Monday, April 10, 2023

FYI: Ill App Ct (2d Dist) Rejects Borrowers' Claims of Trespass by Mortgagee During Foreclosure

The Appellate Court of Illinois, Second District, recently affirmed a trial court's dismissal of two borrowers' counterclaims alleging that the mortgagee improvidently trespassed on their property during the foreclosure process.


In so ruling, the Second District also held that the mortgagee's unverified business loan agreement and mortgage were sufficient to support its motion to dismiss the counterclaims; the mortgagee's inspection of the property during the foreclosure process was permissible under the mortgage and did not constitute trespass; and the mortgagee did not assent to a settlement agreement asserted by the borrowers that the mortgagee did not sign.


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


A company owned property located in Woodstock, Illinois. The company and its owners obtained a loan secured by a mortgage on the property in the amount of $345,000.00 . The owners and their company were signatories to the mortgage loan agreements.  The borrowers defaulted and the mortgagee brought a foreclosure action against the borrowers.


The borrowers asserted six counterclaims against the mortgagee.  The borrowers alleged three ("Trespass Counterclaims") counterclaims asserting that the mortgagee trespassed on the property during the foreclosure process. The borrowers also brought counterclaims for breach of contract ("Count IV") relating to a supposed settlement agreement between the parties regarding a short sale of the property, alleged tortious interference with contract ("Count V") relating to the borrowers' contract to sell the property to a third party, and alleged fraudulent concealment relating to an appraisal and environmental testing obtained by the mortgagee ("Count VI").


The mortgagee moved to dismiss the counterclaims. The trial court dismissed the trespass counterclaims with leave to replead, and the remaining counterclaims with prejudice. The trial court also struck the borrowers' jury demand. The borrowers filed an Amended Counterclaim that was subsequently dismissed with prejudice by the trial court.


The borrowers appealed, arguing that the trial court erred in dismissing the trespass counterclaims, the tortious interference claim, breach of contract claim, and erred in striking their jury demand. 


Trespass Claims


On appeal, the borrowers argued that trial court erred in dismissing their trespass claims. As a threshold matter, the mortgagee first argued that since the foreclosure of the property occurred, borrowers had no standing to argue the mortgagee trespassed because they no longer held an interest in the property. The Appellate Court disagreed that the issue was moot and held that the subsequent sale of the property did not serve to divest the borrowers of their trespass causes of action during the course of the foreclosure.


Next, the mortgagee argued that the borrowers' trespass claims were precluded by terms within the mortgage and business loan agreement which permitted the mortgagee to enter the property to attend to its interests and to make inspections and tests. The borrowers argued that that mortgagee's motion to dismiss was not verified or supported by an affidavit, and that the trial court should not have relied upon the mortgage and business loan when dismissing borrowers' trespass claims. The mortgagee responded by arguing that it was not necessary to support their motion to dismiss with affidavits, as the mortgage and business loan agreement were conclusive evidence, and their authenticity was not in dispute. Furthermore, these documents were previously authenticated in the mortgagee's motion for summary judgment seeking foreclosure.


The Appellate Court agreed that it was not necessary for the mortgagee to support its motion to dismiss via affidavit in this case.  Generally, motions to dismiss of the sort filed by the mortgagee require affidavits when the grounds for dismissal do not appear on the face of the pleadings.  However, Illinois courts do not require affidavits where more conclusive and appropriate evidence exists. See Wanandi v. Black, 2014 IL App (2d) 130948, ¶ 25; see Christmas v. Hughes, 187 Ill. App. 3d 453, 455 (1989) (copy of covenant not to sue which accompanied motion to dismiss was sufficient to support motion to dismiss without affidavit); White Way Sign & Maintenance Co. v. Montclare Lanes, Inc., 42 Ill. App. 3d 199, 200-01 (1976) (certified copy of land trust agreement was sufficient to support motion to dismiss where document's authenticity was not in dispute). Accordingly, here the Court of Appeals held the unverified business loan agreement and mortgage were sufficient to support the motion to dismiss.


Next, the Appellate Court considered whether the existence of a genuine issue of material fact should have precluded the dismissal or, absent such an issue of fact, whether dismissal is proper as a matter of law. Regarding their trespass claims, the borrowers argued that mortgagee improperly entered the property on three separate occasions. First on May 4, 2018, to conduct an appraisal, and then again on August 29 and September 17, 2018, to conduct environmental inspections and testing. The borrowers further argued that the trial court improperly shifted the burden of proof to the borrowers to allege that the time of entry was unreasonable, or that the entry was made for a purpose beyond the scope of the permission created by the mortgage and business loan agreement.


The Appellate Court held that the borrowers failed to allege facts demonstrating that the time of entry was unreasonable, or that the entry was for a purpose beyond those allowed in the mortgage and business loan agreement. Therefore, the Appellate Court held the trial court did not err in shifting the burden of proof and ultimately dismissing the borrowers' trespass claims.


Breach of Contract ("Count IV") and Tortious Interreference Claim ("Count V")


The borrowers alleged that they entered into a settlement agreement  with the mortgagee. The purported settlement agreement contemplated a short sale of the property to a third party in the amount of $275,000, and that as a condition of the closing, the borrowers would provide the mortgagee with a total payment of $312,682. In exchange, the mortgagee would release the mortgage.


Notably, the agreement was not signed by the mortgagee. The mortgagee moved to dismiss Count IV on the grounds that the settlement agreement was not signed by the mortgagee and was therefore unenforceable.  The borrowers argued in their original and amended counterclaim that a party may by their acts and course of conduct become bound by the provisions of a contract even though they have not signed it. See Landmark Properties, Inc. v. Architects International-Chicago, 172 Ill. App. 3d 379, 383 (1988). Additionally, they argued that equitable estoppel may serve to bar the mortgagee from denying the validity of the settlement agreement and further argued that the mortgagee drafted the settlement agreement. In response, the mortgagee argued that the borrowers failed to allege any actions it took after the borrowers signed the settlement agreement which would indicate its acceptance of the modified agreement. The mortgagee also noted that the borrowers did not allege any actions the mortgagee undertook which the borrowers detrimentally relied on in support of their equitable estoppel argument.


The borrowers' tortious interference claim alleged that after entering into the settlement agreement with the borrowers, the mortgagee tortiously interfered with the short sale contract by refusing to acknowledge its approval of the short sale and by requiring third party to sign an environmental indemnification agreement. As a result, the third party was unable to obtain financing to complete the sale.


The mortgagee moved to dismiss the tortious interference claim on the basis that it was not obligated to accept less than full payment under the note, and that the mortgagee was privileged to interfere with the contract because it was acting to protect its own interests. 


The Court of Appeals noted that while a party named in a contract may consent to a contract through their course of conduct, it must be clear that the conduct relates to the specific contract in question See Landmark Properties, Inc., 172 Ill. App. 3d at 383. This did not occur here because borrowers did not aver that the mortgagee assented to the settlement agreement through their course of conduct and they were still negotiating by requesting items such as the environmental indemnification agreement with the third party.


Furthermore, there were no allegations that the mortgagee in anyway indicated that they had signed, intended to sign, or otherwise accepted the modified terms, such that the borrowers' reliance on the settlement agreement would be reasonable.  As a result, the Appellate Court affirmed the trial court's dismissal of the borrowers' breach of contract and tortious interference counterclaims.


Lastly, the Appellate Court held that because the counterclaims were all properly dismissed, it did not need to address the borrowers' argument that the trial court erred in striking their jury demand.


Accordingly, the Appellate Court affirmed the trial court's dismissal of the borrowers' counterclaims.




Ralph T. Wutscher
Maurice Wutscher LLP
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Chicago, Illinois 60602
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