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Illinois App. Court (1st Dist) Holds Challenges to Foreclosure Failed for Lack of Diligence

The Illinois Appellate Court for the First District recently held that the trial court correctly affirmed a judicial sale and denied a motion to reconsider where an intervenor and alleged owner of the property claimed the mortgage was wiped out by the death of the sole mortgagor, who was only a joint tenant in the property at the time the mortgage was executed.

In so ruling, the Court noted that the mortgagee provided proper notice and otherwise complied with all procedural rules for foreclosures in Illinois, whereas the intervenor never recorded the deed to himself and did nothing to stop the foreclosure despite receiving notice of the foreclosure sale.

Thus, “[b]ecause any possible ‘injustice,’ with respect to [the intervenor’s] purported interest in the property, result[ed] from [the intervenor’s] own negligence,” the Appellate Court affirmed the ruling of the trial court in favor of the mortgagee.

A copy of the opinion in Neighborhood Lending Services, Inc. v. Callahan is available at:  Link to Opinion.

In 1984, a residential property was transferred by quitclaim deed to a husband, wife, and their daughter.  The property was held in joint tenancy.  The husband died in 1990.  In 2006, the wife alone granted the bank a mortgage on the property.  The wife died in 2012.

On May 5, 2015, the bank filed a mortgage foreclosure action and recorded a lis pendens and notice of foreclosure on May 13, 2015.  On June 17, 2015, the bank filed the operative amended complaint, adding an individual to act as a court-appointed representative of the deceased wife.

The complaint alleged that the mortgage loan went into default in January 2013, and identified both the wife and daughter as owners of the property, and also named unknown owners and occupants.

All of the defendants were served, but none appeared.  On Nov. 23, 2015, the trial court entered an order of default against all of the defendants except the court-appointed representative, summary judgment against the court-appointed representative for the wife, and judgment of foreclosure against all defendants.

A notice of sale was issued on Jan. 14, 2016.  On Feb. 15, 2016, a sale was held and the property was sold to the bank.  A motion to confirm the sale was filed on March 25, 2016.

On April 11, 2016, an alleged owner (“intervenor”) filed a petition to intervene in the case.  According to the petition, the husband died in 1990, and therefore when the wife died in 2012, the daughter was the sole surviving joint tenant of the property.  The petition further alleged that the daughter executed an unrecorded quitclaim deed transferring the property to the intervenor on Dec. 9, 2013, before the bank filed the lawsuit or recorded its lis pendens.

The intervenor further alleged that he first learned of the foreclosure action when the daughter provided him with the notice of sale on Feb. 20, 2016, and that on March 13, 2016 he first discovered the alleged quitclaim deed to him had never been recorded.

On April 21, 2016, the trial court entered an order granting the intervenor’s petition to intervene, and, construing the petition as an objection to the motion to confirm sale, denied any such objection.  The trial court then entered a separate order confirming the sale.

On May 2, 2016, the intervenor filed a motion to reconsider, wherein he alleged that the wife’s interest in the property and the bank’s lien on the property were immediately extinguished upon the wife’s death in 2012.  In his reply brief, the intervenor also argued for the first time that because the bank’s lien was allegedly extinguished before the lawsuit was filed, the trial court lacked subject matter jurisdiction over the matter and its orders were void.

The trial court denied the motion to reconsider, and the intervenor appealed.

On appeal, the Appellate Court first examined the intervenor’s claim that the trial court lacked subject matter jurisdiction.  The intervenor argued that because the bank had no interest in the property at the time the lawsuit was filed, the trial court lacked jurisdiction over the foreclosure action.

The First District disagreed, noting that “even a defectively stated claim is sufficient to invoke the court’s subject-matter jurisdiction,” and “subject matter jurisdiction does not depend upon the legal sufficiency of the pleadings.”  Instead, “the only consideration is whether the alleged claim falls within the general class of cases that the court has the inherent power to determine,” and foreclosure suits are “within the general class of cases the circuit court has the inherent power to hear and determine.”

In addition, the Appellate Court observed that the intervenor’s argument was more properly viewed as an attack on the bank’s standing, but “issues of standing do not implicate the court’s subject matter jurisdiction.”  Thus, the Appellate Court determined that it had subject matter jurisdiction over the action.

The First District next examined whether the trial court property confirmed the sale.  It noted that the Illinois Mortgage Foreclosure Law (IMFL) provides the trial court with “broad discretion in approving or disapproving judicial sales.”

As you may recall, under IMFL, a foreclosure sale shall be confirmed unless the court finds that: (1) proper notice of the sale was not given, (2) the terms of the sale were unconscionable, (3) the sale was conducted fraudulently, or (4) justice was not otherwise done.

The intervenor argued that the trial court erred in confirming the sale and denying his motion to reconsider because: (1) he owned the property free and clear of the bank’s lien, (2) the trial court had no power to order the sale of the entire property when the wife could only mortgage her partial interest in the property, and (3) the trial court should have recognized the intervenor’s interest in the property and his right to a lien on any proceeds from the sale.

The First District found that “none of these arguments leads us to a conclusion that the circuit court abused its discretion or misapplied existing law in confirming the sale of the property or in denying the motion to reconsider that decision.”

In reaching its decision, the Appellate Court noted that “in the absence of fraud or irregularity, courts [will] not refuse to confirm a judicial sale merely to protect an interested party against the result of his own negligence.”

In this case, the record demonstrated that the bank: (1) properly served the nonrecord claimants such as the intervenor by publication, (2) properly recorded its lis pendens on May 13, 2015, giving the intervenor constructive notice of the claim on the property, and (3) properly issued a notice of sale on Jan. 14, 2016.

In contrast, the intervenor never recorded his quitclaim deed, and did not seek to intervene in the matter “until after the property was sold on Feb. 25, 2016, and after a motion seeking confirmation of that sale was filed on March 25, 2016,” despite receiving notice of the sale on Feb. 20, 2016.

Thus, “[b]ecause any possible ‘injustice,’ with respect to [the intervenor’s] purported interest in the property, result[ed] from [the intervenor’s] own negligence,” the Appellate Court affirmed the ruling of the trial court confirming the sale and denying the motion to reconsider.

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