March 10, 2000

The Standard Club of Chicago, Illinois



Steven B. Bashaw


One MidAmerica Plaza - 10th Floor

Oakbrook Terrace, Illinois 60181-4710

Tel. (630) 954-7588

Fax. (630) 954-2112

e-mail: sbashaw@mbc.com1






1. Pre-Complaint:

There are a number of conditions precedent contained in the mortgage documents, federal regulations, and statutory limitations which should be considered prior to filing of the complaint.


Plaintiff's attorneys should carefully review the terms of the mortgage and note relating to acceleration to assure compliance with the exact provisions of the debt instruments. Defendant's attorneys, of course, should assure that the lender has strictly complied with all provisions of the mortgage and note, as well as any federal or state regulations, which may be a condition precedent to foreclosure. Bankers Life v. Denton, (3rd Dist. 1983) 120 Ill.App.3d 576, 76 Ill.Dec. 64, 458 N.E.2d 203, and FNMA v. Moore, (N.D.Il.,1985) 609 F.Supp. 194, require all federal regulations relating to remedial assistance and servicing are conditions precedent to the filing of a foreclosure complaint and the basis for affirmative defenses.



If the attorney is sending the acceleration letter or attempting to collect the debt, the Fair Debt Collection Practices Act (15 U.S.C. Section 1692 et seq.) may apply, and should be strictly followed. Your failure to comply with the requirements of that Act may subject your firm, as any "collection agency", to liability for (a) actual damages, (b) a sum not to exceed $1,000, and (c)an award of reasonable attorney's fees and costs under Section 1692(k). (See: George W. Heintz v. Darlene Jenkins, (U.S. 1996), 115 S. Ct. 1489, 131 L.Ed. 395, and Shapiro and Meinhold v. Zartman, (Colo. 1992) 823 P.2d 120). Local cases of note are Newsom v. Lawrence Friedman, (7th Cir. 1996) Case No. 95-1453, reported Chicago Daily Law Bulletin, page 3, Feb. 6, 1996, (holding that Cook County's municipal districts are not "judicial districts" under the Act), Keele v. Norman Paul Wexler, (N.D. 111. 1996) Case No. 95 C 3483, Simon v. Wexler & Wexler, (Cir. Ct. Cook County 95 CH 1367), Ryan v. Wexler & Wexler, (N.D. 11. 1996) Case No. 96 C 1806, reported Chicago Daily Law Bulletin, page 3, April 8, 1996, and Raul Avila v. Albert Rubin and Van Ru Credit Corp., reported Chicago Daily Law Bulletin page 1, May 17, 1996, Case Nos. 95-2881, 95-2895, 95-3905 and 95-3978 consolidated, ($105,000 judgment in unfair debt collection lawsuit nets class members about $25 each"). For a good "overview" see "The Lawyer's Post-Heintz Guide to the Fair Debt Collection Practices Act". Wilson and Nagle, Illinois Bar Journal, Sept. 1995, p. 483, and Tolentino v. Friedman, (7th Cir. 1995), 46 F.3d 645, where the Court hold that a lawyer engaged in consumer debt collection was a "debt collector" and not exempt from the requirements of the Act when writing a letter to the debtor. An unpublished decision from the Michigan Court of Appeals, however offers an interesting divergence. In a real estate mortgage foreclosure context, the Court ruled that the Plaintiff's attorney's were NOT 'debt collectors' as defined in FDCPA because they 'were engaged in the enforcement of a security interest, not the collection of a debt. ...we believe that these enforcers of security interests are not otherwise included within the broader definition of 'debt collectors-'. See Ronald C. Winiemko v. G.E. Capital Mortgage Services, Inc., Riley and Roumell, P.C., and Wilber M. Brucker, (Mich. Ct. of Appeals No. 177827, decision issued Jan. 17, 1997). Another divergence can be found in Transamerica Financial Services, Inc. v. Mary E. Sykes v. Ira T. Nevel, (N.D. Il., 3/25/99, No. 98-2586), 171 F.3d 553,, in which the Plaintiff's attorney in a foreclosure action was the subject of a FDCPA counterclaim brought by the mortgagor who claimed that the mortgage was a forgery and that she owed no money to the Plaintiff. Sykes appealed only the summary judgment on the Fair Debt Collection Practices Act issues. In affirming summary judgment, the Court noted that the pertinent section of FDCPA applies to circumstances where there are attempts to collect a fee or charge for which the contract itself does not provide or is not authorized by law; (i.e., the collection of forced placed auto insurance premiums not authorized by the agreement as in Jenkins v. Heintz, 124 F.3d 824, or attempted collection of a time barred debt as in Kimber v. Federal Financial Corp., 668 F.Supp. 1480). In this case, the mortgage authorized the collection efforts undertaken by the attorney, and the Court reasoned that the forgery had no bearing, given the fact that none of the documents given to Nevel by Transamerica suggested a forgery and Nevel had no notice that the debt instruments might be forgeries.


Prior to the filing of the complaint, if possible, is the best time for a defendant to cure the default and reinstate the mortgage. While this may not avoid the necessity of including payment of reasonable attorney's fees, it may save significant court costs. See Diawa Bank v. LaSalle National Trust, 229 Ill.App.3d 366, 593 N.E.2d 105, Copalman v. Frawley, 182 Ill.App.3d 821, 538 N.E.2d 630, Harris Trust v. American National Bank, 230 Ill.App.3d 591, 594 N.E.2d 1038, and Kaiser v. NEPC, 164 Ill.App.3d 978, 518 N.E.2d 424, for a discussion of attorney's fees, costs, and tenders both before and after filing the complaint. Chicago Title & Trust Co. v. Chicago Title & Trust Co., 618 N.E.2d 949, 188 Ill.Dec. 379, states that the reasonableness of attorney's fees in a mortgage foreclosure action is a matter peculiarly within the discretion of the trial court, and will not be disturbed on appeal absent an abuse of discretion. Curing the default prior to the filing of a complaint also avoids the statutory limitation that a defendant can only exercise his right to reinstate a mortgage once every five years which is statutorily provided in 735 ILCS 5/15-1602.

2. Complaint:

The process begins with the filing of a complaint.

The complaint form is statutorily prescribed with deemed allegations, (735 ILCS Section 5/15-1504), which include debt and default presumptions, presumed allegations relating to fees and costs, and allegations included in a request for foreclosure, deficiency judgment, and possession or Receiver. (See: City National Bank of Hoopestown v. Langley, (1987), 161 Ill.App.3d 266, 514 N.E.2d 508, for a discussion of defective complaint allegations.)


Both the Plaintiff and Defendant's attorneys should review the Complaint carefully. Regardless of from which vantage point you come to the foreclosure, it is the basis from which the Plaintiff proceeds by adjudicating the interest of all lien holders and parties in interest in order to obtain clear title as a result of foreclosure and the salient facts which the Defendant must examine to defend. It is noteworthy that Public Act 88-265 (Senate Bill 650), effective January 1, 1994, amended Section 15-1501(d) of the Code of Civil Procedure to provide that the making of a lessee a party to a foreclosure action does not, in itself, terminate the leasehold interest unless the Court specifically orders the interest foreclosed in the judgment. The statutory complaint form was also amended by adding subsection 15-1504(T) to provide that the Plaintiff can allege the names of defendants whose right to possess the real estate is sought to be terminated. Accordingly, all practitioners should review their foreclosure complaints and judgments to incorporate such specific allegations and findings.

A commonly asked question relating to the complaint is whether the Plaintiff should make other subordinate or prior mortgage lien holders a party to the case in the complaint and what effect this has on that lien-holder. While the plaintiff certainly may do so, has no duty to join all parties with an interest or liens on the property as defendants to the foreclosure. See Marino v. United Bank of Illinois, N.A., (2nd Dist. 1985), 484 N.E.2d 935. The only "necessary parties" are the mortgagor and persons who owe payment of the indebtedness secured by the mortgage. 735 ILCS 5/15-1501(a). Drafting the complaint begins with a consideration of the priority of the lien being foreclosed and the relative priority position of that lien to other claims against the real estate. The next logical consideration is the effect of foreclosure or extinguishing the various lien interests. often there will be multiple liens against property, and any practical approach to those liens must be concerned with the result that legal action to enforce one lien will have on another. Foreclosure of a mortgage, provided other subordinate lien holders are joined in the case, will result in the extinction of the junior lien interests. 735 ILCS 5/15-1504, Bald v. Chicago Title Insurance Co., (1st Dist. 1983), 113 Ill.App.3d 29, 446 N.E.2d 1205, 68 Ill.Dec. 808. The Plaintiff, of course, will want to extinguish subordinate liens in order to obtain a clear title to the foreclosed premises to covey at the subsequent sale in order to recoup its indebtedness. The Defendant must review and consider the impact of the various liens on the "equity" he or she has in the premises from which to fashion a resolution.

Once additional, "permissible parties" (735 ILCS 5/15-1501(b) are joined in the foreclosure, however, some interesting issued ensue. In the case of Mid-America Federal Savings v. Liberty Bank , (2nd Dist, 1990), 562 N.E.2d 1188, a junior lienholder in second position lost in its priority battle with a third position lienholder for failure to file its answer in a foreclosure by a first mortgagee after being made a party and having been served with the complaint. The Court ruled the second lien-holder failed to act diligently whereas the third lienholder had come forth and thereby improved its position! This case is followed by a most unusual ruling in Orloff v. Petak, (3rd Dist., 1992) 224 Ill.App.3d 638, 587 N.E.2d 37, 167 Ill.Dec. 155. In that case, the Court found that a junior lienor who was omitted from a senior lienor's foreclosure action must equitably redeem before he may foreclose his own lien. This was the law under the prior foreclosure statute as set forth in the case of Baldi v. Chicago Title Insurance Co., (1983), 113 Ill.App.3d 29, 446 N.E.2d 1205, 68 Ill.Dec. 808, but NOT the anticipated result under the new law given the fact that statutorily a junior lienor does not have a right to redeem under Section 5/15-1603(a) and Section 5/15-1212, (it is difficult to discern how it could "equitably redeem" as mandated by the Court in Orloff), but the law appears to be that only IF it redeems from the first mortgage can a junior mortgagee THEN foreclose his junior lien along with the senior lien from which he redeemed. There are statutory provisions and case law that provide some protection to lien holders who are subordinate to a mortgage that is being foreclosed that should be reviewed if the issue of priority is being considered. 735 ILCS 5/15-1505 states that when real estate is subject to a senior lien, during foreclosure and prior to a sale, any other lien holder may pay installments of principal, interest, real estate taxes or other obligations due under the senior mortgage. This is supplemented by the following provision found outside of IMFL in the Mortgage Act, (765 ILCS 905/l, at seq.):


Any person who has a mortgage lien upon any land against which there exists a prior mortgage may pay any interest or any installment of the principal or interest which may be in default upon any such prior mortgage and all such sums so paid shall become a party of the! debt secured by such junior mortgage, shall bear interest from the date of payment at the same rate as the indebtedness secured by such prior mortgage and shall be collectable with, as party of and in the same manner, as the amount secured by such junior mortgage." 765 ILCS 905/13.

Review Joliet Fed. Sav. & Loan Assn v. Bloomington Loan Co., (3d Dist. 1970), 131 Ill.App.2d 619, 265 N.E.2d 400, but be very wary of the holding in another Third District case which clearly states that there will be no "marshalling of the assets" at the confirmation of sale of the foreclosure of a subordinate mortgage to provide for the payment of a prior lien. In Members Equity Credit Union v. Duefel, (3rd Dist. 1998), 295 Ill.App.3d 336, 692 N.E.2d 865, 229 Ill.Dec. 876, the Third District ruled that surplus proceeds from a foreclosure sale must be awarded to the foreclosed mortgagor rather than be applied to payoff an outstanding, prior mortgage lien as requested by the third party bidder. The foreclosure was of a junior mortgage on residential real estate. The first mortgage lien holder was not a party to the suit. At sale, a third party bidder bid a sum resulting in a surplus, and then, at confirmation of the sale, petitioned the trial court to direct the surplus be paid to satisfy the outstanding first mortgage. The trial court granted the petition and the borrowers appealed. On appeal, the Third District considered, but rejected, the bidder's argument that to award the surplus proceeds to the mortgagors would result in a windfall to them because they had no equity in the property over the first mortgage, noting that "Illinois law mandates that a buyer at a judicial foreclosure sale takes the property subject to any outstanding debts which may encumber the property subsequent to the sale." All bidders are deemed to bid with constructive notice of liens on the property offered for sale. Competitive bidding at foreclosure sales promotes the public policy goal of maximizing the selling price. Accordingly, the Court reasoned, application of any surplus to liens that the property was sold "subject to" would undermine that goal and render the competitive bidding process 'practically meaningless". The Court found that the trial court abused its discretion by directing payment to the first lender, which was a non-party to the case and over whom it did not have jurisdiction, and interfered with the contractual relationship between the first lender and its borrower by directing the surplus award.

The case of Mountain States Mortgage Center v. Allen, (1st Dist., 1993) 257 Ill.App.3d 372, 628 N.E.2d 10521, 195 Ill.Dec. 588, has an interesting holding by the Court to the effect that failure to plead priority of mortgage lien as an affirmative defense constitutes a waiver of priority and inclusion in the judgment of foreclosure is res judicata relating to any subsequent proceeding by the same party to establish a priority lien interest.


A mechanic's lien claimant is subordinate to the lien of a prior recorded mortgage unless there has been strict compliance with the Illinois Mechanic's Lien Act. (770 ILCS 60/1 et seq.) The Act requires that the lien claimant must (a) file a notice of claim for lien within four months of the last date of substantial work or delivery of materials, (770 ILCS 60/7), (b) commence a lien enforcement proceeding within two years, (Joan Corporation v. Brent, (1st Dist., August 25, 1999), No. 1-98-0849,, AND THEN, (c) will have a priority over a prior recorded mortgage only to the extent of enhancement, (i.e., the increased market value of the premises by virtue of the lien claimants, contribution). Mutual Services, Inc. v. Ballantrae Development Company, (1st Dist. 1987), 159 Ill.App.3d 549, 510 N.E.2d 1219, Steinberg v. Chicago Title Trust Co., (1st Dist. 1986) 142 111. App.3d 601, 491 N.E.2d 1294, and Lyons Savings v. Gash Associates, (1st Dist. 1996), 665 N.E.2d 326.) A subcontractor must also serve a 90 day notice upon the owners and mortgagee under Section 24 of the Mechanic's Lien Act to preserve a priority, and failure to give notice to the lender compromised the right to that priority. Petroline Company v. Advanced Environmental Contractors, (1st Dist., April 27, 1999, No. 1-98-2026), 305 Ill.App.3d 234, 711 N.E.2d 1146, 238 Ill.Dec. 485, ( In addition to the priority of lien according to enhancement, the mechanic's lien claimant may be also entitled to include attorney's fees in his total debt pursuant to the amended effective August 8, 1995 to the Illinois Mechanic's Lien Act if the court specifically finds that the owner who contracted for improvements made failed to pay without just cause. (770 ILCS 60/17, Mirar Development, Inc. v. Kroner,(3rd Dist., August 13, 1999), No. 3-98-0761,


The issue of enhancement may be reserved and proved after the foreclosure sale if the parties are certain the proceeds will be sufficient to satisfy the liens. 735 ILCS 5/1506(h) and 735 ILCS 5/15-1508(B)(3). When dealing with a mechanics lien claim and a good likelihood that the real estate has substantial equity, an excellent practical approach to the lien priority issue may very well lie in the reservation of determination by the Court until the confirmation of sale - when there are sufficient proceeds to satisfy the lien claims.


A mortgagee's lien interest is subject to leases entered into prior to the recording of the mortgage and free and clear of leases entered into after the mortgage. (See Kelley/Lehr & Associates, Inc. v.O'Brien, (2nd Dist. 1990), 194 Ill.App.3d 360, 551 N.E.2d 419,141 Ill.Dec. 426, and Silverstein v. Schak, (2nd Dist. 1982) 107 Ill.App.3d 641, 437 N.E.2d 1292.) Amendments to the Illinois mortgage Foreclosure Law have specifically provided that the interest of a tenant is not terminated unless the tenant is a party to the foreclosure proceedings, 735 ILCS 5/15-1504(t), the Judgment of Foreclosure specifically terminates the leasehold tenants interest, 735 ILCS 5/15-150`1(d) . At confirmation of the foreclosure sale, the Court may order possession to be granted to the successful bidder, 735 ILCS 5/15-1508, and after the confirmation an alternative procedure to obtain possession from occupants is set forth in 735 ILCS /15-1701(h). While Plaintiff's foreclosure attorneys have long grappled with the problem of obtaining possession at the end of the foreclosure action from persons in possession over whom the foreclosure court does not have jurisdiction, there are, however, no short-cuts such as naming "unknown occupants" or "unknown tenants" as parties to the case to obtain an order of possession over such parties. This is a common situation where either the plaintiff in the foreclosure was not diligent in inspecting the premises and advising their counsel of the names of occupants during the foreclosure, or the persons in possession come into possession during the pending proceeding and are truly "unknown occupants" or interlopers. In Rembert v. Sheahan, (N.D. Il., 1994) No. 92 C 67, Judge Holdermans entered an order often cited by the Sheriff of Cook County in support of his position that he can not evict "unknown occupants" (or anyone that is not fully and completely named in an order for possession at the end of a foreclosure case). In response, many foreclosure attorneys have resorted to proceeding separately in forcible entry to obtain jurisdiction over those "unknown occupants" for eviction following foreclosure. In the case of Norwest Mortgage Inc. v. Ozuna, (1st Dist., 12/28/98), No. 1-98-1481, 302 Ill.App.3d 674, 236 Ill.Dec. 110, 706 N.E.2d 984, the Court ruled that the Rembert v. Sheahan injunction applied only to orders for possession entered in mortgage foreclosure actions, and not to forcible entry and detainer actions. The Court ruled that the Plaintiffs failure to comply with the provisions of the Code of Civil Procedure relating to publication against unknown owners, (735 ILCS 5/2-413), rendered the order of possession against the generically named defendants "void ab inito", but found that while the Sheriff was not justified in refusing to execute the orders for possession based on the distinction between a foreclosure and a forcible proceeding the refusal to evict was not contemptible because the Sheriff acted in good faith to obtain review of the order and application of the Rembert injunction.


The Internal Revenue service's lien priorities are established pursuant to state law with reference to specific federal law provisions relating to redemption. 26 USC 7425(a). Accordingly, despite the common misconception that IRS liens somehow have a "special status" or priority, they attach as any other lien relative to a mortgage; entirely dependent upon the date of recording. A mortgage foreclosure, however, in order to terminate a lien of the United States must comply with the provisions of 28 USC 2410 mandating that a judicial sale be held and providing a right to redeem during the longer of the period provided by the state law or, 120 days from the date of sale for internal revenue liens, or for a period of a one year from the date of sale for liens other than revenue liens. As a practical matter, however, the United States of America has never redeem from a foreclosure sale over the last twenty years to this author's knowledge. Most importantly, from a practical point of view is the little noticed fact that there is an administrative procedure for obtaining a release of an IRS lien which is a "junior lien' on the real estate. For liens of the United States the administrative release provision is statutorily set forth at the end of 28 USC 2410:

(e) Whenever any person has a lien upon any real or personal property, duly recorded in the jurisdiction in which the property is located, and a junior lien, other than a tax lien, in favor of the United States attaches to such property, such person may make a written request to the officer charged with the administration of the laws in respect of which the lien of the United

States arises, to have the same extinguished. if after appropriate investigation, it appears to such officer that the proceeds from the sale of the property would be insufficient to wholly or partly satisfy the lien of the Untied States, or that the claim of the United States has been satisfied or by lapse of time or otherwise has become unenforceable, such officer shall so report to the Comptroller General who may issue a certificate releasing the property from such lien."


The State of Illinois lien rights can be terminated in a mortgage foreclosure proceeding with relative ease. Section 15-1501(b)(6) provides that the State or any political subdivision may be made a party to a foreclosure which involves real estate for which it claims a lien and specifically provides that there is no immunity. 735 ILCS 5/15-1501(b)(6). This same section also provides for a simplified method for service of process employing registered or certified mail sent to the Illinois Attorney General. 735 ILCS 5/15-1501(g).


The Complaint's prayer for relief is set forth in the short form statutory complaint discussed above. It is important, of course, to give some consideration to and provision for relief in addition to that generally requested. For instance if there is a potential for a deficiency judgment should the sale result in proceeds less than the debt, that relief must be specifically requested in the complaint or subsequent amendment filed with Supreme Court Rule 105 notice. In Parrish v. Glen Ellyn Savings and Loan Association, (2nd Dist. 1990) 193 Ill.App.3d 629, 550 N.E.2d 413, the borrower noted that the complaint did not pray for a deficiency judgment and the plaintiff failed to give notice pursuant to Supreme Court Rule 105 of an intent to seek additional relief in the form of a deficiency following the default judgment. In order to support a deficiency judgment the plaintiff must have an executed note, guaranty, or separate undertaking, followed by in personam jurisdiction, a sale resulting in a deficiency, without a discharge in bankruptcy and, of course, a prayer for that relief. Heritage Standard Bank and Trust Co. v. Heritage Standard Bank and Trust Company, (2nd Dist. 1986), 149 Ill.App.3d 563, 500 N.E.2d 60, and Barkley Properties, Inc. v. Balcor Pension Investors, II, (1st Dist. 1992), 227 Ill.App.3d 992, 592 N.E.2d 63.).


Contemporaneous with the filing of the complaint, Plaintiff's attorney should record a Notice of Foreclosure, commonly referred to as a "Lis Pendens". 735 ILCS 5/15-1503. Every person who claims a lien or interest in real estate which arises subsequent to the recording of a lis pendens is bound by the proceeding as if he or she was a party thereto. Agribank, FCB v. Rodd Farms, Inc., 251 Ill.App.3d 1050. In Equitable Real Estate Investments, Inc. v. United States Department of Housing and Urban Development, (N.D.Il. 1998), 14 F.Supp.2d 1058, the Court ruled that when property was sold in foreclosure, a purported purchaser of the property who had constructive notice of the foreclosure could not recover for improvements to the property under the theories of either unjust enrichment nor equitable lien for the value of the improvements. The ruling underscores the applicability of the "doctrine of lis pendens" and the concept of constructive notice of the foreclosure proceeding imparted by the recording of the lis pendens. (See First Midwest v. Pogge, (4th Dist. 1997), 293 Ill.App.3d 359,678 N.E.2d 1195, 227 Ill.Dec. 713.)

3. Jurisdiction/Venue/Defenses:

The key element in every foreclosure process from the Plaintiff's point of view is obtaining jurisdiction over the parties whose interests are sought to be foreclosed. While there are a limited number of defenses to foreclosures, an attack on the court's jurisdiction clearly appears to be the most effect and most commonly used defense. For an understanding of how important jurisdiction can be in a foreclosure, review the following cases: State Bank of Lake Zurich v. Thill, (1986), 113 111.2d 294, 497 N.E.2d 1156, 100 Ill.Dec. 794, Mid-America Federal v. Kosiewicz, (2nd Dist. 1988), 170 Ill.App.3d 316, 524 N.E.2d 663, 120 Ill.Dec. 633, and Margaretten v. Martinez, (2nd Dist, 1990), 193 Ill.App.3d 223, 550 N.E.2d 8; 140 Ill.Dec. 526, appeal denied 132 Ill.2d 546, 555 N.E.2d 377, 144 Ill.Dec. 258.

Publication Jurisdiction requires a diligent inquiry evidenced by an appropriate affidavit of publication as is discussed in City of Rockford v. LeMar, (2nd Dist. 1987), 157 Ill.App.3d 350, 510 N.E.2d 128 Plaintiff's attorney should be most concerned with perfecting jurisdiction, and the matter of lack of diligence in obtaining jurisdiction by publication in foreclosure cases is of common concern with the Court to result in a special local rule:

"Pursuant to 735 ILCS 5/2-206(a), due inquiry shall be made to find the defendant(s) prior to service of summons by publication. In mortgage foreclosure cases, all affidavits for service of summons by publication shall be accompanied by a sworn affidavit by the individuals making "due inquiry" setting forth with particularity the action taken to demonstrate an honest and well directed effort to ascertain the whereabouts of the defendants(s) by inquiry as full as circumstances permit prior to placing any service of summons by publication." Circuit Court of Cook County Rule 7.3

See also Home Savings Association v. Powell,(1st Dist. 1979) 73 Ill.App.3d 915, 29 Ill.Dec. 901, 392 N.E.2d 598 and Household Finance v. Velvet, 227 Ill.App.3d 453, 592 N.E.2d 98, for a discussion of what DOES constitute "due inquiry".

Additionally, as previously noted, the date upon which the Court obtains jurisdiction over the mortgagor/owner is the measuring point from which the time periods during which the right to reinstate, (735 ILCS Section 5/15-1602), and redeem, (735 ILCS Section 5/15-1603), are calculated. The right to reinstate, (cure the default by tendering past due payments, late charges, court costs and attorney's fees), runs for a period of 90 days from the date the court obtains jurisdiction. The right to redeem is statutorily dependent upon the type of property being foreclosed, (7 months for residential and 6 months for non-residential), and runs from the date of jurisdiction as well; although it is important to note from the Defendant's viewpoint that the date of the entry of judgment is also a limitation inasmuch as the standard redemption will not expire until no sooner than 90 days from the date of the entry of the judgment. Accordingly, if the Defendant can keep the judgment from being entered until after 4 months from the date of jurisdiction, each date thereafter "lengthens" the Defendant's time period to resolve the matter by pushing back the redemption period.

Venue is proper in the county in which the property is located (735 ILCS Section 5/2-103).

Filing in Federal District Court is, of course, an alternative available provided the sum in controversy exceeds $750,000.00 and diversity is not destroyed by naming Unknown Owners as a "necessary party". For an excellent discussion of the 'advantages and disadvantages of filing foreclosures in federal court see "Federal Foreclosure Actions-Advantages and Disadvantages for Lenders", by John C. Murray, 83 Illinois Bar Journal, February 1994, P. 80; and Comments by Steven B. Bashaw contained in "Letters to the Editor", Vol. 84 Illinois Bar Journal, March, 1995.

A discussion of the concept, interests and rights of "unknown owners and non-record claimants" can be found in Uptown Federal v. Vasavid, (1st Dist. 1981), 94 Ill.App.3d 531, 49 Ill.Dec. 811, 418 N.E.2d 831. Naming unknown owners and nonrecord claimants in a foreclosure complaint is a routine, but little understood concept. In Teerling Landscaping, Inc. v. Chicago Title and Trust Company, (2nd Dist. 1995), 271 Ill.App.3d 856, 208 Ill.Dec. 482,, 649 N.E.2d 538, the court has given us ample incentive for continuing this practice in its finding that a mechanics lion claimant, that had not yet recorded its lien claim at the time the mortgagee commenced its foreclosure,was a "nonrecord claimant", which could be notified of the proceeding by publication, despite actual knowledge by the plaintiff of the lien claimants interest, and be thereby foreclosed.


In a divorce setting, Defendants have considered consolidation of foreclosure into the dissolution proceeding and then moved the Court to enjoin or stay the foreclosure proceeding in order to "preserve the marital asset". See the case of In Re the Marriage of Schweihs, (1st Dist. 1991), 222 Ill.App.3d 887, 584 N.E.2d 472, 165 Ill.Dec. 293, where the Trial Court hearing the dissolution proceeding was authorized to join mortgagee THREATENING foreclosure in the dissolution proceeding and then enjoined initiation of a separate foreclosure proceeding in a different division. However, also see In Re the Marriage of Elliott, (1st Dist. 1994), 265 Ill.App.3d. 916, 203 Ill.Dec. 46,1 638 N.E.2d 1172, where the Court ruled, as a matter of law, that a request for an order restraining foreclosure within the divorce proceeding must be denied for failure to allege (1) that a real estate contract or other reasonable indicia of an imminent sale exists, (2) that any provision has been or will be made for the payment of ongoing obligations accruing to the mortgagee, (3) that any provision has or will be made for the posting of a bond to assure the availability of funds to cover the debt if the property's value decreases, or (4) that any provision has or will be made for protection of the mortgagee's interest during an indefinite delay of its recovery for its defaulted loan herein. In this case, the Court's decision provided that the Court must "deal with the property in question in a manner most equitable to all parties concerned." Also note that the dissent of Judge Scariano in this case most interestingly states that the trial court need not have gone to such great lengths, but could have simply achieved this same result by 'managing its docket' due to the "inherent power' of our courts, governed not by rule or statute but by the control necessarily vested in courts to manage their own dockets.

A most common "defense" presented in foreclosure cases is that the lender did not deal in "good faith" with the borrower. There is precedent for this duty found in Chemical Bank v. Paul, (1st Dist. 1993), 155 Ill.App.3d 772, 185 Ill.Dec. 302, 614 N.E.2d 436, where the Court held that there is a covenant of good faith and fair dealing implied in every debt contract absent a clear and

unequivocal express disavowal. While there have been a good number of recent cases dealing with the implied duty of good faith and fair dealing in contract actions, (and especially relating to that duty on behalf of lenders), the recent case of Voyles v. Sandia Mortgage Corp., (2nd Dist., November 4, 1999), No. 2-98-0753,, appears to be the first to recognize this as a basis for a cause of action in tort. "Defendant property notes that no Illinois cases have heretofore explicitly recognized the independent existence of a tort action for breaching the duty of good faith and fair dealing....Recent decisions, however, have shown that courts have implicitly accepted the existence of the tort." Ms. Voyles purchased a single family residence in Springfield, Illinois, but then rented it to her attorney when she moved to Chicago to find employment. As a result of personal problems, she made arrangement with her tenant/attorney for him to make the monthly mortgage payments directly to the lender. Following an all too familiar course of events, the lender was taken over by the RTC and then the servicing of the loan was transferred to Fleet Mortgage. Fleet refused to accept payments from the tenant based on a suspected violation of the due on sale clause, and then increased the monthly mortgage payments to reflect the annual property tax. (Neither of these actions or the basis for their decisions was communicated to Ms. Voyles.) A convoluted series of tenders and refusals culminated when Ms. Voyles attempted to refinance her residence in the Chicago area and was denied based upon a pending foreclosure initiated by Fleet Mortgage in Springfield. Before the foreclosure could be resolved, Ms. Voyles was unexpectedly terminated from her job, and the refinancing fell through. She filed suit against Fleet alleging negligent reporting of credit information (Count I), negligent failure to correct falsely reported credit information (Count II), breach of contract (Count III), breach of the duty of good faith and fair dealing (County IV), and for punitive damages based on willful conduct. The Trial Court granted Fleet's motion for summary judgment and the Appellate court reversed. The Court's decision begins with a restatement of the implied duty of good faith and fair dealing, then finds that the actions of the lender relating to the credit reporting were "intentional" as "purposeful and directed" rather than "negligent" as "careless or accidental", and finally rejects the Moorman doctrine and proximate cause as a defense. While the decision was expressly "Based on the narrow circumstances of this case", there can be no doubt that the court found a cause of action exists for breach of the duty of good faith and fair dealing, and lenders whose conduct approaches that of Fleet Mortgage here had best beware.

After the November, 1999, publication of the opinion in the case of Voyles v. Sandia Mortgage Corporation, n/k/a Fleet Mortgage Corporation, (2nd Dist. November 4, 1999) No. 2-98-0753), the decision was withdrawn for re-hearing. The importance of the court's own observation that that no Illinois case had heretofore explicitly recognized the independent existence of a tort action in favor of a borrower for a lender's breach of the covenant of good faith and fair dealing also recommended the decision for reconsideration, and both Plaintiff's and Defendant's counsel should be wary of what this decision portends in its final form.

But, of course, the alleged agreement with, or representation of, the lender must in writing rather than oral in order to be enforceable. See FDIC v. O'Malley, (1994), 163 Ill.2d 130, 643 N.E.2d 825, 12 U.S.C. 1823(e), and First National Bank in Staunton v. McBride Chevrolet, (4th Dist. 1994), 642 N.3.2d 138, relating to the Illinois Credit Agreements Act, 815 ILCS Section 160/0.01. Under the Credit Agreements Act, the "defense" of an allegation of an extension by conduct on the part of the lender or "reformation" based on a purported oral agreement with a loan officer is unavailing. The further cases of Home Federal Savings v. LaSalle National Bank, (1St Dist. 1970), 130 Ill.App.2d 285, 264 N.E.2d 704 and Bank of Naperville v. Holz (2nd Dist. 1980), 86 Ill.App.3d 533, 41 Ill.Dec. 604, 407 N.E.2d 1102.) also appear to have emasculated these defenses based on the statutory requirement that any modification of a credit agreement must be in writing to be enforceable. See also Klem v. First National Bank of Chicago, (2nd Dist. 1995) 655 N.E.2d 1211. Although the cases upholding the application of Illinois Credit Agreements Act, (815 ILCS 160/1), have consistently barred borrowers from asserting counterclaims and affirmative defenses against lenders based on alleged oral agreements to restructure a loan or forbear, it appears that defendants have not grown weary of this defense; or appeals based upon it. In the most recent case, Teachers Insurance and Annuity Association of America, (2nd Dist. 1998) 295 Ill.App.3d 61, 691 N.E.2d 881, 229 Ill.Dec. 408, the Court considered and rejected the borrower's numerous arguments that (1) the mortgagor-mortgagee relationship is a fiduciary arrangement allowing avoidance of the oral agreements limitation under theories of equitable or promissory estoppel similar to those employed to avoid the impact of the Statute of Frauds, (2) the Credit Agreements Act violates the borrower's right to equal protection, and (3) the Credit Agreements act is "special legislation" or "dual purpose legislation", in order uphold the constitutionality and application of the law. It would certainly appear that the courts are convinced that the Credit Agreements Act IS a bar to defenses based on alleged oral statements made by lenders to borrowers, and even these fairly inventive arguments are unpersuasive.

It should be only a matter of time before the Credit Agreements Act must be balanced with the implied duty of good faith and fair dealing.

If there is an affirmative defense or counterclaim, you should allege it as part of your answer. Failing to do so may constitute a waiver. See Mountain States Mortgage v. Allen, (1St Dist. 1993), 257 Ill.App.3d 372,628 N.E.2d 1052, 195 Ill.Dec. 588, where the purported first lender's failure to allege their priority as an affirmative defense constituted a waiver.

4. Reinstatement and Judgment:

By the entry of the judgment, the Plaintiff establishes its right to foreclose, the amounts due to it, the rights and priorities of the various defendants, the time table for the remainder of the case, and provisions for the conduct of the sale. 735 ILCS 5/15-1506.

735 ILCS Section 5/15-1602 sets forth the statutory right to reinstate or cure the default and obtain a dismissal of the foreclosure proceeding. Section 5/15-1603 sets forth the entire statutory scheme for redemption. The distinction between reinstatement and redemption is one with which laypersons and attorneys unfamiliar with this area of the law seem to continually have a problem. In addition to the obvious practical differences between the having to pay a loan in full rather than simply tender the past due payments, late charges, fees and costs, it should be noted that Section 15-1602 contains the provision that a mortgagor can only avail himself of the right of reinstatement following acceleration and the filing of a foreclosure complaint once every five years. It should be noted by both Plaintiff's and Defendant's attorneys however, that in order to activate this statutory limitation, the mortgagee's counsel in the prior proceeding must have specifically incorporated the prohibition in the dismissal order. It would seem only prudent then (if not actually necessary to avoid malpractice) for plaintiff's attorney to include such a limitation in any order of dismissal entered by virtue of reinstatement in a foreclosure case in order not to waive this important limitation provision

In Lomas & Nettleton Co. v. Humphries, (N.D. 111. 1989), 703 F.Supp. 757, the Court ruled that mortgagors would be permitted to reinstate pursuant to Section 15-1602, regardless of the fact that they did not tender a sum sufficient for a "curing of all defaults ... by paying all costs and expenses required by the mortgage ... prior to the expiration of 90 days from the date... of jurisdiction." This ruling was based upon special circumstances where the mortgagors raised a good faith dispute concerning the appropriateness of charges included by the mortgagee and then filed a motion before the trial court to determine the amount necessary to reinstate before the expiration of the statutory reinstatement period. (For case which deals with a perhaps "related" issue of collection of attorney's fees see Petkus v. St. Charles Savings and Loan Association, (1989), 538 N.E.2d 766, where the Court ruled that a release of mortgage and cancellation of note only served to extinguish the lien of the mortgagee and right to foreclosure but did NOT extinguish the right provided for payment of attorney's fees.) Finally, see First Federal Savings and Loan Association of Chicago v. Walker, 91 Ill.2d 218, 437 N.E.2d 644, relating to the right of the lender to deny successive reinstatements under the statutory provision restricting a borrower's right to elect to reinstate to once every five years.

IMFL provides for a statutory method of establishing the debt amounts through an accounting by affidavit, (Section 5/15-1506(a)), provides for the method of sale of the premises to satisfy the debt, (Section 5/15/1506(f)), and begins the running of the redemption period, (Section 5/15-1603(b), which is dependent upon the type of real estate being foreclosed. The Illinois Mortgage Foreclosure Law also provides that the court MAY include "Special Matters" or provisions in the judgment if sought by any party. Such special matters are enumerated and the law envisions a number of alternatives to the present standard of a sheriff sale conducted in the courthouse.

There are also statutory alternatives whereby the redemption period can be shortened to 30 days after the entry of judgment, (regardless of the date of jurisdiction is obtained and regardless of the type of real estate at issue), due to the fact that the premises are abandoned. This provision of the law is set forth at Section 15-1603(b)(4), and should be invoked by plaintiff's counsel whenever the property is vacant. The Defendant, of course, should note that "abandonment" rather than "vacancy" is the operative term in the statutory scheme, and "abandonment" may reasonably be argued to refer to the Defendant's intent rather the occupancy status of the premises.

Additionally, Section 15-1603(b)(3) further provides that the redemption period shall be shortened to 60 days in the event that value of the real estate is found by the court to be less than 90% of the total mortgage debt, (which includes all interest, fees and costs as set forth in Section 15-1603(d)). This particular section has not see implementation too frequently in the past by mortgagee's counsel simply because the trend for decades has been in favor of real estate values increasing over time to a point that the mortgage debt seldom if ever approached the value of the real estate. In the wake of recession or real estate value depreciation, however, we have all witnessed market values decline to the point where the presumptions of the past should not serve to allow the attorney for a mortgagee to overlook this important provision in the law.

Counsel for both parties should seriously consider the alternatives to a standard foreclosure sale set forth in the statute. These alternatives range from having an "brokered sale listing" in lieu of a foreclosure sale, to an "open house" on the property prior to sale, to simply assuring that signs are posted on the front lawn indicating that it will be offered for sale. The flexibility provided to the Court in the statute relating to sales can be summed up to be: "such other matters as approved by the Court to ensure sale of the real estate for the most commercially favorable price for the type of real estate involved". 735 ILCS 15-1506 (h) (14)

There is some significant divergence in practice among various Judges in the various counties relating to the appointment of sale officers. The three most commonly used sale officers are the County Sheriff, Intercounty Judicial Sales Corporation, and The Judicial Sales Corporation. Some Judges will approve the appointment of only the Sheriff, (i.e., Will County), and some Judges will not appoint one or the other of the corporate sales officers. In Mountain States Mortgage Center v. Allen, (1st Dist., 1993) 257 Ill.App.3d 372, 628 N.E.2d 10521, 195 Ill.Dec. 588, the First District specifically upheld the appointment of a selling officer other than the Sheriff.

Proof of the sums due in the Judgment is routinely by affidavit pursuant to the statutory provision of 735 ILCS 5/15-1506. See Harris Bank-Hinsdale v. Caliendo, (1992), 235 Ill.App.3d 1013, 601 N.E.2d 1330, and Cole Taylor Bank v. Corrigan, (1992) 230 Ill.App.3d 122, 595 N.E.2d 177, for a discussion of affidavits in support of motions for summary judgment.

Finally, of course, the Judgment should specifically state the date upon which the right of redemption expires. Nonetheless, the Second District Appellate Court has ruled that

miscalculation of the redemption date in the judgment is not fatal. See Margaretten v. Martinez, (2nd Dist, 1990), 193 Ill.App.3d 223, 550 N.E.2d 8; 140 Ill.Dec. 526, appeal denied 132 111.2d 546, 555 N.E.2d 377, 144 Ill.Dec. 258, in which the Court ruled that in addition to "void" and "voidable" judgments there are also "erroneous" judgments which will be enforced by the court where otherwise appropriate pursuant to Section 2-1401.

5. Redemption:

Once expired, the right of redemption shall not be revived, there IS a specific procedure and process for exercising redemption, and there is a special right of redemption.

It should be noted in any discussion of the redemption period as set forth in the judgment that the legislature included strict provisions relating to the redemption period in Section 15-1603(c)(1) which provides:

"Once expired, the right of redemption ... shall not be revived. ..Neither the initiation of any legal proceeding nor the order of any court staying the enforcement of a judgment of foreclosure or the sale pursuant to a judgment or the confirmation of the sale, shall have the effect of tolling the running of the redemption period". 735 ILCS 5/15-1603(c)(1).

Language in Margaretten v. Martinez, (2nd Dist, 1990), 193 Ill.App.3d 223, 550 N.E.2d 8; 140 Ill.Dec. 526, appeal denied 132 111.2d 546, 555 N.E.2d 377, 144 Ill.Dec. 258, can also be cited for the Court holding that the trial court was prohibited from using its equitable powers to extend the redemption period after the judgment had been entered and the sale held.

There is also a "Special Right to Redeem" set forth in Section 15-1604 which applies only to residential real estate where the purchaser at sale is the mortgagee and the sale price was less than the full debt. When these circumstances coincide, the mortgagor/owner has a special right to redeem for 30 days after the confirmation of the sale. It is noteworthy that the amount is NOT the full debt, but the amount bid, plus statutory interest and statutory costs and expenses.

The procedure to be followed to redeem under IMFL is set forth in detail in Section 15-1603. The statutory scheme provides that the redemption funds are to be tendered to the mortgagee or the mortgagee's attorney of record, 735 ILCS 5/15-1603(f)(1), or, in the event of a dispute as to the amount necessary or refusal of the mortgagee to accept the tender, the funds are to be tendered to the Court together with written objections. 735 ILCS 5/15-1603(f)(2). The basis for the calculation of the amount necessary to redeem is the statement of the mortgagee which is to be prepared by its counsel rather than the sheriff or selling officer. The triggering event for the preparation of the redemption estimate is the "written notice of... intent to redeem" which the mortgagor MUST give to the mortgagee's attorney at least 15 days (other than Saturday, Sunday or Court holiday) before the date designated for redemption". 735 ILCS 5/15-1603(e). Under IMFL, Section 15-1603(f)(1) provides that the redemption funds are to be tendered to the mortgagee or the mortgagee's attorney of record. This same section also requires that the "Such owner of redemption shall file with the clerk of the court a certification of the giving of such notice." (See Section 15-1603(e). This statutory provision requiring a notice of an intent to exercise redemption rights by the mortgagor and itemization of the amount necessary to redeem by the mortgagee seem to present difficulty for both laymen and casual practitioners in the area. Thus far, the Courts have refused to require the filing of the notice of intent to redeem as a pre-condition to redemption or to protect the interests of third party bidders. (See Fleet Mortgage Corp. v. Deale, (1st Dist., 1997) 287 Ill.App.3d 385 and Commercial Credit Loans, Inc. v. Espinoza, (1st Dist. 1997), 293 Ill.App.3d 923, 288 Ill. Dec. 410, 687 N.E.2d 282. Simply knowing that a formal notice and response procedure exists in order to redeem seems to be beyond many if not most practitioners in this area. The statutory provision that appears to mandate that the notice must be given at least 15 days prior to the designated redemption date can certainly be fraught to opportunity for malpractice and controversy before the Courts, but to date, it appears that the Appellate Courts are not willing to require strict compliance with the statute or believe that the interest of third party bidders are sufficiently protected or important to protect by enforcement of this provision of the law.

Something of importance which is not readily apparent upon the first or casual reading of the Illinois Mortgage Foreclosure Law is that only owners have the right to redeem. Second lenders, subordinate lien holders and other creditors do not have a statutory right to redeem. For those whose clients who are second mortgage holders, this may present a difficulty if they are attempting to effectuate a "last minute redemption" upon finding that there is equity and the first lender is about to foreclose this interest at its sale. The alternative is to out-bid the first lender at the sale rather than redeem. Additionally, the statutory provisions requiring a notice of an intent to exercise redemption rights by the mortgagor and itemization of the amount necessary to redeem by the mortgagee seem to present difficulty for both laymen and casual practitioners in the area.

The effect of the amendment of a judgment on the running of the statutory redemption period has been of some speculation among practitioners in the area. It has been held, however, that the amendment of a judgment, following the filing of a bankruptcy petition, in order to include additional fees and expenses incurred during the stay does not extend the redemption period. Mountain States Mortgage Center v. Allen, (1st Dist. 1993), 257 Ill.App.3d 372, 628 N.E.2d 1052, 195 Ill.Dec. 588.

6. Sale:

The notice content and conduct of the foreclosure sale is set forth in the Illinois mortgage Foreclosure Law. 735 ILCS 5/15-1507. The publication and notice requirements are set forth in Section 5/15-1507, and mandate the information to be given in the sale notice, (although an "immaterial error in the information shall not invalidate the legal effect of the notice"), as well as the timing and forum of publication. Continuance of sales from time to time are provided for in Section 5/15-1507(c)(4), and no notice need be published in the event a sale is continued for less than 60 days; although it is important and mandated that the sale officer announce the continuance at the time of the sale, and whether this is limited to a single continuance or multiple continuances, each of less than 60 days, has yet to be presented to an Appellate Court.

The 'most commonly asked questions about sales" are the terms and what is being sold. It is critical to make certain the terms, ("cash" "AS IS"), are set forth in the public notice. Equally important, is to assure that "no warranties or representations" relating to the nature or extent of title are communicated or implied. Relating to what is being sold and what representations can be relied upon at sale, see Marino v. United Bank of Illinois, N.A., (1985), 137 Ill.App.3d 523, 484 N.E.2d 935, where a request by a bidder at a foreclosure sale for advice of status of liens which were not being foreclosed was dealt with by the Court. The more recent case of Davis v. Stramaglio, (1st Dist. 1991), 154 Ill.Dec. 356, 568 N.E.2d 356, extended the Court's protection of the validity of the sale and the purchasers' interest unless the purchaser had notice of an error or irregularity in the sale documents, (or, presumably, the conduct of the sale). A concerted attack on the statutory scheme of foreclosure sales was mounted in the case before the First District. Mountain States Mortgage Center v. Allen, (1993 1St Dist.) 257 Ill.App.3d 372, 628 N.E.2d 1052, 195 Ill.Dec. 588. In his decision, Justice Dom Rizzi found that the sales could be conducted by a sale officer other than the Sheriff of the County and in a place other than the courthouse. 735 ILCS 2-1401(e) also contains a statutory protection for the rights of third party bona fide purchaser without notice of defects at the sale, and discussions of this law can be found in State Bank of Lake Zurich v. Thill, (1986), 113 Ill.2d 294, 497 N.E.2d 1156, 100 Ill.Dec. 794, and Mid-America Federal v. Kosiewicz, (2nd Dist. 1988), 170 Ill.App.3d 316, 524 N.E.2d 663, 120 Ill.Dec. 633. The Second District has ruled that even where the strict publication requirements of the Illinois Mortgage Foreclosure Law are not followed, the Court may approve the sale IF the defendants themselves received actual notice of the sale. Cragin Federal v. American National Bank, (2nd Dist. 1994) 161 Ill.App.3d 115, 633 N.E.2d 1011.

7. Confirmation of Sale and Possession:

Section 15-1508 codifies the basis upon which the Court will NOT approve the sale as being LIMITED to instances where (1) proper notice of the sale was not given, (2) the sale terms were unconscionable, (3) the sale was conducted fraudulently, or (4) "that justice was otherwise not done". The approval of sale, due to the fact that the redemption period will have already expired, takes on importance in addition to confirming the sale process in that the matter of any priorities of liens which were reserved in the judgment will be finally established by the confirmation, (Section 15-1508(b)(3)), and the right to possession of the premises is awarded at this hearing, stayed for 30 days. Section 15-1508(b). Additional fees and costs incurred by the mortgagee since the entry of the judgment and a deficiency judgment will also be allowed and ordered at this hearing. (Section 15-1508(b)(1) and 15-1508(b)(2), 15-1508(e))

Recent amendments to Section 15-1507 and 15-1508 have dealt with the difficult issue of obtaining possession from occupants of the foreclosed premises who were not parties to the foreclosure proceeding. Section 15-1701(d) now provides that after 30 days after the confirmation of the sale, the purchaser at sale may bring an action within the foreclosure by "Supplemental Petition for Possession" under subsection (h) to terminate the rights of possession of any such occupants. New Subsection 15-1701(h) was created by Public Act 88-265 to provide that a mortgagee-in-possession, holder of a certificate of sale, or purchaser at a foreclosure sale can bring a supplemental petition for possession against a person NOT made a party to the foreclosure action who became an occupant AFTER the recording of the notice of foreclosure (lis pendens), memorandum of the judgment, or certificate of sale. The supplemental action can be filed any time during the foreclosure proceeding and up to 90 days after the entry of the order confirming the sale. The hearing on the supplemental petition shall be not less than 21 days from the date of the service of notice for hearing upon the occupants. The notice shall include the petition and a copy of the certificate of sale or deed. In effect, the new Subsection 15-1701(h) resurrects the old "writ of assistance" procedure commonly used prior to the passage of Illinois Mortgage Foreclosure Law. The notice time limitations contained in Section 15-1701(h) seem particularly significant, and it is presumed that the method of service of the notice is the same as notices of hearing in other cases except the 21 day provisions.

The approval of the sale, long viewed by the Courts and mortgagee's attorneys as a "routine" matter, actually has a great potential for being otherwise under the right circumstances, OR, if so employed by able counsel. More and more, issues relating to lien priority and distribution of surplus proceeds from the sale are being resolved at confirmation of the sale. This is, of course, also the point at which Defense Counsel must confront the issues relating to a deficiency judgment. The new statutory procedure designated as a "Supplemental Petition for Possession" is of historical kinship to the old "Writ of Assistance", and will likely be so treated by the courts. In order to terminate the leasehold rights of tenants who are parties to the foreclosure, the complaint must have specifically included the allegation of subparagraph (T) of Section 15-1504, and the Judgment must have a specific termination of interest finding.

The issue most litigated at the confirmation of sale in the recent cases is whether or not the amount bid at the sale is "conscionable". In Standard Bank v. Callaghan, (2nd Dist. 1988), 177 Ill.App.3d 973, 532 N.E.2d 1015, it was held that the mortgagee who bids at a judicial sale based on an appraisal that it knew or should have known was too low, engages in a "mistaken practice" which renders the sale commercially unreasonable and jeopardizes its right to obtain a deficiency judgment at confirmation. In the case of RTC v. Holtzman, (1St Dist. 1993), 248 Ill.App.3d 105, 618 N.E.2d 418, the Court ruled that IF there is an allegation of a current appraisal or other indicia that the sale bid is unconscionably low, a hearing should be afforded prior to the confirmation. The Second District in Cragin Federal v. American National Bank, (2nd Dist. 1994) 161 Ill.App.3d 115, 633 N.E.2d 1011, established the probable outcome of such an evidentiary hearing and ruled that, in order to deny confirmation of sale, unconscionably of price alone is not enough; the law requires something more than merely "inadequate sale price", and in this case missing one of the three sale publications was not sufficient. The Court upheld the trial court's ruling that the sale of the property for substantially less than its actual value would NOT be set aside and affirmed the trial court's confirmation of the sale.

This progression of the law recognizing that foreclosure sales do not necessarily result in the property being sold for "fair market value" and that foreclosure sales should NOT be overturned solely on that basis is reflected in the reasoning employed by the United States Supreme Court in its decision in BFP v. RTC, (1994) 114 S.Ct. 1754. In that case, the Court's opinion states that at a foreclosure sale the sale price IS the market value and nothing else is a reliable valuation; especially where the bidder is a third party bona fide purchaser. In BFP v. RTC, Justice Scalia delivered the opinion in which Justices Rehnquist, O'Connor, Kennedy, and Thomas joined, holding that so long as a foreclosure sale is conducted in accordance with the state law and is not collusive, then the price received at the foreclosure sale shall be deemed the reasonably equivalent value for the purpose of the Section 548 of the Bankruptcy Code, and thus can not be set aside as a "fraudulent transfer" if the debtor subsequently files bankruptcy. This United States Supreme Court case, although decided in a Bankruptcy arena, will likely be good precedent in future foreclosure cases where confirmation is attacked based on the amount bid at the sale. Commercial Credit Loans, Inc. v. Espinoza, (1st Dist. 1997), 293 Ill.App.3d 923, 288 Ill. Dec. 410, 687 N.E.2d 282, stands, however, as a case in Illinois that anyone dealing with the issues of "unconscionability" and "unjust result" must review. In this case, Ms. Espinoza came to the sale with a certified check in hand to attempted redemption. Unfortunately, her redemption period had already expired, she had a check for only the amount of the judgment (without the additional interest and costs that had accrued in the 90 days following the judgment), and did not speak English. The Trial Court's refusal to confirm the sale as "unconscionable" and an "unjust result" was affirmed, and it can't be ignored that the most often considered fact in the decision was the fact that the third party bidder would have otherwise purchased the property for approximately 25% of its fair market value.


A good overview of the issues and cases relating to confirmation is set forth in Harold I. Levine's article "Report of Sale and Confirmation in Foreclosure: What is a good faith bid?" which appeared in the April, 1994 Issue of the Real Property Section Newsletter of the Illinois State Bar Association, Vol. 39, No. 7. and "A Growing Trend to non-confirmation of sales under the Illinois Mortgage Foreclosure Law", Illinois State Bar Association, Real Estate Council Newsletter, June, 1998.


For a decision about what jurisdiction the trial court has at confirmation of sale to "correct" a mistaken sale bid, see the case of Grubert v. Cosmopolitan National Bank, , (2nd Dist. 1995), 269 Ill.App.3d. 405, 645 N.E.2d 560, 206 Ill.Dec. 555, affirming the test set forth almost ninety years ago in Abott v. Beebe (1907) 226 Ill. 417, 80 N.E. 991, that: "[c]ourts will not refuse to confirm a judicial sale or order a re-sale [sic] on the motion of an interested party, merely to protect him against the result of his own negligence..." In Grubert , the Trial Court's order allowing the plaintiff to "revise" its bid made in error at a foreclosure sale in order to do "equity" and "justice" was reversed on appeal. The Second District's opinion stated that the action of the Trial Court was clearly beyond the court's authority and stated its fear that allowing the Court to exercise such discretion to correct the mistake of the Plaintiff at sale "would undermine the finality of the results of a properly conducted judicial sale." Relating to another sale "held in error" by the Plaintiff when an agreement had been made to accept payment up to a date after the sale, see Citicorp Savings v. First Chicago Trust, (1St Dist. 1995), 645 N.E.2d 1038, which both recognized third party bidder's rights to intervene at the confirmation of sale and the trial court's authority to refuse to confirm a sale where it determined the property had been offered for sale "by mistake". This trend toward allowing the trial court to exercise its discretion in refusing to confirm sales based on concepts of equity, justice or unconscionability is noteworthy and furthered by the ruling in Fleet Mortgage v. Deale discussed above. In this case, as in Citicorp, the sale was hold "in eror". The owners tendered redemption an the last day of the redemption period, but the lender failed to notify the selling officer and the sale proceeded to a third party bidder. On appeal the court upheld the trial court's order to vacate the sale upon a request for approval. "The highest bid at a sale is merely an irrevocable offer to buy ... the acceptance of which does not take place until the court confirms the salelf. The trial court is justified in disapproving the sale if unfairness is shown and reveals a prejudice against an interested party." The appeals court rejected the bidder's argument that if there was an "injustice", it was done to the bidder, who innocently bid and paid for the property because of the alleged negligence of the mortgagor and mortgagee in failing to cancel the sale. The Fleet Mortgage and Citicorp case seem to indicate a trend towards disfavoring the third party bidder, (regardless of how bona fide or innocent), and disregard of the asserted need for sales to be final and certain to attract bidders.

There is SOME consolation for third party bidders at sale however, in the recent ruliing of the Second District court in West Suburban Bank v. Latteman,(2nd Dist. 1996), 674 N.E.2d 149. In that case, the trial court's ruling that the sale was void based on a jurisdictional issue was upheld. The Appellate Court, however, reversed the lower court's decision that the purchaser was not entitled to equitable interest on the sale bid, and held that bidder receive interest as part of "restitution" from the lender for benefits received from the erroneous judgment.

In a case of first impression, Members Equity Credit Union v. Duefel, (3rd Dist. 1998), 295 Ill.App.3d 336, 692 N.E.2d 865, 229 Ill.Dec. 876, the Third District has ruled that surplus proceeds from a foreclosure sale must be awarded to the foreclosed mortgagor rather than be applied to payoff an outstanding, prior mortgage lien as requested by the third party bidder. The foreclosure was of a junior mortgage on residential real estate. The first mortgage lien holder was not a party to the suit. At sale, a third party bidder bid a sum resulting in a surplus, and then, at confirmation of the sale, petitioned the trial court to direct the surplus be paid to satisfy the outstanding first mortgage. The trial court granted the petition and the borrowers appealed. On appeal, the Third District considered, but rejected, the bidder's argument that to award the surplus proceeds to the mortgagors would result in a windfall to them because they had no equity in the property over the first mortgage, noting that "Illinois law mandates that a buyer at a judicial foreclosure sale takes the property subject to any outstanding debts which may encumber the property subsequent to the sale." All bidders are deemed to bid with constructive notice of liens on the property offered for sale. Competitive bidding at foreclosure sales promotes the public policy goal of maximizing the selling price. Accordingly, the Court reasoned, application of any surplus to liens that the property was sold "subject to" would undermine that goal and render the competitive bidding process 'practically meaningless". The Court found that the trial court abused its discretion by directing payment to the first lender, which was a non-party to the case and over whom it did not have jurisdiction, and interfered with the contractual relationship between the first lender and its borrower by directing the surplus award.

Another notable confirmation of foreclosure sale cases is BCGS, L.L.C. v. Jaster, (2nd Dist. 1998), 299 Ill.App.3d 208, 233 Ill.Dec. 367, 700 N.E.2d 1075, in which the appellate court affirmed the confirmation of a sale to the mortgagor, despite his knowledge of an outstanding junior lien on the property, and held that the title acquired was free and clear of that lien. The Illinois Mortgage Foreclosure Law, the court's opinion holds, expressly provides that foreclosure extinguishes all claims for lien upon the property held by parties over whom the court has jurisdiction in favor of the bidder at sale. Accordingly and regardless of his knowledge of the claims, a literal reading of the statute is that any bidder, even the mortgagor, can extinguish those liens foreclosed by being the successful bidder at sale. In her dissent, Justice Hutchinson states that Mr. Jaster's actions were admittedly to extinguish the lien of his former wife's divorce attorney that "reflects a showing of fraudulent conduct that the majority fails to acknowledge." The dissent takes that position that a mortgagor "does not morph into a bona fide purchaser upon the expiration of the redemption period.", and warns that "Future implications of this decision are horrific and likely contrary to legislative intent. The majority's decision means that mortgagors, when faced with an unwanted lien on their property, should simply stop paying on their mortgage, allow the property to fall into foreclosure, allow the redemption period to pass, and then successfully bid on the property to retake title free and clear of all junior liens."

These, then, are the "Seven Steps of Foreclosure". If the Plaintiff's counsel pursues the process in an orderly and appropriate fashion, the remedy will be equally appropriate and timely. The steps also hold the promise for Defedants and their attorney of a process that is understandable and even predictable -- which is all that we can reasonably ask of the law.

***Copyright 1996, 2000, by Steven B. Bashaw. All Rights Reserved.