Monday, October 20, 2014

FYI: Ill App Ct Holds Foreclosing Mortgagee Not Entitled to Be Reimbursed for Post-Sale Tax Advances

The Illinois Appellate Court, Second District, recently ruled that a mortgagee could not be reimbursed for post-sale real estate tax advances from a judicial sale surplus.


A copy of the ruling is available at:


The trial court entered a judgment of foreclosure which provided that if the lender (“Lender”) was the successful bidder at the foreclosure sale “the amount due Lender, plus all costs, advances, fees, with interest incurred between entry of Judgment and confirmation of sale, shall be taken as credit in its bid.”  It also provided that the court could also approve Lender’s “fees, costs, and additional advances arising between the Judgment of Foreclosure and the Confirmation hearing, pursuant to the terms of the mortgage and [section 15-504] of the [Illinois] Code of Civil Procedure.”  The published notice of sale stated that the property was subject to real estate taxes.


Lender moved for confirmation of sale.  Its motion stated that it had been the successful bidder, having bid $1,905,374.78, for a surplus of $83,305.25.  Lender requested that the court apply the surplus to the unpaid outstanding taxes due on the property.  Lender advised the court that it had intended to pay the taxes before the sale, but inadvertently had included the amount of unpaid outstanding taxes as part of its bid.  Lender maintained that the surplus could be applied to the taxes pursuant to Section 5/15-1504 of the Illinois Code of Civil Procedure.  See 735 ILCS 5/15-1504(d) (“in order to protect the lien of the mortgage, it may become necessary for plaintiff to pay taxes and assessments which have been or may be levied upon the mortgaged real estate”).


The borrowers (“Borrowers”) moved for distribution of the surplus to them.  Borrowers maintained that allowing Lender to pay the tax lien with the sale proceeds would run contrary to the advertised terms of the sale, produce a bidding process biased in favor of Lender, circumvent the Illinois Mortgage Foreclosure Law statute, and run contrary to the established rule that a judicial sale purchaser takes a property subject to all outstanding liens, including real estate tax liens.


The trial court confirmed the sale and ruled that the tax payment was an advance made to protect the lien of the Lender, and therefore became an additional indebtedness.  Accordingly, Lender the surplus was applied to the payment of the preexisting real estate tax lien.


As you may recall, the proceeds resulting from the sale of real estate shall be applied in the following order: (a) the reasonable expenses of sale; and (b) the reasonable expenses of securing possession before sale.  See 735 ILCS 5/15-1512(a)-(b).


The Appellate Court rejected Lender’s argument that Borrowers had forfeited their right to challenge the foreclosure judgment through their failure to challenge the language of the judgment.  The Court noted that a foreclosure judgment is an interlocutory order that remains modifiable by the trial court until the final judgment, which is the confirmation of the sale.  See EMC Mortgage Corp. v. Kemp, 2012 IL 113419, ¶¶ 41-42, 44.  In addition, the Court held that equitable considerations did not preclude review.


The Appellate Court turned to Lender’s two arguments in favor of reimbursement. 


First, the Court noted that while Section 5/15-1508(b)(1) authorized court approval of the reimbursement of certain fees and costs arising between the entry of judgment of foreclosure and a confirmation hearing, taxes were not included in the authorized “fees and costs.” See 735 ILCS 5/15-1504(d). 


Next, although Lender argued that the foreclosure judgment permitted the recovery of taxes paid post-sale, the Court concluded that to the extent that the trial court’s order permitted recovery, the order constituted an abuse of discretion.


Accordingly, the order confirming the judicial sale was confirmed and modified to grant the surplus to Borrowers.






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


Admitted to practice law in Illinois



          McGinnis Wutscher Beiramee LLP





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