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Illinois App. Court (1st Dist) Rejects Borrower’s Foreclosure Challenge After Title Vested in Third Party

foreclosure saleThe Court of Appeals of Illinois, First District, recently held that a homeowner’s attempt to vacate a foreclosure sale was barred by the Illinois foreclosure statute where title to the property had vested by deed to a third party.

However, the Court also held that the statute did not bar the homeowner from disputing the surplus proceeds of the sale.

A copy of the opinion in Deutsche Bank National Trust Co. v. Cortez is available at:  Link to Opinion.

A mortgagee filed a foreclosure action in April 2017 against a homeowner for failure to make payment. The homeowner was served by publication and a default judgment was entered in May 2018 when the homeowner failed to appear.

The homeowner filed an emergency motion to stay the judicial sale the day before the sale was to take place. The homeowner’s argument was that he believed he was under a loan modification since the mortgagee was accepting his payments.

The mortgagee voluntarily agreed to stay the sale and a pro se motion stayed the next sale. Thereafter, the mortgagee notified the homeowner’s counsel of the next sale date where the property was sold to a third-party bidder in June 2019.

After the sale, the homeowner filed an emergency motion to stay and vacate the sale, again arguing that he believed he was in a modification agreement with the mortgagee as it had been accepting his monthly mortgage payments.

Thereafter both the third-party bidder and the mortgagee filed motions to confirm the sale.

The trial court held a hearing on a motion to confirm the sale where the homeowner presented his argument that he had completed a trial payment plan and signed and returned the modification agreement which the mortgagee allegedly breached by proceeding with the foreclosure sale.

The mortgagee confirmed that the homeowner made all the required payments under the trial plan but alleged the final modification agreement was never signed and returned. No affidavits were included with either party’s briefs.

The trial court entered an order approving the sale, and the homeowner appealed.

On appeal, the Appellate Court began its analysis noting the four grounds which exist to disapprove of a foreclosure sale: “(i) a notice required in accordance with subsection (c) of Section 15-1507 was not given, (ii) the terms of sale were unconscionable, (iii) the sale was conducted fraudulently, or (iv) justice was otherwise not done.” 735 ILCS 5/15-1508(b).

In his appeal, the homeowner maintained that the trial court erroneously confirmed the sale of the property where justice was not otherwise done under section 15-1508(b)(iv).

The Appellate Court acknowledged that the statutory framework of foreclosure law reveals that “once a motion to confirm the sale under section 15-1508(b) has been filed, the court has the discretion to see that justice has been done, but the balance of interests has shifted between the parties. At this stage of the proceedings, objections to the confirmation under section 15-1508(b)(iv) cannot be based simply on a meritorious pleading defense to the underlying foreclosure complaint.” Wells Fargo Bank,  N.A. v. McCluskey, 2013 IL 115469, ¶ 35.

“To vacate both the sale and the underlying default judgment of foreclosure, the borrower must not only have a meritorious defense to the underlying judgment, but must establish under section 15-1508(b)(iv) that justice was not otherwise done because either the lender, through fraud or misrepresentation, prevented the borrower from raising his meritorious defenses to the complaint at an earlier time in the proceedings, or the borrower has equitable defenses that reveal he was otherwise prevented from protecting his property interests.” Id. ¶ 26.

The Appellate Court explained that the homeowner did not assert that the mortgagee prevented him from raising a meritorious defense, but instead that he was prevented from protecting his property interest where he entered into a modification agreement with the mortgagee. Accordingly, confirming a judicial sale where such an agreement was in place would be inequitable and would arguably fall within the “justice not otherwise done” clause of section 15-1508(b)(iv).

However, the Appellate Court also acknowledged that where, as here, there is a question as to whether the parties entered into a loan modification agreement, the equitable result is to, at a minimum, conduct an evidentiary hearing on the issue but neither party provided affidavits to authenticate their positions as to the status of the loan modification.

Finally, Section 15-1509 of the Illinois foreclosure statute provides that a deed shall be promptly executed and any vesting of title by deed, unless otherwise specified in the judgment of foreclosure, “shall be an entire bar of (i) all claims of parties to the foreclosure and (ii) all claims of any nonrecord claimant who is given notice of the foreclosure.” 735 ILCS 5/15-1509(c).

Here, the deed conveying title to the property was executed following the confirmation of the sale and recorded. Pursuant to section 15-1509(c), the title to the property had vested by deed to a third party and, therefore, “all claims of the parties to the foreclosure” are barred.

Accordingly, pursuant to section 15-1509(c), the Appellate Court was precluded from vacating the order approving the sale as it pertains to the defendant’s loan modification argument.

Next, the Appellate Court examined the homeowner’s challenge to the amount of the surplus awarded in the order approving the sale.

The mortgagee argued that the homeowner forfeited this argument by failing to raise the issue before the trial court.

The Appellate Court agreed that issues not raised in the trial court generally are forfeited and may not be raised for the first time on appeal. Village of Lake Villa v. Stokovich, 211 Ill. 2d 106, 121 (2004). The forfeiture rule, however, is an admonition to the parties and not a limitation on the jurisdiction of the appellate court. Pennymac Corp. v. Jenkins, 2018 IL App (1st) 171191, ¶ 23. Thus, an appellate court may overlook forfeiture where necessary to obtain a just result or maintain a sound body of precedent. Id.

The Appellate Court then explained that one exception to the bar presented by section 15-1509(c) is if there is a dispute involving the surplus proceeds from the sale. Brewer, 2012 IL App (1st) 111213, ¶ 15; 735 ILCS 5/15-1509(c) (West 2018).

Further, the Appellate Court found that while neither party has presented competent evidence as to the exact amount of funds paid by the party’s allocation of those funds, a hearing should be conducted regarding the proper amount of the surplus.

Accordingly, the Court of Appeals affirmed the judgment of the trial court, confirming the sale of the property, and remanded the matter for further proceedings regarding the amount of the surplus.

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Ryan Grotz practices in Maurice Wutscher's Commercial Litigation, Consumer Credit Litigation, and Appellate groups. He has substantial experience in all phases of commercial litigation, including motion practice, written discovery, depositions, mediations, and bench and jury trials. Ryan received his Juris Doctor from the Chicago-Kent College of Law, where he was an associate editor on the Access to Justice Student Editorial Board. He was awarded his Bachelor of Business Administration degree from the University of Iowa. Ryan is licensed to practice law in Illinois and the U.S. District Court for the Northern District of Illinois. For more information, see https://mauricewutscher.com/attorneys/ryan-grotz/

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