Illinois Mortgagors Barred From Vacating A Judgement Of Foreclosure And Sale After The Mortgagee Files Its Motion To Confirm Sale

June 20, 2014

In Wells Fargo Bank, N.A. v. McCluskey, 2013 IL 115469 (Nov. 21, 2013), the Illinois Supreme Court clarified a perceived tension between the Illinois Code of Civil Procedure and the Illinois Mortgage Foreclosure Law (“IMFL”).  Specifically, section 5/2-1301(e)[1] of the Civil Code allows the court to set aside a default judgment against any party before final order or judgment.  Conversely, section 5/15-1508(b)[2] of the IMFL provides that at a hearing on a motion to confirm a judicial sale, the court shall confirm the sale unless it finds that (i) a notice of sale was not given, (ii) the terms of the sale were unconscionable, (iii) the sale was conducted fraudulently, or (iv) that justice was otherwise not done.  Since judgments of foreclosure and sale are considered non-final, a party seeking to vacate the judgment after judicial sale, pursuant to section 5/2-1301(e), would be able to circumvent the requirements of IMFL, since the sale would necessarily have be set aside if the underlying judgment was vacated.

In McCluskey, the borrower waited until the judicial sale date, seven months after the judgment of foreclosure was entered, to file a motion to vacate the default, arguing that she was not able to receive a loan modification despite her best efforts and that she was now able to make payments.  The parties agreed to stay the sale for 75 days to negotiate a loan modification agreement.  The negotiations failed, and the judicial sale was scheduled again.  The borrower once again filed a motion to vacate the default judgment, now ten months after the judgment of foreclosure.  For the first time since the foreclosure proceedings began and after she had admitted to defaulting, she argued that she had meritorious defenses, including that Wells Fargo’s loan officer lacked personal knowledge required for the foreclosure and that the Wells Fargo lacked standing to sue.  The circuit court denied the borrower’s motion to vacate, believing that she had waived her objections to the default after she had received the benefit of the agreement to defer the original judicial sale and to negotiate a modification.  The circuit court then confirmed the judicial sale.

The borrower appealed, and the appellate court reversed and remanded, believing that section 5/2-1301(e) relief should have been evaluated by the trial court.  Wells Fargo argued on appeal that section 2-1301(e) of the Civil Code conflicted with section 5/15-1508(b) of the IMFL and that the IMFL took precedence over inconsistent provisions.  In short, Wells Fargo believed that a mortgagee in default could not circumvent the section 5/15-1508(b) grounds for not confirming a judicial sale through use of the section 5/2-1301(e) motion to vacate default at that stage in the proceedings.  The appellate court disagreed, holding that section 5/2-1301(e) default relief is not precluded by the IMFL, so long as a movant can present a compelling excuse for their lack of diligence and a meritorious defense.

On appeal to the Illinois Supreme Court, Wells Fargo repeated same argument, relying on case law[3] stating that the IMFL trumps inconsistent statutory provisions in foreclosure proceedings.  The Illinois Supreme Court examined the text and purpose of each statute to reconcile the differences, finding that a provision of the IMFL[4] requires the IMFL to control if the Civil Code is inconsistent.  Thus, the question became whether section 5/15-508(b) and section 2-1301(e) were inconsistent.  The Court concluded that they were.  The Court stated that once a motion to confirm a judicial sale had been filed, courts may still exercise their discretion, but the balance of interests has shifted between the parties – it requires more than a section 5/2-1301(e) motion to vacate a default judgment to stop a judicial sale because this lower bar both disrupts stability in the judicial sale process and undermines the balanced legislative discretion enshrined in the IMFL.

The Court held, therefore, that to vacate both a sale and underlying default judgment after a motion to confirm such a sale is filed, the borrower must show both a meritorious defense as required by section 2-1301(e) and that justice was not done under 5/15-1508(b)(iv).  Until such a motion to confirm the sale is filed, a borrower may still seek to vacate a default judgment under only the laxer section 2-1301(e) requirements of due diligence and a meritorious defense.  In so holding, the Court reversed the appellate court and affirmed the circuit court’s decision.  Ultimately, although Wells Fargo had not yet filed a motion to confirm a sale, the circuit court did not abuse its discretion in denying the section 5/2-1301(e) motion to vacate because the defendant-appellee had slept on her rights by not raising her defenses for more than 10 months after judgment had been entered.

This interpretation is consistent with the General Assembly’s policy of balancing the competing interests of the lender in enforcing its security interest as efficiently as possible, and the competing interest of the borrower in attempting to protect her equity in the property.  Additionally, it resolves an important question in favor of lenders that will create more stability in the judicial foreclosure and sales process.

[1] See 735 ILCS 5/2-1301.

[2] See 735 ILCS 5/15-1508.

[3] See, e.g., Mortgage Elec. Registration Sys., Inc. v. Barnes, 406 Ill. App. 3d 1, 4 (Ill. App. Ct. 2010).

[4] See 735 ILCS 5/15-1107(a).