Mortgage Law Roundup

SharpThinking

No. 60   Perspectives on Developments in the Law from The Sharp Law Firm, P.C.   March 2012

“Short Sale” Provision Adopted For Foreclosure Proceedings

The Illinois Mortgage Foreclosure Law, 735 ILCS 5/15-1101 et seq . (“IMFL”), has been amended to require mortgagees to say aye or nay to requests that they approve “short sales” of residential real estate that is in foreclosure.

Under IMFL § 15-1401.1, added by P.A. 97-0666, effective January 13, 2012, the mortgagee must respond to the mortgagor within 90 days if the mortgagor sends a bona fide written offer to purchase from a third party and requests in writing that the mortgagee approve the sale. A “short sale” is when the mortgaged real estate is being sold for less than the amount owed the mortgagee on the mortgage note. Failure to accept the offer does not impair or abrogate the rights of the mortgagee or affect the status of the foreclosure proceedings, and the 90-day period does not stay such proceedings. By its terms the new law does not apply to proposed short sales of non-residential real estate or to proposed sales of property that is not in foreclosure. Moreover, P.A. 97-0666 specifies no penalty for
mortgagees who ignore it.

Successor By Merger Not Bound By Assignment Pleading Rule

Banks which succeed to the rights of other banks by process of merger do not have to comply with 735 ILCS 5/2-403, regarding allegations of assignments, in order to bring a foreclosure action, a panel of the Appellate Court in Chicago has held.
Rebuffing a belated debtor’s “standing” challenge, the panel in Standard B.&T. Co. v. Madonia, 2011 IL App (1st) 103516, noted that in such a merger the successor has the rights of the acquired bank as a matter of statutory provision (205 ILCS 5/28) and not of assignment. Accordingly, if the
plaintiff files the statutory short-form foreclosure complaint asserting it is the successor by merger to the original mortgagee, that is sufficient, the court said.

“Abode Service” Sufficient for Personal Deficiency Judgment

“Abode service” on the debtor is sufficient to support a personal deficiency judgment against him under IMFL, an Illinois Appellate Court panel has ruled.
In Metrobank v. Cannatello, 2012 IL App (1st) 110529, service was effected on a person living at defendant’s place of abode, but not on defendant personally. After defendant failed to appear, the property was sold and the sale confirmed, but the circuit court refused to enter a deficiency judgment,
reasoning that abode service was not “personal service” as required under IMFL § 15-1508(e). Surveying numerous authorities, the appellate panel reversed, holding that “personal service” under § 15-1508(e) included abode service as well as literal service on the individual defendant.

Paid Mortgagee Must Release Mortgage

A mortgagee refusing to release a mortgage must point to “actual, current and unsatisfied obligations” to avoid liability under the Mortgage Act, 765 ILCS 905, a bankruptcy court has ruled.

in In re Gluth Bros. Constr., Inc., 451 B.R. 447 (Bankr. N.D. Ill. 2011), the bank conceded the note had been paid in full, but refused to release the mortgage because it contained indemnity clauses in the event the bank was forced to disgorge part of the payments received, as through an action by a
bankruptcy trustee. Even though a Creditor Trust, successor to such a trustee, had in fact filed an adversary proceeding seeking to avoid referential transfers to the bank, the court ruled that that was insufficient to justify the bank’s refusal to release the mortgage. The court ruled that the Creditor Trust created in the bankruptcy proceedings had standing to enforce the act, ordered the mortgage’s release, and entered judgment for the $200 statutory penalty plus attorneys’ fees and costs.

Objections To Personal Jurisdiction Limited

IMFL has been amended to restrict when a defendant in a residential foreclosure action may object to the court’s jurisdiction over his person.

Effective August 12, 2011, P.A. 97-0329 amended IMFL to add § 15-1505.6, providing that the deadline for filing a motion to dismiss a proceeding or to quash service of process that objects to the jurisdiction over the person, unless extended by the court for good cause, is 60 days after the earlier of
(i) the date the moving party files an appearance or (ii) the date the moving party participates in a hearing without filing an appearance. Moreover, the amendment further provides that if the objecting party files a responsive pleading or a motion (other than a motion for an extension of time to answer or otherwise appear) before filing a motion objecting to personal jurisdiction, that party waives all objections to the court’s jurisdiction over his or her person.

Rule 304(a) Applies To Foreclosure Judgment, Court Says

A finding under Supreme Court Rule 304(a) that there is no just reason to delay enforcement or appeal makes a foreclosure judgment final and appealable, an Appellate Court panel reasoned recently.
Deutsche Bank Nat’l Trust Co. v. Snick, 2011 IL App (3d) 100436, made the ruling en route to holding that the debtor’s challenge to the plaintiff’s “standing” was untimely. Though the ultimate result probably was correct on other grounds, the ruling on the efficacy of Rule 304(a) language sets up a conflict with case law reasoning that a foreclosure judgment is inherently not final until the sale is confirmed and a Rule 304 finding does not change that fact. See GMB Fin. Group, Inc. v. Marzano, 385 Ill.App.3d 978 (2008).

Security Deposits Must Be Transferred To Foreclosure Buyers

IMFL has been amended to require that security deposits be transferred to foreclosure sale purchasers of property containing five or more dwelling units.

Under P.A. 97-0575, effective August 26, 2011, the requirement of such transfer shall be included in the order confirming sale, along with a requirement that the mortgagor give an accounting of such deposits. Deposits are covered by the new provision whether given to secure payment of future rent or to compensate for possible damages to the property. Where statutory interest applies, interest also must be transferred. P.A. 97-0575 also amended the Security Deposit Return Act, 765 ILCS 710, to require the purchaser to give notice of the transfer of the funds to the tenants.

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