The Appellate Court of Illinois, Third District, recently held that a mortgagee could foreclose on a husband and wife’s property held as tenants by the entirety despite that only the husband signed the note.
In reaching its decision, the Court relied on the fact that the wife signed the mortgage with her husband, and was aware of the existence and the substance of the note.
A copy of the opinion in OneWest Bank FSB v. Cielak is available at: Link to Opinion.
The borrowers, husband and wife, purchased a home in Illinois. The borrowers acquired the real estate as tenants by the entirety and occupied the property continuously as their marital residence.
Subsequently, the husband signed a promissory note. The wife did not sign the note. On the same day, the borrowers executed a mortgage against their interest in the real estate to secure payment of a loan. Unlike the note, both the husband and wife signed the mortgage.
The lender filed a complaint to foreclose against the borrowers. The complaint sought to enforce the rights of the lender by foreclosing the interests of both the husband and wife in the real estate.
The mortgage servicer was substituted as plaintiff in the foreclosure action. The mortgage servicer filed an amended complaint, including a copy of the note signed by the husband. The note was stamped as a certified copy of the original and indorsed in blank by the lender. The amended foreclosure complaint also included a copy of the mortgage signed by the husband and wife.
The borrowers raised two affirmative defenses. The first affirmative defense alleged the mortgage could not be foreclosed as to the wife’s interest in the property because only the husband signed the note and the borrowers owned the property in a tenancy by the entirety.
The second affirmative defense alleged that the copy of the note attached to the amended complaint did not comply with the Illinois Mortgage Foreclosure Act, 735 ILCS 5/15-1506(b).
The mortgage servicer filed a motion to strike the borrowers’ affirmative defenses. With this motion, the servicer attached a different copy of the note that had a void marking.
The trial court denied, without prejudice, the servicer’s motion to strike the first affirmative defense. In its ruling, the trial court allowed the servicer to amend the motion to strike the first affirmative defense to better address the legal aspects of the argument.
The servicer filed a renewed motion to strike the borrowers’ first affirmative defense. The servicer also filed an affidavit of one of its employees explaining how the servicer came into possession of the note. The affidavit stated the servicer came into possession of the note by way of purchase of assets as receiver for the lender. The bill of sale attached to the affidavit was dated prior to the filing of the amended complaint.
The trial court granted the servicer’s motion to strike the first and second affirmative defense. The servicer moved for summary judgment, the borrowers did not respond to the motion, and the trial court granted summary judgment. The servicer then moved for an order confirming the sale of the foreclosed property.
The borrowers filed a motion to deny confirmation of the sale. The trial court denied the borrowers’ motion to deny confirmation. The borrowers appealed.
The Appellate Court first analyzed whether the servicer could foreclose the mortgage against the wife’s interest in the real estate. The Court held that the note and corresponding mortgage were valid despite the fact that only the husband signed the note. The Court explained that it is common for notes and the corresponding mortgages to be signed by different parties. This was especially true in this situation because the note and mortgage documents were signed together, executed contemporaneously, and intended to complement each other.
The Court also held that the mortgage was valid even though the borrowers owned the real estate as tenants by the entirety. Under Illinois law, real estate held as tenants by the entirety protects an innocent spouse against having his or her homestead property sold to satisfy the individual debts of the other spouse. In this matter, the Court explained, there was no innocent spouse because the wife signed the mortgage, was aware of the amount owed under the note, and consented in the creation of a lien on the real estate to secure payment of the loan.
Next, the Appellate Court summarily rejected the borrowers’ argument that the trial court erred when it considered the servicer’s renewed motion to strike the first affirmative defense. The Appellate Court noted it was sufficient that the trial court denied the servicer’s motion to strike without prejudice and granted leave to amend the motion to better address the legal aspects of the first affirmative defense.
Last, the Appellate Court held that the servicer had standing to foreclose on the mortgage for two separate reasons. In Illinois, the Court held, an action to foreclose may be brought by a mortgagee. A mortgagee under Illinois law includes a holder of an indebtedness secured by a mortgage.
The Appellate Court held that the servicer had standing because the note attached in the amended complaint was prima facie evidence that the servicer was the holder of the note indorsed in blank. Moreover, the Court noted, the borrowers failed to establish that someone other than the servicer was the true holder of the note. The Court also held that the servicer had standing to foreclose because in Illinois an action to foreclose may be filed by an agent of the mortgagee and this includes an entity that services mortgages.
The Appellate Court also rejected the borrowers’ attack on the legitimacy of the note. The trial court’s ruling was supported by the affidavit from the servicer’s employee. The affidavit attested that the servicer acquired the bank’s assets, including the loan secured by the borrowers’ home, by way of purchase as receiver for the lender before the servicer filed the amended complaint.
Accordingly, the Appellate Court affirmed the trial court’s judgment.