Mortgage Law Roundup

Sharp Thinking

No. 116              Perspectives on Developments in the Law from The Sharp Law Firm, P.C.            June 2014

Violation of Mortgage License Act Voids Mortgage

       A mortgage made by an entity that lacked authorization to conduct such business under the Residential Mortgage License Act (205 ILCS 635) is void as against public policy, a panel in the Appellate Court’s Second District has held.

       Finding that the License Act was enacted to protect the public, the panel said “Illinois courts have held that where a licensing requirement has been enacted not to generate revenue, but rather to safeguard the public by assuring them of adequately trained practitioners, the unlicensed party may not recover fees for services or otherwise enforce a contract.”  First Mortgage Co. v. Dina, 2014 IL App (2d) 130567.  “To enforce mortgage contracts entered into by unlicensed and, therefore, unregulated lenders would abrogate the stated purpose of the License Act,” the court said.

       Moreover, the court said it would not apply technical waiver rules to prevent consideration of the issue, as it was one of public policy.  “[C]ourts should consider whether agreements are unenforceable as against public policy even if no party raises the issue,” the court emphasized.

       Note the court ruled only that summary judgment for the mortgagee under the Mortgage Foreclosure Law (735 ILCS 5/15-1101 et seq.) should not have been granted.  It did not address distinguishable issues such as whether the underlying debt was unenforceable and whether the mortgagee might be able to assert an equitable mortgage claim.

Sanctions Ordered For Frivolous Foreclosure Delays

       The Appellate Court in the Third District is imposing sanctions on mortgagors who engaged in various delaying tactics which resulted in their enjoyment of the mortgaged premises for six years without making mortgage payments.

       “[W]e believe defendants simply wanted to remain in possession of the property, for as long as they possibly could, without having to pay,” said the panel in Bank of Am., N.A. v. Basile, 2014 IL App (3d) 130204.  It said the record made apparent that they had engaged in numerous stalling tactics, including:

  • failing to respond to the complaint until a default judgment was entered;
  • failing to timely replead after being given leave to do so;
  • arguing based on pleadings that had been withdrawn or superseded;
  • making a rescission claim that was neither properly pleaded nor within the three-year window of the Truth-In-Lending Act (15 U.S.C. § 1635 (c));
  • bringing an appeal which the court found was frivolous, taken for an improper purpose, and filed specifically to harass and cause unnecessary and needlessly increase the cost of litigation.

       The court ordered plaintiff to file a bill of the expenses incurred within 14 days, and ordered defendants within 14 days thereafter to show cause why those expenses should not be imposed on them.

Borrower Must Show Compliance With HAMP

       A homeowner seeking to vacate a foreclosure sale and confirmation thereof under the Home Affordable Mortgage Program (“HAMP”) must prove by a preponderance of the evidence both that he applied for assistance under HAMP and that the home was sold in material violation of HAMP’s requirements, a panel in the Appellate Court in Chicago has held.

       Moreover, the decision in CitiMortgage, Inc. v. Bermudez, 2014 IL App (1st) 122824, appears to hold that the homeowner cannot satisfy the first prong of that two-prong test if he did not submit all the information which federal guidelines call for servicers to have in making trial period plan decisions.  Dealing with an argument that “apply for assistance” under the Mortgage Foreclosure Law (735 ILCS 5/15-1508(d-5)) meant something less than to submit a complete application, the court said that to invoke § 15-1508(d-5) “the borrower must submit the documentation required by the servicer to determine the borrower’s eligibility and verify his or her income.”

Standing Pleading Burden Doesn’t Affect Jurisdiction

       A mortgage foreclosure plaintiff’s failure to plead its standing does not result in the subsequent judgment and sale being void for lack of subject-matter jurisdiction, a panel in the Appellate Court’s Second District has ruled.

       The issue arose in Nationstar Mortgage, LLC v. Canale, 2014 IL App (2d) 130676, because the Illinois Mortgage Foreclosure Law, at 735 ILCS 5/15-1504(a)(3)(N), requires that a short-form complainant set forth the capacity in which it brings the action.  Some have argued that that provision reverses the general Illinois rule that lack of standing is an affirmative defense which the defendant must plead and prove.  Finding that issue irrelevant, the Nationstar court said the premise that omission of a standing allegation affects jurisdiction “rests on a defunct view of subject matter jurisdiction.”  Under the 1970 Constitution, subject matter jurisdiction exists if the alleged claim “falls within the general class of cases that the court has the inherent power to hear and determine.”  Subject-matter jurisdiction “requires only a ‘justiciable matter,’ which a foreclosure clearly is,” the court said.

Mortgagee Entitled To Post-Judgment Statutory Interest

       A mortgagee is entitled to collect post-judgment interest at the statutory rate from the date of judgment to the date to the foreclosure sale, at least where the judgment contains a Supreme Court Rule 304(a) finding, the majority of a panel in the Appellate Court’s Third District has held.

       The issue arose in CitiMortgage, Inc. v. Sharlow, 2014 IL App (3d) 130107, in a dispute as to whether the sale resulted in a surplus to be paid to the homeowner.  The homeowner – and one judge in dissent – argued the mortgagee was not entitled to interest until it was determined that the property would not satisfy the mortgagee’s claim.

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

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