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Illinois App. Court (2nd Dist) Holds February 2020 Foreclosure Judgment Not Affected by COVID Moratoria

foreclosure judgmentThe Appellate Court of Illinois, Second District, recently affirmed a trial court’s order denying a borrower’s motions to vacate a foreclosure judgment and for leave to file an untimely answer and counterclaims, and the subsequent motion to reconsider, finding the trial court’s decision did not result in substantial injustice.

In so ruling, the Appellate Court held that the CARES Act and Fannie Mae foreclosure moratoria could not affect a judgment of foreclosure entered in February 2020.

A copy of the opinion in Bayview Loan Servicing, LLC v. Starks is available at:  Link to Opinion.

In July 2018, the interest holder of a mortgage (“Mortgagee”) filed a complaint for foreclosure against a borrower (“Borrower”) alleging Borrower’s default. 

Numerous orders continuing the case were entered by the trial court.  On Feb. 14, 2020, the trial court entered an order of default and a judgment of foreclosure. The redemption period was set to expire on May 14, 2020, and the trial court ordered that property be sold if the amounts due and owing Mortgagee were not paid by that date.

On Dec. 29, 2020, Borrower filed an emergency motion to vacate the order of default, set aside the sale, and for leave to file an answer and counterclaims. Both motions were denied, and Borrower subsequently filed an emergency motion to reconsider the order denying the motions. The trial court denied the motion to reconsider and entered an order confirming the sale.

On appeal, Borrower argued that the trial court abused its discretion by denying her motions to vacate the default judgment of foreclosure and for leave to file counterclaims and her motion to reconsider the denial.  Borrower also asserted that the judgments should be reversed as they resulted in extraordinary injustice.  Alternatively, Borrower requested the Appellate Court reconsider its holding in Adler v. Bayview Loan Servicing, LLC, 2020 IL App (2d) 191019, in which the Appellate Court held that the Illinois mortgage foreclosure statute bars all claims after a deed is transferred following a judicial sale.

The Appellate Court first considered whether the trial court abused its discretion in denying Borrower’s motions to vacate the foreclosure, for leave to file an answer and counterclaims, and to reconsider. Section 2-1301(e) of the Illinois Code of Civil Procedure (735 ILCS 5/2-1301(e)) allows that “[t]he court may in its discretion, before final order or judgment, set aside any default, and may on motion filed within 30 days after entry thereof set aside any final order or judgment upon any terms and conditions that shall be reasonable.”  

The Appellate Court noted that in a foreclosure action, the final order is the order confirming the sale. Wells Fargo Bank, N.A. v. McCluskey, 2013 IL 115549, ¶ 12.  The overriding consideration under section 2-1301(e), is “whether it is reasonable, under the circumstances, to compel the other party to go to trial on the merits.” McCluskey, 2013 IL 115469, ¶ 16. 

The Appellate Court found that Borrower presented no basis for vacating the default judgment and noted that her personal obligations were discharged in bankruptcy. The Appellate Court also noted Borrower failed to make any argument as to how the trial court’s refusal to grant her motion to vacate itself would result in substantial injustice. 

Instead, the Appellate Court found Borrower had “glossed over” the procedural hurdles and instead argued that denying leave to file her counterclaims would cause injustice. 

However, Borrower conceded that “[v]acating the default would have served only to allow [her] to bring her counterclaims and avoid the permanent claims bar that resulted solely” from her novel interpretations of Illinois law. 

As appellants are required to support their arguments with citations to relevant authority and portions of the records, and “[p]oints not argued are forfeited,” the Appellate Court found that Borrower had forfeited her argument that the court’s denial of her motion to vacate would result in substantial injustice. 

In addition, as Borrower conceded that vacating the default was a prerequisite to filing her counterclaims, the Appellate Court found the trial court had properly denied her motion for leave to file counterclaims as well.

The Appellate Court further noted that even without Mortgagor’s concessions, it would still conclude that the trial court’s order did not result in substantial injustice. 

First, the Appellate Court found that Borrower’s failure to timely answer the foreclosure complaint under the circumstances, supported a finding that Mortgagor did not exercise due diligence.

Additionally, Borrower chose to seek leave to file counterclaims and a motion to reconsider rather than filing a separate action.  The Appellate Court thus found that the trial court’s ruling could not have resulted in substantial injustice, as Borrower had another avenue to pursue her claims.

Borrower argued that she did not have an alternative venue to pursue her claims in light of the Court’s recent decision in Adler, and thus the trial court’s bar of her counterclaims was rendered a substantial injustice. 

In Adler, the Appellate Court held that the Illinois “legislature intended section 15-1509(c) [of the Illinois mortgage foreclosure statute] to preclude all claims of parties to the foreclosure proceeding related to the mortgage or the subject property, except for claims regarding the interest in the proceeds of a judicial sale.” (Emphasis added.) Adler, 2020 IL App (2d) 191019, ¶ 25. Thus, Borrower argued that her claims in the proposed counterclaims would be forever barred and the trial court’s denial of her motion to reconsider resulted in substantial injustice. 

In further support of her substantial injustice argument, Borrower argued that the scope of the section 15-1509(c) claims bar was improperly expanded by Adler because it “drastically limit[ed] the rights and remedies of mortgage borrowers who are abused, defrauded, or otherwise harmed during the pendency of a foreclosure case.”  Borrower also argued that foreclosure plaintiffs under Adler “will receive an automatic ‘get out of jail free card’ for any and all misconduct” that occurred during and before the foreclosure proceedings.

However, the Appellate Court declined to reconsider Adler, ruling instead that Borrower misinterpreted the extent of its holding. 

The Appellate Court noted that the trial court’s order denying leave specifically stated “[t]his ruling is without prejudice as to Defendant filing any separate claims that she may seek to file and does not operate as a bar to any such filings.”  The Appellate Court clarified that nothing in the Adler ruling supported the application of section 15-1509(c) to bar claims such as those that involve intentional torts and damages unrelated to the mortgage contract. See Adler, 2020 IL App (2d), ¶ 18. The Appellate Court thus ruled that to the extent otherwise procedurally proper, Borrower was free to pursue tort claims which were unrelated to the mortgage contract or the property.

In addition, the Appellate Court found the denial of Borrower’s motion to reconsider was appropriate as her motion was untimely filed after Mortgagee filed a motion to confirm judicial sale, rather than filing a motion to delay confirmation of the judicial sale under section 5-1508(b).  Borrower asked the trial court to vacate the order confirming judicial sale because “justice was not otherwise done,” but the Appellate Court noted that 15-1508(b) only authorizes a court to delay entry of an order to confirm judicial sale, not to vacate it. In addition, Borrower raised this argument for the first time on appeal and as such it was forfeited. 

Finally, Borrower argued the trial court’s orders were arbitrary and unreasonable because the foreclosure should have been stopped pursuant to the Fannie Mae lender letter that directed affected lenders to temporarily suspend all foreclosure-related activities. 

The Appellate Court disagreed.  The Appellate Court reasoned that the federal Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (15 U.S.C. § 9001 et seq.) foreclosure moratorium started on March 18, 2020, and expired on May 17, 2020. Although “Fannie Mae continued to instruct servicers of federally backed mortgage loans to suspend foreclosure-related activities,” the foreclosure complaint was filed in 2018 and the default judgment was entered in February of 2020 — before either the CARES Act or Fannie Mae moratoria were in place.

The Appellate Court also held that the trial court’s failure to rule on Borrower’s arguments as to the Fannie Mae lender letter could not be arbitrary or unreasonable where Borrower never presented that argument to the court. Borrower’s argument was thus forfeited on appeal. 

Accordingly, the Appellate Court affirmed the ruling of the trial court.

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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.

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