FYI: 2nd Cir Upholds Dismissal of Putative RESPA Class Action for Allegedly Improperly Inflated Title Insurance Charges

The U.S. Court of Appeals for the Second Circuit recently upheld the dismissal of a putative class action alleging that the defendant title insurance companies supposedly paid illegal kickbacks in violation of Section 8(a) of the federal Real Estate Settlement Procedures Act, where the complaint merely alleged supposedly unreasonably high insurance rates.

 

A copy of the opinion is available at: 

http://www.ca2.uscourts.gov/decisions/isysquery/96235be4-dd3c-4063-a059-1c599885cd23/1/doc/10-4941_opn.pdf.

 

Plaintiffs filed a putative class action suit against various title insurance companies ("Defendant Title Companies") alleging that Defendant Title Companies sold title insurance to Plaintiffs at supposedly inflated rates as a result of illegal "kickbacks" in violation of the anti-kickback provision of the federal Real Estate Settlement Procedures Act,12 U.S.C. §2607(a) ("Section 8(a)").  Plaintiffs sought injunctive relief and treble damages based on the amount of any charge paid for allegedly unearned settlement services. 

 

In addition to outlining how title insurance rates are determined in New York and bringing claims for allegedly unreasonably high title insurance rates under federal antitrust law, the New York Business Law, and common law unjust enrichment principles, Plaintiffs alleged that: (1) "[d]efendants paid illegal kickbacks to title agents[, lawyers, brokers, and lenders,] for referrals and gave fees and other things of value to others for unearned settlement services and settlement services not provided"; (2) "roughly 85 percent of total title insurance premiums" consist of kickback and other illegitimate costs"; and (3) "[t]itle insurers get business by encouraging those making the purchasing decisions . . . to direct business to that insurer." 

 

Ruling in part that Plaintiffs failed to state a plausible claim under RESPA, the district court dismissed.  On appeal, the Second Circuit affirmed.

 

As you may recall, Section 8(a) provides:  "No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding . . . that business incident to or a part of a real estate settlement service . . . shall be referred to any person."  12 U.S.C. § 2607(a).  In addition, RESPA's "safe-harbor provision" provides that Section 8(a) shall  not be construed as prohibiting payments by a title company for goods, facilities actually furnished, or services actually performed.  12 U.S.C. § 2607(c).

 

Noting that Plaintiffs' complaint was largely based on allegations that title insurance companies generally charged unreasonably high title insurance rates, the Second Circuit pointed out that even though RESPA provides a private right of action to persons improperly charged a settlement fee, RESPA is not intended to serve as a means to regulate the reasonableness of title insurance rates.

 

Thus, in further observing that a Section 8(a) violation requires: (1) payment or thing of value; (2) given and received pursuant to an agreement to refer settlement business; and (3) an actual referral, the Court ruled that Plaintiffs' complaint failed to contain sufficient factual information to state a plausible claim for relief under this test.  See Ashcroft v. Iqbal, 556 U.S. 662 (2009)(plausibility requires more than mere possibility that a defendant acted unlawfully).
 
In so ruling, the Second Circuit noted that the complaint lacked any specifics as to dates, times, amount of alleged violations, and references to referral agreements and business referrals.  The Court also pointed out that while not necessary to sustain a section 8(a) claim, there were no allegations that Defendant Title Companies charged any of the Plaintiffs a rate inflated by the alleged kickbacks.   

 

Accordingly, the Second Circuit concluded that without specific facts as to the alleged kickback schemes that would allow a plausible inference that Defendant Title Companies paid kickbacks for business referrals in violation of Section 8(a), Plaintiffs' complaint was effectively just a claim of industry-wide overcharges that the district court properly dismissed.

 

Ralph T. Wutscher
McGinnis Tessitore 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@mtwllp.com
 

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FYI: Ill App Ct Rejects Challenge to Termination of Line of Credit Based on Alleged "Breach of Implied Covenant of Good Faith and Fair Dealing"

The Illinois Appellate Court, Third District, recently rejected claims that a bank breached an "implied covenant of good faith and fair dealing" in connection with terminating a line of credit.  The Court also held that the borrower's and guarantors' allegations were barred by res judicata or collateral estoppel, as the claims and issues presented arose from the same loan agreement and had been previously conclusively resolved. 

 

A copy of the opinion is available at: 

http://www.state.il.us/court/Opinions/AppellateCourt/2012/3rdDistrict/3110200.pdf.

 

Defendant bank ("Bank") extended a revolving line of credit to an advertising company ("Company").  The line of credit was secured by a promissory note executed by Company and was guaranteed by a number of individuals associated with Company. 

 

Among other things, the Note required monthly payments of all accrued unpaid interest and provided that "[u]pon default, [Bank] may declare the entire unpaid principal balance due under this Note and all accrued interest immediately due . . ."  Included as examples of events or circumstances that constituted "an event of default," under the Note were:  "[t]he dissolution or termination of  [Company's] existence as a going business"; and Company's insolvency.  The Note further provided that Bank would have no further obligation to advance funds under the Note and could freeze and set off Company's accounts if Company or its guarantors defaulted, went out of business, or became insolvent.  Company and the loan guarantors also waived a number of rights including the right to require Bank to make any presentment, demand for payment, or notice of dishonor. 

 

Following a decline in Company's business, Bank demanded additional collateral and a cash infusion from Company and allegedly threatened to withhold credit if its demands were not satisfied.  Company advised Bank that it could not meet those demands and that it would have to cease doing business.  Bank then terminated Company's line of credit, placed a hold on Company's bank account, and applied proceeds from that account to cover the outstanding loan balance on the Note.  Bank later sent Company a notice of default, citing insolvency and closing of the business, and demanded payment of the outstanding principal and interest.

 

In separate actions against Company and the guarantors, Bank sought to collect the amounts due under the Note.  In each case, the trial court granted Bank's motion for summary judgment, rejecting Company's argument that there were triable issues, such as whether Company had been "in default" or "insolvent" under the Note, whether Bank's demand for additional collateral and a cash infusion caused Company to go out of business, and whether Bank breached its duty of good faith and fair dealing.  The Appellate Court affirmed the circuit court's judgments in each case and ruled in part that Bank had not breached its duty of good faith and fair dealing and that closing the line of credit was expressly authorized by the Note.

 

In the third lawsuit involving the same parties, Company and certain guarantors ("collectively Plaintiffs") filed a lawsuit against Bank and a loan officer (collectively, "Defendants"), asserting claims for breach of contract, breach of the implied duty of good faith and fair dealing, and tortious interference with contract and business relations.  Among the allegations were claims that Defendants: (1) improperly terminated the line of credit when Company was not "in default"; (2) had caused Company to go out of business; and (3) unreasonably demanded additional collateral and threatened to withhold credit.
 
Taking judicial notice of the judgments previously entered against Plaintiffs in the previous actions, the trial court granted Defendants' motion for summary judgment, ruling that those judgments had established res judicata and collateral estoppel as to Plaintiffs' various issues and claims.  The circuit court concluded in part that Bank was entitled to call the loan, declare a default on the basis of Company's insolvency, enforce the guaranty agreements, and that Defendants did not breach their duty of good faith and fair dealing.

 

Plaintiffs appealed. The Appellate Court affirmed.

 

The Appellate Court held that Illinois did not recognize a cause of action for "breach of the implied covenant of good faith and fair dealing."  

   
In addition, ruling that the lower court had properly entered summary judgment for Defendants because all claims were barred by res judicata or collateral estoppel, the Appellate Court noted that all the elements necessary for the application of these doctrines were present in this case.

 

In so doing, the Appellate Court applied the "transactional test" to determine identity of causes of action and observed that the very claims asserted by Plaintiffs in this case arose from the same loan transaction and involved the same actions taken by Bank that were litigated in the previous lawsuits.  The Court also ruled that adding a Bank employee as a defendant did not undermine the identity of parties or defeat the application of res judicata.

 

In addition, concerned with potentially invalidating the prior judgments, the Appellate Court further noted that res judicata barred not only matters actually litigated but also all matters that could have been presented and decided in the prior actions, either as a defense or counterclaim, such as the claim for tortious interference with business relations.   The Court thus ruled that res judicata barred any claims in the current action "where successful prosecution of the later action 'would either nullify the earlier judgment or impair the rights established in the earlier action.'"  See City of Rockford v. Unit Six of Policemen's Benevolent  Protective Ass'n., 362 Ill. App. 3d 556, 562-63 (2005).

 

Accordingly, the Appellate Court ruled that Plaintiffs were barred from raising any claims that arose from the line of credit transaction or Defendants' subsequent acts, because Plaintiffs had failed to raise those claims in the prior actions which resulted in final judgments on the merits and determined the parties' respective rights.  

 

Ralph T. Wutscher
McGinnis Tessitore 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@mtwllp.com
 

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FYI: Cal App Ct Allows Claim for Impairment of Collateral/Security Following Non-Judicial Foreclosure Sale of Property

The California Court of Appeal, Third District, recently held that the holder of a loan was not barred from asserting a claim for "bad faith waste" following a non-judicial foreclosure sale, where the developer had demolished a building on the property and failed to produce evidence that the demolition was caused "solely or primarily [by] economic pressures of a market depression." 

 

A copy of the opinion is available at: 

http://www.courts.ca.gov/opinions/documents/C067630.PDF.

 

A real estate developer ("Developer") purchased real estate with a seller-financed loan, intending to tear down the existing building and to redevelop the property into a mixed-use commercial development.  The loan was secured by a deed of trust against the property and was eventually transferred to the plaintiffs ("Plaintiff Holders").  Starting the development project, Developer tore down the building.  However, prior to beginning any new construction, Developer defaulted on the loan.
  
Plaintiff Holders initiated non-judicial foreclosure proceedings pursuant to the deed of trust, and purchased the property at the foreclosure sale for a small fraction of the amount owed on the loan.  A few months later, alleging in part that Defendants committed waste and impaired Plaintiff Holders' security by demolishing the building, Plaintiff Holders sued Developer as well as the project and construction directors (collectively, "Defendants") for "bad faith" waste and intentional and negligent impairment of the security.
 
Moving for summary judgment, Defendants argued that their conduct did not constitute "bad faith" waste, as they intended to add value to the property and, as such, lacked any improper intent.  They also argued that a claim for intentional impairment was derivative of the waste cause of action, and thus could not survive without evidence of "bad faith."  Defendants also asserted that the non-borrower project and construction directors were Developer's innocent agents and were therefore not liable for Developer's torts. 

 

In response, Plaintiff Holders argued that the claim of bad faith waste merely required that Defendants acted intentionally in demolishing the building, and that there was a triable issue as to whether Defendants knew of the security interest and owed a duty to exercise reasonable care not to eliminate that interest.

 

Relying on the California Supreme Court's opinion in Cornelison v. Kornbluth, 15 Cal. 3d 590 (1975), the trial court ruled in part that absent recklessness and intent to despoil at the time of the demolition, the bad faith waste cause of action could not be maintained.  The trial court also agreed that the Developer's non-borrower agents should not be held liable if Developer itself was protected from liability. 

 

The trial court granted summary judgment in favor of Defendants.  Plaintiff Holders appealed.  The Court of Appeal reversed and remanded, ruling that under a proper reading of Cornelison, Plaintiff Holders were not barred from asserting a claim for bad faith waste.

 

The Appellate Court began its analysis with a detailed review of the Cornelison opinion, which explained that waste is conduct on the part of the person in possession of secured property that substantially impairs the security interest in the property, even if the person is not personally liable on the promissory note.  The Court also observed that Cornelison specifically defined "bad faith" waste as any waste that is not committed solely or primarily as a result of economic pressures of market depression. 

 

Noting that the Cornelison decision hinged largely on the California Supreme Court's analysis of state anti-deficiency statutes, and the public policy to preclude the imposition of personal liability on defaulting borrowers where land values are caused by a decline in the economy, the Court of Appeal stressed that a proper interpretation of Cornelison mandated a result different from that reached by the trial court. 

 

In so doing, the Appellate Court noted Cornelison's distinction between conduct that impairs the value of the property because of an economic downturn, and conduct that impairs the value of property that is not solely or primarily . . a result of the economic pressures of a market depression." Cornelison v. Kornbluth, supra, 15 Cal. 3d at 604.  Under Cornelison, the Court noted, damages for waste resulting from economic pressures would be the functional equivalent of a deficiency judgment, and would thus be prohibited under the anti-deficiency statutes.  On the other hand, damages for waste resulting from other causes would not be the functional equivalent of a deficiency judgment, and therefore would not be precluded under the anti-deficiency statutes.

 

Observing that Cornelison specifically listed "reckless, intentional, and at times even malicious despoil[ing] of property" as examples of conduct not resulting from economic pressures, the Court of Appeal interpreted Cornelison as also allowing claims for "bad faith" waste "whenever the owner's impairment of the value of the security is not caused by economic pressures of a market depression, whether the owner acts recklessly, intentionally, maliciously, or with some other mental state."
 
Accordingly, the Appellate Court ruled that even though the building demolition was the result of good intentions to redevelop and add value to the property, the dispositive question for the trier of fact was whether the demolition was caused by the economic pressures of a market depression or by something else.
 
The Court also ruled that Defendants may be held liable for intentional impairment of the security, because they had failed to show that "intent to harm" was a required element of the cause of action. 

Similarly, reasoning that third-parties could be held liable for negligent impairment of security, the Court ruled that the negligent impairment claim could go forward against the non-borrower defendants partly in light of their participation in the demolition of the building.

 

Ralph T. Wutscher
McGinnis Tessitore 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@mtwllp.com
 

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FYI: 6th Cir Holds Misidentification of Holder/Mortgagee May Violate FDCPA

The U.S. Court of Appeals for the Sixth Circuit recently held that a borrower in a residential mortgage foreclosure stated a claim for violation of section 1692e of the federal Fair Debt Collection Practices Act, where the foreclosure law firm incorrectly stated in connection with its foreclosure action that the foreclosing entity was the holder and mortgagee of the loan at the time the foreclosure complaint was filed. 

 

A copy of the opinion is available at: 

http://www.ca6.uscourts.gov/opinions.pdf/12a0197p-06.pdf.

 

Plaintiff ("Borrower") purchased a home with a mortgage loan and later fell behind on the payments.  Defendant bank ("Bank"), through its foreclosure attorneys (the "Law Firm"), filed a foreclosure action against Plaintiff, asserting that Bank was the holder of the note and mortgage and that it was thus entitled to foreclose on Borrower's property.
 
Over a month after the filing of the foreclosure action, Bank received an assignment and transfer of the loan and recorded it in the county recorder's office. 

 

Borrower failed to respond to the foreclosure complaint.  The trial court accordingly entered a default judgment against Borrower and a sheriff's sale was scheduled.  Upon learning of the upcoming sale, Borrower allegedly contacted the Law Firm in an attempt to pay off the loan, but the alleged misidentification of Bank as the loan holder supposedly confused Borrower and caused delay in trying to contact the proper party for payment on the loan.  The property was eventually sold at auction.
 
Borrower then filed an action in federal court, alleging in part that the Law Firm had falsely represented the name of the holder and mortgagee of the loan in supposed violation of the federal Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692, et seq. ("FDCPA") and Ohio's consumer protection law.   Specifically, Borrower claimed that the Law Firm used "false, deceptive or misleading representations" in connection with the collection of the mortgage debt in violation of the FDCPA's section 1692e. 

 

Ruling that failure to record an assignment of mortgage prior to filing a foreclosure action was not a deceptive practice under the FDCPA, the district court dismissed Borrower's complaint for failure to state a claim under the FDCPA.  Borrower appealed the dismissal of her claim.
 
The Sixth Circuit reversed and remanded, ruling that Borrower had alleged a material misrepresentation sufficient to survive a motion to dismiss.

 

As you may recall, the FDCPA provides in relevant part that "[a] debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.  Without limiting the general application of the foregoing, the following conduct is a violation of this section:  . . . (2) the false representation of – (A) the character, amount, or legal status of any debt; or . . . (10) The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer."  15 U.S.C. § 1692e.  The FDCPA also allows consumers to recover damages for debt collectors' violations of section 1692e.  15 U.S.C. § 1692k.

 

First focusing on the date on which Bank became the real party in interest in the foreclosure action, the Appellate Court noted that Borrower specifically alleged that the Law Firm's foreclosure complaint contained false assertions that Bank was the holder and mortgagee of the loan at the time the foreclosure complaint was filed and that the Law Firm's representation confused and misled her.

 

The Court then examined the district court's ruling that failure to record a mortgage assignment before filing a foreclosure action did not constitute a "deceptive practice" under the FDCPA.  In so doing, the Appellate Court pointed out that in order to violate Section 1692e, a statement must be both misleading to the "least sophisticated consumer" and materially false or misleading.  The Court explained that "[t]he materiality standard simply means that in addition to being technically false, a statement would tend to mislead or confuse the reasonable unsophisticated consumer."

 

Applying this standard and distinguishing between the issue of Bank's standing to foreclose and the question whether the Law Firm's misidentification of the loan holder and mortgagee may be materially misleading under the FDCPA, the Appellate Court ruled that Borrower had raised sufficient facts in her complaint to allege a Section 1692e violation and to survive a motion to dismiss.

 

 

Ralph T. Wutscher
McGinnis Tessitore 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@mtwllp.com
 

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FYI: Ill App Ct Holds Borrower's Delay in Raising "Standing" Defense Resulted in Forfeiture of the Defense

The Illinois Appellate Court, First District, recently held that the borrower in a residential mortgage foreclosure action forfeited his lack of standing defense, because the borrower failed to raise the standing argument until after the entry of the foreclosure judgment.  The Appellate Court also ruled that the trial court properly confirmed the judicial sale of the mortgaged property where there was no evidence of mistake, fraud, or other irregularity.

 

A copy of the opinion is attached.

 

Defendant borrower ("Borrower") defaulted on his home mortgage loan, which named Mortgage Electronic Registration Systems, Inc. ("MERS") as the mortgagee and allowed for transfer of the note to a subsequent note holder entitled to receive payments on the loan.  Plaintiff ("Loan Owner") filed a foreclosure action against Borrower, who appeared pro se and filed an answer to the complaint. 

 

Loan Owner moved for summary judgment and judgment of foreclosure and sale.   Borrower failed to file a response to the motion, and, at the subsequent hearing which Borrower did not attend, the trial court granted Loan Owner summary judgment and judgment for foreclosure and sale. 

 

Loan Owner then scheduled a judicial sale of the property.  Shortly after the scheduling of the sale, Borrower obtained counsel who filed a motion to stay the judicial sale.  The trial court granted the motion and stayed the sale for one month.  Loan Owner purchased the property at the judicial sale for the amount of the debt owed and later moved to confirm the sale.
 
Borrower subsequently hired counsel and moved to withdraw his previous answer and filed a motion to dismiss, claiming in part that Loan Owner lacked standing to foreclose because the promissory note and mortgage had been assigned to Loan Owner after the filing of the foreclosure action.  In response, Loan Owner claimed that it had been assigned the note before the filing of the foreclosure action, but that the assignment of mortgage had not been recorded until afterward.
 
Nevertheless, the trial court found that the assignment of mortgage had occurred after the filing of foreclosure action, and that Loan Owner had violated a local rule requiring all assignments of mortgage showing standing to foreclose to be submitted to the court prior to any ruling on the foreclosure.  Accordingly, the trial court dismissed the foreclosure complaint, but denied Borrower's motion to withdraw the answer as moot and allowed Loan Owner to re-file. 

 

Shortly after the dismissal, the Appellate Court decided Mortgage Electronic Registration Systems, Inc. v. Barnes, 406 Ill. App. 3d 1 (2010), which held that a mortgagor could not raise the affirmative defense of lack of standing after the entry of a foreclosure order.  In light of Barnes, Loan Owner filed a motion to reconsider, arguing that Borrower's motion to dismiss was untimely.
 
Because of the Barnes decision, the trial court reversed itself and vacated its order of dismissal.  Borrower also filed a motion to reconsider, which the court denied, and, in response to Loan Owner's motion to confirm the sale, argued that the "full debt" bid resulted in an unconscionable sale price.  Nevertheless, the trial court confirmed the judicial sale.  Borrower appealed the confirmation of the sale and the denial of his motion for reconsideration. 

The Appellate Court affirmed.

 

Noting that the affirmative defense of lack of standing is the defendant's burden to plead and prove, and is thus forfeited unless raised in a timely manner, the Court followed the ruling in Barnes that failure to argue a lack of standing before a foreclosure judgment results in forfeiture of that defense.
 
Borrower unsuccessfully argued that the court was not required to follow Barnes because the Loan Owner had failed to demonstrate that it had standing prior to filing the foreclosure action, because Barnes was not yet "well-established" law, because Borrower's case was factually distinguishable from Barnes, and because the trial court should have granted Borrower's motion for reconsideration for public policy and equitable reasons.
 
Rejecting these arguments, the Court pointed out that Borrower had not provided any specific justification for departing from precedent, and that the appellate court in Barnes had made an explicit and essential finding about the timing and ability of the defendant to raise the standing issue.
 
The Court also observed that, although the defendant in Barnes raised the standing issue in a motion to vacate rather than in a motion to dismiss, the critical factor in both cases was the time at which the standing issue was raised.    The Court explained, "[b]oth cases involve mortgage foreclosure claims where the defendant attempted to raise a question as to the plaintiff's standing to bring the action after the foreclosure judgment had already been entered.  Thus, the result should be the same."

 

Ralph T. Wutscher
McGinnis Tessitore 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@mtwllp.com
 

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Our updates are available on the internet, in searchable format, at:
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FYI: Ill App Ct Upholds Foreclosure Sale, Citing Dilatory Conduct and Lack of Evidence by Borrower

The Illinois Appellate Court, First District, recently upheld the trial court's approval of a judicial foreclosure sale, where a default judgment had been entered and defendants failed to:  (1) raise any objections in connection with the sale confirmation hearing;  (2) show that the foreclosure sale price was grossly inadequate; or  (3) present any evidence as to why the judicial sale should not be approved.

 

A copy of the opinion is available at: 

http://www.state.il.us/court/Opinions/AppellateCourt/2012/1stDistrict/1112977.pdf.

 

The trustee of a land trust obtained a commercial loan that was secured by property located in Chicago, Illinois.  The loan went into default and the lender eventually commenced foreclosure.  
 
The trustee of the land trust and the other defendants (collectively "Defendants") were served with summons and complaint pursuant to the Cook County Circuit Court's General Administrative Order 2007-03 ("GAO"), which permits law firms to serve process in foreclosure cases using special process servers approved by blanket order. 

Defendants failed to appear, answer, or file a responsive pleading within 30 days of service, but later moved to quash service.  Following the denial of their motion, Defendants failed to file an answer or other responsive pleading. 

 

The trial court repeatedly granted Defendants extensions of time to file an answer or other responsive pleading, and eventually entered a default judgment against them.

 

Following the default judgment, the lender assigned its interest in the mortgage loan to plaintiff ("Plaintiff Purchaser"), which made the only -- and thus winning -- bid at the ensuing judicial sale in the form of a credit bid.   The purchase price covered less than half of the balance due on the mortgage loan.

 

A month after the sale, Plaintiff Purchaser filed a motion to be substituted as the plaintiff, and further moved for orders approving the judicial sale and granting Plaintiff Purchaser possession of the property.  In response, Defendants filed a motion to quash service, arguing that the circuit court lacked jurisdiction over them due to improper service of process. Defendants also moved to void the default and foreclosure judgments and the foreclosure sale. 

 

Subsequently, requesting another extension of time in order to file a response to Plaintiff Purchaser's motion to confirm the sale, Defendants sought to void the various judgments against them, this time asserting that the sale price was below the property's appraised value.  In support of their request, Defendants attached a two-page summary from a purported 90-page appraisal report.  Nevertheless, although Defendants did file a response to Plaintiff Purchaser's motions to substitute as plaintiff and for possession, Defendants never filed any written objections to the motion to confirm the judicial sale.
  
The circuit court entered orders confirming the judicial sale, substituting Plaintiff Purchaser as the plaintiff, and granting the petition for possession of the property.
 
Defendants filed a motion for rehearing and reconsideration, alleging in part that Plaintiff Purchaser's bid was inadequate, supporting their assertion with the same documentation used in its prior request for an extension of time. 

 

The trial court denied the motion.  Defendants appealed.
 
The Appellate Court affirmed, ruling that service of process and the confirmation of the judicial sale were both proper.

 

As you may recall, the Illinois Mortgage Foreclosure Law provides that a trial court must confirm a judicial sale unless the court finds that (1) proper notice was not given, (ii) the terms of sale were unconscionable, (iii) the sale was conducted fraudulently or (iv) justice was otherwise not done.  The Illinois Mortgage Foreclosure Law also specifies that "no sale . . . shall be held invalid or be set aside because of any defect . . . except upon good cause shown in a hearing . . . ." 735 ILCS 5/15-1508(b), (d).

 

Noting, first, that the First District twice previously addressed the issue of service of process by special process servers, the Appellate Court reiterated that "a mortgagor has no liberty or property interest in who serves him with process in a foreclosure action," and that there is no procedural due process violation where service of process in foreclosure cases is carried out by private detectives rather than the Cook County Sheriff.  See U.S. Bank, N.A. v. Dzis, 2011 IL App (1st 102812; Onewest Bank, FSB v. Markowicz, 2012 IL App (1st) 111187.  Observing that Defendants' arguments in this case were identical to those made in the earlier two cases that upheld service by special process servers, the Court concluded that service in this case was also proper.

 

Turning to the lower court's approval of the judicial sale, the Appellate Court pointed out that for over a year between the filing of the foreclosure action and the judicial sale, Defendants failed repeatedly to file any defense to the mortgage foreclosure action or to take any other steps to refinance or procure a better price at the foreclosure sale.  The Appellate Court pointed out that when the Plaintiff Purchaser filed its properly supported motion to confirm the sale and noticed it for hearing, the burden shifted to the Defendants to prove that grounds existed for the trial court not to enter an order approving the sale, and that the Defendants never raised any objections in connection with the sale confirmation hearing.
 
Unwilling to allow Defendants to raise objections for the first time after the judicial sale had been approved because of their opportunity to do so at the hearing, the Appellate Court  ruled that Defendants had waived all objections to the four enumerated statutory exceptions in Section 15-1508(b). 

 

In so doing, the court noted Defendants' dilatory behavior after each extension of time, and the lack of substantive evidence Defendants offered supporting their assertion that the sales price was grossly inadequate.  The Court ruled that inadequacy of sales price alone was an insufficient basis to not confirm a judicial sale and that other factors not present in this case, such as fraud, mistake, or violation of the duty of the officer conducting the sale, could afford relief.  See Resolution Trust Corp. v. Holtzman, 248 Ill. App. 3d 105, 113-14 (1993); Illini Fed. Sav. & Loan Ass'n v. Doering, 162 Ill App. 3d 78, 771-72 (1987).

 

Finally, the Appellate Court also ruled that Plaintiff Purchaser's credit bid and purchase of the property at the judicial sale was proper because, as the assignee of the lending bank's judgment, Plaintiff Purchaser acquired all of lending bank's rights to enforcement of and collection on the judgment.
 

Ralph T. Wutscher
McGinnis Tessitore 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@mtwllp.com
 

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