FYI: Ill App Ct Rules Foreclosure Eviction Premature, Despite Expiration of 90-Day Notice Under Federal Protecting Tenants at Foreclosure Act

Reversing the lower court's grant of summary judgment, the Illinois Appellate Court, First District, recently ruled that the lower court lacked jurisdiction over eviction proceedings under the Illinois Forcible Entry and Detainer Act where the tenant of foreclosed property had a valid written lease still in force at the time of the filing of the eviction action.  

 

In so ruling, the Court did not address the eviction plaintiff's argument that, under the federal Protecting Tenants at Foreclosure Act of 2009, it was allowed to evict the tenant due to the tenant's failure to respond with proof of a bona fide lease within 90 days of the eviction plaintiff's notice.

 

A copy of the opinion is available at:  http://www.illinoiscourts.gov/Opinions/AppellateCourt/2013/1stDistrict/1121361.pdf

 

Following a foreclosure action involving residential property, plaintiff loan servicer ("Servicer") became the owner of the subject property and sent a notice to vacate and demand for possession ("Notice") under the federal Protecting Tenants at Foreclosure Act, 12 U.S.C. § 5220 Note ("PTFA") to defendant tenant ("Tenant"), who was not a party to the foreclosure proceedings.  The Notice stated that Tenant would have to surrender possession of the property to Servicer unless Tenant provided a copy of her written lease to Servicer's attorney within 90 days of the notice, as required by the PTFA.  Tenant supposedly provided copies of her written lease to both Servicer's attorney and its real estate agent. 

 

More than 90 days after the Notice, but prior to the expiration of Tenant's lease, Servicer brought a forcible entry and detainer action ("eviction action") against Tenant under the Illinois Forcible Entry and Detainer Act in order to gain possession of the property.  Servicer subsequently moved for summary judgment, arguing that no genuine issue of material fact existed.  In response, Tenant moved for summary judgment and dismissal of the action, arguing that she was protected under the PTFA and that Servicer lacked authority to file the eviction action prior to the expiration of her lease.  

 

The lower court granted summary judgment in favor of Servicer, noting in part that Tenant had supposedly failed to provide proof of the lease within the 90-day period, and that the PTFA did not specify whether a mortgagee must wait until after the expiration of the lease to begin eviction proceedings.   Tenant filed a motion to reconsider, which the lower court denied despite, among other things, Tenant's inclusion of a copy of the lease with her filings.  Tenant appealed.

 

The Appellate Court reversed, ruling that the lower court lacked jurisdiction over the eviction action in light of the lease giving Tenant the right to possess the premises at the time the eviction action was filed.

 

As you may recall, the Illinois Forcible Entry and Detainer Act allows a party to file an eviction action against a lessee "[w]hen any lessee . . . holds possession without right after the termination of the lease or tenancy by its own limitation, condition or terms, or by notice to quit or otherwise."  735 ILCS 5/9-102(a)(4).  See also Protecting Tenants at Foreclosure Act of 2009, codified at 12 U.S.C. § 5220 Note (requiring surrender of possession unless occupant provides evidence of preexisting tenancy within 90 days of notice).

 

Pointing out that a final foreclosure order does not automatically terminate a lease that is subordinate to the mortgage, the Appellate Court stressed that tenants of foreclosed properties may be removed only through properly filed eviction proceedings or unless they were made parties to the foreclosure proceedings.  See Agribank FCB v. Rodel Farms, Inc., 251 Ill. App. 3d 1050, 1055 (1993).  

 

Thus, because the tenant was not made a party to the foreclosure proceeding, and because the tenant's lease was still in force when Servicer filed its eviction action, the Appellate Court ruled that Servicer failed to comply with the Illinois Forcible Entry and Detainer Act's strict jurisdictional requirements by filing its eviction complaint prematurely.  

 

Accordingly, the Appellate Court reversed, concluding that there was no jurisdiction over the eviction action due to Servicer's filing of its eviction action prior to the expiration of Tenant's lease.

 

 

 

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
Email: RWutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

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FYI: Illinois Extends IL Homeowner Protection Act to 2016

In addition to the legislation discussed in our prior update below, House Bill 99 was also recently signed into law in Illinois.  The bill extends the provisions of Illinois' Homeowner Protection Act by three years through 2016, but does not otherwise alter the provisions of that Act.   

 

The text of the legislation is available at: http://www.ilga.gov/legislation/publicacts/fulltext.asp?Name=098-0025

As you may recall, the Illinois Homeowner Protection Act (the "Act") requires that a mortgage foreclosure action against a residential property may not be filed until 30 days after a Grace Period Notice is mailed to the borrower(s).  If the borrower consults with an approved counseling agency, and that agency notifies the mortgagee that the borrower is seeking counseling services, then the mortgagee may not take legal action for an additional 30 days from the date of that notice. 

 

We note that we inadvertently referenced this HB99 bill by press release link, and "SB 58," in our summary of the recent changes to the law affecting tenants in foreclosed properties below.  The correct Senate Bill number was 56.  We apologize for any confusion.  

 

 

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
Email: RWutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

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Our updates are available on the internet, in searchable format, at:
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From: Ralph Wutscher [mailto:rwutscher@kahrlwutscherllp.com]
Sent: Sunday, June 30, 2013 7:08 PM
To: Ralph T. Wutscher
Cc: Chicago Office; DC Office; Florida Office; California Office
Subject: FYI: Illinois Enacts New Law Affecting Tenants in Foreclosed Properties

 

Illinois recently signed into law an act (SB 58) that alters the protections afforded to tenants of foreclosed properties under the Illinois Mortgage Foreclosure Law ("IMFL"), and sets out the circumstances in which new owners of foreclosed properties are bound by tenants' bona fide leases. 

 

The press release announcing the bill is available at: http://www3.illinois.gov/PressReleases/ShowPressRelease.cfm?SubjectID=3&RecNum=11284

 

The text of the legislation is available at:  Link to Text of Legislation. 

 

As you may recall, the federal Protecting Tenants at Foreclosure Act ("PFTA") generally provides that new owners of foreclosed properties may not evict occupants other than those named in an order approving sale without first providing those occupants with a 90 day notice to vacate.  Further, the PFTA also generally provides that new owners of foreclosed properties are bound by the terms of bona fide leases.

 

SB 58 largely mirrors the language of the PFTA, and adopts the PFTA's provision that new owners of foreclosed properties are bound by the terms of bona fide leases.

 

Accordingly, the SB 58 provides that tenants of foreclosed properties cannot be evicted absent a 90 day notice to vacate, and that bona fide leases are generally considered to be valid where:  (1) the tenant is not a child, spouse, or parent of the mortgage; (2) the lease was the result of an arms-length transaction; (3) the rent provided for by the lease is not substantially less than the fair market value; and (4) the lease was entered into before the date of the judicial sale of the subject property.    

 

However, SB 58 provides new owners of foreclosed properties with some protections that the PFTA does not.  Specifically, it provides that bona fide leases of one year or greater "shall be deemed to be a bona fide lease for a term of one year."  In contrast, the PFTA is silent as to bona fide leases for terms greater than one year. 

 

In addition, SB 58 provides that oral leases that otherwise qualify as bona fide leases are to be considered leases with month-to-month terms, unless the lessee proves otherwise by a preponderance of the evidence. 

 

 

 

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
Email: RWutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

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.

Our updates are available on the internet, in searchable format, at:
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FYI: 2nd Cir Holds American Pipe Tolling Rule Does Not Apply to Statute of Repose

The U.S. Court of Appeals for the Second Circuit recently affirmed a lower court's denial of a petition to intervene filed by parties attempting to join in an MBS class action, as the claims asserted by the interveners were barred by the applicable statute of repose.

 

In reaching its decision the Court determined that: (1) the relation back doctrine in Fed. R. Civ. P. Rule 15(c) cannot be used to revive claims otherwise dismissed for want of jurisdiction; and  (2) the tolling rule  recognized by the Supreme Court in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974) ("American Pipe") does not apply to the three year statute of repose provided Section 13 of the Securities Act of 1933, 15 U.S.C. § 77m (the "1933 Act"). 

 

A copy of the opinion is available here:  Link to Opinion

  

The underlying lawsuit involved two securities class actions, consolidated by the lower court, alleging violations of Sections 11, 12(a) and 15 of the 1933 Act against an issuer of mortgage pass-through certificates. 

 

The lower court dismissed certain claims from the class action for lack of constitutional standing, a jurisdictional defect, because the lead and sole named plaintiff in the class action never purchased the relevant certificates.

 

The parties attempting to intervene in the class action had purchased the certificates.  However, at the time the intervenors brought their petition, the 3 year statute of repose under the 1933 Act had already expired.

 

Nevertheless, the intervenors  argued that the tolling rule from American Pipe operated to toll the statute of repose, or in the alternative, the claims "relate back" to the otherwise timely complaint filed by the lead plaintiff under Rule 15(c).  The trial court rejected the intervenors' petition, and the intervenors appealed.

 

On appeal, the Second Circuit noted that the American Pipe rule provides that "the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action."  414 U.S., at 554.  The Court further explained the rationale behind the American Pipe ruling was to avoid the filing of multiple actions by all putative class members in an effort to ensure that their claims were not barred by any statute of limitations in the event a class certification was denied. 

 

However, the Second Circuit distinguished the present circumstances from American Pipe based upon the differences between a statute of limitation and a statute of repose.  As recited by the Second Circuit, a statute of limitations merely limits the availability of remedies and is subject to equitable considerations, such as tolling, whereas statutes of repose affect the underlying rights and run without interruption once the necessary triggering event has occurred. 

 

Importantly, the Second Circuit explicitly noted that a statute of repose in not subject to equitable considerations, and may only be limited by legislatively created exceptions. 

 

The relevant portion of Section 13 of the 1933 Act provides "in no event shall any such action be brought to enforce a liability … more than three years after the [underlying] security was bona fide offered to the public, or … more than three years after [its] sale."  15 U.S.C. § 77m.

 

The Second Circuit rejected the intervenors' arguments that the American Pipe rule was a form of "legal tolling" as opposed to "equitable tolling", and, thus, applicable to the Section 13 statute of repose, based upon the Rules Enabling Act, 28 U.S.C § 2072(b).  The Rules Enabling Act provides, in part, that the courts cannot use its power "shall not abridge, enlarge or modify any substantive right."  Id.  The Second Circuit explained that Section 13 created a "substantive right" and thus the courts, even the Supreme Court, were prohibited by the Rules Enabling Act from creating any rule which enlarges those rights.  Thus, the American Pipe rule, whether it is classified as "equitable tolling" or "legal tolling" could not enlarge the time period provided by the statute of repose in Section 13. 

 

Addressing the relation back doctrine of Rue 15(c), the Court noted a long standing rule providing that "if jurisdiction is lacking at the commencement of a suit, it cannot be aided by the intervention of a plaintiff with a sufficient claim." Thus, the intervenors could not attempt to revive these claims which were dismissed by the lower court for lack of constitutional standing. 

 

Accordingly, the Second Circuit affirmed the ruling of the lower court.  

 

 

 

 

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
Email: RWutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

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.

Our updates are available on the internet, in searchable format, at:
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FYI: Illinois Enacts New Law Affecting Tenants in Foreclosed Properties

Illinois recently signed into law an act (SB 58) that alters the protections afforded to tenants of foreclosed properties under the Illinois Mortgage Foreclosure Law ("IMFL"), and sets out the circumstances in which new owners of foreclosed properties are bound by tenants' bona fide leases. 

 

The press release announcing the bill is available at: http://www3.illinois.gov/PressReleases/ShowPressRelease.cfm?SubjectID=3&RecNum=11284

 

The text of the legislation is available at:  Link to Text of Legislation. 

 

As you may recall, the federal Protecting Tenants at Foreclosure Act ("PFTA") generally provides that new owners of foreclosed properties may not evict occupants other than those named in an order approving sale without first providing those occupants with a 90 day notice to vacate.  Further, the PFTA also generally provides that new owners of foreclosed properties are bound by the terms of bona fide leases.

 

SB 58 largely mirrors the language of the PFTA, and adopts the PFTA's provision that new owners of foreclosed properties are bound by the terms of bona fide leases.

 

Accordingly, the SB 58 provides that tenants of foreclosed properties cannot be evicted absent a 90 day notice to vacate, and that bona fide leases are generally considered to be valid where:  (1) the tenant is not a child, spouse, or parent of the mortgage; (2) the lease was the result of an arms-length transaction; (3) the rent provided for by the lease is not substantially less than the fair market value; and (4) the lease was entered into before the date of the judicial sale of the subject property.    

 

However, SB 58 provides new owners of foreclosed properties with some protections that the PFTA does not.  Specifically, it provides that bona fide leases of one year or greater "shall be deemed to be a bona fide lease for a term of one year."  In contrast, the PFTA is silent as to bona fide leases for terms greater than one year. 

 

In addition, SB 58 provides that oral leases that otherwise qualify as bona fide leases are to be considered leases with month-to-month terms, unless the lessee proves otherwise by a preponderance of the evidence. 

 

 

 

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
Email: RWutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

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.

Our updates are available on the internet, in searchable format, at:
http://updates.mwbllp.com