Saturday, October 7, 2017

FYI: Ill App Ct (1st Dist) Rejects Land Trust Beneficiary's Effort to Challenge Foreclosure

The Appellate Court of Illinois, First District, recently held that where the beneficiary of a land trust filed a motion to intervene in a foreclosure, the trial court did not abuse its discretion in denying the motion to intervene because the beneficiary filed the motion after the trial court had entered the order confirming the foreclosure sale.

 

A copy of the opinion is available at:  Link to the Opinion

 

A mother and father created a land trust for their residence with the property rights to transfer to their four adult children after their deaths.  The parents obtained a mortgage loan secured by the residence.

 

After the parents died, the loan went into default and the mortgagee filed a foreclosure lawsuit, naming as defendants the trustee, the deceased parents, unknown owners, and non-record claimants. The mortgagee posted notice in a local newspaper and then filed for a default judgment. The mortgagee filed a motion dismissing the deceased parents as defendants and a motion for a judgment of foreclosure and to appoint a judicial sale officer, all of which the court granted.

 

After the property was sold and the trial court entered an order confirming the sale, one of the daughters filed an emergency motion for leave to intervene and to stay possession and judicial sale. She argued that the trust could not protect her interests and that she would be irreparably harmed and prejudiced if her motion was not granted.

 

The daughter also filed a motion to vacate the default judgment and the order confirming the sale. The daughter argued that the mortgagee's failure to name her in the foreclosure complaint as a necessary party rendered her unable to defend her interests and that because the trust could not defend the beneficiaries in the foreclosure, she would be prejudiced if the property was foreclosed without her participation in the proceedings.

 

The trial court denied the daughter's motions, and she appealed.

 

First, the daughter contended on appeal that the lower court lacked subject matter jurisdiction over the deceased parents as defendants in the foreclosure lawsuit because "a suit against a dead person is a nullity".

 

The Appellate Court pointed out that the mortgagee had dismissed the deceased parents from the foreclosure lawsuit and entered the orders against the trust, unknown owners, and record claimants. The Court further explained that subject matter jurisdiction exists as a matter law "if the matter brought before the court by the plaintiff…is justiciable…," which means it "…is a controversy appropriate for review by the court, in that it is definite and concrete, as opposed to hypothetical or moot, touching upon the legal relationship of parties having adverse legal interests." Thus, the Appellate Court found the foreclosure orders were not void.

 

Second, the daughter argued that the lower court erred in denying her petition for intervention because it did not provide her the opportunity for an evidentiary hearing. The Appellate Court rejected this argument as unsupported by legal authority, and explained that the standard of review for intervention in foreclosure proceedings specifically (735 ILCS 5/15-1501(d)), and for intervention generally under Illinois Code (735 ILCS 5/2-408(a)-(b)) was abuse of discretion.

 

The Appellate Court rejected the daughter's three arguments that the trial court should have granted her motion to intervene. As to the daughter's contention that the motion to intervene should have been granted because the trustee did not protect her interest in the land trust, the Court held this argument failed because the daughter did not timely file the motion to intervene and did not offer any legal basis upon which the court could vacate any of its orders.

 

The daughter's second argument, that denial of her motion to intervene permitted the mortgagee to sell the property to itself for less than fair market value, was irrelevant because the daughter filed the motion to intervene too late.   The Court explained that Illinois intervention law permits a person with an interest in real estate an unconditional right to appear prior to judgment, but, after judgment, a person may only appear at the discretion of the court, or later if its prior to an order confirming the sale. 735 ILCS 5/15-1501(d), (e)(1)-(3).

 

For her third argument, the daughter claimed that she would be forced to file a separate lawsuit against the trustee because the trial court denied her motion to intervene. The Appellate Court rejected this argument as well, explaining that, although separate litigation might occur because the motion to intervene failed, it was not a reason to allow it, and that the Illinois Mortgage Foreclosure Law "strikes the proper balance between the interest in judicial economy and finality of judgment in the context of mortgage foreclosures."

 

The Appellate Court noted that the record revealed that the daughter was aware of the foreclosure lawsuit and the trust's intent not to defend against it, but did not file the motion to intervene until after the confirmation of the judicial sale.

 

The Court held that because the daughter had filed her motion to intervene after the foreclosure court had entered the order confirming the sale, the daughter had failed to comply with the Illinois Mortgage Foreclosure Law's governing provisions. Thus, the trial court did not abuse its discretion in denying the motion to intervene.

 

Accordingly, the trial court's ruling was affirmed. 

 

 

 

Ralph T. Wutscher
Maurice 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
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Wednesday, October 4, 2017

FYI: 5th Cir Holds Non-Compliance With Texas Foreclosure Rule Did Not Void Foreclosure

The U.S. Court of Appeals for the Fifth Circuit held that the trial court had jurisdiction to hear a case based on a final foreclosure order entered in Texas state court, and that the borrowers' due process rights were not violated where the state court entered a foreclosure order without first having a hearing, in violation of the state statute. 

 

Because the foreclosure order was valid, the trial court correctly found the foreclosing mortgagee was entitled to quiet title.  Accordingly, the Fifth Circuit affirmed the ruling of the trial court entering summary judgment in favor of the defendant mortgagee and against the plaintiff borrowers.

 

A copy of the opinion is available at:  Link to Opinion

 

The borrowers ("Borrowers") obtained a loan ("Loan") secured by a mortgage on their property ("Property").  The Note and mortgage evidencing the Loan were assigned to the defendant bank ("Bank"). 

 

The Borrowers defaulted on the Loan in 2011, and on July 11, 2011 the Bank notified the Borrowers of its intent to accelerate the debt if they did not cure the default.  The Borrowers failed to do so, and the Bank filed a foreclosure suit in Texas state court in October 2013.

 

The Borrowers filed an answer in the foreclosure suit, and the matter was set for hearing on December 20, 2013.  However, the Texas state court issued an order ("Foreclosure Order") permitting the Bank to proceed with foreclosure of the Loan and sale of the Property on December 13, 2013.

 

On December 20, 2013, the Borrowers moved to vacate the Foreclosure Order and reopen the case, which motion was granted on January 9, 2014 ("Vacating Order").  Nonetheless, on April 10, 2014 the Bank sent a copy of the Foreclosure Order and a notice of sale to the Borrowers.  The Bank foreclosed on the Property on May 6, 2014, and purchased the Property at a foreclosure sale ("Foreclosure Sale").

 

On June 4, 2014, the Borrowers filed suit in a different Texas state court assert claims for trespass to try title, violation of the Texas Civil Practice and Remedies Code, and request for preliminary injunction.  The Bank removed the action to federal court, and filed a counterclaim seeking a declaratory judgment, quiet title, and judicial foreclosure based on breach of contract. 

 

In granting summary judgment in favor of the Bank, the federal trial court declared that the May 6, 2014 foreclosure sale was valid and entered an order granting quiet title to the Property to the Bank.  The Borrowers moved for reconsideration, which was denied.  The Borrowers appealed. 

 

On appeal, the Borrowers made three arguments: (1) that the federal trial court's assumption of jurisdiction violated the Rooker-Feldman doctrine, (2) that the federal trial court erred in granting summary judgment to the Bank because the state court's Vacating Order was proper, and thus the Foreclosure Order was invalid, and (3) their due process rights were violated under the Texas and U.S. Constitutions when the state court entered the Foreclosure Order without first holding a hearing as required by Texas law.

 

In affirming the ruling of the federal trial court, the Fifth Circuit first reviewed the Texas foreclosure law that formed the basis of the case, Texas Rule of Civil Procedure 736.  A Rule 736 proceeding is not "an ordinary lawsuit," but rather "a faster, more streamlined alternative to judicial foreclosure."  Under Rule 736, once a petitioner files and application for foreclosure and the respondent files a response, the matter is set for an evidentiary hearing.  After an order is obtained, the person may proceed with the foreclosure.

 

A Rule 736 order "is without prejudice and has no res judicata . . . or other effect in any other judicial proceeding."  Rule 736 also provides an exclusive procedure for challenging an order, stating that "[a]ny challenge to a Rule 736 order must be made in a suit filed in a separate . . . proceeding in a court of competent jurisdiction."

 

The Fifth Circuit then addressed the issue of jurisdiction.  The Borrowers argued that the federal trial court exceeded its jurisdictional authority in "unilaterally reviv[ing] the vacated Foreclosure Order and modif[ying] the final disposition of the foreclosing in the Trial Court" in violation of the Rooker-Feldman doctrine.   

 

As you may recall, "the Rooker-Feldman doctrine holds that inferior federal courts do not have the power to modify or reverse state court judgments' except when authorized by Congress."  The doctrine applies to final judgments. 

 

In analyzing the issue, the Fifth Circuit first noted there were two potentially applicable orders: the Foreclosure Order and the Vacating Order.  The Bank argued that the Vacating Order was improper because Rule 736 prohibits parties from challenging Rule 736 foreclosure orders in the same proceeding. 

 

The Fifth Circuit agreed and held that the Rooker-Feldman doctrine was inapplicable to the Bank's counterclaim, because: (1) the Vacating Order was not a final order, and (2) the Vacating Order was void under Texas law, and Rooker-Feldman does not preclude review of void state court judgments.

 

In ruling that the Vacating Order was void, the Fifth Circuit determined that because a challenge to a Rule 736 order must be made in a separate proceeding, the state trial court had no jurisdiction to review the Foreclosure Order, and the Borrowers' motion to vacate was an impermissible challenge to the Foreclosure Order. 

 

Because the Vacating Order was void, the Foreclosure Order was the final order in the state court case.  Thus, there was a question regarding whether the federal trial court had jurisdiction to consider an attack on the Foreclosure Order.

 

In ruling that Rooker-Feldman did not apply, the Fifth Circuit noted that it generally does not apply "to state decision that would not be given preclusive effect under doctrines of res judicata and collateral estoppel."  Here, that was not the case.

 

After determining that it had jurisdiction, the Fifth Circuit next turned to whether the federal trial court correctly entered summary judgment in favor of the Bank. 

 

The Borrowers argued that the foreclosure sale was invalid and therefore the Bank did not hold valid title to the Property.  The crux of their argument was that the state court properly vacated the Foreclosure Order.  The Fifth Circuit disagreed, again ruling that the state court did not have jurisdiction to enter the Vacating Order. 

 

The Borrowers further argued that the Foreclosure Order was void.  The Fifth Circuit again disagreed, noting that although the state court erred by failing to hold a hearing before entering the Foreclosure Order, the order was not void, but merely voidable.

 

Thus, the Fifth Circuit ruled that the federal trial court correctly granted summary judgment in favor of the Bank.

 

Finally, with respect to the Borrowers argument that the state court's issuance of the Foreclosure Order without hearing denied them procedural due process, the Fifth Circuit held the Borrowers claim failed on the merits because "Texas law afforded [the Borrowers] an adequate process for challenging the Foreclosure Order."   

 

 

 

Ralph T. Wutscher
Maurice 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
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Monday, October 2, 2017

FYI: NJ Sup Ct Enforces Modification Settlement Made Through Residential Foreclosure Mediation Program

The Supreme Court of New Jersey reversed the decision of the Appellate Court, and held that a settlement that a borrower and a lender ("Bank") reached during mediation pursuant to the Residential Foreclosure Mediation Program was enforceable because the borrower fulfilled all contingent terms making the agreement permanent. 

 

A copy of the opinion is available at:  Link to Opinion

 

The borrower obtained a home mortgage loan from the Bank.  In 2006, the borrower defaulted on her loan. The Bank filed a foreclosure complaint in chancery court. In August 2007, the Bank obtained a final judgment in the foreclosure action.

 

In 2010, the parties participated in the Residential Foreclosure Mediation Program ("Program"). The mediation resulted in a settlement that included a permanent modification of the loan.

 

The parties used a judicially approved Foreclosure Mediation Settlement Memorandum form to memorialize the agreement. The preamble states: "The parties agree that the foreclosure action is resolved upon the following terms, conditions, and covenants." 

 

The Bank's attorney handwrote the modification agreement's terms in the Memorandum's blank section, including that "[i]f all trial payments are made [Bank] will make modification permanent, but if any payment is missed, [Bank] will continue with foreclosure."  The Memorandum also states that "[t]he parties agree that when executed this mediation settlement memorandum shall be final, binding and enforceable upon all parties."  The borrower's and the Bank's attorney signed the Agreement.

 

Thereafter, Bank sent the borrower three proposals differing from the permanent modification.  The Bank claimed the proposals were provisional.  The borrower continued making payment under the May 2010 Agreement, and declined the Bank's newer proposals.  In response, the Bank referred the loan to foreclosure because the borrower did not sign a proposed May 2012 modification agreement. The borrower then filed a motion pro se asking the court to enforce the permanent modification.

 

The trial court again referred the parties to mediation, but the parties did not settle their differences. The trial court ultimately denied the borrower's request to enforce the permanent modification finding "the 2010 mediation agreement was provisional and not enforceable as a final settlement agreement."  Thereafter, the Bank bought the borrower's home in a Sheriff's sale.

 

The Appellate Division affirmed finding that there was no meeting of the minds and the May 2010 Agreement was "a temporary agreement to be replaced by a permanent mortgage modification signed by the parties."

 

 This appeal to the New Jersey Supreme Court followed.

 

The Court initially noted that the primary issue is whether the Bank and the borrower "entered into a permanent or provisional loan modification agreement in May 2010." Thus, the Court reviewed the ruling de novo because it concerned the meaning or validity of a contract. Morgan v. Sanford Brown Inst., 225 N.J. 289, 302 (2016).

 

However, the Court noted that the dispute also implicates the Residential Mortgage Foreclosure Mediation Program ("Program"). 

 

As you may recall, the New Jersey Judiciary created the Program in response to the 2007-2008 housing market crash and foreclosure crises.  The Program mandates mediation when homeowners that reside in their homes contest foreclosure actions.  The Program is designed "to bring homeowners and lenders to amicably mediated resolution" and not to "foster endless rounds of mediation or litigation."  This is consistent with New Jersey's public policy that also favors settling disputes through mediation. Willingboro Mall, Ltd. v. 240/242 Franklin Ave., L.L.C., 215 N.J. 242, 253-54 (2013). The Court noted that the Program will only meet its goals if courts enforce mediation settlements.

 

The Court looked to contract law to interpret the settlement agreement, noting that a valid settlement agreement requires an offer and acceptance.  The Agreement's terms must be sufficiently definite so it is possible to ascertain each party's performance with reasonable certainty. Weichert Co. Realtors v. Ryan, 128 N.J. 427, 435 (1992).

 

The New Jersey Supreme Court noted that Agreement here is "sufficiently definite and detailed to indicate, with reasonable certainty, that the parties intended a permanent loan modification."  The Court found it significant that the Bank's attorney drafted the key terms because that means the Court construes any ambiguity against the Bank. See In re Estate of Miller, 90 N.J. 210, 221 (1982).  The Court's task then "is to enforce the contract according to its terms, giving those terms their plain and ordinary meaning." Kiefer v. Best Buy, 205 N.J. 213, 223 (2011).  Moreover, the Court, will not rewrite the contract for the parties better than the one they drafted.

 

The Agreement created a trial to permanent modification plan contingent on signed modification documents, an initial down payment, and making all the trial payments.  The borrower fulfilled these terms.

Thus, the Court held that the Agreement "has all of the indicia of a permanent and binding agreement."  According to the Court, to save her home, the borrower made payments in reliance on a reasonable interpretation of the Agreement.

 

The Bank argued that "it reserved to itself the right to reduce the length of the loan, to require higher monthly payments, and to set an increased amortization rate."  However, the New Jersey Supreme Court observed that the Agreement does not state that that, after twelve months, the Bank could demand that borrower agree to a new loan modification with different terms, including shorter maturity date, higher monthly payments, and increased amortization rates.

 

The Court also found that the Agreement does not compel borrower to accept any new proposed loan modification agreement.  The Court buttressed this conclusion with a policy rationale recognizing that the same foreclosure crises that overwhelmed borrower also caused unsophisticated homeowners to enter into unfavorable agreements for the extension of credit to save their homes   Gonzalez v. Wilshire Credit Corp., 207 N.J. 557, 582 (2011).

 

The Supreme Court next turned to whether the parties amended the May 2010 agreement via a novation.  The Court found no novation of the May 2010 Agreement occurred because both parties did not intend to extinguish the old contract, as required. 

 

Specifically, although the borrower made increased monthly payments after receiving the new proposed modifications, the Court noted she did not sign any new proposed loan modification agreement.  Further, the Court noted that the borrower never "voluntarily abandoned the May 2010 Agreement." Although the borrower subsequently participated in mediation, likely to avoid losing her home in the Court's view, she did not sign any documents necessary to "execute a contract superseding the May 2010 Agreement." Instead, before the Sheriff's sale, borrower's newly retained counsel renewed borrower's efforts to enforce the Agreement.

 

In sum, the Court found that the Bank and the borrower entered into the Agreement through the Program.  According to the Court, the Agreement became permanent when Borrower performed her part of the bargain.  Moreover, when dealing with vulnerable homeowners facing foreclosure "chancery courts are courts of equity and therefore must take pains to ensure that such homeowners receive the protection of the law from lending institutions and servicing agents who may seek unfair advantage." The trial court therefore erred when it denied borrower's motion to enforce the agreement.

 

The New Jersey Supreme Court thus reversed the judgment of the Appellate Division and remanded the matter to the trial court for proceedings consistent with its opinion. On remand, if the borrower cannot obtain specific performance because the trial court determines that a bone fide purchaser bought her home, then the Court held that borrower is entitled to any damages she sustained for breach of contract.

 

 

 

 

Ralph T. Wutscher
Maurice 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
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   Michigan   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog

 

and

 

Webinars

 

and

 

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