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Illinois Appellate Court Holds Statute Bars Post-Confirmation Foreclosure Claims

Scott Brian Mueller and Keegan Shea

Summary

  • Ignorance on the part of a defendant in a foreclosure proceeding does not render the foreclosure invalid. 
  • If the First District ruled otherwise, foreclosure sale purchasers would not obtain good title to the foreclosed property because such title would be subject to collateral attack for years.
  • A contrary outcome would also chill demand at foreclosure auctions and artificially depress real estate values.
Illinois Appellate Court Holds Statute Bars Post-Confirmation Foreclosure Claims
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Section 15-1509(c) of the Illinois Compiled Statutes, on its face, drastically limits the availability of legal redress to Illinois homeowners after a foreclosure sale confirmation. Apart from two specific exceptions (involving lack of jurisdiction and claims for interest in sale proceeds), the statute robustly bars all subsequent claims challenging the underlying foreclosure judgment:

[V]esting of title . . . by deed . . . shall be an entire bar of (i) all claims of parties to the foreclosure and (ii) all claims of any nonrecord claimant who is given notice of the foreclosure in accordance with paragraph (2) of subsection (c) of Section 15-1502, notwithstanding the provisions of subsection (g) of Section 2-1301 to the contrary. Any person seeking relief from any judgment or order entered in the foreclosure in accordance with subsection (g) of Section 2-1301 of the Code of Civil Procedure may claim only an interest in the proceeds of sale.

735 Ill. Comp. Stat. 5/15-1509(c) (emphasis added).

This statute advances the policy rationale that foreclosure sale purchasers should be assured and confident of their good title to the foreclosed property. But what if a foreclosed defendant claims that the underlying judgment results from fraud? A recent ruling from Illinois’s First Circuit Appellate Court harmonized previous decisional law from Illinois appellate courts and rejected the availability of fraud for post-foreclosure confirmation pursuit. In American Advisors Group v. Cockrell, 2020 IL App (1st) 190623, the homeowner sought to use an infamous, well-reported, and litigated mortgage fraud scheme to justify taking another bite at the apple to stave off the enforcement of a reverse mortgage. Ultimately, the attempt failed and the Illinois Supreme Court rejected the application for rehearing, essentially affirming those holdings that absolutely bar even fraud claims (or, at least, intrinsic fraud claims) raised post-confirmation, and thereby clarified the narrowly tailored extrinsic fraud exception (i.e., lack of jurisdiction) to the section 15-1509(c) bar to post-confirmation attacks on foreclosure sale titles.

Despite her ultimate lack of success, the homeowner was able to adduce some well-documented facts in the context of the foreclosure. A quick internet search of Mark Diamond yields much in the way of the sordid business history conducted by Diamond and his cohorts. In short, Diamond established a brazen predatory reverse mortgage scheme that employed industry know-how and real estate title and closing services to siphon fraudulent mortgage proceeds from unsuspecting homeowners. Hundreds or thousands of victims fell prey, over the course of years, to Diamond’s particular brand of fraud. The main variation of his fraudulent scheme involved approaching homeowners (typically elderly black residents of Chicago’s South Side) and promising “free” funds to refinance prior liens or repair a dilapidated property, or both.

Diamond then siphoned these loan funds at closing to one of Diamond’s fraudulent cover entities, perhaps a bogus lien claimant or a phantom contractor. Importantly, these funds came by way of a reverse mortgage loan, which, unlike a conventional mortgage, does not amortize over time but actually grows larger in the absence of monthly payments. In exchange for the loan proceeds, the lender can foreclose and take title to the property at the borrower’s death. Diamond might represent that this lack of monthly payment is “free money” to the unsuspecting homeowner, and perhaps no one would be the wiser during the life of the loan and the borrower/owner. But per the terms of the reverse mortgage, when a borrower passes away, the surviving spouse must maintain primary residence at the collateral property. Otherwise, an event of default under the reverse mortgage is triggered and could lead to foreclosure.

This is precisely the scenario in which Mrs. Cockrell found herself after the death of her husband, Bruce Cockrell, a bona fide, adjudicated Diamond victim. Confused as to why she would receive correspondence related to her deceased husband’s mortgage, Mrs. Cockrell first ignored correspondence from the reverse mortgage lender and then proceeded to take no action upon service of a foreclosure complaint. A default judgment was entered against her, but she still received notice of the subsequent foreclosure sale and confirmation. She never hired an attorney or appeared in court to oppose the foreclosure complaint or the sale confirmation, nor filed an appeal. But aided by a local legal clinic, she filed a section 2-1401 petition for post-judgment relief upon service of eviction proceedings. The trial court looked to the claims bar provisions of 735 Illinois Compiled Statutes 5/15-1509(c) and rejected this request based on section 15-1509(c).

The Cockrells used Diamond’s actions and the lender’s occupancy confirmation process to throw several fraud-related arguments against the wall, but none stuck because of the section 15-1509(c) bar. Illinois allows two types of fraud to attack judgments—intrinsic fraud and extrinsic fraud. Intrinsic fraud occurs after the court acquires jurisdiction, such as false testimony, concealment of evidence, or a lie to the court, rendering a judgment voidable but not subject to collateral attack.

Extrinsic fraud, per the First District of the Illinois Appellate Court, “prevents the court from acquiring jurisdiction over the defendant(s), rendering a judgment void and subject to collateral attack.” Doctor’s Associates, Inc. v. Duree, 319 Ill. App. 3d 1032, 1043, 745 N.E.2d 1270, 1280 (Ill. App. Ct. 1st Dist. 2001) (holding that fraud is extrinsic when it “prevents the rendering court from acquiring jurisdiction or merely gives it colorable jurisdiction over the matter”). See Johnston v. City of Bloomington, 77 Ill. 2d 108, 112, 395 N.E.2d 549, 550 (1979) (“[J]udgments entered in a civil proceeding may be collaterally attacked as void only where there is a total want of jurisdiction in the court which entered the judgment, either as to the subject matter or as to the parties.”).

Although lack of jurisdiction/extrinsic fraud does not expressly appear in the statute, Illinois courts have held that it is an exception to the section 15-1509(c) bar because extrinsic fraud renders judgments void ab initio. The Cockrells asserted both types of fraud, but the First District reaffirmed prior holdings that only extrinsic fraud—not intrinsic fraud—can be used to circumvent the section 15-1509(c) bar. And the Cockrells’ extrinsic fraud argument did not meet the mark.

The Cockrells’ intrinsic fraud argument went like this: Upon the death of Mr. Cockrell, the terms of the mortgage required Mrs. Cockrell to occupy the property as her primary residence. The lender eventually declared default for “failing to occupy the subject premises pursuant to the terms of the Mortgage.” After Mr. Cockrell died, the reverse mortgage lender sent multiple residency confirmation requests asking Mrs. Cockrell to confirm that the property was still her primary residence. Even though she occupied the residence, Mrs. Cockrell failed to complete no fewer than four consecutive forms, triggering a default. Before the First District, Mrs. Cockrell argued that this amounted to a misrepresentation to the trial court. Mrs. Cockrell was personally served at the property with the foreclosure complaint, which service should have prompted a further investigation before representing to the trial court that Mrs. Cockrell did not occupy the property as her primary residence.

The Appellate Court refused to write into the section 15-1509(c) bar an intrinsic fraud exception. Mrs. Cockrell should have appeared before the trial court after being served with the foreclosure complaint to assert her defense—that the property remained her primary residence. Instead, she asserted it via a section 2-1401 Petition to Vacate the Foreclosure Judgment. Section 15-1509(c) barred the argument, and the First District did not consider the merits of the argument. In doing so, the Appellate Court synthesized several prior appellate opinions and reinforced the strength of the section 15-1509(c) bar.

Prior Appellate Treatment of 15-1509(c) Fraud Cases

For example, in BMO Harris Bank National Ass’n v. LaRosa, the lender obtained a foreclosure judgment, and the court order confirming the foreclosure sale established a deficiency judgment against the borrowers. 2017 IL App (1st) 161159, ¶¶ 5, 6. The borrowers then filed a section 2-1401 petition claiming that the plaintiff “acted dishonestly and fraudulently” by taking a deficiency judgment because the plaintiff had reported to the Internal Revenue Service and the defendants that the underlying debt “had been cancelled.” Id. ¶ 7. To overcome the section 15-1509(c) bar, the defendants argued that section 15-1509 is silent as to bringing a section 2-1401 petition to vacate a deficiency judgment. Id. ¶ 12. Yet, this argument did not account for the broad, clear, and unambiguous language of section 15-1509(c), “which bars all claims of parties to the foreclosure, subject to certain exceptions that [did] not apply.” Id. ¶ 22.

At issue in Harris Bank, N.A. v. Harris was whether a section 2-1401 petition alleging that the bank “knew or should have known that the subject [bank] loan was unfair” was barred by section 15-1509(c). 2015 IL App (1st) 133017, ¶ 30. The defendant argued that the plaintiff bank obtained a foreclosure judgment based on “an unfair predatory loan that had a high risk of default.” Id. Without determining whether the subject loan was in fact “unfair,” the court held that the section 2-1401 petition was barred because the vesting of title to property by delivery of a deed following a foreclosure sale, “unless otherwise specified in the judgment of foreclosure, shall be an entire bar of * * * all claims of parties to the foreclosure.Id. ¶ 48 (citing 735 Ill. Comp. Stat. 5/15-1509(c) (emphasis in original)).

U.S. Bank National Ass’n v. Prabhakaran held that the clear and unambiguous language of section 15-1509(c) barred the defendant’s section 2-1401 petition, alleging that the confirmation of sale was void because the plaintiff fraudulently accepted additional payments from the defendant after the judgment of foreclosure was entered. 2013 IL App (1st) 111224, ¶¶ 1, 30, 986 N.E.2d 169, 170, 176. The fraud allegations were irrelevant to the court’s analysis regarding the interplay of section 15-1509(c) and section 2-1401. Like the LaRosa and Harris courts, the Prabhakaran court interpreted section 15-1509(c) broadly, as follows:

There is simply no Illinois authority to support the defendant’s argument that she can utilize section 2–1401 to circumvent section 15–1509(a) or section 15–1509(c). . . . The clear and unambiguous language of section 15–1509(c) of the Foreclosure Law bars the defendant’s claims in her section 2–1401 petition and is dispositive.

Id. ¶ 30.

The Cockrells’ Case

The Cockrells also tried to craft a related extrinsic fraud argument based on Mrs. Cockrell’s alleged confusion regarding the nature of the foreclosure action. When Mrs. Cockrell was served with the foreclosure complaint, her deceased husband’s information was on top of the stack of documents. Mrs. Cockrell mistakenly believed that the documents did not apply to her. According to Mrs. Cockrell, she was unaware that she needed to take any action.

In its opinion rejecting the Cockrells’ appeal, the First District cited the fact that no action of the reverse mortgagee caused an inability of Mrs. Cockrell to raise any defenses in the trial court and that her personal service and multiple residency confirmation notices should have alerted her to a need to act to preserve her rights. Ultimately, the appellate court found that no extrinsic fraud occurred depriving the trial court from obtaining valid jurisdiction over Mrs. Cockrell, and therefore the foreclosure judgment was not void ab initio. For that reason, section 15-1509(c) barred Mrs. Cockrell’s claim.

Now enter Mark Diamond. Kerwin Cockrell, Mrs. Cockrell’s brother-in-law, lived in the property and was a prior record owner of the property. In November 2013, Diamond approached Kerwin Cockrell and his brother, Bruce. At this time, Kerwin Cockrell owned the property. Diamond instructed Kerwin to convey the property to Bruce (who was closer to 62, the minimum age required for a reverse mortgage loan). Kerwin transferred the property to Bruce via quitclaim deed, and then Bruce transferred the property to himself and Mrs. Cockrell as joint tenants. After Mr. Cockrell executed the reverse mortgage loan, Diamond fraudulently received the loan proceeds.

The Cockrells argued that Diamond’s fraudulent scheme caused Kerwin to transfer his title and that, absent that fraud, Kerwin would have been a proper and necessary party in the foreclosure proceeding and he would have defended against the foreclosure complaint. Fraud kept Kerwin from the courthouse, kept him from defending his case. However, Kerwin was not a necessary party to the foreclosure proceeding as defined by Illinois statute. Kerwin was only a permissive party. Illinois courts are vested with jurisdiction to enter foreclosure judgment once all the necessary parties are properly served, and thus the trial court, here, did not need jurisdiction over Kerwin Cockrell to enter the foreclosure judgment.

The First District recognized that Diamond’s actions constituted fraud. “This court does not condone the fraud that occurred here.” This fraud, however, did not qualify as extrinsic fraud sufficient to circumvent the section 15-1509(c) bar. The court concluded its opinion by reemphasizing the strength of the section 15-1509(c) bar:

The posture of this case, however, goes beyond the confirmation of sale to the delivery of the deed pursuant to section 15-1509(b). Our legislature made clear, through the plain language of subsection (c), that the vesting of title by deed pursuant to subsection (b) “shall be an entire bar of all claims of parties to the foreclosure” (735 ILCS 5/15-1509(c) (West 2016)), subject to limited exceptions that do not apply here. Petitioners essentially ask this court to ignore legislative intent and carve another exception into subsection (c), which we cannot do even if it would lead to a more desirable outcome in this case. “Where the statutory language is clear and unambiguous, we will enforce it as written and will not read into it exceptions, conditions, or limitations that the legislature did not express.” Ryan v. Board of Trustees of the General Assembly Retirement System, 236 Ill. 2d 315, 319 (2010).

Cockrell, 2020 IL App (1st) 190623, ¶ 29.

Though it may appear substantively counterintuitive—the reverse mortgagee was able to foreclose on a property, truly in fact, occupied by the dead mortgagor’s spouse—the First District’s opinion was doctrinally correct, and the Illinois Supreme Court properly denied the Cockrells’ Petition for Leave to Appeal Pursuant to Supreme Court Rule 315.

Conclusion

The First District’s opinion reinforces two precedential points: (1) the section 15-1509(c) bar is necessary to protect the finality of foreclosure sales, and (2) the burden is on individual mortgagors or surviving spouse homeowners to exercise their rights in a timely manner. First, the “fraud,” recognized by the court, followed the actions by Mark Diamond that convinced Kerwin Cockrell to transfer his title to his brother Bruce. If fraud committed by a third party unaffiliated with the lender would allow a permissive party to a foreclosure proceeding to set aside a foreclosure judgment, it would leave bona fide purchasers for value at foreclosure sales without repose and forever at risk of section 2-1401 attacks. Second, as a signatory, Mrs. Cockrell was asked to comply with the terms of the mortgage four separate times; she was personally served with the summons; multiple notices of case management conferences were mailed to her; a copy of the judgment of foreclosure and sale was mailed to her; and notice of the foreclosure sale was mailed to her. She failed to respond to these notices at her peril.

Ignorance on the part of a defendant in a foreclosure proceeding does not render the foreclosure invalid. If the First District ruled otherwise, foreclosure sale purchasers would not obtain good title to the foreclosed property because such title would be subject to collateral attack for years. And a contrary outcome would also chill demand at foreclosure auctions and artificially depress real estate values.

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