Oct 16 - Roetzel is pleased to announce that it has secured a significant Illinois Appellate Court victory for its client, First American Bank, in a landmark decision that clarifies the Illinois Mortgage Foreclosure Law and defines the options available to banks against mortgagers who default on their payments.
In Turczak and Lew v. First American Bank, et al., 2013 IL App (1st) 121964, the Illinois Appellate Court for the First District held that: (1) a bank may proceed consecutively in actions on the promissory note and to foreclose on the mortgage, and (2) unless and until a sheriff’s sale of a foreclosed property is approved by judicial order, the rights of interested parties – including those of banks holding junior mortgages on the property – are not extinguished.
“Our clients are extremely pleased with this decision,” said Mark D. Belongia, a Roetzel partner and lead counsel in the case. “This also is a victory for banks throughout Illinois that can now feel confident that they can proceed with separate actions on promissory notes and to foreclose on mortgage security interests, if they deem that course of action to be in their best interests.”
Richard K. Hellerman, a Roetzel partner and co-litigator in this case, said, “Likewise, as a result of this decision, banks holding second mortgages are not foreclosed out of their positions even after the first mortgagee obtains a foreclosure judgment, unless and until the property is sold at a sheriff’s sale and such sale is judicially confirmed.”
Belongia added that the Court surveyed all the relevant case law on this issue, including an Illinois Supreme Court case from 1941 on which the plaintiffs were relying for their case.
In this matter, First American Bank held a second mortgage on the plaintiffs’ home. The first mortgage holder obtained a judgment of foreclosure but the property did not proceed to a sheriff’s sale. Thereafter, First American Bank separately sued the plaintiffs on their defaulted promissory note obligation and obtained a judgment. However, before the property was sold at a sheriff’s sale, the plaintiffs found a buyer for their home in a short sale. The first mortgagee agreed to the short sale, conditioned upon agreement from First American Bank, which said it would agree to the short sale and release its second mortgage in exchange for a payment of $6,000. The plaintiffs made the requested payment and the property was sold.
The plaintiffs then sued First American Bank, alleging that the bank violated the Fair Debt Collection Practices Act and the Consumer Fraud Act by misrepresenting that it had an existing, valid second mortgage on the property. The plaintiffs contended that the second mortgage was extinguished as a matter of law by the foreclosure judgment obtained by the first mortgage holder and also by its own judgment on the promissory note. The plaintiffs asserted that because First National Bank chose to sue only on its note and not also foreclose on the second mortgage in the same lawsuit, the judgment in the second note lawsuit barred any other or any further action to foreclose the second mortgage on the legal ground of res judicata.
Roetzel successfully moved to dismiss the complaint, and the Appellate Court affirmed that decision.
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