Mortgage Law Roundup

Sharp  Thinking

No. 89     Perspectives on Developments in the Law from The Sharp Law Firm, P.C.      May 2013

Supreme Court Adopts New Foreclosure Rules

            By John T. Hundley,, 618-242-0246

            The Illinois Supreme Court has issued three new rules aimed at mitigating abuses and uncertainty in mortgage foreclosures.

            The new rules reflect the court’s concern over well-publicized deceptive practices at the national and local levels and the significant impact the continuing flow of residential mortgage foreclosures is having on Illinois citizens and communities, the court said.

            Most of the new requirements are contained in new Supreme Court Rule 113, addressing practice and procedure in foreclosure cases.  For foreclosure cases filed on and after May 1, that rule:

                    Requires that in addition to documents required by the Illinois Mortgage Foreclosure Law (“IMFL”), foreclosure complaints must have attached thereto “a copy of the note, as it currently exists, including all indorsements and allonges” (attachments making indorsements).  Committee comments state that this provision does not require the attachment of all assignments, as would be helpful in thwarting the “standing” challenges which have become common in foreclosure cases (see Sharp Thinking No. 83 (Feb. 2013); No. 69 (Aug. 2012)). 

                    Requires submission of a prove-up affidavit in order to obtain the foreclosure judgment (even in cases of default), sets strict requirements for the information it must contain, and generally prohibits stand-alone signature pages.  Committee comments demonstrate these reforms are designed to thwart “robo-signing” as practiced at some major lenders.

                    Requires plaintiff’s attorney to prepare and the clerk of court to mail a form notice of default and judgment whenever the court enters a default judgment.  However, the failure to send the notice or defects therein shall not invalidate the order of default or foreclosure judgment.

                    Requires that notice of the sale be sent to all defendants, including those in default, 10 business days before the sale.  Existing practice permits notice as little as 7 calendar days before the sale and exempts defendants who have defaulted.

                    Enacts strict new procedures for handling the rare situation where the sale results in a surplus.  The provision requires notice to mortgagors and permits presentation of a form petition for turnover by the mortgagor, a judgment creditor, or other junior lien holder.

                   Provides for appointment of a special representative to stand in the place of a deceased mortgagor where no probate estate has been opened for the decedent.

            Also enacted were Rule 99.1, which deals with courts that have adopted foreclosure mediation programs, and Rule 114, dealing with loss mitigation.  Rule 114 sets forth a required form of Loss Mitigation Affidavit which must be submitted at or before moving for a foreclosure judgment, and applies to all judgments entered on and after May 1, even in pre-existing cases, if a mortgagor has appeared in the case.

            While the court’s comments in enacting the rules made clear that its principal focus was on home foreclosures, nothing in the rules (except the form of Loss Mitigation Affidavit) is expressly limited to residential foreclosures.  Accordingly, look for disputes as to whether the new procedures have to be followed in commercial cases. 

Confirmation Hearing May Be Noticed Before Sale, Court Says

            A mortgagee may notice its hearing on confirmation of a foreclosure sale before that sale has occurred, provided it does not file its motion for confirmation until after the sale, a panel of the Appellate Court has concluded.

            Citibank, N.A. v. Monroe,  2013 IL App (2d) 120593, involved § 15-1508(b) of the Illinois Mortgage Foreclosure Law (735 ILCS 5/15-1508(b)), which provides that “[u]pon motion and notice in accordance with court rules . . ., which motion shall not be made prior to sale, the court shall conduct a hearing to confirm the sale.”  Noting that the “upon” clause applied to both the motion and the notice but the “which” clause referred to only the motion, the panel ruled that the argument that the noticing was premature and thus fatally defective was “patently incorrect.”  Other than the allegedly premature notice, no grounds were asserted for setting aside the sale.

Order Confirming Sale Renders Foreclosure Appealable

            A mortgage foreclosure judgment is not final and appealable until the court enters an order approving the sale and directing the distribution of the property (see Sharp Thinking No. 83 (Feb. 2013)), but an order confirming the sale renders the case final and appealable, a panel in the Appellate Court’s First District has ruled.

            Moreover, where nothing is done within the 30-day appeal period, the judgment-reopening provisions of § 2-1401 of the Code of Civil Procedure (735 ILCS 5/2-1401) may not be used to circumvent §§ 15-1509(a) and 15-1509(c) of the Illinois Mortgage Foreclosure Law (“IMFL”) (735 ILCS 5/15-1509(a), 5/15-1509(c)), the court said.  U.S. Bank N.A. v. Prabhakaran, 2013 IL App (1st) 111224.

Supreme Court To Review Wells Fargo v. McCluskey

            Prabhakaran is distinguishable from Wells Fargo Bank, N.A. v. McCluskey, 2012 IL App (2d) 110961 (see Sharp Thinking No. 83 (Feb. 2013)), because of the time at which the attack on the foreclosure proceedings was raised, but dicta in Prabhakaran suggests the distinction is immaterial.  The varying decisions on whether general provisions of the Code of Civil Procedure may be used to circumvent more specific provisions of IMFL indicate that this is an area ripe for Supreme Court review, which may be why the high court has granted a petition to appeal the 2d District’s decision.  Wells Fargo Bank, N.A. v. McCluskey, No. 115469.

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