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Illinois App. Court (3rd Dist) Holds Factual Disputes About Mistakenly Released Mortgage Precluded Summary Judgment

mortgage law

The Appellate Court of Illinois, Third District recently reversed entry of summary judgment and subsequent post-foreclosure orders in favor of a mortgagee, after challenges by a non-borrower mortgagor concerning the mortgagee’s standing and existing obligations under the loan resulting from a “certificate of error” recorded by the original lender’s nominee to rescind and disavow a purportedly mistakenly-recorded release of the mortgage.

In so ruling, the Appellate Court concluded that a factual dispute regarding the intent and effect of the recorded satisfaction of the mortgage and subsequent certificate of error precluded entry of summary judgment and could not be resolved absent undisputed testimony about the business records from the original lender or the undisputed business records of the original lender, all of which was not a part of the record.

A copy of the opinion in JP Morgan Mortgage Acquisition Corp. v. Bell is available at:  Link to Opinion.

In May 2006, a husband and wife obtained a loan secured by a mortgage upon their residential property.  The mortgage’s lender nominated MERS as the mortgagee.  Both the husband (“non-borrower mortgagor”) and wife signed the mortgage, but only the wife (“borrower”) executed the note which memorialized the loan.

Weeks after the mortgage was recorded in the county’s official records (the “first recorded mortgage”), the mortgagee recorded a satisfaction of the mortgage (the “release of mortgage”) releasing the borrowers from their obligations. 

Weeks thereafter, a certificate of error was recorded purporting to rescind and disavow the mistakenly-recorded release of the first recorded mortgage. 

Approximately one month later, the mortgage was recorded for a second time (the “second recorded mortgage”), with the first page bearing the official document number of the first recorded mortgage from its prior recording, and a new recorded document number.

After the borrower passed away in July 2009, the mortgagee executed an assignment of mortgage in April 2010, which referred only to the first recorded mortgage’s official document number.  The assignee of the mortgage loan (“first assignee”) filed a foreclosure complaint in May 2010, which attached a copy of the mortgage and note, but not the relevant assignment.

In October 2014, the first assignee executed an assignment of its interest in the first recorded mortgage and purported interest in the second recorded mortgage to a new entity.  The assignment did not expressly transfer an interest in the note executed by the now-deceased borrower.

Two subsequent assignments of the mortgage were executed on Jan. 19, 2016 purporting to transfer an interest in the note and first recorded mortgage agreement, and a claimed interest in second recorded mortgage. 

The latest assignee (“mortgagee”) was substituted as party plaintiff in the foreclosure and moved for summary judgment.  The motion was denied by the trial court (by its former presiding judge), citing a dispute of material facts regarding the release of mortgage and the mortgagee’s failure to present law to support its argument that the certificate of error served to rescind the release of mortgage.

After the borrower was dismissed from the action as a result of her death, the mortgagee moved again for summary judgment, submitting nearly identical arguments but addressing the surviving non-borrower mortgagor’s affirmative defense that the mortgagee lacked standing.

The non-borrower mortgagor filed an amended answer and affirmative defenses to the foreclosure complaint, alleging that the mortgage was obtained for refinancing, and that he and the borrower rescinded the mortgage within the three-day right of rescission period, and received the recorded release of mortgage rather than any acknowledgment of rescission for the lender. 

The non-borrower mortgagor’s amended answer raised affirmative defenses of (1) accord and satisfaction, alleging that the release extinguished the mortgage; (2) lack of standing, alleging that only a released lien had been the subject of the assignment by MERS, acting as agent for the original lender, thus, subsequent assignees could not foreclose upon a released mortgage agreement; (3) and fraud, pertaining to several notices the original lender failed to disclose.

Accordingly, the non-borrower mortgagor filed a cross-motion for summary judgment arguing that the release of mortgage extinguished all obligations under the mortgage and that the mortgagee lacked standing because all subsequent assignments were meaningless.

After consideration of the cross-motions for summary judgment, the trial court entered an order granting summary judgment in the mortgagee’s favor and against the non-borrower mortgagor without discussion of the court’s factual or legal findings.  The non-borrower mortgagor’s motions for clarification and reconsideration and request for leave to file a second amended answer and affirmative defenses were denied.

After a foreclosure sale was completed and the property was sold to a third-party buyer, the mortgagee moved for approval of the sale and distribution of the property, and orders of eviction and for an in rem deficiency, which were eventually granted, directing the sheriff to evict the non-borrower mortgagor and entering an in rem deficiency judgment exceeding $300,000.  

After the non-borrower mortgagor’s motions to vacate for rehearing were denied, he filed a timely notice of appeal.

On appeal, the Third District first addressed the non-borrower mortgagor’s argument that because the borrower was a necessary party to the foreclosure action, the trial court lost subject matter jurisdiction over the action upon her dismissal pursuant to the Illinois’ Supreme Court’s ruling in ABN AMRO Mortgage Group, Inc. v. McGahan, 237 Ill. 2d 526 (2010), which held that a foreclosing mortgagee must name a personal representative for a deceased mortgagor in a mortgage foreclosure proceeding in order for the trial court to acquire subject matter jurisdiction. Id. at 528. 

Acknowledging that the borrower may have been a necessary party at the time the foreclosure action was initiated, at the time she was dismissed in 2016, the Illinois Mortgage Foreclosure Law  provided that parties necessary to a foreclosure included “only (i) the mortgagor and (ii) other persons (but not guarantors) who owe payment of indebtedness or the performance of other obligations secured by the mortgage and against whom personal liability is asserted” (735 ILCS 5/15-1501(a) (West 2016)). 

Section 15-1501(h) further provided that “In no event may a deficiency judgment be sought or entered in the foreclosure case against a deceased mortgagor,” (§15- 1501(h)), and no special representative for a deceased mortgagor was needed if there is a living person that holds 100% of the property as a surviving joint tenant or tenant by the entirety (§ 15-1501(h)(1)). 

Accordingly, under the then-existing law, the borrower was not a necessary party and subject matter jurisdiction existed without the prior appointment of a special representative for the borrower following her death.  See Deutsche Bank National Trust Co. v. Estate of Schoenberg, 2018 IL App (1st) 160871.

The Appellate Court next addressed the non-borrower mortgagor’s argument that the release of mortgage extinguished all contractual obligations and could not be revived by the certificate of error. The Court noted that the two presiding judges below reached two different conclusions regarding the effect of the certificate of error and whether the material facts surrounding the release of mortgage were disputed, and that the summary judgment entered below provided no rationale for finding in the mortgagee’s favor.

The Third District concluded that the contradictory factual inferences from the release of mortgage and certificate of error could not be resolved without undisputed business records from the original lender or testimony as to same on the record.  Therefore, resolution of either cross-motion for summary judgment was unwarranted and the lower court’s order stood to be vacated.  See Espinoza v. Elgin, Joliet & Eastern Ry Co., 165 Ill. 2d 107, 114 (1995) (supreme court stating “where reasonable persons could draw divergent inferences from the undisputed material facts summary judgment should be denied and the issue decided by the trier of fact”).

For this reason, the Court also could not reach the merits as to the non-borrower mortgagor’s challenge to the mortgagee’s standing under the chain of assignments of the mortgage, which he claimed were invalidated by the certificate of error.

For these reasons, the lower court’s order granting the mortgagor’s motion for summary judgment was reversed, and subsequent orders including (i) the judgment of foreclosure, (ii) eviction order, (iii) orders confirming and approving the sale and (iv) order denying the non-borrower mortgagor’s motion for leave to file a second amended answer and affirmative defenses were vacated and remanded with directions for the trial court to reach the merits of the non-borrower mortgagor’s motion for leave to file a second amended answer and affirmative defenses.    

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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.