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Illinois Appellate Court Reverses Trial Court Ruling on Foreclosure Standing

Home background, original three dimensional models.The Illinois Appellate Court, First District, recently reversed a trial court’s ruling that lack of standing in a mortgage foreclosure case was not an affirmative defense.  The Court further remanded the case to allow the borrowers to take discovery, which the Court held was improperly denied by the trial judge.

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

A mortgagee filed a foreclosure action, alleging that the borrowers failed to make payments when due.  In response, the borrowers filed an answer, which included affirmative defenses of alleged lack of standing and alleged lack of capacity to sue.

At the hearing on the mortgagee’s motion to strike the borrowers’ affirmative defenses, the trial judge stated that “a claim or assertion that plaintiff cannot maintain a cause of action is not an affirmative defense under any definition of affirmative defense.” The judge further stated that “[a challenge to standing] doesn’t say this plaintiff has a cause of action, but [the defendant] can avoid the effect of that cause of action by some other affirmative matter.  That’s what an affirmative defense does.”  The trial judge continued, “what you’re saying is this plaintiff doesn’t have a right to sue.  That’s a basis for dismissal, not an assertion of a defense.”

The trial judge reasoned that lack of standing might be an “affirmative matter,” but that “it just simply is not an affirmative defense.”  Accordingly, the trial judge struck the defenses from the borrowers’ answer with prejudice and did not grant leave to replead.

Shortly thereafter, the mortgagee filed a motion for summary judgment which was granted, and an order of foreclosure and an order of possession were entered in favor of the mortgagee.  The borrowers appealed.

On appeal, the Appellate Court noted that the Illinois Supreme Court has made clear that a challenge to standing in a civil case is an affirmative defense.  Greer v. Illinois Housing Development Authority, 122 Ill. 2d 462, 508 (1988).  Over the past two years, the Appellate Court noted that it has held on at least six occasions that the assertion of lack of standing in a foreclosure action is an affirmative defense that not only can be raised in an answer, but must be, or else is waived.  See e.g., Aurora Bank FSB v. Perry, 2015 IL App. (3d) 130673, ¶ 18.

Thus, the Appellate Court held that the trial judge’s ruling was inconsistent with established, binding precedent, and that the trial judge erred by striking the borrowers’ affirmative defense for lack of standing as a matter of law.

Even though striking the affirmative defense was clearly erroneous, the Appellate Court noted it still had to determine whether the trial judge erred in granting summary judgment in the mortgagee’s favor.  The Court noted that it is mortgagee’s burden in a mortgage foreclosure case to make out a prima facie case that it is entitled to enforce the underlying instrument.  However, the foreclosure defendant has the opportunity to rebut that showing.

Here, the Appellate Court held that the borrowers were denied that rebuttal opportunity, as they never had an opportunity to explore their defenses in discovery. As the Court put it, “the events leading up to the trial court’s ruling essentially amounted to summary judgment by ambush.”

Although the trial judge’s decision to not let the borrowers pursue any claim for lack of standing beyond the pleading stage was an error of law, the more concerning issue for the Appellate Court was that the trial judge then prevented the borrowers from taking any discovery on their defenses, or getting a clear evidence of the mortgagee’s right to enforce the note.

Specifically, mortgagee’s motion for summary judgment was supported by the affidavit of a vice president for loan documentation (“Affiant”). In her affidavit, Affiant asserted that she had reviewed various records that supported her averments.  However, none of the records were attached to her affidavit.

As the Court noted, Ill. S. Ct. R. 191(a) requires that affidavits submitted in support of motions for summary judgment “shall have attached thereto sworn or certified copies of all documents upon which the affiant relies[,]” and requires that Affiant identify and certify the records forming the basis of the attestations.

The Appellate Court further noted that, despite the borrowers’ attempts to obtain the records relied upon by Affiant, none of the records were provided prior to the trial judge when ruling on the mortgagee’s motion for summary judgment.  Moreover, after granting the mortgagee’s motion for summary judgment, the trial judge then granted the mortgagee’s motion to strike the borrowers’ outstanding discovery requests and notice of deposition of Affiant.

According to the Appellate Court, the cumulative effect of the affirmative defense being improperly stricken, the denial of the borrowers’ requests for discovery, and the mortgagee’s failure to produce the required evidentiary records, resulted in the borrowers being denied the opportunity to defend.

As the Appellate Court reasoned, to uphold the trial court’s action would require a conclusion that supplying a note indorsed in blank is sufficient to defeat any fathomable defense that a borrower may have to standing, and that no set of facts could entitle a borrower to any relief under those circumstance.  Supplying a note in blank, however, is only prima facie evidence of ownership that could potentially be rebutted.

Accordingly, the Appellate Court reversed the trial court’s judgment and held that, on remand, the borrowers were entitled to take discovery on their challenge to the mortgagee’s standing and to replead their affirmative defense if necessary.

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The attorneys of Maurice Wutscher are seasoned business lawyers with substantial experience in business law, financial services litigation and regulatory compliance. They represent consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. They have defended scores of putative class actions, have substantial experience in federal appellate court litigation and bring substantial trial and complex bankruptcy experience. They are leaders and influencers in their highly specialized area of law. They serve in leadership positions in industry associations and regularly publish and speak before national audiences.

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