed the dismissal of the mortgagor’s affirmative defenses and the entry of summary judgment in favor of Lender.





Ralph T. Wutscher
McGinnis Wutscher 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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