Mortgage Law Roundup

Sharp Thinking

No. 121    Perspectives on Developments in the Law from The Sharp Law Firm, P.C.   October 2014

Proof of Grace-Period Notice Required 

            A plaintiff seeking to foreclose on a single-family owner-occupied residence should specifically allege that the 30-day grace-period notice of 735 ILCS 5/15-1502.5 was sent, and had better attach proof of that sending to the complaint.

            Those are the teachings of a surprising recent opinion of a panel in the Appellate Court in Chicago.

            Bank of America, N.A. v. Adeyiga, 2014 IL App (1st) 131252, held it would be an abuse of discretion for a trial court to confirm a judicial sale if the grace-period notice had not been sent, even if the owner had not pleaded lack of the notice in response to the complaint.  And it said that a foreclosure plaintiff may not on rely upon the “deemed made” allegation of 735 ILCS 5/15-1504(c)(9) that all “other notices required to be given have been duly and properly given” as covering the grace-period notice.

            The decision is likely to send shock waves through the offices of firms concentrating in foreclosures, as most have assumed from the language and structure of the Illinois Mortgage Foreclosure Law (735 ILCS 5/15-1101 et seq.) that use of the form complaint set forth therein is sufficient.

            Indeed, that law expressly states that a foreclosure complaint “may be” in the outline form set forth in § 15-1504(a), and when so filed the outline complaint is “deemed and construed to include allegations … that … notices required to be given have been duly and properly given” (§ 15-1504(c)(9)).

            Adeyiga recognized those provisions but found that they were not controlling.  That was because the grace-notice section was adopted after § 15-1504 and provides that “[t]here shall be no waiver of any provision of this Section” (§ 15-1502.5(h)).  It said that to allow the issue to be decided by the owner’s failure to dispute an allegation not expressly made in the complaint it would render § 15-1502.5(h) “nearly unenforceable, an absurd result in light of the emphasis the statute places on the need for such notice”.

            While this issue could have been decided as a matter of pleading, the panel repeatedly refers to the bank’s failure to show “evidence” that the notice was sent.  It thus seems to say that the prudent plaintiff should not just allege that the grace-notice was sent, but attach proof as well.

Court Issues Seminal Opinion On Standing 

            The issues posed by the rash of “standing” challenges in foreclosure cases – especially in cases of assignments and those involving the Mortgage Electronic Registration System – recently have been addressed by the Appellate Court in Chicago.

            In a seminal opinion in CitiMortgage, Inc. v. Morgan, 2014 IL App (1st) 132430, the panel wrote so helpful a passage that it is easiest and clearest just to reproduce it here (citations omitted):

In the modern banking world, few loans remain with the original lender.  Banks freely buy, sell, and transfer mortgage loans.  Still more loans are transferred because banks them-selves merge with other banks or fail and are taken over by an existing financial institution selected by the Federal Deposit Insurance Corporation.  Simply put, the Illinois Mortgage Foreclosure Law does not require the plaintiff to submit any specific documentation demonstrating that it owns the note or the right to foreclose on the mortgage, other than the copy of the mortgage and note attached to the complaint.  Under section 3-301 of the Uniform Commercial Code, the party holding the note is presumed to own it.

Illinois law allows servicers and agents to be foreclosure plaintiffs on behalf of the actual mortgage holder.  The assignment of the mortgage and note here shows that it was assigned to Mortgage Electronic Registration Systems, Inc. as nominee for CitiMortgage.  Black’s Law Dictionary 1149 (9th ed. 2009) defines nominee as either “[a] person designated to act in place of another” or “[a] party who holds bare legal title for the benefit of others.”  As a result, there is evidence that CitiMortgage was assigned the mortgage.

Owner Has No Right To Surplus Before Sale Confirmation 

            An owner who would like to recover a surplus due to a mistaken bid at a foreclosure sale may not rely on § 15-1508(b) of the Mortgage Foreclosure Law (735 ILCS 5/15-1508(b)) if the bidder seeks to vacate the sale prior to a motion to confirm being filed          

            So held the Appellate Court Second District in ING Bank, FSB v. Tanev, 2014  IL App (2d) 131225.

            While distinguishing a motion to vacate a sale from a motion to confirm one, the opinion suggests that an owner hoping to realize the surplus from a sale should move to have it confirmed.  It says § 15-1508(b) does not limit such motions to those filed by the plaintiff.

            While § 15-1508(b) strictly limits the issues in a confirmation hearing, the court says that prior to a motion to confirm the highest bid at a judicial sale is merely an offer “the acceptance of which does not take place until the court confirms the sale, before which there is no true sale in any legal sense.”

Property Still “Residential” Despite Multiple Other Uses

            The presence of several non-residential uses on a parcel does not make the parcel non-residential real estate for purposes of pre-judgment possession so long as there is one and only one dwelling unit on the property, a panel in the Appellate Court’s Second District has held.

            Ruling in BMO Harris N.A. v. Kautz, 2014 IL App (2nd) 140399, the panel distinguished parcels with two or more dwelling units.  Noting that IMFL § 15-1701(b)(1) separates a given dwelling unit from the remainder of the property only if the real estate “consists of more than one dwelling unit,” the court said that the presence of several non-residential uses was insufficient and that the entire 5.67-acre parcel was made residential by the presence of one apartment occupied by the owner.

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