The Illinois Appellate Court, Second District, recently ruled that a lower court erred in refusing to consider a borrower's motion to vacate a default judgment of foreclosure, filed after the plaintiff already moved to approve and confirm the judicial sale of the mortgaged property, disagreeing with and declining to follow the favorable Mortgage Electronic Registration Systems, Inc. v. Barnes ruling.
A borrower ("Borrower") defaulted on a mortgage loan, and Plaintiff bank ("Bank") filed a foreclosure action against Borrower and personally served Borrower with the summons and complaint. Supported by an affidavit signed by its vice president, Bank ultimately moved for and obtained a default judgment against Borrower for failure to appear or answer the complaint, and the lower court ordered the property to be sold at a sheriff's sale.
On the day the property was scheduled to be sold, Borrower filed a motion for an emergency stay requesting the court to vacate its default order and to stop the sheriff's sale, in order that Borrower could pursue a loan modification with Bank. In her motion, Borrower acknowledged, among other things, that she had been served with process and had defaulted on her mortgage loan. At the hearing on the motion for the emergency stay, the parties agreed to an order whereby Borrower withdrew her motion to vacate in exchange for a 75-day postponement of the judicial sale.
Bank subsequently conducted a rescheduled judicial sale and moved to confirm the sale. In response, Borrower then moved again to vacate the default judgment, this time alleging among other things that the affidavit in support of Bank's motion for a default judgment was defective in that the affiant had not attached the note and mortgage to the affidavit and lacked personal knowledge about the facts in the affidavit.
The trial court denied Borrower's second motion to vacate, ruling that, because Borrower had agreed to withdraw her motion in exchange for postponement of the judicial sale, she was precluded from trying to rescind the agreement after getting the benefit of the bargain. Accordingly, the trial court entered an order confirming the sale and allowing Bank to take possession of the property.
Borrower appealed the denial of her second motion to vacate, arguing in part that the second motion was timely filed because a final order confirming the judicial sale had not been entered, and that the lower court had abused its discretion in concluding that under the agreed order she had waived her right to file a second motion to vacate.
The Appellate Court reversed and remanded, ruling that the lower court abused its discretion in failing to consider Borrower's second motion to vacate.
The Illinois Code of Civil Procedure allows that a trial court "may in its discretion, before final order or judgment, set aside any default, and may on motion filed within 30 days after entry thereof set aside any final order or judgment upon any terms and conditions that shall be reasonable." 735 ILCS 5/2-1301(e)("section 2-1301(e)").
In addition, the Illinois Mortgage Foreclosure Law ("IMFL") provides that, after the foreclosure judgment and judicial sale, the circuit court shall confirm the sale unless the court finds that (i) a required notice was not given, (ii) the terms of the sale were unconscionable, (iii) the sale was conducted fraudulently, or (iv) justice was not otherwise served. 735 ILCS 5/15-1508(b).
Noting that Borrower bore the burden of establishing sufficient grounds to vacate the default judgment under section 2-1301(e), the Appellate Court rejected Bank's assertion that Borrower's motion was untimely because it was not brought until after the sheriff's sale had occurred. See Mortgage Electronic Registration Systems, Inc. v. Barnes, 406 Ill. App. 3d 1 (2010)(ruling that allowing a motion to vacate after the foreclosure sale has taken place and after plaintiff filed its motion to approve the sale would undermine the foreclosure sale process).
In so doing, the Court declined to follow the sister appellate court's holding in Barnes, and disagreed with its conclusion that permitting a motion to vacate after a judicial sale would "eviscerate" the IMFL's provision setting forth only four grounds for non-confirmation of a judicial sale.
The Appellate Court relied instead on an earlier appellate court opinion concluding that the trial court may consider a motion to vacate even after the judicial sale has occurred. See Merchants Bank v. Roberts, 292 Ill. App. 3d 925 (1997)(ruling that lower court had erred in denying a section 2-1301(e) motion partly because defendants had meritorious defenses). In so ruling, the Court noted, first, that diligence on the part of the moving party and the existence of meritorious defenses are two factors to consider in granting or denying a motion to vacate. The Court also observed that in this case the lower court had simply denied Borrower's motion on the basis that she had supposedly waived her right to file a motion to vacate in exchange for the postponement of the judicial sale.
Applying contract construction principles to the agreed order, the Court disagreed with Bank's assertion that there was an implied waiver of Borrower's right to file a second motion to vacate based on the parties' conduct, reasoning that as a material term of the agreement, a waiver should have been expressly and clearly referenced in order to be enforceable. Accordingly, the Court ruled that, given the absence of a clear reference to a waiver in either the agreed order or the hearing transcript, the lower court erred in denying the second motion to vacate on the basis of a supposed waiver.
The Appellate Court thus concluded that the trial court was not barred from considering Borrower's second motion to vacate, and ruled that the trial court erred when it failed to exercise its discretion and consider the motion.
Ralph T. Wutscher
McGinnis Wutscher LLP
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