The Illinois Appellate Court, First District, recently ruled that the borrowers' "show-me-the-original-note" and other arguments were meritless and intended solely to harass the lender and undermine the court system. In so doing, the Court noted that the Illinois Mortgage Foreclosure Law requires only that a copy of the mortgage and note be produced in a foreclosure action.
The Court also ruled in part that: (1) the borrower's ownership of the mortgaged property, his signature on the mortgage agreement, and his appearance at foreclosure proceedings all undermined his assertion that the mortgagee's alleged improper service of process provided a basis to overturn the lower court's foreclosure judgment; (2) a so-called "land patent" purportedly granting clear title to defendant borrowers and precluding subsequent encumbrances against the subject property was frivolous as a defense; (3) the borrowers forfeited their arguments that the plaintiff mortgagee violated the federal Fair Debt Collection Practices Act and Truth in Lending Act; and (4) in failing to explicitly deny allegations in the complaint or to provide a lack of knowledge affidavit with their answer, defendants admitted the authenticity of the promissory note and mortgage.
A copy of the opinion is available at: http://www.illinoiscourts.gov/Opinions/AppellateCourt/2013/1stDistrict/1130380.pdf.
Defendants ("Mortgagors") executed a mortgage agreement with plaintiff bank ("Bank") with respect to vacant property, and eventually fell behind the loan payments. The mortgage agreement contained a provision that the mortgage was secured by a "commercial security agreement" with the Mortgagors and that they had waived their rights of redemption and reinstatement in the event of foreclosure. The promissory note, signed by only one of the Mortgagors, provided that Bank would recover attorney fees, courts costs, and expenses in the event of foreclosure litigation. Both Mortgagors also signed an assignment of rents in favor of Bank.
Naming both Mortgagors as defendants, Bank filed a mortgage foreclosure action, attaching to its complaint copies of the promissory note, the mortgage agreement, and assignment of rents. Among other things, in their answer Mortgagors asserted as "Other affirmative matter" that "missing" from Bank's complaint was the original "wet script ink" promissory note or the "original title." Bank issued requests to admit facts to Mortgagors as to the genuineness of the documents Mortgagors signed, but Mortgagors failed to respond. The lower court eventually struck the affirmative matter, which Mortgagors later recast as a request for production of documents, again demanding the "Original Wet Script ink Promissory Note."
Bank moved for summary judgment and, because the lower court ordered Bank to produce the original note for inspection by a specific date, the Bank sent Mortgagors a letters essentially stating that Bank would produce the original note for inspection if they contacted a loan officer to arrange for the inspection prior to the approaching deadline. Ultimately, Bank never produced the original note for inspection by Mortgagors, even though the original was made available for such inspection.
Among their many arguments against summary judgment, Mortgagors asserted that Bank's purported failure to produce the original note for inspection created a material issue of genuine fact.
The lower court eventually granted Bank's motion for summary judgment of foreclosure and ordered the property sold, finding that Mortgagors had by agreement waived their rights to redeem the property. The lower court's order, however, did not contain language indicating that the order was final or appealable. A week later and prior to confirmation of the sale and completion of the foreclosure, Mortgagors filed a notice of appeal.
Bank requested Mortgagors to dismiss the appeal, stating that Bank would seek sanctions against them if Mortgagors failed to dismiss. In their response and raising a host of new issues related to the non-production of the "original title," Bank's alleged violation of the federal Fair Debt Collection Practices Act, and various "exceptions" under the Illinois Mortgage Foreclosure Law (IMFL) among other things, Mortgagors filed a motion asking the lower court to vacate the order of foreclosure and sale and to dismiss the case.
Bank moved to dismiss the appeal, which the Appellate Court denied. Several days later, Mortgagors executed and recorded an update to a so-called "land patent," purporting the land patent to be "prima facie conclusive evidence of title," and a second document allegedly claiming that Mortgagors had perfected their deed to the property and thereby held clear title to the property. Without any specific reference to the subject property, both Mortgagors later recorded their own affidavits essentially challenging the authority of the judicial system.
Following an emergency motion from Mortgagors to admit "public records," the lower court stayed the sale of the property. To support their emergency motion, Mortgagors raised a multitude of new and unsupported arguments, including: in granting summary judgment, the court failed to consider the land patent; Bank's attorneys engaged in unspecified misconduct; the foreclosure judgment was "conspiratorial;" the federal Fair Debt Collection Practices Act applied to the property; the assignment of rents was invalid because Bank failed to "reveal" that it would claim to be the "true owner" of the property; the court itself was "constitutionally defective and without lawful jurisdiction"; and the land patent trumped all claims to the property. The lower court denied the motion.
Introducing a third group of new issues in a subsequent motion for reconsideration, Mortgagors asserted in part that Bank was not the real party in interest, that Bank violated the federal Truth in Lending Act because it was not the owner of the loan, and that Bank violated the federal rules of evidence and civil procedure. Mortgagors also asserted that the land patent precluded any other ownership interests in the property and that one of the Mortgagors had not been named as a defendant in Bank's original complaint. Bank moved for sanctions against Mortgagors.
After the lower court denied Mortgagors' motion to reconsider, Mortgagors moved to take depositions of Bank's attorneys, subpoenaed Bank directly for the retainer agreement between Bank and its attorneys, and demanded that its attorneys produce their law licenses. Meanwhile, the Appellate Court dismissed Mortgagors' appeal for failure to prosecute.
Having granted Bank's motion to quash the subpoena, and following Bank's motion to confirm the sale, ' the lower court eventually confirmed the sale of the property, awarded Bank attorney fees, but denied Bank's motion for sanctions. In so doing, the Court noted in part that Mortgagors' response to the motion to confirm the sale failed to raise any of the statutory bases applicable to confirmation of foreclosure sales, and that their argument was simply that Bank's attorneys failed to prove that they were licensed to practice law in Illinois.
Mortgagors appealed the foreclosure order and the confirmation of sale. The Appellate Court affirmed, stating that "cases like this drain valuable resources intended to benefit those who accept the social contract of living under a law-based system of government," detailing reasons why imposing fines on pro se litigants may be appropriate, and directing Mortgagors to show cause why they should not be fined for filing an appeal intended to harass and cause unnecessary delay.
As you may recall, the IMFL provides in part that "[i]n all cases the evidence of the indebtedness and the mortgage foreclosed shall be exhibited to the court and appropriately marked, and copies thereof shall be filed with the court." 735 ILCS 5/15-1506((b). See also 735 ILCS 5/15-1506(a)(setting out specific exceptions to taking evidence in open court).
In addition, a proper answer to a complaint must explicitly admit or deny each allegation in the complaint. 735 ILCS 5-2-610(a). An allegation not explicitly denied is admitted unless: . . . (2) the party states that it lacks knowledge of the matter sufficient to form a belief and supports this statement with an affidavit . . . . 735 ILCS 5/2-610(b).
Noting at the outset that although it was within its discretion to strike Mortgagors' brief and dismiss the appeal for their failure to comply with the procedural rules governing appellate briefs, the Appellate Court, in an effort to provide guidance to lower courts faced with litigation tactics similar to those in this case, had declined to dismiss the appeal. In so doing, the Appellate court focused on the lower court's order granting Bank's summary judgment motion and its order confirming the sale of the property, particularly with respect to Mortgagors' "show-me-the-original-note" argument and other assertions that ultimately proved unavailing.
Easily disposing of Mortgagors' assertion that Bank improperly named one of the Mortgagors as a defendant, the Appellate Court noted in part that personal service on that defendant became unnecessary since he had appeared in the case and filed an answer, thus waiving his right to contest service. The Court also concluded that both Mortgagors were properly named as defendants since the post-mortgage transaction quitclaimed one Mortgagor's interest to both himself and the other Mortgagor and both Mortgagors had signed the underlying mortgage agreement. See 735 ILCS 5/2-301(a-5).
Turning to Mortgagors' request for production of the original note, the Court analyzed the request both as an issue of standing and as a discovery dispute. Recognizing that the defendant has the burden to prove lack of standing, the Court pointed out that attaching a copy of the note to the complaint itself is prima facie evidence that the plaintiff has standing to foreclose. Specifically, the Court examined both statutory and case law to conclude that originals need not be produced in open court in Illinois, observing that the IMFL does not use the word "original" or specifically provide that originals must be produced in open court. See First Federal Sav. & Loan Ass'n v. Chicago Title & Trust Co., 155 Ill. App. 3d 664, 665-67 (1987)(interpreting predecessor to current section 15-1506(b) of the IMFL as not mandating the production of an original mortgage or note).
Accordingly, the Court held that "production of the original note in open court, rather than simply relying on the copy attached to the complaint, is not a required element of proof in a foreclosure case." The Court also noted that the Illinois Rules of Evidence supported the validity of Bank's proofs. See IL. R. Ev. 1003 (stating that generally a duplicate of a document is admissible to the same extent as an original).
With respect to the request to allow inspection of the original note as a discovery request, the Court noted that the request legitimately sought relevant evidence even if the Mortgagors never explained why the original note was necessary. Moreover, the Court criticized Bank for attempting to satisfy its obligation to produce the original through its bank officials rather than through its attorneys or in open court.
Additionally, in upholding the lower court's order of foreclosure and sale, the Appellate Court also pointed out that Mortgagors made a number of fatal mistakes in their insistence on the production of the original note. In so doing, the Court noted that Mortgagors failed to: (1) submit a "Want of Knowledge Affidavit" in accordance with Illinois pleading requirements, thus admitting to the authenticity of the note and mortgage (see 735 ILCS 5/2-610(b)); (2) deny under oath the authenticity of the commercial documents at issue (see 735 ILCS 5/2-605(b)(providing that "allegation of the execution or assignment of any written instrument is admitted unless denied in a pleading verified by oath"); (3) deny the authenticity of signatures (see 810 ILCS 5/3-308 ("the authenticity of, and authority to make, each signature on the instrument is admitted unless specifically denied in the pleadings"); and (4) submit an affidavit pursuant to Illinois Supreme Court Rule 191(b) (allowing defendants to respond to a motion for summary judgment with an affidavit explaining that evidence necessary to oppose the motion is in the hands of the movant).
In addition, noting that Mortgagors never produced any evidence to create an issue of triable fact regarding payment of the note, and that Mortgagors repeatedly throughout their pleadings cited statutes without setting forth any facts to show how those statutes applied, the Court went on to point out among other things that the federal Fair Debt Collection Practices Act (FDCPA) might conceivably apply in this case if the debt was incurred "primarily for personal, family or household purposes." However, given the inadequacy of the pleadings, the Court ruled that Mortgagors had forfeited this issue. Similarly, with respect to their claim that Bank violated the federal Truth in Lending Act in trying to collect on a loan it did not own because it could not produce the original note and its attorneys were acting as third-party debt collectors, the Court also concluded that Mortgagors had failed to sufficiently develop their argument and therefore forfeited the TILA claim as well.
As to Mortgagors' post-judgment document discovery requests to Bank with respect to its attorneys and its contractual relationship with them, the Court stated that such "tactics – turning the tables by demanding that the attorneys actually prove who they are and that they bring in ironclad written documentation that they represent plaintiff – have no purpose other than to waste time of judges, court staff, and opposing parties."
The Court also rejected Mortgagors' various other arguments, including the assertions that: (1) the IMFL required Bank to send them a grace period notice because the property was actually "residential"; (2) the IMFL required Bank to accept a deed in lieu of foreclosure; (3) the deficiency judgment was improper because one of the defendants was dependent on government benefits; and (4) the alleged land patent protected Mortgagors' property from subsequent encumbrances including Bank's security interest. In so doing, the Court noted that Mortgagors never actually denied defaulting on a valid secured loan.
Noting the fee-shifting provisions in the mortgage and referring to Mortgagors' arguments as "abjectly frivolous" and designed to harass judges, creditors and court staff, the Court ruled that Bank was entitled to attorney fees for the initial debt collection litigation and for the work on appeal. Citing additional facts to support its findings of egregious conduct on the part of Mortgagors, the Court also imposed sanctions against Mortgagors, noting that under Illinois Supreme Court rules, it is required to issue a rule to show cause why the sanction should not be imposed.
Accordingly, affirming the lower court's foreclosure judgment, the Appellate Court directed Mortgagors to show cause why they should not be fined and stated that it would issue a supplemental opinion.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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Email: RWutscher@mwbllp.com
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