Friday, November 18, 2016

FYI: 1st Cir Holds Lawsuit Itself Cannot Meet Pre-Suit Demand Requirement Under 93A, Rejects MERS Challenges

The U.S. Court of Appeals for the First Circuit recently confirmed that language stating the mortgagee is a nominee for "Lender and Lender's successors and assigns" suffices to make the mortgagee the mortgage holder. Additionally, the Court confirmed that an assignment made in contravention of such a trust agreement is at most voidable at the option of the parties to the trust agreement, not void as a matter of law.

 

The Court also held that the lawsuit itself cannot serve to meet the requirement for a pre-suit demand letter under Mass. Gen. Laws ch. 93A §9(3).

 

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

 

In 2004, the borrower executed a promissory note to the lender and granted a mortgage in the property to Mortgage Electronic Registration Systems, Inc. ("MERS") as the "nominee" for the originating lender and its successors and assigns. In 2008, MERS assigned the mortgage to a different entity.  A second assignment was recorded to the same assignee in 2011. 

 

In 2012, MERS published a confirmatory assignment for the 2008 assignment, and stated the secondary assignment was a nullity as it did not have the rights to assign the mortgage at that time. In 2013, the servicer of the loan recorded an affidavit stating it held the note secured by the mortgage.

 

In 2015, the assignee notified the borrower of its intent to foreclose on the property under Massachusetts law.

 

The borrower filed this action, claiming the assignee was not the proper party to bring the statutory foreclosure, and seeking damages for slander of title based on the same allegation.  The borrower also sued the servicer for damages under Massachusetts General Laws Chapter 93A, the Massachusetts catch-all consumer protection statute.

 

The defendants moved for judgment on the pleadings, which was granted. The borrower appealed.

 

On appeal, the borrower argued that the assignee was not the holder of the mortgage when it attempted to exercise its statutory power of sale and thus had no power to exercise, because the assignment from MERS to the assignee was void.

 

The First Circuit disagreed, ruling that language stating MERS is a nominee for "Lender and Lender's successors and assigns does suffice to make the mortgagee the mortgage holder."  Culhane v. Aurora Loan Services of Nebraska, 708 F.3d 282 (1st Cir. 2013).  The borrower's mortgage contained that same language.

 

The borrower also argued that the assignment to the assignee was in violation of a trust agreement between the assignee and investors of the loan. The First Circuit referenced its holding in Butler v. Deutsche Bank Trust Co. Americas, 748 F.3d 28, 37 (1st Cir. 2014), that an assignment made in contravention of such a trust agreement is at most voidable at the option of the parties to the trust agreement, not void as a matter of law.

 

The borrower further argued that the assignment was void because MERS itself stated that it lacked standing to assign the mortgage in the 2012 confirmatory assignment.  However, the Court noted that the confirmatory assignment specifically stated that the 2011 assignment was void because MERS lacked the authority to assign. The Court found this argument hardly casted doubt on the 2008 assignment.

 

The borrower separately argued that the notice of foreclosure sale failed to refer to intermediate transfers, in supposed violation of Mass. Gen. Laws ch. 244 § 14.

 

As you may recall,  Mass. Gen. Laws ch. 244 § 14 states that "in the event a mortgagee holds a mortgage pursuant to an assignment, no notice under this section shall be valid unless (i) at the time such notice is mailed, an assignment, or a chain of assignments, evidencing the assignment of the mortgage to the foreclosing mortgagee has been duly recorded in the registry of deeds for the county or district where the land lies and (ii) the recording information for all recorded assignments is referenced in the notice of sale required in this section."

 

The borrower argued that MERS never properly held the mortgage, and that the assignee had to set forth a chain of title that ran from the lender, to the various parties supposedly involved in the "intermediate transfers" of the mortgage to the final assignee.

 

The First Circuit again disagreed, holding that MERS was the record holder of the mortgage, as the borrower granted a mortgage to it, as nominee for the lender, in 2004.  The Court noted there were no allegations that MERS ever assigned the mortgage back to the lender or to any other entity prior to the 2008 assignment to the assignee. Thus, the Court also found this argument deficient.

 

The Court also held that the foreclosure notice published by the assignee complied with § 14.  The notice referenced the 2008 assignment from the record holder, the mortgagee, to the assignee.  It referenced "an assignment of the mortgage to the foreclosing mortgagee" that "has been duly recorded in the registry of deeds for the county or district where the land lies" and for which "the recording information . . . [was] referenced in the notice of sale required in this section." Mass. Gen. Laws ch. 244 §14; U.S. Bank Nat'l Ass'n v. Ibanez, 941 N.E.2d 40, 53 (Mass. 2011) ("A foreclosing entity may provide a complete chain of assignments linking it to the record holder of the mortgage, or a single assignment from the record holder of the mortgage.").

 

In the borrower's allegations against the servicer, she sought damages under Massachusetts General Laws Chapter 93A.

 

As you may recall, Chapter 93A prohibits "unfair or deceptive acts or practices in the conduct of any trade or commerce." Mass. Gen. Laws ch. 93A § 2(a). The statute also requires that, thirty days before filing a claim under Chapter 93A, a claimant must, as a general matter, send a "written demand for relief" to the defendant, outlining the unfair or deceptive act or practice and the injury suffered. Id. § 9(3).

 

The First Circuit held that the lawsuit itself could not serve as the require pre-suit demand letter.

 

On appeal, the borrower argued that she did not need to comply with the demand letter requirement.  She asserted the exception that "[t]he demand requirements of this paragraph shall not apply if . . . the prospective respondent does not maintain a place of business or does not keep assets within the [C]ommonwealth" applied.

 

The borrower did not argue this exception in the lower court, and thus the Court found the argument waived. 

 

Accordingly, the First Circuit affirmed the dismissal of the borrower's claims.

 

 

 

Ralph T. Wutscher
Maurice 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@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Wednesday, November 16, 2016

FYI: Cal App Ct Holds Consumer Properly Rejected Pre-Suit Offer With General Release and Confidentiality Clauses

The California Court of Appeal, Fourth Appellate District, recently held that a successful consumer plaintiff was entitled to $185,000 in attorney fees and costs, even though she rejected a settlement offer containing an appropriate remedy before she filed suit.

 

In so ruling, the Court held that rejecting the pre-litigation settlement offer was not unreasonable, as the offer required the consumer to agree to a broad release of claims and a confidentiality clause, and especially as the confidentiality provision in particular was unlawful as to the consumer's Song-Beverly Consumer Warranty Act, Cal. Civ. Code § 1790, et seq. ("Song-Beverly Act") claims.

 

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

 

A car buyer filed a complaint against a car dealer and manufacturer for violations of the Song-Beverly Act and other statutes, alleging the used vehicle she purchased had numerous defects that the dealer and manufacturer were unable to repair. After the parties settled the lawsuit as to all issues except attorney fees, the trial court awarded the buyer over $185,000 in attorney fees and costs.

 

The dealer and manufacturer appealed, contending that the buyer was not entitled to attorney fees or costs because she could have avoided litigation by settling the matter earlier. The dealer had made a prelitigation offer in response to a notice required by the Consumers Legal Remedies Act, Cal. Civ. Code, § 1750 et seq., for the buyer's claim under that statute. The dealer and manufacturer argued that they had offered the buyer an appropriate remedy before she filed her complaint, but that she unreasonably refused to agree to a general release and a confidentiality clause.

 

As you may recall, the Song-Beverly Act generally provides that a prevailing buyer may recover reasonable attorney fees.  See Cal. Civ. Code § 1794.

 

Relying on McKenzie v. Ford Motor Co. (2015) 238 Cal. App. 4th 695, the Court of Appeal noted that under the Song-Beverly Act, the dealer's requirement of a confidentiality provision was unlawful, and the dealer's and manufacturer's appeals were premised on their mistaken belief the buyer should have accepted the settlement offer with the conditions notwithstanding statutory and case law.

 

The Court therefore held that the buyer's rejection of the dealer's pre-litigation settlement offer was reasonable and the failure to resolve the case earlier was not attributable solely to her obstinacy or a desire to generate fees.

 

The dealer and manufacturer additionally contended that the fee award should have been reduced because there was insufficient evidence to show that her attorney's hours and hourly rate were reasonable given the litigation's lack of risk and complexity, and because the buyer ignored repeated offers of restitution, filed an unnecessary lawsuit, and engaged in unnecessary litigation activity. They further argued that the buyer's counsel should not be compensated at a higher rate than the $300 per hour that the dealer paid its counsel.

 

The Court of Appeal disagreed, noting that until the case actually settled, the buyer had to conduct discovery and prepare to prove liability on her varied claims with their varied elements. She also had to be prepared to counter the affirmative defenses asserted by the dealer and manufacturer.

 

Because the trial court, which considered the evidence and observed the buyer's counsel's lawyering skills firsthand, determined that he charged an appropriate hourly rate, the Court of Appeal concluded that the trial court did not abuse its discretion in basing its fee award on a rate of $575 per hour.

 

Accordingly, the Court of Appeal affirmed the trial court's award of the buyer's attorney fees and awarded her costs on appeal.

 

 

 

 

Ralph T. Wutscher
Maurice 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@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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Tuesday, November 15, 2016

FYI: 11th Cir Holds Bank's Failure to Stop Theft of Deposit Funds Could Constitute "Aiding and Abetting"

The U.S. Court of Appeals for the Eleventh Circuit recently held that a noncustomer pled sufficient facts to bring state law negligence and fraud causes of action against a bank when a bank customer engaged in the fraud. 

 

In so ruling, the Court held that "[b]ecause banks do have a duty to safeguard trust funds deposited with them when confronted with clear evidence indicating that those funds are being mishandled, a bank's inaction — that is, its failure to stop the theft of such trust funds — can constitute substantial assistance" sufficient to state a claim for "aiding and abetting fraud" against a bank.

 

A copy of the opinion can be found here:  Link to Opinion

 

This action arises from a scheme in which the bank's customer stole $750,000 from a business investor.  The investor alleged that he was defrauded by the bank customer in a scheme involving depositing funds in an escrow account at the bank.  The bank customer allegedly set up a company for individuals to deposit money into the company's escrow accounts with the pretense that the funds would be used to secure loans from global banking institutions and underwriters.  Allegedly, the bank customer simply used the deposited funds to pay for the company's operating expenses and personal expenses. 

 

The investor filed a first amended complaint as a matter of right.  The bank moved to dismiss the first amended complaint for failure to state a claim.  The investor opposed the motion to dismiss and sought leave to file a second amended complaint with additional allegations.

 

In the proposed second amended complaint, the investor asserted state law causes of action against the bank for negligence, gross negligence, aiding and abetting fraud, and aiding and abetting conversion.  Specifically, in his proposed second amended complaint, the investor set forth additional allegations that the bank's vice president who prepared the paperwork to open the company's escrow accounts permitted the customer to name the account as an escrow account even though account had not complied with the bank's procedures for opening an escrow account.

 

The investor also alleged that several months after opening the account, the bank's vice president wrote a letter on the bank's letterhead representing that the bank customer's company's "[e]scrow account" had "deposits in a business checking and savings account in the seven digit amounts" when in fact the total balance in all the company's accounts with the bank at that time was less than $100,000.  

 

The investor's allegations also indicated that the bank customer paid off the bank vice president for supporting his fraudulent acts.  The investor alleged that the customer told an associate that he had loaned a bank employee $100,000 and that the customer paid the vice president $100,000 several months after she opened the company's accounts.  The customer allegedly did not pay the bank vice president directly; instead, the company transferred $100,000 from an account with the bank to the bank account of an entity the vice president controlled.

 

The bank opposed the investor's motion for leave to file a second amended complaint, arguing that the allegations were insufficient to establish that the bank or the vice president knew about the fraudulent scheme or provided substantial assistance to the bank customer.  While the motion to dismiss the first amended complaint was pending, the investor pursued discovery in the case.

 

The trial court granted the bank's motion to dismiss, dismissing the first amended complaint with prejudice.  The trial court also denied as futile the investor's motion for leave to file the proposed second amended complaint.

 

The investor filed a motion for reconsideration of the court's order dismissing his claims with prejudice and denying leave to amend his complaint.  In the motion to reconsider, the investor set forth additional allegations based on facts he learned through discovery to support his contentions that (1) the bank vice president knew that the company was supposed to be holding the investor's money in escrow; (2) the bank vice president assisted the bank customer in the fraudulent scheme; and (3) the bank customer paid the vice president $100,000 in exchange for her assistance.

 

The new allegations stated that the bank customer's company employees met with the bank vice president at her office at the bank, showed her a copy of the escrow agreement between the investor and the company, and told her that the company would be holding the investor's money in escrow. 

 

In addition, the investor now alleged that the bank vice president assured company employees before the investor wired money to the bank that the company would hold his money in the company escrow account with the bank.  Allegedly, the bank vice president continued to tell the company employees that the investor's money was being held in the escrow account even though the bank customer had taken the money.  The investor also alleged that the bank vice president tried to prevent a bank employee from investigating the company's escrow account in connection with the letter describing the account's funds. 

 

The trial court denied the investor's motion to reconsider, determining that even considering the new allegations, the investor failed to establish that the bank or the bank vice president knew of, or substantially assisted, the bank investor's fraud.  The investor appealed the trial court's orders.

 

The bank subsequently moved to recover its attorney's fees under Florida's offer of judgment statute.  The district court granted the bank's motion and the bank appealed the award.  A consolidated appeal followed.  

 

On appeal, the Eleventh Circuit determined that the central issue in the appeal was whether the trial court erred in denying the investor's motion to reconsider, thereby preventing him from amending his complaint.

 

As you may recall, in Florida, a negligence action requires that a plaintiff establish that the defendant owed a duty, that the defendant breached the duty, and that this breach caused the plaintiff damages. Consequently, the Court had to determine whether the allegations were sufficient to establish that the bank owed a duty to the investor, a noncustomer.

 

The Eleventh Circuit noted that Florida, like other jurisdictions, recognizes as a general matter that a bank does not owe a duty of care to a noncustomer that has no direct relationship with the bank.  However, the Court explained that an exception to this rule is triggered when a fiduciary relationship exists between a customer of the bank and the noncustomer, the bank knows or ought to know of the fiduciary relationship, and the bank has actual knowledge of its customer's misappropriation.

 

The Court held that the investor stated a claim for relief with respect to the negligence cause of action, as the investor's allegations were sufficient to establish that a fiduciary relationship existed between the investor and the company because the investor alleged that the company held the money in escrow for the investor. 

 

Next, the Eleventh Circuit determined that the investor's allegations were sufficient to infer that the bank knew of the fiduciary relationship between the investor and the company, a bank customer.  Specifically, the investor alleged that company employees met with the bank vice president at her office at the bank, showed her a copy of the escrow agreement between the investor and the company, and told her that the company would be holding the investor's money in escrow. 

 

Moreover, the Eleventh Circuit determined that the bank vice president's knowledge should be imputed to the bank because under Florida law, the knowledge an agent or employee acquires within the scope of her authority generally may be imputed to her principal or employer.

 

An exception to the imputation rule in Florida occurs when an agent acts adversely to the corporation.  In this situation, the knowledge is not imputed to the corporation.  The Court, however, noted that this exception requires the agent's interest be "entirely adverse" to the principal's interests.  In other words, the agent's act must be neither intended to benefit the corporation nor cause short or long term benefit to the corporation. 

 

The Eleventh Circuit determined that the vice president's knowledge could be imputed to the bank because the vice president's interests were not entirely adverse to the bank.  The investor's allegations indicated that the vice president acts brought some short term gain to the bank, namely the business of an escrow account at the bank.

 

The Eleventh Circuit then determined that the investor's allegations were sufficient to establish that the bank had knowledge of the bank customer's misappropriations.

 

In support of this conclusion, the Court cited the allegations that the bank vice president (1) allowed the company to label its account as an escrow account, even though she and the company had not complied with the bank's procedures for opening an authorized escrow account; (2) assured the company employees before the investor wired money to the bank that the company would hold his money in the company escrow account with the bank; (3) continued to tell the company employees that the investor's money was being held in the escrow account even though the bank customer had taken the money; (4) tried to prevent a bank employee from investigating the company's escrow account in connection with the letter; and (5) surreptitiously received $100,000 from the bank customer. 

 

The Eleventh Circuit held it was reasonable to infer from these allegations that the bank vice president was assisting the bank customer in his fraudulent scheme, and to conclude that the bank vice president knew that the bank customer was misappropriating money from the company escrow account.

 

Next, the Eleventh Circuit determined that the investor alleged sufficient facts to state a claim for aiding and abetting fraud. 

 

The Court noted that, "[a]lthough no Florida court has explicitly recognized a cause of action for aiding and abetting fraud, Florida courts have assumed a cause of action" for aiding and abetting fraud with the following elements: (1) the existence of an underlying fraud; (2) that the defendant had knowledge of the fraud; and (3) that the defendant provided substantial assistance to advance the commission of the fraud.

 

The Court was satisfied that the first two elements were plainly met. The Court determined that the investor had plausibly alleged the third element of substantial assistance. 

 

"Substantial assistance occurs when a defendant affirmatively assists, helps conceal or fails to act when required to do so, thereby enabling the breach to occur." Lerner v. Fleet Bank, N.A., 459 F.3d 273, 295 (2d Cir. 2006).  The Eleventh Circuit noted that "[m]ere inaction constitutes substantial assistance only if the defendant owes a fiduciary duty directly to the plaintiff."

 

The Court held that "[b]ecause banks do have a duty to safeguard trust funds deposited with them when confronted with clear evidence indicating that those funds are being mishandled, a bank's inaction — that is, its failure to stop the theft of such trust funds — can constitute substantial assistance."  Id.

 

Consequently, the Court held that the investor's allegations were sufficient to show that the bank's inaction met the "substantial assistance" element for aiding and abetting fraud. 

 

The Eleventh Circuit reversed the trial court's ruling, and remanded the case.  The attorney fees award in favor of the bank was also summarily overturned.  

 

 

 

 

Ralph T. Wutscher
Maurice 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@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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Our updates and webinar presentations are available on the internet, in searchable format, at:

 

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Sunday, November 13, 2016

FYI: Ill App Ct Rejects Foreclosure Borrower's Challenge to Service by Publication

The Appellate Court of Illinois, First District, recently held that a mortgagee's affidavits detailing the due and diligent inquiry undertook to attempt to personally serve a borrower were sufficient to allow service by publication in a mortgage foreclosure action. 

 

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

 

The mortgagee filed a mortgage foreclosure complaint, but could not achieve personal service on the borrower.  The trial court authorized the mortgagee to serve the borrower by publication notice.  The mortgagee later filed an affidavit for service by publication.

 

In the affidavit, counsel for the mortgagee asserted that she had made a due and diligent inquiry to find the borrower, to ascertain her respective places of residence, and that upon due inquiry such borrower could not be found.

 

In addition to counsel's affidavit, the mortgagee filed affidavits from three separate special process service.  In the first affidavit, a special process server averred that he attempted to serve the borrower personally at the property address seven times in a week's time in mid-December 2013.  The affidavit further stated that he attempted to serve the borrower multiple times during the day including twice around 9:30 p.m.  After each attempt of service, the process server stated that he made no contact with borrower and "was unable to gain access onto the property."  

 

In the second affidavit, another special process server attested that he attempted to serve borrower at the property address seven times in a week's time in late December 2013.  He asserted he was not able to gain entry to the property, but noted that on two occasions dogs were present within the yard of the property and on one occasion the lights inside the property were on.

 

In the third affidavit, another special process server averred that her search revealed only one known address for borrower.  She attested that on January 2, 2014, upon conducting a "skip trace" of borrower as well as a search of multiple databases (including, but not limited to, social security, employment, voter registration, professional licenses, the department of corrections, and other property records), no other addresses or contact information were found for borrower.  She further attested that she attempted to call borrower on December 31, 2013, using three different phone numbers, but was unable to contact borrower.  She also asserted that a vehicle registered to borrower was at the property address.

 

Subsequently, the mortgagee filed a Certificate of Publication from a local newspaper, which indicated that the publication notice regarding this foreclosure matter was published on four occasions throughout a particular month. 

 

After the borrower failed to appear, the mortgagee moved for a default judgment and a judgment of foreclosure and sale.  The trial court granted the judgments.  Thereafter, the mortgagee filed a notice of entry of default judgment, judgment of foreclosure, which indicated the notice of default had been mailed to borrower at the property address.

 

Thereafter, notice of the judicial sale of the property was then mailed to the borrower at the property address, and indicated the sale would take place at a specific time, place and date.

 

The day the property was set to be sold, the borrower appeared in court pro se and presented an emergency motion to stay the sale of the property.  The borrower did not challenge the trial court's jurisdiction in this motion.

 

Over the mortgagee's objection, the trial court granted the borrower's motion and stayed the sale of the property.  Thereafter, the borrower filed a series of motions. The borrower filed a motion to "vacate all orders and judgments and dismiss with prejudice."  There, she argued that service was improper because it was attempted during the December holidays.  The trial court denied borrower's motion to vacate. 

 

That same day, the borrower filed another motion to quash in which she argued that the mortgagee did not obtain leave to have a special process server serve the summons and did not produce any affidavits describing the diligent efforts to inquire about her whereabouts.  The borrower further argued that she received no notices from the clerk of the trial court. 

 

This motion was supported by the borrower's own affidavit in which she attested that she resided at the property address at all times relevant, and that she had not been concealed within the state, and that her place of residence and whereabouts were readily ascertained, and that she believed that the private process servers failed to perform a diligent inquiry as to her residence and whereabouts.

 

Two days later, the borrower filed a motion to vacate the default judgment in which she argued that she was never served, and that the mortgagee did not have a court order which would allow it to serve the borrower via a special process server.

 

The trial court denied the borrower's motion to quash and the motion to vacate, expressly finding that the borrower waived her objection to jurisdiction because she previously presented motions to dismiss and motions to continue sale. 

 

The property was later sold to the mortgagee as the highest bidder.  Thereafter, the mortgagee filed its motion to confirm the sale, requesting that an in personam deficiency judgment against the borrower for the deficiency after the sale.

 

While the mortgagee's motion to confirm the sale was pending, the borrower filed two motions to reconsider the circuit court's order denying her motion to vacate the default judgment and the circuit court's denial of her motion to quash.  The borrower raised the same arguments she had in her previous motions.

 

The mortgagee opposed the borrower's motions to reconsider, arguing that the motions were untimely and that the borrower failed to establish that the trial court had misapplied the existing law when it denied her motions.

 

The trial court denied the borrower's motions to reconsider, and entered a briefing schedule regarding the bank's motion to confirm the sale.  The borrower did not file a response to the mortgagee's motion to confirm the sale.  Instead, the borrower filed a petition to vacate the judgment of foreclosure and set aside the sale in which she continued to assert the circuit court lacked jurisdiction over her. The mortgagee did not file a reply.  The trial court granted the motion to confirm the sale and denied borrower's petition.

 

The trial court entered an order approving the sale of the property and an in personam deficiency judgment.  The order further provided that the memorialization of the court's oral pronouncements and ruling would be issued to the parties by mail. The borrower appealed.

 

The Illinois Appellate Court first addressed the borrower's motion to quash service of process by publication issue.  The Court held that service by publication was proper and therefore the trial court had personal jurisdiction over the borrower when it entered the default orders and the judgment of foreclosure prior to the borrower filing the emergency motion. 

 

The Court noted that section 2-206(a) of the Illinois Code of Civil Procedure permits a plaintiff to serve process on a defendant by publication in limited cases where the plaintiff has strictly complies with the requirements for such service.  The Court also cited the local rule of the trial court that further expands on the requirement for an affidavit, particularly in mortgage foreclosure actions.  Specifically, in mortgage foreclosure cases in the county at issue, all affidavits for service of summons by publication must be accompanied by a sworn affidavit by the individual making a due inquiry and setting forth with particularity the action taken to demonstrate an honest and well directed effort to find the individual.  Cook Co. Cir. Ct. R 7.3 (Oct. 1, 1996).

 

The Appellate Court determined that serving parties had to strictly comply with the mandates of service by publication, including the requirements of due diligence and due inquiry.  These requirements require an honest and well-directed effort to ascertain the whereabouts of an individual.  In addition, a party may challenge service by publication through his own affidavit.  In such a scenario, the trial court should hold an evidentiary hearing.

 

In this matter, the Appellate Court held that the mortgagee's affidavits were sufficient to meet the Illinois requirements for service by publication because they stated that the borrower could not be personally served because her whereabouts could not be ascertained at her last known place of residence.  Specifically, the three special process servers submitted affidavits and detailed the significant efforts to locate the borrower. 

 

For example, the affidavits detailed the date and time of attempted service, and even made notations about the state of the property.  The Court emphasized the efforts included conducting a skip trace that revealed the only address for the borrower as the relevant real property and annotating information about a vehicle that was registered to the borrower that was kept at the relevant property. 

 

The Appellate Court was satisfied that the extensive efforts fulfilled the requirements of the Illinois Code of Civil Procedure and the local county court.  The Court also found the borrower's own affidavit unavailing because she did not challenge the mortgagee's assertion that the borrower could not be found with due diligence. 

 

The Court also rejected the borrower's position that that the special process servicers should have spoken to the borrower's neighbors.  The Court relied on Household Finance Corp. III v. Volpert, 227 Ill. App. 3d 453, 455 (1992), for the proposition that a process server need not speak with neighbors when there is evidence that someone resides at the relevant real property but refuses to accept the service. 

 

The Court also rejected the borrower's argument that there was no good faith effort to serve her, as the parties were both litigating a separate non-foreclosure action.  The Appellate Court reasoned that the record did not demonstrate that the borrower's whereabouts could be ascertained through an inquiry in that action.

 

Based on this analysis, the Appellate Court held that the trial court had personal jurisdiction over the borrower, and the authority to enter the judgment of foreclosure and sale. 

 

Next, the Court addressed whether the trial court erred in denying her motion to reconsider the denial of her motion to vacate.  The Court noted that the purpose of a motion to reconsider is to bring to the circuit court's attention newly discovered evidence, changes in the law, or errors in the court's previous application of exiting law. 

 

The Appellate Court acknowledged that the trial court did not substantively examine the motion to quash, but rather dismissed the motion on procedural grounds.  However, the Court itself performed the substantive motion to quash analysis in the present opinion and found no error in granting the motion to quash.  The Appellate Court also rejected the borrower's argument that the mortgagee's notice of the motion for default was not completely filled out because the record revealed this argument to be factually incorrect. 

 

Additionally, the Appellate Court rejected the borrower's argument that the trial court erred in denying her petition to vacate.  The Court explained that a petition to vacate is only available when there is a final and appealable order.  Here, the borrower requested this relief prior to a final and appealable order, as a judgment ordering the foreclosure of a mortgage is not final and appealable until the trial court enters an order approving the sale and directing the distribution.

 

Last, the Appellate Court addressed the issue of whether the trial court erred in entering a personal deficiency judgment.  The Court was satisfied with the record to support the deficiency judgment.  The Court noted the judgment amount, the total amount owed to the mortgagee, considering attorney's fees and costs, and the deficient sale price of the property. 

 

Furthermore, the Court found that the borrower filed an appearance to dispute the deficiency judgment, which constituted a judicial admission for the purposes of imparting in personam jurisdiction over the borrower for the personal deficiency judgment. 

 

Accordingly, the Appellate Court affirmed the trial court's judgment.   

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
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Email: rwutscher@MauriceWutscher.com

 

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