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Illinois App. Court (1st Dist) Rejects Challenge to Foreclosure Based on Supposedly Unapplied Payments

Illinois mortgage lawThe Appellate Court of Illinois, First District, recently affirmed a trial court’s order confirming a judicial sale of real property collateral following a mortgage foreclosure, as well as the trial court’s denial of the borrower’s motion to reconsider that order. 

In so ruling, the First District held that the trial court did not abuse its discretion in rejecting the borrower’s objection to the sale based on sparse evidence of unapplied payments supposedly made toward the balance due during the borrower’s bankruptcy.

A copy of the opinion in U.S. Bank National Ass’n v. De La Cruz is available at:  Link to Opinion.

The borrower and his wife objected to the foreclosure sale of certain real property by the plaintiff mortgagee, arguing that they had initiated Chapter 13 bankruptcy proceedings after the entry of the judgment of foreclosure and sale, and in that time made payments of approximately $100,000 toward the mortgage arrearage that the trial court should have credited to them in the order approving the judicial sale.

In support of the argument that he made payments totaling over $100,000 toward the mortgage arrearage after filing the bankruptcy petition, the borrower attached a mortgage payment statement dated March 18, 2019, from the loan servicer, which stated that the borrower had a “Total Post-Petition Unpaid Payment Amount” of $114,413.62. This was the only evidence that the borrower produced to attempt to prove that he had made the alleged payments that he argued should have been credited to him in the court’s order of foreclosure and sale.

The trial court entered an order confirming the sale, which made no mention of the borrower’s alleged payments. The borrower then filed a motion to reconsider the order, making the same argument that certain payments made during bankruptcy were never accounted for, and he was entitled to a credit for those payments in the report of sale and distribution. He also argued that the total amount of his alleged payments should have gone toward the unpaid principal balance, because the interest could not be charged during bankruptcy. 

The trial court denied the motion to reconsider and the borrower timely appealed.

The First District began its analysis by noting that, under the Illinois Mortgage Foreclosure Law, a trial court has broad discretion to approve or reject a judicial sale; however, the court’s discretion to refuse confirmation of the sale is limited to four specific situations enumerated in the IMFL. Mortgage Electronic Registration Systems, Inc. v. Barnes, 406 Ill.App.3d 1, 4 (1st Dist. 2010). 

As provided in the IMFL, “the court shall confirm the sale unless the court finds that: (i) proper notice of the sale was not given; (ii) the terms of the sale were unconscionable; (iii) the sale was conducted fraudulently; or (iv) justice was otherwise not done.” Wells Fargo Bank, N.A. v. McCluskey, 2013 IL 115469, ¶ 18 (quoting 735 ILCS 5/15–1508(b)). The movant bears the burden of proving any of these four circumstances. Beal Bank v. Barrie, 2015 IL App (1st) 133898, ¶ 28.

In the present matter, the borrower argued that the basis for reversing the trial court’s approval of the judicial sale was that “justice was not otherwise done,” pursuant to Section 1508(b)(iv), because the trial court’s failure to apply the payments he made during his bankruptcy case prevented him from protecting his interest in the property.

The First District described the fourth basis for rejecting a judicial sale as one that defendants often invoke as a last-ditch effort to save themselves from a lost foreclosure case.  However, a trial court’s discretion to reject a sale pursuant to Section 1508(b)(iv) is “extraordinarily narrow.” NAB Bank v. LaSalle Bank, N.A., 2013 IL App (1st) 121147, ¶ 16. 

The Appellate Court also explained that, although there is no bright-line definition of what constitutes a sufficient injustice under Section 1508(b)(iv), the limited handful of cases in which courts have vacated a foreclosure sale pursuant to the justice clause predominantly involved an unconscionable sale price, errors relating to the actual sale process, or lender conduct that prevented the borrower from protecting their interest in the property and affected their right to redeem the property. Id. at ¶ 18; Fleet Mortgage Corp. v. Deale, 287 Ill.App.3d 385, 390 (1st Dist. 1997); Wells Fargo Bank, N.A. v. McCluskey, 2013 IL 115469, ¶ 22. 

Here, the First District observed that the borrower could not claim that the conduct of the mortgagee (neither the current plaintiff nor the original plaintiff that filed the foreclosure case) prevented him and his wife from protecting their interest in the property. Neither could the borrower claim that he sought to redeem the property in his objections to the judicial sale. Furthermore, although he took issue with the trial court’s confirmation of a deficiency of $208,112.76, he did not allege that the sale price was unconscionable, or that there was any error made in conducting the sale itself, limiting his objection to the trial court’s consideration in ruling on the motion to confirm the sale. 

The borrower instead cited the decision in Deutsche Bank National Trust Co. v. Cortez as a factually analogous case in which the First District found that the trial court should have held a hearing on whether the borrower had made payments to the lender toward his mortgage that were not accounted for and would have resulted in a surplus at sale. 2020 IL App (1st) 192234, ¶ 25.

However, the First District held that there were notable factual distinctions between Cortez and the present case. The defendant borrower in Cortez definitively showed the lower court that a trial modification plan existed, that he successfully completed the trial period, that the plaintiff mortgagee accepted the full payment he made pursuant to the trial plan, and that a final loan modification agreement existed. Additionally, the defendant borrower in Cortez was able to show that the trial court’s failure to account for his loan modification payments prejudiced him because the sale resulted in a surplus even without applying any of the payments he claimed to have made. 

In the present matter, the borrower argued that the sale would have resulted in a surplus of approximately $74,000. Instead, the sale as approved by the trial court resulted in a deficiency of $208,112.76. The First District observed that it was unclear how the borrower arrived at the surplus amount because the borrower failed to support his objections before the trial court. Not only was there an undisputed deficiency from the sale in this matter, but the borrower also did not address the lender’s argument that he did not — and could not — show that he was prevented from protecting his interest in the property given that his personal liability under the defaulted mortgage note was discharged under Chapter 7 bankruptcy.

Additionally, the First District noted that, for the first time in his motion for reconsideration, the borrower presented the trial court with his only other evidence of having made payments toward the loan during bankruptcy proceedings — the Chapter 13 Standing Trustee’s Final Report and Account (“Chapter 13 Report”) entered on March 6, 2019. The Chapter 13 Report included a line under the category of “Summary of Disbursements to Creditors; Secured Payments” listing that the borrower and his wife paid $102,172.13 toward the principal of “Mortgage Ongoing” and paid nothing toward “Mortgage Arrearage.” This was at odds with his argument on appeal, where he repeatedly claimed to have made over $100,000.00 in payments toward the mortgage arrearage through his bankruptcy case. 

Furthermore, the First District questioned why the borrower failed to explain why he did not present the Chapter 13 Report in his original objections to the sale. The borrower was also silent as to why this document contradicted the mortgage payment statement document submitted in connection with the original objection proceedings, which stated on its face that there were Post-Petition Unpaid Payments in the amount of $114,413.62.

“The purpose of a motion to reconsider is to bring to the court’s attention newly discovered evidence that was not available at the time of the original hearing, changes in existing law, or errors in the court’s application of the law.” Evanston Ins. Co. v. Riseborough, 2014 IL 114271, ¶ 36. A party seeking reconsideration based on new evidence must show that “the newly discovered evidence existed before the initial hearing but had not yet been discovered or was otherwise unobtainable.” Simmons v. Reichardt, 406 Ill. App. 3d 317, 324 (4th Dist. 2010). Issues raised before the trial court for the first time on a motion to reconsider are forfeited. Tafoya-Cruz v. Temperance Beer Company, LLC, 2020 IL App (1st) 190606, ¶ 83. 

Here, the First District determined that the March 6, 2019, Chapter 13 Report existed at the time that the borrower originally objected to the judicial sale, and he failed to bring it to the trial court’s attention. His argument that it was a document in the public record and the court should have taken judicial notice of the records of other courts failed to cure his previous error. 

Thus, the First District concluded that the motion to reconsider was based on new evidence and new arguments not made in the original hearing, was properly denied, and did not constitute an abuse of discretion.

Accordingly, the First District affirmed the trial court’s ruling confirming the judicial sale and denying the Motion to Reconsider.

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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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