The Supreme Court of Illinois recently rejected two borrowers' efforts to use a supposed defect in service of process to void a foreclosure judgment entered against them.
In so ruling, the Court held that:
1- The third-party purchaser of the foreclosed property was a "bona fide purchaser", and this barred the borrowers' efforts to void the foreclosure judgment;
and
2- The defense of laches can be raised in proceedings to void a judgment under section 2-202(a) of the Illinois Code of Civil Procedure.
A copy of the opinion is available at: Link to Opinion
The appeal arose out of a foreclosure action initiated by a bank ("Bank") against husband and wife borrowers ("Borrowers"). After Borrowers failed to appear, default and judgment of foreclosure and sale were entered. The property was sold at a judicial sale and the court subsequently confirmed the sale. Third-party respondent ("Purchaser") purchased the property.
More than seven years later, Borrowers filed a petition for relief from void judgments. Borrowers argued the orders entered against them were void ab initio because the court lacked personal jurisdiction over them.
Specifically, Borrowers claimed they were never properly served as the process server had not been appointed by the court at the time of service, thus violating section 2-202(a) of the Illinois Code of Civil Procedure. 735 ILCS 5/2-202(a).
Purchasers and Bank both filed motions to dismiss Borrowers' petition. Purchaser argued they were protected as bona fide purchasers as they were unaware of the alleged jurisdictional defect and the defect was not apparent on the face of the record, that the petition was barred by laches and requested improper relief. Bank argued the petition was barred by laches, was moot and requested improper relief. The trial court granted the motions to dismiss, and the appellate court affirmed.
On appeal to the Illinois Supreme Court, Borrowers argued that the dismissal was improper because (1) Purchasers did not qualify as bona fide purchasers; and (2) laches did not apply to petitions challenging a judgment as void.
The Court first addressed Illinois Code of Civil Procedure section 2-1401, which allows a party to seek relief from a final judgment, by filing a petition more than 30 days after judgment is entered. See Sarkissian v. Chicago Board of Education, 201 Ill. 2d 95, 101-02 (2002); 735 ILCS 5/2-1401(a).
Petitions filed under this section generally must be filed within 2 years of the entry of judgment and allege certain factors. Smith v. Airoom, Inc., 114 Ill. 2d 209, 220-21 (1986). However, petitions for relief on the ground that the judgment was void do not need to comply with these procedural requirements. Sarkissian, 201 Ill. 2d at 104; 735 ILCS 5/2-1401(f).
Even if a judgment is void for lack of jurisdiction, the petitioner may be precluded from relief from a third-party purchaser pursuant to Illinois Code of Civil Procedure section 2-1401(e). In re Application of the County Collector, 397 Ill. App. 3d 535, 549 (2009).
Section 2-1401(e) protects bona fide purchasers' interests in property where (1) the defect in service is not apparent from the record, (2) the purchaser wasn't a party to the original action, and (3) they acquired title before the filing of the petition. U.S. Bank National Ass'n v. Rahman, 2016 IL App (2d) 150040, ¶ 26.
Thus, a party challenging a judgment as void where the rights of an innocent third-party purchaser has attached, can only obtain relief if the alleged personal jurisdictional defect affirmatively appears in the record. JP Morgan Chase Bank, N.A. v. Robinson, 2020 IL App (2d) 190275, ¶ 22.
The Illinois Supreme Court noted a lack of personal jurisdiction is apparent on the record when no inquiry beyond the face of the record is required. State Bank of Lake Zurich v. Thill, 113 Ill.2d 294, 314 (1986). The Court agreed with the appellate court's finding that the record alone did not provide "any reason to suspect that service was not in compliance with section 2-202(a)." The Court noted that the two affidavits of service in the record described the manner and date of service, but did not state the county in which service was made.
Borrowers argued Purchasers had constructive notice based on the order appointing the special process servicer and the proof of service. Borrowers relied on C.T.A.S.S. & &. Federal Credit Union v. Johnson, 383 Ill. App. 3d 909 (2008), where the court found that the defect was apparent on the record because the record showed "that the special process server served process before being appointed to do so" which the court found sufficient to notify third-party purchasers of a potential jurisdictional defect. Id. at 913.
However, the Illinois Supreme Court easily distinguished Johnson by noting that in Johnson there was no question as to the fact that service took place in Cook County. In the instant matter, the case was filed in DuPage County and there was nothing in the record that specified in which county service was made.
Thus, the Court found the trial court's order appointing the special process server, standing alone, did not show a jurisdictional defect because there was nothing in the record to indicate that the appointment of the process server was required for service to be effective.
Accordingly, the Illinois Supreme Court found the jurisdictional defect complained of did not affirmatively appear on the face of the record and that section 2-1401(e) protected Purchasers' rights in the property despite the alleged defect. See Rahman, 2016 IL App (2d) 150040, ¶ 42. The Court also found this applied equally to the Purchasers' new mortgage as it was also entitled to bona fide purchaser status and the protections of section 2-1401(e).
The Illinois Supreme Court next turned to the laches defense.
Laches bars relief for a litigant whose unreasonable delay in bringing the action prejudices the other party. Richter v. Prairie Farms Dairy, Inc., 2016 IL 119518, ¶ 51. Borrowers argued that laches could never apply to a petition seeking relief from a void judgment as such a judgment may be attacked at any time, asserting that the application of laches under the instant circumstances would effectively impose a due diligence requirement on jurisdictional challenges to void orders.
However, the Illinois Supreme Court found this argument confused the procedural requirements for bringing a petition under section 2-1401 with the defense of laches, noting that Borrowers' argument failed to recognize that, "in resolving a laches issue, the merits of the [section] 2-1401 petition are not a consideration." Federal National Mortgage Ass'n v. Altamirano, 2020 Ill. App (2d) 190198, ¶ 21.
Borrowers next argued that an equitable defense could not be asserted against a petition which raised a purely legal question. However, the Court found no support for this assertion, especially where Borrowers were seeking both legal and equitable relief. Thus, the Court rejected the argument.
The Illinois Supreme Court found that the face of the record clearly established both elements of laches. The first element "encompasses the plaintiff's delay in bringing the action while having notice or knowledge of defendant's conduct and the opportunity to file suit." Tillman v. Pritzker, 2021 IL 126387, ¶ 26 (citing Pyle v. Ferrell, 12 Ill. 2d 547, 553 (1958)). It was not disputed that Borrowers received actual notice of the foreclosure in 2011 nor that Borrowers did nothing to protect their rights for more than seven years after receiving notice. Further, Borrower's offered no explanation for their delay.
As to the second element, a party suffers prejudice where he or she "incurs risk, enters into obligations, or makes expenditures for improvements or taxes" while the other party remains passive. Pyle, 12 Ill. 2d at 555.
The Court found Bank was prejudiced because the delay increased Borrowers damages, resulting in Bank selling the property to a bona fide purchaser and prevented Bank from being able to recover the property as security for Borrowers' loan and Purchasers were prejudiced as they purchased the property for value and expended considerable sums to build their home and pay taxes and insurance.
Thus, the Illinois Supreme Court affirmed the trial court's judgment and the ruling of the appellate court.
Ralph T. Wutscher
Maurice Wutscher LLP
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