Friday, June 28, 2013

FYI: Ill App Ct Rejects Challenge to Foreclosure Sale Based on Alleged Faulty Lis Pendens and Alleged Non-Compliance w/ Illinois Collection Agency Act

The Illinois Appellate Court, First District, recently upheld the lower court's denial of a third-party intervenor's motion to vacate a foreclosure sale, ruling that the mandatory requirements of the Illinois Mortgage Foreclosure Law barred the effort. 


In so ruling, the Court concluded that the intervenor failed to show that "justice was otherwise not done" or that the foreclosing loan servicer's lis pendens was somehow defective in listing a second mortgage under the heading "Other parties of interest." 


The Court also ruled that the intervenor failed to prove that the loan servicer was subject to the registration requirements of the Illinois Collection Agency Act, 225 ILCS 425/1, et seq. ("ICAA").


A copy of the opinion is available at:


Plaintiff loan servicer ("Servicer") brought a mortgage foreclosure action against a number of defendants, including the borrower and others.  The lower court entered a judgment of foreclosure and order of sale, and subsequently confirmed the judicial sale under Section 15-1508(b) of the Illinois Mortgage Foreclosure Law ("IMFL"). 


After the sale confirmation, a real estate firm ("Intervenor") intervened, seeking to vacate the confirmation of sale under section 2-1301(e) of the Illinois Code of Civil Procedure.   Specifically, Intervenor's section 2-1301(e) motion argued in part that Intervenor had acted diligently, had meritorious claims, and would be penalized if the confirmation of the sale was not vacated.  Intervenor also asserted that it was the successful bidder at an earlier foreclosure sale in a separate foreclosure action brought by a second mortgagee on the property, and that Servicer's sale of the property had violated a bankruptcy stay.


To support its section 2-1301(e) motion, Intervenor relied on the IMFL, claiming that "justice would not otherwise be done" if the sale were not vacated.  Moreover, Intervenor asserted that, based on information from the recorder of deeds website, it had bid on the property in the prior foreclosure sale, that a fraudulent release of the first mortgage had been recorded, and that Servicer had filed a defective lis pendens in that Servicer listed the second mortgage under the heading "Other parties of interest."   Intervenor further alleged that, because Servicer was not licensed as a collection agency under the ICAA, the foreclosure action was void. 


The lower court ultimately denied Intervenor's motion to vacate the confirmation of sale.  Intervenor appealed. 


The Appellate Court affirmed, reasoning that Intervenor failed to prove that "justice was not otherwise done," or that any of the alternative findings for vacating a foreclosure sale were present, as required under the IMFL. 


As you may recall, the IMFL provides:  "Upon motion and notice . . . which motion shall not be made prior to sale, the court shall conduct a hearing to confirm the sale.  Unless the court finds that (1) a notice required in accordance with subsection (c) of Section 5-1507 was not given, (ii) the terms of sale were unconscionable, (iii) the sale was conducted fraudulently, or (iv) that justice was otherwise not done, the court shall then enter an order confirming the sale."  735 ILCS 5/15-1508(b). See also 735 ILCS 5/2-1301(e)(court may set aside a judgment on motion filed within 30 days after entry of the judgment).


In addition, the ICAA provides: "This Act does not apply to persons whose collection activities are confined to and are directly related to the operation of a business other than that of a collection agency, and specifically does not include the following:  1.  Banks, including trust departments, affiliates, and subsidiaries thereof, fiduciaries, and financing and lending institutions (except those who own or operate collection agencies). . . .  8.  Loan and finance companies[.]"  225 ILCS 425/2.03. 


Noting the inconsistencies in Intervenor's motions and pleadings and the absence of a complete record, the Appellate Court first pointed out that relief under Section 2-1301(e) was not available where the IMFL governed and that the IMFL limited the court's discretion to deny confirmation of sale only to the four specified grounds listed in the IMFL.  See Mortgage Electronic Registration Systems, Inc. v. Barnes, 406 Ill. App. 3d 1, 4-5 (2010)("If section 15-1508(b) of the [IMFL] did not prevail over section 2-1301(e) of the Code, then the latter would eviscerate the former because parties could thwart section 15-1508(b) by filing petitions to vacate nonfinal judgments even after foreclosure sales have been held."); Household Bank, FSB v. Lewis, 229 Ill. 2d 173, 178-79 (2008)(ruling that motion requesting confirmation of a judicial sale invokes mandatory requirements of the IMFL).  Cf. Wells Fargo Bank, N.A. v. McCluskey, 2012 Il. App (2d) 110961, appeal allowed, No. 115469 (Ill. Mar. 27, 2013)(ruling section 2-1301(e) motion may apply after a foreclosure sale). 


Next, observing that Intervenor bore the burden of proving sufficient grounds to vacate the judicial sale, and that Intervenor's only argument for vacating the sale was that justice was not done due to the alleged defective lis pendens, and Servicer's alleged failure to register as a collection agency, the Appellate Court ruled in part that Intervenor failed to demonstrate that Servicer was a collection agency, and failed to present any evidence that indicated that loan servicing is related to the actions of a collection agency, and thus was required to register as such under the ICAA. 


The Appellate Court also rejected Intervenor's assertion that the lis pendens in this case was defective.  In so doing, the Appellate Court noted Intervenor's reliance on a printout from the recorder of deeds' website as a basis for its fraudulent release allegation, and that Intervenor failed to examine the actual lis pendens which it had attached as an exhibit to its motion.  The Court also pointed out that Servicer properly listed the second mortgage in the lis pendens, thus providing Intervenor with constructive notice of the foreclosure action related to the first mortgage.  As the Appellate Court stated, "We will not vacate the confirmation of a judicial sale at the insistence of an interested party whose complained of error was the result of its own negligence." 


Accordingly, concluding that Intervenor failed to meet its burden to show that "justice was otherwise not done" in the foreclosure sale, the Appellate Court affirmed the judgment of the lower court and refused to vacate the confirmation of sale.




Ralph T. Wutscher
McGinnis Wutscher Beiramee 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


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