Thursday, November 8, 2012

FYI: Ill App Ct Confirms Denial of Borrower's Service of Process Challenge as to "Substitute" or "Abode" Service in Foreclosure Action

The Illinois Appellate Court, First District, recently ruled in a mortgage foreclosure action that substitute service on a family member who did not reside at defendants' residence was proper under the Illinois Code of Civil Procedure's substitute service provision, which allows substitute service on either "some person of the family or a person residing" in the household.   The Court also confirmed that, although substitute service requires strict compliance with the statute, a process server's return of service can only be set aside by clear and satisfactory evidence of noncompliance.
 
 
A couple (collectively "Borrowers") defaulted on their home mortgage loan.  Plaintiff mortgage company ("Mortgage Company") filed a foreclosure complaint against Borrowers to foreclose on the mortgage and hired a special process server to serve both Borrowers in the action.   The special process server served each of the Borrowers by substitute service by leaving copies of the summons and complaint at their residence with the mother (the "Mother") of one of the Borrowers.   The special process server submitted two sworn affidavits indicating the method of service, and attesting that he also mailed copies of the process to each of the Borrowers at their home address.
 
Several months later, the lower court entered a default judgment of foreclosure and sale of the property.    After purchasing the property at the judicial sale, Mortgage Company moved for an order confirming the sale and for possession of the property. 
 
Borrowers later appeared in the case and moved to quash service, arguing that service on them was improper because the Mother was not a member of their household for purposes of Section 2-203(a) of the Illinois Code of Civil Procedure.  Borrowers attached affidavits contending that they were never served, and otherwise confirming their allegations
 
In response, Mortgage Company argued that Borrowers' affidavits failed to overcome the presumption of validity of the special process server's affidavits, attaching a supplemental affidavit of service stating that the Mother had signed a statement that she was a member of Borrowers' family, resided at the property, and had received copies of the summons and complaint.  The process server also averred that he had mailed "a copy" of the summons and complaint in an envelope addressed to both Borrowers at their address.
 
Borrowers countered that the Mother was not a member of their household, and that the process server's supplemental affidavit showed that he had improperly mailed the two defendants only a single copy of the summons and complaint.
 
The lower court denied Borrowers' motion to quash service as well as their subsequent motion for reconsideration, and Mortgage Company filed a second motion for an order approving the sale and possession of the property.  
 
Borrowers then re-asserted their argument that only one copy of the summons and complaint was served on them.  In response, Mortgage Company submitted an amended supplemental affidavit of service supporting its position that the process server's original affidavits demonstrated that he had in fact mailed separate copies of the summons and complaint to each Borrower.    
 
The lower court approved the sale of the property and entered an order for possession.  Borrowers appealed. 
 
As you may recall, the substitute service provision of the Illinois Code of Civil Procedure provides in part that  "service of summons upon an individual defendant shall be made . . . by leaving a copy at the defendant's usual place of abode, with some person of the family or a person residing there . . . provided the officer or other person making service shall also send a copy of the summons in a sealed envelope with postage fully prepaid, addressed to the defendant at his or her usual place of abode . . . .  The certificate of the officer or affidavit of the person that he or she has sent the copy in pursuance of this Section is evidence that he or she has done so."  735 ILCS 5/2-203(a) ("Section 2-203(a)").
 
Applying the plain and ordinary meaning of the statute and noting that the current version of section 2-203(a) specifically allows substitute service on either a family member or a non-family member residing at the household, the Appellate Court concluded that a defendant's family member need not reside in the defendant's household in order for service to be properly attained.  See, e.g., Anchor Finance Corp. v. Miller, 8 Ill. App. 2d 326, 330 (1956)(the word  "family" in the substitute service provision presupposes that a "relation of confidence exists between the person with whom the copy is left and defendant that notice will reach defendant; [substitute service provisions] assume that such person will deliver the process or copy to defendant or in some way give him notice thereof").
 
In ruling that the substitute service in this case was proper, the Court noted that:  (1) Borrowers acknowledged that the Mother accepted service at their residence; (2) Section 2-203(a) does not require a family member to reside in the same household with a defendant; and, (3) because of the family relationship and the Mother's presence in the home, the Mother presumably gave the summons and complaint to Borrowers.
 
Turning to Borrowers' second argument that the lower court should have quashed service as to one of the Borrowers based on the process server's original supplemental affidavit stating that he mailed "a copy"  of the summons and complaint to Borrowers, the Appellate Court noted that, in cases of substitute service, service must strictly comply with section 2-203(a).  See Bank of Lake Zurich v. Thill, 113 Ill. 2d 294, 309 (1986)(presumption of validity that exists in cases of personal service does not apply in cases of substitute service). 
 
Nevertheless, the Court concluded that a process server's return may only be set aside by clear and satisfactory evidence as to matters within the personal knowledge of the process server, such as the fact that service was made, his own action in serving process, where service occurred, and who accepted service.   Nibco, Inc. v. Johnson, 98 Ill. 2d 166, 172 (1983).
 
Applying this standard, the Court ruled that the process server's returns of service clearly established that he mailed separate copies of the summons and complaint individually to each Borrower and that clear and satisfactory evidence was lacking in this case to set aside the prima facie evidence that the process server complied with Section 2-203(a).
 
Accordingly, the Appellate Court affirmed the lower court's denial of  Borrowers' motion to quash service.
 


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
Email:
RWutscher@mtwllp.com
 

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Tuesday, November 6, 2012

FYI: Ill App Ct Allows Motion to Vacate Judgment of Foreclosure Filed After Judicial Sale, Disagreeing With Favorable MERS v. Barnes Ruling

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
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: OH Sup Ct Rules Foreclosure Plaintiff Could Not Later Cure Lack of Standing at Time of Filing Complaint

The Ohio Supreme Court recently held that a foreclosure plaintiff cannot cure lack of standing at the commencement of a foreclosure action by later obtaining an assignment of the promissory note and the mortgage securing the loan.
 
 
The plaintiff filed a complaint to foreclose mortgage before becoming the holder of the promissory note or the assignee of the mortgage at issue.  The complaint did not include a copy of the promissory note, admitting that "a copy of [the note] is currently unavailable."  Plaintiff subsequently filed with the court a copy of the note showing a chain of indorsements from the originating lender to a final indorsement in blank.  Plaintiff additionally filed an assignment of the promissory note and mortgage, executed approximately one month after Plaintiff filed its complaint.
 
The borrowers challenged Plaintiff's standing to foreclose on their property.  Finding that the borrowers had defaulted on the note, the trial court entered summary judgment in favor of Plaintiff.  The Second District of the Ohio Court of Appeals affirmed the trial court, concluding that although Plaintiff lacked standing at the time it commenced the foreclosure action, it cured that defect by the assignment of the mortgage and the transfer of the note prior to entry of judgment.
 
Specifically noting that Plaintiff conceded the record did not establish it was a person entitled to enforce the note as of the date the complaint was filed, the Ohio Supreme Court reversed the Appellate Court on the narrow issue of whether lack of standing at the commencement of a foreclosure action may be cured by later obtaining an assignment of a note and mortgage sufficient to establish standing prior to the entry of judgment.
 
The Ohio Supreme Court found that standing to sue is required to invoke the jurisdiction of the court, and is therefore to be determined as of the commencement of the suit.  Citing United States Supreme Court opinions for the proposition that courts may disregard post-filing events that supply standing but did not exist at the time of filing, the Ohio Supreme Court ruled that Plaintiff lacked standing to invoke the trial court's jurisdiction, because the record contained no evidence that Plaintiff had suffered any injury at the time it commenced the foreclosure action.
 
The Ohio Supreme Court also rejected Plaintiff's argument under the so-called "real party in interest rule," which prohibits dismissal of an action on the ground that it is not prosecuted in the name of the real party in interest until sufficient time has been allowed for substitution of the proper parties.  Rejecting a previously issued plurality opinion, the Court found that the real party in interest rule relates to proper party joinder rather than standing, and does not "allow[ ] a party with no personal stake in a controversy to file a claim on behalf of a third party, obtain the cause of action by assignment, and then have the assignment relate back to the commencement of the action."
 
Despite holding that lack of standing at the commencement of a foreclosure action requires dismissal of the complaint, the Court acknowledged that the dismissal is not an adjudication on the merits and is therefore without prejudice.  In fact, the Court specifically stated that the "dismissal has no effect on the underlying duties, rights, or obligations of the parties."
 
Accordingly, the Ohio Supreme Court reversed the appellate and trial courts, and dismissed Plaintiff's foreclosure action without prejudice.
 


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
Email:
RWutscher@mtwllp.com
 

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.


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