FYI: 7th Cir Holds Erroneously Recorded Satisfaction May Be Unilaterally Cancelled and Withdrawn

The U.S. Court of Appeals for the Seventh Circuit recently held that a mortgagee could unilaterally cancel an erroneously recorded satisfaction of the loan where the borrower had not yet detrimentally relied on the erroneous satisfaction.

 

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

 

A company took out a loan from a bank secured by a mortgage.  The bank sold the loan to debt buyer (Debt Buyer).  The Debt Buyer used a debt collector to collect payments.  The debt collector inadvertently recorded a satisfaction of the debt releasing the mortgage before the company paid off the loan.  The Debt Buyer realized the mistake and recorded a document cancelling the satisfaction before the company relied on it to its detriment.

 

After the Debt Buyer recorded the document cancelling the satisfaction, the company defaulted on the loan and the Debt Buyer commenced a foreclosure action in Illinois state court.  The company then filed for bankruptcy in federal court which stayed the foreclosure action. 

 

The company filed an adversary proceeding against the Debt Buyer alleging that the release and satisfaction of the mortgage extinguished both the loan and the mortgage.  The bankruptcy court rejected this argument, finding that the Debt Buyer could unilaterally correct a unilateral error.

 

The trial court agreed with the bankruptcy court, and this appeal followed.

 

The Seventh Circuit initially addressed whether the appeal was moot because the bankruptcy court oversaw the sale of the property before it heard the appeal. 

 

The Debt Buyer argued that 11 U.S.C. 363(m) and In re River West Plaza Chicago, LLC, 664 F.3d 668 (7th Cir. 2011), which holds that section 363(m) precludes ordering the recipient to turn over a sale's proceeds to the bankruptcy estate, moots this appeal. 

 

As you may recall, section 363(m) provides that reversal or modification on appeal under this section "does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal."

 

The Seventh Circuit disagreed with the Debt Buyer and disapproved of any decision to the contrary holding that section 363(m) does not make any dispute moot or prevent a bankruptcy court from deciding what shall be done with the proceeds of a sale or lease.  The Seventh Circuit so held because "a defense to payments concerns the merits, not mootness."  Thus, section 363(m) does not concern mootness and a live controversy remained over who should get the money generated by the sale. 

 

The Seventh Circuit then turned to the merits of the appeal.  The Seventh Circuit began by noting that the company obtained no rights from the mistaken satisfaction because it was "unilateral and without consideration."  Thus, "it was not a contract." 

 

Because the company did not rely upon the satisfaction to its determent, the Company could unilaterally rescind it under Illinois law where "a mistaken release of a mortgage is ineffective between the mortgagor and mortgage."

 

The company argued that the mortgage supports its position that the Debt Buyer irrevocably waived its rights under the mortgage by recording the signed satisfaction. To make this argument the company relied on the mortgage clause stating that the "Lender shall not be deemed to have waived any rights under this Mortgage unless such waiver is given in writing and signed by Lender."

 

The Seventh Circuit had little trouble rejecting this reading of the mortgage because to say "only A can accomplish B" does not say that "every A accomplishes B."  Instead, the "no-waiver clause negates oral waivers and waivers implied from conduct." 

 

For example, the Appellate Court noted, when the lender accepts a late payment, it does not waive the payment deadline.  As such, the mortgage "language does not mean that mistaken unilateral writings are beyond recall."

 

The Seventh Circuit therefore affirmed the lower court's ruling.

 

 

 

 

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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FYI: Ill App Ct (1st Dist) Holds Borrower's General Denial Insufficient to Avoid Summary Judgment in Foreclosure

The Appellate Court of Illinois, First District, recently held that a borrower's general denial that the mortgagee performed the conditions precedent of the mortgage contract prior to filing a foreclosure action was insufficient under Illinois Supreme Court Rules and therefore constituted a forfeiture of the issue. 

 

Accordingly, the Appellate Court affirmed the ruling of the trial court granting summary judgment in favor of the mortgagee.

 

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

 

After the borrower ("Borrower") defaulted on her mortgage loan, the bank ("Bank") sent her a letter titled "Notice of Intent to Accelerate" ("Notice") contending that the Borrower was in default due to nonpayment. 

 

The Notice sought to comply with requirements of the mortgage agreement that required the Bank to provide certain notices to the Borrower prior to acceleration of her payment obligations and the initiation of a foreclosure.

 

The Borrower did no cure her default, and the Bank filed a foreclosure complaint which followed the form proscribed by the Illinois Mortgage Foreclosure Law ("IMFL"). 

 

Thus, the complaint was statutorily "deemed and construed to include" the allegations contained in section 15-1504(c) of IMFL, including the specific allegation "that any and all notices of default or election to declare the indebtedness due and payable or other notices required to be given have been duly and properly given." 

 

In the answer, the Borrower responded to the allegation by stating: "Defendants deny the above allegation." 

 

The parties filed cross-motions for summary judgment wherein the Borrower argued that the Bank did not comply with the conditions precedent to filing the foreclosure action because the mortgage required the Bank to provide notice to the Borrower that she had the "right to assert in the foreclosure proceeding the non-existence of a default or any other defense of Borrower to acceleration and foreclosure," but the Notice stated that the Borrower "may have the right to bring a court action to assert the non-existence of a default or any other defense you may have to acceleration and foreclosure." 

 

In response, the Bank argued that the Borrower waived the argument by failing to allege specific facts in the answer with respect to why the condition precedent had not been performed, in violation of Illinois Supreme Court Rule 133(c), which provides: "In pleading the performance of a condition precedent in a contract, it is sufficient to allege generally that the party performed all the conditions on his part; if the allegations be denied, the facts must be alleged in connection with the denial showing wherein there was a failure to perform." 

 

The trial court entered summary judgment in favor of the Bank and against the Borrower, as well as judgment of foreclosure in favor of the Bank, and ruled that there was no reason to delay the appeal. 

The Borrower then appealed. 

 

On appeal, the First District noted that "the parties agree that sending a proper 'notice of acceleration' was a condition precedent to [the Bank's] ability to file the instant foreclosure action." 

 

Thus, the Bank's "complaint and defendants' answer thereto were required to comply with Illinois Supreme Court Rule 133(c)."

 

The First District explained that "[i]n light of the requirements of Rule 133(c), courts have repeatedly recognized that mere general denial of the performance of the conditions precedent of a contract in a party's responsive pleading, without allegations of specific facts, results in forfeiture of the issue of the performance of the conditions precedent of a contract." 

 

Thus, "a general denial to an allegation of the performance of a condition precedent in a contract is treated as an admission of that performance."

 

Because the Borrower only generally denied the Bank complied with all conditions precedent and because "[n]o specific facts were alleged in defendants' answer to support this denial," the Borrower "forfeited the issue; indeed, their general denial stands as an admission that [the Bank] provided all proper notices." 

 

Thus, "in light of defendants' judicial admission . . ., the circuit court properly denied defendants' cross-motion for summary judgment." 

 

Accordingly, the First District affirmed the ruling of the trial court.

 

 

 

 

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   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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

 

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and

 

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and

 

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and

 

California Finance Law Developments