FYI: Ill App Ct (1st Dist) Holds Description of Property Improvements in Notice of Foreclosure Sale Was Sufficient

The Appellate Court of Illinois, First District, recently affirmed a trial court order confirming the sale of a foreclosed property, holding that that a public notice of sale stating that the property contained a "single family residence" complied with the Illinois Foreclosure Law's requirement to sufficiently describe "improvements on the real estate." 

 

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

 

After a default, a mortgagee filed suit to foreclose a mortgage loan against a borrower.  The trial court entered a judgment of foreclosure and sale in favor of the mortgagee. Thereafter, a buyer purchased the property at a judicial sale for $90,000.

 

The borrower opposed confirming the sale by arguing that the notice of sale which described the improvements upon the land as a "single family residence" failed to adequately describe the improvements on the real estate as required by section 15-1507(c)(1)(D) of the Illinois Foreclosure Law.  The trial court found that the mortgagee had properly given all required notices, confirmed the sale, and entered a $250,619.23 in rem deficiency on the property. 

 

The borrower timely appealed the order confirming the sale.

 

The Appellate Court initially recognized that borrower appealed under section 15-1508(b) of the Foreclosure Law which provides that the trial court "shall" confirm a judicial sale of property absent the court finding that one of the following four grounds exist to set aside the sale: "(i) a notice required in accordance with subsection (c) of Section 15-1507 was not given, (ii) the terms of sale were unconscionable, (iii) the sale was conducted fraudulently, or (iv) justice was otherwise not done."  Further, under section 15-1508(d), no sale under 15-1508(b) shall be "set aside because of any defect in notice" unless there is a showing of "good cause."

 

Under section 15-1508(b)(i), notice must be provided in accordance with section 15-1507(c), which requires "public notice of the sale."  Section 15-1507(c)(1) provides that "[t]he notice of sale shall include at least the following information, but an immaterial error in the information shall not invalidate the legal effect of the notice."  This section outlines what to include in the notice of sale including the following: "(B) the common address and other common description (other than legal description), if any, of the real estate; (C) a legal description of the real estate sufficient to identify it with reasonable certainty; (D) a description of the improvements on the real estate." 

 

At issue here is whether the notice adequately provided a "a description of the improvements on the real estate" under section 15-1507(c)(1)(D). The Appellate Court noted that the purpose of this information is to inform prospective buyers about the property.

 

The Appellate Court rejected the borrower's argument that merely stating that a "single family residence" improves the real estate on the notice does not comply with section 15-1507(c)(1)(D) because it does not sufficiently give prospective buyers notice of the improvements on the property. 

 

The Appellate Court observed that this section requires the sale notice to include a "litany of information about the property in the notice of sale, such as the case name and number, common address, legal description, and improvements on the real estate." This information allows a prospective buyer to "(1) request to review the mortgage foreclosure case file at the clerk's office, (2) visit the property for sale, (3) obtain information from the Cook County Assessor pertaining to the property, and (4) obtain information from the Cook County Recorder of Deeds."

 

The Appellate Court found that if prospective buyers required any additional information regarding the property, then they could so do so by contacting the seller because section 15-1507(c)(1) also requires the notice of sale to include "the name, address and telephone number of the person to contact for information regarding the real estate."  The plain language of this section demonstrates the legislatures intent to give prospective buyer's sufficient information to perform their due diligence before they bid on the property. 

 

Thus, the Appellate Court held that the mortgagee's description of the real estate improvements on the property as a "single family residence" together with the other information contained in the notice sufficiently provided "the prospective buyer with enough information so as to allow them to perform their due diligence and thus satisfied section 15-1507(c)(1)(D)."

 

In the Appellate Court's view, the Cook County Assessor's website also supported its conclusion that the notice here was sufficient. The Assessor's webpage for this property provided prospective buyers with the following information on the property: "(1) a photograph picturing the front of the residence, (2) the square footage of land (3750), (3) the square footage of the building (1108), (4) the age of the residence (63), (5) number of bathrooms (1), and (6) exterior construction (masonry)." The Assessor's webpage also notified prospective buyers that the property had "a two-car detached garage and a full but unfinished basement."  In addition, the Assessor's webpage informed prospective buyers that the property did not have "central air conditioning, fireplaces, or an attic." 

 

The Appellate Court concluded that where this "level of detail is readily available and easily searchable" the notice of sale stating that the property contained a "single family residence" sufficiently described the improvements to the real estate to allow prospective buyers to do their due diligence before bidding at the sale.

 

Thus, the borrower failed to show the necessary "good cause" required under section 15-1508(d) to invalidate the sale. 

 

The Court found that the section 15-1507(c)(1)(D)'s language that "an immaterial error in the information shall not invalidate the legal effect of the notice" further supports this conclusion.  Even if there was any error, it was not material because the information provided in the notice was sufficient for prospective buyers "to perform their due diligence in researching the property prior to bidding at a judicial sale." 

 

Also, the borrower failed to come forward with any admissible evidence showing that the sale price was inadequate and mere speculation is not sufficient to meet the borrower's burden to prove that the property sold for substantially less than its actual value as a result of the mortgagee's failure to give adequate notice. 

 

Finally, the deficiency judgment entered was only in rem against the property, not against the borrower individually.

 

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

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 603
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: Cal App Ct (4th Dist) Rules Arbitration Clause Invalid Due to Prohibition on Injunctive Relief

The Court of Appeals of the State of California, Fourth Appellate District, recently held that an arbitration provision contained in a credit card agreement was unenforceable because it sought to bar a customer from pursuing "in any forum" his claim for a public injunction.

 

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

 

In May 2017 a consumer purchased a used motorcycle in part by using a credit card obtained through the motorcycle dealership. The credit application contained an arbitration provision providing any party acting alone could "require that the sole and exclusive forum and remedy for resolution of a Claim be final and binding arbitration…"

 

The arbitration agreement also contained a "poison pill" provision which provided "If any portion of this Arbitration Provision other than section (f) is deemed invalid or unenforceable, the remaining portions of this Arbitration Provision shall nevertheless remain valid and in force. If an arbitration is brought on a class, representative, or collective basis, and the limitations on such proceedings in section (f) are finally adjudicated pursuant to the last sentence of section (f) to be unenforceable, then no arbitration shall be had."

 

Finally, the credit card agreement also contained a choice-of-law provision providing the agreement was "governed by applicable federal law and by Utah law."

 

Thereafter, the consumer filed a complaint against the dealership on behalf of himself and other similarly situated consumers alleging the dealership "violated and continues to violate" the California Rees-Levering Automobile Sales Finance Act.

 

As you may recall, the California Rees-Levering Automobile Sales Finance Act regulates conditional sales contracts for motor vehicles, among other things. The Act also contains a "single document rule" which "requires motor vehicle dealers in transactions involving the financing of motor vehicles to state in a single document all the agreements concerning the total cost and terms of payment, including the terms of financing as required by Civil Code section 2981.9."

 

The consumer's complaint alleged the dealership was deceptively attempting to make transactions appear to be cash purchases, thus exempt from Rees-Levering, through use of the dealership credit card.

 

Based on the arbitration clause in the credit card agreement, the dealership moved to compel arbitration and to dismiss or stay the case pending completion of the arbitration.

 

The consumer opposed the motion arguing that the arbitration provision was unenforceable under McGill v. Citibank, N.A. (2017) 2 Cal.5th 945 (McGill) because it purports to waive the consumers right to seek a public injunction "in any forum."

 

In McGill, the California Supreme Court concluded, "the waiver in a predispute arbitration agreement of the right to seek public injunctive relief under these statutes would seriously compromise the public purposes the statutes were intended to serve. Thus, insofar as the arbitration provision here purports to waive McGill's right to request in any forum such public injunctive relief, it is invalid and unenforceable under California law."  Accordingly, the California Supreme Court ruled that an arbitration provision was "invalid and unenforceable under California law" because "it purports to waive McGill's statutory right to seek [public injunctive] relief."

 

The trial court agreed with the consumer that the arbitration provision was unenforceable under McGill and the dealership appealed.

 

On appeal, the dealership first argued that McGill did not apply due to the choice-of-law provision in the contract which provided Utah law, rather than California law, governs the dispute.

 

The Court of Appeals acknowledged that if a party seeking to enforce choice-of-law meets the burden of proving a substantial relationship, "the parties' choice generally will be enforced unless the other side can establish both that the chosen law is contrary to a fundamental policy of California and that California has a materially greater interest in the determination of the particular issue." Washington Mutual Bank v. Superior Court (2001) 24 Cal.4th 906, 917.

 

The Court of Appeals found that while a substantial relationship was established through businesses headquarters in Utah, it also noted that Utah law was contrary to a fundamental policy of California as "Utah does not permit courts to invalidate arbitration clauses that waive public injunctive relief in any forum."

 

Consequently, applying Utah law would conflict with California's materially greater interest in protecting the consumers right to seek public injunctive relief from the dealerships allegedly illegal practices.

 

Accordingly, the Court of Appeals held that the trial court properly applied McGill.

 

Next, the dealership argued that if California law applies, the arbitration provision "does not run afoul of McGill" because the consumer does not seek a public injunction, but rather an injunction to benefit only a narrow group of the dealership's customers.

 

The Court of Appeals rejected this argument finding that the consumer sought an injunction forcing the dealership to cease "selling motor vehicles in the state of California without first providing the consumer with all disclosures mandated by Civil Code [section] 2982 in a single document." The Court held this fit the definition of "public injunctive relief" in McGill which was defined as "injunctive relief that has the primary purpose and effect of prohibiting unlawful acts that threaten future injury to the general public." Accordingly, the Court of Appeals found no merit in the dealership's argument.

 

The dealership next argued the arbitration clause is not unenforceable under McGill because the provision does not prevent a plaintiff from seeking public injunctive relief in all forums. The dealership claimed the arbitration clause has an implied exception for a claim for a public injunction which allows the consumer to pursue his claim for public injunction in court after arbitration of all arbitrable claims.

 

The Court of Appeals found that the purported implied exception for a public injunction directly conflicts with the plain text of the arbitration provision and the clear intent expressed in that text. Specifically, the text of the "poison pill" provision makes clear the parties do not intend to arbitrate "other claims" if the "limitations" on the arbitration of "class, representative [and] collective" claims are unenforceable.

 

The dealerships final argument, presented only to preserve it for review, was that the arbitration provision was unenforceable under McGill because the Federal Arbitration Act (FAA) preempts McGill and requires enforcement of the clause. However, the dealership conceded the California Supreme Court and the Ninth Circuit have held that the FAA does not preempt the McGill rule.

 

Accordingly, the Court of Appeals of the State of California affirmed the trial court order denying the petition to compel arbitration.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 603
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   |   Tennessee   |   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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FYI: 5th Cir Holds Overpayment of Grant Money Qualified as "Debt" Under FDCPA

The U.S. Court of Appeals for the Fifth Circuit recently held that a consumer's contractual obligation to repay an overpayment in government grant money received by the debtor qualified as a "debt" under the federal Fair Debt Collection Practices Act ("FDCPA") because it involved a consensual promise to repay in exchange for receipt of an item of value, and the subject of the transaction was primarily for personal, family, or household purposes.

 

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

 

In response to Hurricanes Katrina and Rita destroying and damaging homeowners' primary residences, Congress appropriated money through the Community Development Block Grant program of the Department of Housing and Urban Development to provide grants to homeowners to repair and rebuild their homes. The Louisiana Office of Community Development ("OCD") administered this program and disbursed the grants to qualified applicants.

 

A Louisiana consumer whose home was damaged by the hurricanes applied for and received a grant as compensation for her damages.  The consumer entered into an agreement with the OCD.  In exchange for receiving $33,392.68 in one lump sum payment, the consumer agreed to several terms, including limitations on any transfer or sale of the property, occupying the property as her primary residence for three years after executing the agreement, and maintaining casualty and flood insurance on the property. The consumer also agreed to pay the OCD any insurance or assistance payments that would have reduced the grant amount distributed if the consumer received had such payments before the receipt of the grant.

 

A debt collector subsequently sent the consumer a letter demanding repayment under the agreement for an alleged $4,598.89 grant overpayment.  The consumer disputed the overpayment and the debt collector provided a breakdown of the amount owed "including $5,300 owed in duplicated FEMA benefits, $1,269.85 owed in overpaid homeowner insurance proceeds, and a $1,970.96 credit due to a recalculated insurance penalty." 

 

In response, the consumer sued the debt collector alleging that the debt collector committed multiple violations of the FDCPA.

 

The debt collector moved to dismiss arguing that the consumer's complaint did not state a claim because the money it sought to collect did not qualify as a "debt" under 15 U.S.C. § 1692a(5), as required.   The trial court agreed and dismissed the consumer's FDCPA claims with prejudice. This appeal followed.

 

The Fifth Circuit began its analysis by observing that to state an FDCPA claim, a plaintiff must allege that a debt collector sought to collect a "debt" from them.  Under the FDCPA, a debt is "any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment." 15 U.S.C. § 1692a(5).

 

The Fifth Circuit noted that when deciding whether something constitutes a debt under the FDCPA it follows the Third Circuit's three-part test enunciated in St. Pierre v. Retrieval-Masters Creditors Bureau, Inc., 898 F.3d 351, 360 (3d Cir. 2018). 

 

First, the court must establish if the "underlying obligation arises out of a transaction" meaning the "consensual exchange involves an affirmative request and the rendition of a service or purchase of property or other item of value, such as a contract."

 

Second, the court must next determine "what money, property, insurance, or services . . . are the subject of the transaction, i.e., what it is that is being rendered in exchange for the monetary payment."

 

Finally, the court considers "the characteristics of that 'money, property, insurance, or services' to ascertain whether they are 'primarily for personal, family, or household purposes.'"

 

As you may recall, the FDCPA does not define the term "transaction." Thus, the Fifth Circuit interpreted the term "transaction" using its ordinary meaning when Congress enacted the FDCPA.

 

In 1978, when Congress passed the FDCPA, dictionaries commonly defined transaction "as an agreement, negotiation, or business dealing."  The Fifth Circuit also noted that transaction "is a broader term than 'contract'" and "must therefore consist of an act or agreement, or several acts or agreements having some connection with each other, in which more than one person is concerned, and by which the legal relations of such persons between themselves are altered."  Also, "the ordinary meaning of the term 'transaction' is a broad reference to many different types of business dealings between parties, and does not connote any specific form of payment."  Finally, the Fifth Circuit also found support, in St. Pierre, 898 F.3d at 360, for its view that "transaction" broadly "refers to business dealings best characterized as "a consensual exchange involving an affirmative request" and "the rendition of a service or purchase of property or other item of value." 

 

Here, the Fifth Circuit found that the agreement involved "a mutual exchange of value that reciprocally affected and influenced" the consumer and the OCD.  The program provided relief money to encourage the consumer "and many homeowners to return to and reside in Louisiana in the wake of Hurricanes." The OCD gave the consumer money to repair her home, and in exchange the consumer agreed to comply with the terms of the agreement.  The debt in question, the consumer's agreement to repay any excess grant money, "specifically arises out of" her agreement to provide any "future funds she received from insurance or FEMA" to the OCD. 

 

Put differently, in consideration for receiving repair funds up front, the consumer agreed to provide any future insurance funds received to the OCD.  Thus, the consumer's "obligation to repay excess funds amply meets the "transaction" test and distinguishes it from the cases of overpayment in which there was no explicit consent to repay an erroneous deposit of money."

 

The Court also declined to interpret the transaction in a vacuum, observing that nothing in the FDCPA explicitly excludes an obligation to repay excess funds received.  Thus, the Fifth Circuit found that the consumer's obligation to repay any excess grant money received arises from a "transaction, which encompasses consensual agreements and negotiations like this one."

 

The Fifth Circuit next turned to the second prong of the test. To determine "what money, property, insurance, or services are the subject of the transaction," the Fifth Circuit looked at "what is being rendered in exchange for payment."  Here the consumer received repair funds from the OCD in exchange for agreeing to certain obligations in a contract, including her promise to repay any excess grant money.  The receipt of funds from the government in exchange for promises "comports with other cases in which we have assumed the FDCPA applies."

 

The debt collector argued that the FDCPA only applies to transactions that occur within the "normal creditor/debtor relationship."  The Fifth Circuit rejected this narrow interpretation of the FDCPA because it overly restricts transaction's plain meaning. 

 

The Court reasoned that if Congress wanted to limit the FDCPA's definition of debt to apply only to repayments to creditors or obligations arising out of the exchange of tangible goods, then it could and should have drafted the statute to reflect this limitation.  Congress did not include this limitation so the Fifth Circuit found that it was prohibited from reading this limitation "into the FDCPA's clear statutory language."  Therefore, the Fifth Circuit found that the second prong of the test was met here because the consumer voluntarily agreed to receive the repair money in exchange for consenting to the obligations in the agreement. 

 

Finally, the Court turned to the third prong of the test to examine if the money the consumer received in exchange for complying with the agreement's terms was primarily for "personal, family, or household purposes."  As the parties did not dispute this prong of the test and the program was designed to "provide grants for home repair and rebuilding, support affordable rental housing, and offer housing support services," the Fifth Circuit had no trouble in concluding that the consumer met the last part of the test.

 

Thus, the Fifth Circuit held that the trial court erred when it determined that the FDCPA did not cover the consumer's obligation to repay the OCD, and therefore reversed the trial court's "determination that the obligation of repayment at issue in this case does not qualify as a 'debt' under the FDCPA" and remanded for additional proceedings consistent with its opinion.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 603
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   |   Tennessee   |   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

 

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and

 

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