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Illinois App. Court (1st Dist) Rejects Borrowers’ Effort to Undo Foreclosure Deficiency Judgment

The Appellate Court of Illinois, First District, recently held that the provisions of the Illinois mortgage foreclosure statute barred the borrowers from filing a post-judgment petition to vacate the entry of a personal deficiency judgment in a foreclosure action, because the borrowers’ petition was not based upon the lack of personal jurisdiction and the borrowers’ petition did not seek relief in the form of claiming an interest in the proceeds of the sale.

A copy of the opinion in BMO Harris Bank National Association v. LaRosa is available at:  Link to Opinion.

The borrowers defaulted on their mortgage loan resulting in the lender filing a complaint to foreclose.  The borrowers were properly served with a summons and copy of the foreclosure complaint, but failed to appear or otherwise contest the foreclosure.  Consequently, the lender obtained a default judgment against the borrowers, and further petitioned the trial court for a shorter redemption period, as allowed by statute, because the borrowers had abandoned the subject property.

The trial court entered judgment in favor of the mortgagee, granted the request for a shortened redemption period, and ordered the subject property sold at auction.  Following the public auction of the subject property, the trial court entered its order approving the sale and entered a personal deficiency judgment against the borrowers.

Subsequently, the borrowers filed a petition to vacate the personal deficiency judgment in the foreclosure action pursuant to 735 ILCS 5/2-1401 (“Section 2-1401”).  For their Section 2-1401 petition, the borrowers argued that the personal deficiency judgment entered against them was in error, because the trial court erred in shortening the redemption period as the lender misrepresented that the subject property was abandoned, and because despite obtaining a personal judgment and attempting to collect on that judgment the mortgagee also issued a form 1099-C “Cancellation of Debt” to the borrowers.

In response to the borrowers’ Section 2-1401 petition, the mortgagee argued that section 15-1509(c) (“Section 15-1509(c)”) of the Illinois Mortgage Foreclosure Law (IMFL), 735 ILCS 5/15-1101, et seq., was a complete bar to the claims alleged in the Section 2-1401 petition to vacate.

As you may recall, Section 15-1509(c) of the IMFL provides, in part, that the vesting of title by way of consent foreclosure or judicial sales deed “shall be an entire bar of (i) all claims of parties to the foreclosure … Any person seeking relief from any judgment or order entered in the foreclosure in accordance with subsection (g) of Section 2-1301 … may claim only an interest in the proceeds of sale.”

The trial court agreed with the mortgagee, and denied the borrowers’ petition.

The borrowers appealed the trial court’s dismissal of their Section 2-1401 petition and argued on appeal that Section 15-1509(c) is silent as to its application to Section 2-1401, and that Section 15-1509(c) is limited to protecting the transfer of title.

Initially, in analyzing Section 15-1509, the Appellate Court determined that the language of Section 15-1509(c) “is very clear-all claims of the parties to the foreclosure are barred.”  Thus, the Court rejected the borrowers’ first argument that Section 15-1509 did not apply to Section 2-1401 petitions.

The Appellate Court further held that the borrowers’ attempt to limit Section 15-1509 to claims that affect title was contrary to the language.  The borrowers specifically argued that the title of Section 15-1509 which is captioned “Transfer of Title and Title Acquired” indicates the legislative concern in that provision was focused solely upon claims against the title. The Court quickly rejected this contention by noting that the borrowers overlooked section 5/1-103 of the Illinois Rules of Civil Procedure which applies to the IMFL and states that “Article, Part and Section headings … shall not be deemed to govern, limit, modify or in any manner affect the scope, meaning or intent of the provisions of any Article, Part or Section of this Act.”  735 ILCS 5/1-103.

Nonetheless, the Court noted that there were two exceptions to the bar provided in Section 15-1509 – (1) petitions which allege that the judgment is void for lack of personal jurisdiction, and  (2) as explicitly provided for in Section 15-1509, claims which attempt to seek relief in the form of an interest in the proceeds of the sale.  However, neither of these exceptions applied to the borrowers’ claims.

Specifically, the Appellate Court found that the borrowers did not challenge personal jurisdiction, and that their attempt to vacate the entry of a personal judgment was not a claim in the interest of the sales proceeds.

Accordingly, the Illinois Appellate Court affirmed the lower court’s dismissal of the borrowers’ post-judgment petition to vacate the entry of a deficiency judgment.



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