FYI: Ill App Ct (2nd Dist) Holds Bona Fide Foreclosure Sale Not Voided by Latent Defect in Service of Process

The Appellate Court of Illinois, Second District, recently held that improper service that does not affirmatively appear on the face of the record will not allow a former homeowner to void a foreclosure judgment against the bona fide-purchasers of the property.

 

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

 

A mortgagee filed a foreclosure action in DuPage County against a homeowner ("Prior Owner") and employed a special process server who served the Prior Owner via substitute service in the neighboring Cook County.

 

Prior Owner failed to appear and default judgment of foreclosure was entered in December 2006. The property was sold at a sheriff's sale in April 2007. The trial court approved of the sale and the sheriff's deed was recorded in May 2007. After a couple more transfers, the property was eventually purchased by an individual ("New Owner") and a deed recorded in September 2011 ("2011 Deed").

 

Seven years later, in September 2018, the Prior Owner filed a petition to quash service arguing that the judgment was void he had been improperly served. Specifically, Prior Owner argued "the lack of jurisdiction was apparent on the face of the record" because the trial court "did not acquire personal jurisdiction over [him] because [he] was served in Cook County, Illinois and the Circuit Court did not appoint a special process server to serve process in Cook County [as was required at the time]."

 

The named beneficiary of the 2011 Deed, the servicer for a prior named beneficiary, and the new owner filed separate motions to dismiss the Prior Owner petition, primarily arguing the petition was barred by the bona fide-purchaser protections of section 2-1401(e) and laches.

 

As you may recall, section 2-1401(e) provides that:

 

Unless lack of jurisdiction affirmatively appears from the record proper, the vacation or modification of an order or judgment pursuant to the provisions of this Section does not affect the right, title or interest in or to any real or personal property of any person, not a party to the original action, acquired for value after the entry of the order or judgment but before the filing of the petition, nor affect any right of any person not a party to the original action under any certificate of sale issued before the filing of the petition, pursuant to a sale based on the order or judgment.

 

735 ILCS 5/2-1401(e) (West 2018).

 

The trial court granted all three motions to dismiss and determined the property rights were protected by section 2-1401(e) of the Code because no jurisdictional defect appeared on the face of the record. Further ruling, "[The] Court takes judicial notice that Chicago is a municipality located in two different counties: Cook County and Du Page County. However, the Service Return states the zip code of the Service Address to be 60623 and does not recite the county in which the service was made. For the Court to determine which county in which this zip code is located, an investigation would be required. The Court is unable to take judicial notice of the county in which this zip code is located. Thus, the Court finds that the defect complained of is not apparent on the face of the record."

 

The Prior Owner appealed.

 

The Appellate Court noted that, even if it assumed that the judgment was void, the dispositive question is whether the respondents were bona fide purchasers, noting where the rights of innocent third-party purchasers have attached, a judgment can be collaterally attacked only where an alleged personal jurisdictional defect affirmatively appears in the record. State Bank of Lake Zurich v. Thill, 113 Ill. 2d 294, 312-13 (1986).

 

Further the Court explained "In determining whether a lack of jurisdiction is apparent from the record, we must look to the whole record, which includes the pleadings, the return on the process, and the judgment of the court. A lack of jurisdiction is apparent from the record if it does not require inquiry beyond the face of the record. Strict compliance with the statutes governing the service of process is required before a court will acquire personal jurisdiction over the person served."

 

Prior Owner argued that the lack of jurisdiction due to the service defect is apparent on the face of the record because at the time defendant was served, service of process occurred in Cook County, without the trial court appointing a special process server to serve process in Cook County (which was a requirement at that time), and therefore, personal jurisdiction was never established. To establish that service took place in Cook County, the Prior Owner pointed to the special process-server affidavit which shows substitute service made at 1656 S. Central Park Avenue in Chicago, 60623.

 

The Appellate Court rejected the Prior Owners argument noting the affidavit does not indicate whether defendant was served in Cook or DuPage County and therefore does not establish a jurisdictional defect on its face. The Court also refused to take judicial notice that the zip code exists within Cook County as that would require the court to go beyond the face of the record.

 

The Appellate Court found each of the respondents were entitled to bona fide-purchaser status as each mortgage was supported by consideration and secured in good faith before the petition was filed.

 

Accordingly, the Court affirmed the judgment of the trial court, holding because the jurisdictional defect does not affirmatively appear on the face of the record, section 2-1401(e) protects the bona fide-purchasers rights in the property, and that laches can preclude relief in an appropriate case where prejudice is demonstrated.

 

 

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: 11th Cir Dismisses Wrongful Foreclosure Appeal for Lack of Spokeo Standing

The U.S. Court of Appeals for the Eleventh Circuit recently dismissed an appeal for lack of Article III standing because the appellant did not allege the particularized injury necessary to confer standing and the co-appellant with standing settled and dismissed its appeal.

 

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

 

Appellant and a corporate borrower ("borrower") had loans with a bank.  After the borrower filed for bankruptcy, the appellant and the borrower entered into an agreement with the bank regarding the debt owed on the loans. 

 

The agreement secured the loans with two properties. The agreement included a deed-in-lieu of foreclosure remedy which gave the bank the option upon default to record one or more of the deeds in lieu of foreclosure to transfer title of the two properties. The agreement also allowed the bank to foreclose the loans after a default.

 

The bank sold its interest in the Agreement to a company. The borrower defaulted on the loans. The company then recorded both deeds and foreclosed on both loans. The borrower tried to tender the amounts owed before the foreclosure sale, but the company did not respond and sold the properties.

 

Appellant sued the company in state court and added the borrower as a party in an amended complaint. Appellant alleged that the borrower owned the properties, but claimed that he was affiliated with the borrower and that he had a beneficial interest in the two foreclosed properties. The amended complaint alleged that the company wrongly foreclosed on two properties causing Appellant to lose the collateral's value exceeding the debt balance, and to suffer mental anguish.

 

The company removed the case to bankruptcy court and promptly moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c).  The bankruptcy court granted the company's motion and entered judgment in favor of the company.  The district court subsequently affirmed the bankruptcy court's judgment.

 

This appeal followed.

 

Before the Eleventh Circuit issued its opinion, the borrower and the company settled.  The Eleventh Circuit granted the borrower's motion to dismiss its appeal leaving the appellant to challenge the foreclosures.

 

The Eleventh Circuit began its analysis by examining whether the appellant had standing. As you may recall, Article III standing "represents a jurisdictional requirement which remains open to review at all stages of the litigation." Standing requires "an injury in fact—an invasion of a legally protected interest which is (a) concrete and particularized; and (b) actual or imminent, not conjectural or hypothetical." Further, a particularized injury "affect[s] the plaintiff in a personal and individual way."

 

A plaintiff must allege facts sufficient to demonstrate every element of standing. Spokeo, Inc. v. Robins, 578 U.S. ___, 136 S. Ct. 1540, 1547 (2016). Mere "conclusions," or "naked assertions devoid of further factual enhancement" will not confer standing. Instead, the plaintiff must allege sufficient facts so that the right to relief is not speculative.

 

The Eleventh Circuit noted that when the only "party with standing in the lower court is absent as an appellant," a party that lacks standing many not "piggyback on another party's standing."  Instead, the remaining party must demonstrate its own standing.

 

Here, the borrower had standing as the alleged owner of the two properties, but "its absence as an appellant requires that we examine our jurisdiction to entertain this appeal." Appellant alleged that the foreclosure on the two properties somehow caused "him to lose the collateral's value exceeding the debt balance, and to suffer mental anguish." 

 

However, he also alleged that the borrower owned the properties and alleged no facts to demonstrate any "beneficial interest" that he may have had in the two properties. Without any specifically pled facts, the Eleventh Circuit could not say that any claimed loss the Appellant suffered "is more than speculative."  His "naked assertions devoid of further factual enhancement" failed to allege any actual injury that was personal to Appellant.

 

The Appellant also argued that his claimed mental anguish conferred standing because "[i]n a wrongful foreclosure action, an injured party may seek damages for mental anguish in addition to cancellation of the foreclosure," quoting Blanton v. Duru, 543 S.E.2d 448, 452 (Ga. Ct. App. 2000). The Eleventh Circuit rejected this argument because unlike the foreclosed party in Blanton, the Appellant did not allege that he owned the foreclosed properties. Rather, the amended complaint alleged that the borrower owned the properties. As such, Blanton does not help the Appellant obtain standing because it "did not hold that a nonowner may seek damages for mental anguish."

 

The Appellant also argued that he has standing because: "1) he personally guaranteed the loans at issue; and (2) the property could satisfy or decrease his personal liability stemming from judgments that two creditors have against him individually."  The Eleventh Circuit had little trouble rejecting these arguments because the Appellant's Amended Complaint did not make these allegations.  Also, it's not apparent how the personal guarantee might harm the Appellant when he is not a debtor in the bankruptcy and "the foreclosures satisfied the Settlement Agreement debt."

 

In addition to Article III standing, the Eleventh Circuit has "adopted the person aggrieved doctrine as our standard for determining whether a party can appeal a bankruptcy court's order." In re Ernie Haire Ford, Inc., 764 F.3d 1321, 1325 (11th Cir. 2014). This standard is even more restrictive than Article III standing." "It limits the right to appeal a bankruptcy court order to those parties having a direct and substantial interest in the question being appealed."  Thus, to appeal a bankruptcy order, a party must be "directly, adversely, and pecuniarily" affected by the order meaning it must "diminish his property, increases his burden, or impair his rights."

 

Based on its aggrieved doctrine, the Eleventh Circuit also dismissed the appeal because Appellant "cannot clear the higher hurdle of showing that he is a person aggrieved." Appellant did not allege a direct and substantial interest in the question appealed or allege that the dismissal order diminished his property, increased his burdens, or impaired his rights.

 

Thus, the Eleventh Circuit dismissed the appeal for lack of Article III standing.

 

 

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: 6th Cir Holds "Class Action" Brought by Michigan AG Did Not Qualify Under CAFA

The U.S. Court of Appeals for the Sixth Circuit recently held that a lawsuit brought by the Attorney General of Michigan on behalf of Michigan residents did not qualify as a "class action" under the federal Class Action Fairness Act.

 

The Court reasoned that the state statute authorizing "class actions" by the Michigan Attorney General lacked the core requirements of typicality, commonality, adequacy, and numerosity necessary to certify a class under Federal Rule of Civil Procedure 23.

 

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

 

The Attorney General of Michigan sued a provider of residential propane in Michigan ("Propane Distributor") alleging violations of the Michigan Consumer Protection Act ("MCPA") including unfair trade practices and illegal pricing schemes.

 

Section 10 of the MCPA, titled "class actions by attorney general for actual damages," authorized the Attorney General to bring suit on behalf of Michigan residents. Section 10 provides in part:

 

"The attorney general may bring a class action on behalf of persons residing in or injured in this state for the actual damages caused by any of the following: (a) A method, act or practice in trade or commerce defined as unlawful under section 3 [unfair, unconscionable, or deceptive methods, acts, or practices]."

 

The Propane Provider removed the case to federal court, arguing the Attorney General's lawsuit is a "class action" under the federal Class Action Fairness Act of 2005 ("CAFA").

 

The trial court remanded the case to state court, finding that it lacked subject matter jurisdiction over the action.

 

The Propane Provider petitioned the Sixth Circuit for permission to appeal the trial court's order. The Sixth Circuit granted permission based on its discretion to accept appeals presenting CAFA issues.

 

As you may recall, under CAFA, a federal court has original jurisdiction over a class action when (1) there is minimal diversity of citizenship between the parties; (2) the aggregate amount in controversy exceeds $5 million; and (3) the proposed class contains at least 100 members. 28 U.S.C. § 1332(d)(2)–(6); see Dart Cherokee Basin Operating Co., LLC v. Owens, 574 U.S. 81, 84–85 (2014).

 

CAFA defines a "class action" as "any civil action filed under Rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action." 28 U.S.C. § 1332(d)(1)(B).

 

Rule 23 specifies four prerequisites that must be satisfied before a member of a class may sue or be sued as a representative party: numerosity, commonality, typicality, and adequate representation.

 

Under CAFA, removal jurisdiction exists only when a class action is brought pursuant to Rule 23 itself or a "similar" state statute. 28 U.S.C. § 1332(d)(1)(B).

 

The Sixth Circuit first looked to the plain text of the statute to determine whether removal jurisdiction exists under CAFA, holding "the Attorney General's lawsuit brought pursuant to Section 10 of the MCPA does not satisfy any of these core requirements [numerosity, commonality, typicality, and adequate representation], most notably typicality and adequate representation, and so is not similar to a class action brought pursuant to Rule 23."

 

The Sixth Circuit noted "Section 10 does not require the Attorney General to have suffered an injury at the hands of Defendants or to bring a claim that is otherwise typical of each class member's claim." See Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 156 (1982) ("We have repeatedly held that 'a class representative must be part of the class and possess the same interest and suffer the same injury as the class members.'" (quoting E. Tex. Motor Freight Sys., Inc. v. Rodriguez,431 U.S. 395, 403 (1977)))." The Attorney General herself need not purchase any propane or have otherwise been harmed. and thus her claims are not "typical" of the proposed class members on whose behalf she brings the lawsuit.

 

Next, the Sixth Circuit used the same logic in determining the MCPA does not satisfy the requirement of adequate representation, noting "just because the Attorney General is authorized to seek damages on behalf of a group of consumers who were allegedly harmed by [the Propane Providers] practices does not mean that the Attorney General is an 'adequate representative' of that class."

Finally, the Sixth Circuit added, Section 10 does not require the Attorney General to join the affected consumers as named plaintiffs in her lawsuit, "thus, it is unclear how the requirements of numerosity and commonality could ever be satisfied in a Section 10 lawsuit."

 

The Propane Provider responded that although Section 10 does not require satisfaction of numerosity, commonality, typicality, and adequate representation, Michigan Rule 3.501, titled "class actions," does, and is Michigan's analog to Rule 23. In addition, the Propane Provider argued that Section 10 of the MCPA incorporates Michigan Rule 3.501.

 

However, the Sixth Circuit noted that Michigan Rule 3.501 provides that "[o]ne or more members of a class may sue or be sued as representative parties on behalf of all members in a class action only if" there is numerosity, commonality, typicality, adequate representation, and superiority. Mich. Ct. R. 3.501(A).

 

Thus, as the Sixth Circuit described in its Section 10 analysis, the Attorney General is not a "member" of the class and does not have claims that are typical of it. Therefore, the Sixth Circuit held, by its plain language, Michigan Rule 3.501 does not apply to an action brought by the Attorney General pursuant to Section 10.

 

Accordingly, the Sixth Circuit affirmed the trial court's order remanding the case to state 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.

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Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog™

 

and

 

Webinars

 

and

 

California Finance Law Developments