Mortgage Law Roundup

Sharp  Thinking

No. 176   Perspectives on Developments in the Law from Sharp-Hundley, P.C.   January 2020

Default, Acceleration Terms Are

Critical Condition Precedents

By John T. Hundley, 618-242-0200,


Creditors and their collection counsel are being advised to read promissory notes and mortgages closely before filing suits thereon as a result of a recent decision by the Illinois Appellate Court in Chicago.

At issue in Associates Asset Mgmt., LLC v. Cruz, 2019 IL App (1st) 182678, was the failure to follow notice-of-default and notice-of-acceleration clauses before filing a collection suit on the note.  The trial court said service of process trumped those notice clauses and entered the collection judgment.  The Appellate Court reversed.

In Cruz, a senior creditor had foreclosed upon its first mortgage, so the current creditor’s second mortgage was extinguished.  However, the current creditor sued upon its note, and the appellate panel said the mortgage still was relevant because its terms were referenced in and incorporated into the note.

The panel then went on to interpret notice-of-defense and notice-of-acceleration clauses as conditions precedent to the filing of suit.  “Where a contract contains express conditions precedent, strict compliance with those conditions is required,” the panel said.  “Courts will enforce express conditions precedent despite the potential for harsh results.”

While plaintiff in Cruz had sent the debtor several demand letters, those letters did not provide the substance specified in the notice-of-default and notice-of-acceleration clauses.  Because the plaintiff had breached those clauses, its judgment was reversed.

In its short life, Cruz has become controversial among the collection bar.  Some critics see it as exalting form over substance.  Other observers see it as merely enforcing lawyers’ pre-suit investigation and analysis duties.

Several observations can be offered.  First, creditor counsel’s practice of ignoring such clauses probably has been encouraged by the Illinois Mortgage Foreclosure Law, 735 ILCS 5/15-1101 et seq. (“IMFL”).  That law encourages use of form complaints in which compliance with notice-of-default and notice-of-acceleration requirements is “deemed” included in the complaint without express allegation, 735 ILCS 5/15-1504(c)(9).  Moreover, IMFL makes those deemed allegations admitted unless the defendant affirmatively disputes them (§ 15-1506(a)(1)), which very rarely happens.

Furthermore, loan documents are not consistent in their default and acceleration clauses: some require notice, some do not.  The trend probably is toward the former, but Cruz illustrates that that situation cannot be presumed.

So Cruz teaches that counsel must read and follow the documents before filing suit upon them – a duty which Illinois Supreme Court Rule 137 or Federal Rule of Civil Procedure 11 would seem to impose in any event.

Certified Mail Not Treated As First-Class Mail

The typical residential mortgage provision on service of pre-filing default and acceleration notices does not treat service by certified mail as a form of first-class mail service and thus requires proof of receipt of notices mailed by certified mail.

So held a panel of the Illinois Appellate Court in Chicago recently.  Deutsche Bank Nat’l Trust Co. v. Roongseang, 2019 IL App (1st) 180948.

In Roongseang, the mortgage attached to the complaint required proof of notice of acceleration before instituting foreclosure.  Moreover, the mortgage said that “notice to Borrower in connection with this Security Instrument shall be deemed to have been given to Borrower when mailed by first class mail or when actually delivered to Borrower’s notice address if sent by other means.”

Plaintiff’s servicer claimed it complied with the provision by mailing notice by certified mail, but defendants denied receipt and the servicer could not produce the return receipt.  Instead, the plaintiff argued that certified mail was just an extra service for mailing first-class items and hence was covered by the first-class mail provision.

Surveying decisions of courts which had refused to apply the “mail box rule” to certified mail in other contexts and other jurisdictions, the panel rejected the plaintiff’s argument.

“Given the distinction between the methods of delivery for first class and certified mail, we find that where plaintiff chose to send the acceleration notice via certified mail, it was sent by ‘other means’ and proof of actual delivery of the notice is required to establish compliance with the notice provisions of the mortgage,” the court said.  It repeated Cruz’ warning regarding enforcement of express conditions precedent regardless of the potential for harsh results.

The court vacated both summary judgment for the plaintiff and the confirmation of the post-judgment sale.