Saturday, April 1, 2023

FYI: Ill App Ct (1st Dist) Rejects Mortgagors' Claims of Forgery and IMFL Violations

The Illinois Appellate Court, First District, recently affirmed a trial court's summary judgment ruling in favor of a mortgagee, holding that the mortgagors did not raise a triable issue of fact regarding the authenticity of a mortgage and promissory note, and rejecting the mortgagors' arguments under the Illinois Mortgage Foreclosure Law that the foreclosure sale price was "unconscionable" and that "justice was not done" with the foreclosure sale.

 

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

 

In 2002, the mortgagors obtained an adjustable rate mortgage loan with rate adjustments occurring every six months based on the terms of an adjustable rater rider ("rider"). The lender sold and assigned the mortgage loan to a bank ("mortgagee"). 

 

The mortgagors defaulted in 2005, and the mortgagee filed a foreclosure action. The mortgagee attached copies of the mortgage and promissory note to the complaint. The mortgagors denied that the copies of the mortgage and note attached to the complaint were true and correct copies of the originals that they signed, and claimed their signatures were forged on the copies.

 

The mortgagee moved for summary judgment and submitted an affidavit establishing the mortgagors' default under the loan. The trial court granted summary judgment to the mortgagee and held that the mortgagors' affidavits submitted in opposition to the mortgagee's motion for summary judgment failed to show a genuine issue of a material fact. The trial court subsequently entered a judgment of foreclosure and sale. The mortgagee sold the property for $81,840.00 and moved to confirm the sale and to seek a deficiency judgment. The trial court granted the mortgagee's motion in February of 2022 and the mortgagors timely appealed.

 

On appeal, the mortgagors raised three issues. First, they argued that the trial court erred in granting summary judgment in the mortgagee's favor because their answer and affidavits supposedly raised a triable issue of fact regarding the authenticity of the mortgage. Second, they argued that the trial court failed to fully consider whether the price for which the mortgagee sold the property was "unconscionable" under the Illinois Mortgage Foreclosure Law. Third, the mortgagors argued that justice was not done by the sale of the property under the Illinois Mortgage Foreclosure Law.

 

In Illinois, when a mortgagee establishes that it is the holder of a duly executed note and mortgage and that a default occurred, the burden shifts to the defendant to prove any affirmative defense to foreclosure. PNC Bank, National Ass'n v. Zubel, 2014 IL App (1st) 130976, ¶ 18. Here, the mortgagors argued that they "refused" to close on the mortgage and had actually negotiated a 30-year mortgage with a fixed interest rate and executed a fixed rate mortgage and did not sign the adjustable rate mortgage and note that the mortgagee attached to the foreclosure complaint.

 

However, the mortgagors submitted no evidence to support their claim or forgery. In Illinois, a party seeking to impeach a notarized instrument must present clear and convincing evidence from a disinterested witness. See, e.g., In re Estate of Bontkowski, 337 Ill. App. 3d 72, 76-77 (2003).  Here, the mortgagors did not attach the alleged fixed rate mortgage or note, and only offered their own self-serving sworn statements which was not sufficient to raise a genuine issue of material fact regarding the authenticity of the mortgage loan documents included with the foreclosure complaint. 

 

The Illinois Supreme Court previously held that the reason for this strict approach is that, if the "law allow(ed) the unsupported testimony of an interested witness to offset and destroy the deliberate act of certification under oath by one created by law to certify instruments of conveyance, it would shock the moral sense of the community, deny justice, and create chaos in land titles." Koepke v. Schumacher, 406 Ill. 93, 98 (1950).

 

The mortgagors further argued that their position was supported by a separate and subsequently executed promissory note, an incomplete and unrecorded mortgage, and a handwritten notarized letter expressing their intent to obtain a fixed rate mortgage loan that questioned the validity of mortgage and note included with the foreclosure complaint. The mortgagors' arguments relied upon the case of Krilich v. Millikin Mortgage Co., 196 Ill. App. 3d 554, 557-58, 563 (1990), which held that alterations to the interest rate on a mortgagee's copy of an adjustable rate note raised a genuine issue of triable fact.

 

The Appellate Court distinguished this case from Krilich, and held that the documents relied upon by the mortgagors did not invite an inference that the mortgagors did not execute the documents attached to mortgagee's complaint because a notarized instrument is valid and not impeachable except in instances of fraud or imposition See Hardisty, 269 Ill. App. 3d at 616-17.  As a result, the Court of Appeals held the mortgagors failed to raise a triable issue of fact regarding the authenticity of the promissory note and the enforceability of the mortgage, and affirmed the trial court's decision granting summary judgment in favor of the mortgagee.

 

Next, the mortgagors argued that the Appellate Court should remand the case for limited discovery and an evidentiary hearing because the trial court failed to fully consider whether the price the mortgagee sold the property was unconscionable. In Illinois, an Appellate Court reviews an order confirming a judicial sale following a foreclosure judgment for an abuse of discretion. CitiMortgage, Inc. v. Bermudez, 2014 IL App (1st) 122824, ¶ 57. During the trial court proceedings, the mortgagors submitted unofficial valuations found on Zillow and Redfin in support of their objections to the sale.  The mortgagee offered a broker's price opinion ("BPO") based on an inspection conducted by a licensed appraiser. The mortgagors argued that the sale price was only 40% of the property's estimated value whereas the mortgagee argued the sale price was 62% of the BPO.

 

Notably, the mortgagors did not argue that mortgagee's actions were somehow deficient in procuring higher bids during the sale process. The Appellate Court disagreed with mortgagors' argument by noting that the mortgagors bear the burden of ensuring the Appellate Court receives a complete record and mortgagors failed to supply a report of proceedings from the confirmation hearing.

Accordingly, the Appellate Court held that absent a record of how the trial court considered the mortgagors' objections to the sale, the Appellate Court could not conclude that the trial court acted unreasonably or arbitrarily by confirming the sale. See, e.g., Bermudez, 2014 IL App (1st) 122824, ¶ 69.

 

In a last-ditch effort, the mortgagors also argued that justice was otherwise not done with the foreclosure sale of the property. The "justice clause" contained in the Illinois Mortgage Foreclosure Law, 735 ILCS 5/15-1508(b)(iv), provides a narrow window for a court to reverse a sale when there are serious defects involved in the sale. However, because the mortgagors' objections did not specifically address the process by which mortgagee procured bids, it did not justify setting aside the sale.

 

Accordingly, the Appellate Court affirmed the judgment of the trial court.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th 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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Sunday, March 26, 2023

FYI: Illinois State Court Dismisses Class Action Alleging Hunstein Violations

A state court judge in Cook County, Illinois recently dismissed a class action lawsuit alleging violations similar to those asserted in Hunstein v. Preferred Collection and Mgmt. Services with prejudice for failure to state a claim under the federal Fair Debt Collection Practices Act (FDCPA).

 

A copy of the opinion is attached.

 

The plaintiff filed a class action complaint in Illinois state court alleging that a debt collector violated the FDCPA by communicating her private information to a third party when it transmitted data about her debt to a third-party letter vendor. The defendant removed the complaint to federal court. After the federal court remanded the case to state court, the debt collector moved to dismiss the plaintiff's complaint arguing that the plaintiff lacked standing under Illinois law and failed to state a claim under the FDCPA.

 

As you may recall, the Eleventh Circuit recently ruled in Hunstein that plaintiffs lack standing under federal law to bring FDCPA claims alleging these types of violations in federal court, after vacating an earlier panel opinion holding the opposite. The Eleventh Circuit's ruling did not put an end to the issue, however, as it focused on the procedural particularities of federal standing without resolving whether the allegations constituted a substantive FDCPA violation.  This Illinois state court dismissal of nearly identical allegations with prejudice adds to the authority answering that question in the negative.

 

Initially, the Illinois state court rejected the debt collector's argument that the plaintiff lacked standing to bring her claim under Illinois law. The court acknowledged the plaintiff's stipulation that she did not experience any actual harm and only sought statutory damages. Nevertheless, the court found that the plaintiff's stipulation did not destroy her standing in Illinois state court, noting that Illinois courts have found standing in cases seeking statutory damages for other types of federal claims. The court also noted that standing in Illinois is an affirmative defense, meaning the debt collector had the burden to disprove standing as opposed to the plaintiff having the burden to prove it.

 

The court then moved to the substantive merits of the plaintiff's allegations. The debt collector raised three distinct arguments in support of its position that the plaintiff could not state a claim for an FDCPA violation based on the alleged facts. First, the debt collector argued that the transmission of data to the letter vendor did not qualify as a communication under the statute. Second, the debt collector argued that the transmission was not made in connection with collector of a debt, as the statute requires. Last, the debt collector argued that the statute, legislative history, and recent authority analyzing the use of letter vendors did not support the plaintiff's interpretation of the FDCPA. The court addressed each argument.

 

Concerning the debt collector's argument that the transmission of data to the vendor did not qualify as a communication, the court recited the FDCPA's definition of a communication as "conveying of information regarding a debt directly or indirectly to any person through any medium." 15 U.S.C. § 1692a(2). The debtor collector suggested that letter vendors are not persons but rather are mediums used to pass information, pointing out that modern mailing services are largely automated. The court found that the debt collector's position would improperly require it to consider additional facts outside of the plaintiff's complaint at the pleading stage. The court therefore rejected the debt collector's argument that its alleged conduct did not qualify as a communication.

 

The court next considered the debt collector's argument that it did not transmit information to the vendor in connection with the collection of a debt. Noting the Seventh Circuit's factors for determining whether a communication qualifies as actionable under the FDCPA, the court determined that the plaintiff's complaint did not meet any of those requirements. The debt collector did not and would not have had any reason to demand payment from the vendor. Nor did the plaintiff have any relationship with the vendor such that the communication could have induced either the vendor or the plaintiff to pay the debt. Further, the purpose and context of the communication showed the debt collector plainly did not transmit the information to the vendor to induce payment. Thus, the court found that the debt collector's alleged communication could not have been made in the collection of a debt.

 

Finally, the court found that communications between a debt collector and a vendor do not fall within the purpose and legislative history of the FDCPA and are not the type of abusive debt collection practices Congress intended the FDCPA to prevent. Accordingly, the court dismissed the plaintiff's complaint with prejudice.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th 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   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

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

 

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and

 

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