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Illinois App. Court (3rd Dist) Holds Foreclosure Not Barred by Mortgagee’s Summary Judgment Loss in Prior Foreclosure

The Appellate Court of Illinois, Third District, recently affirmed a foreclosure judgment rendered in favor of a mortgagee over claims by the homeowners that the action was barred by the doctrine of res judicata as a result of a prior foreclosure action wherein summary judgment was entered in the homeowners’ favor.

In so ruling, the Appellate Court held that:

  1. The borrowers’ continued state of default on their mortgage loan presented new facts and conditions that were absent when the previous foreclosure action was decided, and
  2. The lower court did not err in entering summary judgment because the homeowners’ failed to provide a factual basis to support their claim that the assignment was fraudulent.

A copy of the opinion in Wells Fargo Bank, N.A. v. Coghlan is available at:  Link to Opinion.

The assignee holder of a note secured by a mortgage on real property filed a foreclosure action against husband and wife homeowners after the husband (the sole obligor on the note) defaulted on the mortgage and note.  Summary judgment was initially entered in the mortgagee’s favor, but subsequently vacated for lack of standing on the basis that the assignment of the note and mortgage to the mortgagee occurred several months after the foreclosure was initiated, resulting in entry of summary judgment in the homeowners’ favor.

After the homeowners continued to fail to make payments, the mortgagee filed a new foreclosure action, which the homeowners moved to dismiss on the basis of res judicata.  After the homeowners’ motion to dismiss was denied, the homeowners answered the foreclosure complaint and asserted res judicata as an affirmative defense, and further alleged that the assignment to the mortgagee was fraudulent. 

After cross-motions for summary judgment were filed, the trial court entered partial summary judgment in the mortgagee’s favor, and upon reconsideration of that order, the mortgagee’s request for summary judgment was granted in full, with the trial court concluding that res judicata did not apply because the prior action never reached the merits of the claim and approving confirmation of sale of the property. 

The instant appeal followed.

On appeal, the homeowners argued that the trial court erred by denying their motion to dismiss based on res judicata and that genuine issues of material fact precluded entry of summary judgment in the mortgagee’s favor.

First considering the homeowners’ res judicata argument, the Third District cited the well-settled elements that must be met for the doctrine of res judicata to apply to bar a subsequent suit: (1) a court of competent jurisdiction entered a final judgment on the merits in the prior case, (2) there is an identity of the causes of action in both cases, and (3) there is an identity of the parties or their privies in both cases. A&R Janitorial v. Pepper Construction Co., 2018 IL 123220, ¶ 16.

Here, the Appellate Court found that the second element of res judicata was not met because the case at bar did not arise from the same operative facts as the first foreclosure—the borrowers’ continuous state of default presented new facts and conditions that were absent at the time the initial judgment was rendered.  Brown v. Charlestowne Group, Ltd., 221 Ill. App. 3d 44, 46 (1991). (“Generally, *** where a money obligation is payable in installments, a separate cause of action arises on each installment.”). 

Thus, defaults subsequent to the previous foreclosure action barred the application of res judicata here.  Wilmington Savings Fund Society, FSB v. Barrera, 2020 IL App (2d) 190883, ¶ 19 (“res judicata does not bar suits for defaults on installment payments whose due dates occur after the filings of the prior complaints.”). 

The Third District further stated that even if all elements of res judicata were satisfied, it would exercise its direction to not apply the doctrine in this instance because it would be fundamentally unfair to reward the homeowners with a free house and deny the mortgagee its day in court to have its case heard on the merits.  Nowak v. St. Rita High School, 197 Ill. 2d 381, 390 (2001).  Accordingly, the appellate court concluded that no error occurred in the lower court’s denial of the homeowners’ motion to dismiss.

The Appellate Court next turned to the homeowners’ argument that their claims that the assignment of the mortgage was fraudulent created genuine issues of material fact that precluded summary judgment.  Specifically, the homeowners argued that the individual who executed the relevant assignment to the mortgagee lacked authority to do so and was allegedly an employee of the assignee mortgagee. 

The only evidence supporting this claim was the homeowners’ assertion that the husband homeowner viewed the Facebook profile of an individual who purportedly worked for the mortgagee and had the same name as the individual who executed the assignment.  However, the homeowners conceded that no evidentiary hearing was requested to support this claim.

Noting that a nonmoving party need not prove his or her claim at the summary judgment but must present some factual basis to support their claim (Parkway Bank & Trust Co. v. Korzen, 2013 IL App (1st) 130380, ¶ 14; Schrager v. North Community Bank, 328 Ill. App. 3d 696, 708 (2002)), the Appellate Court ruled that the homeowners failed to proffer adequate evidence to support their claim that the assignment was fraudulent. 

Because the homeowners failed to create a genuine issue of material fact, the Third District concluded that the lower court also did not err and affirmed the foreclosure judgment in favor of the mortgagee.

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Christopher P. Hahn practices in Maurice Wutscher’s Commercial Litigation, Consumer Credit Litigation and Insurance Recovery and Advisory groups. Prior to joining Maurice Wutscher LLP, he served under the General Counsel at the Florida Office of Financial Regulation. He also obtained extensive experience litigating property insurance claims through all phases of discovery, motion practice and other pre-trial activities. Christopher obtained his Bachelor of Science degree in Business Administration from the University of Southern California, followed by his Juris Doctorate degree from the University of Miami School of Law. He is also a graduate of the University of Miami’s Masters of Business Administration program, completing his degree with an emphasis on finance and mergers and acquisitions. For more information, see https://mauricewutscher.com/attorneys/christopher-p-hahn/

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