First Mortgage Co v. Dina (IL)

Summary: Under the residential Mortgage License Act (205 ILCS 635/1-1), courts will not enforce a contract involving an unlicensed party where legislation, enacted for the purpose of protecting the public and not as a revenue measure, expressly prohibits a party from conducting the activity without a license.

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First Mortgage Co., LLC v. Dina, 2014 IL App (2d) 130567.


Facts: Daniel and Gratziela Dina, Defendants, entered into a mortgage agreement with First Mortgage Company of Idaho, LLC (FMCI). First Mortgage Company, LLC, (FMC), Plaintiff, of which FMCI became a subsidiary, filed a foreclosure complaint against the Dinas regarding the property after the Dinas failed to make a payment.

The Dinas appeared through counsel and filed an answer and affirmative defenses. First, they denied that FMC was either a mortgagee or a successor in the interest to the mortgage. The mortgage and complaint showed that FMIC was the lender and mortgagee. Second, the Dinas asserted, because the FMCI held the mortgage, FMC lacked standing. Third, the Dina’s argued that FMC failed to mitigate its damages and comply with its federal obligations by considering whether the Dinas were eligible under modification programs. Fourth, they asserted that FMC would receive greater benefits by modifying the loan than through foreclosure.

FMC moved for summary judgment, and filed a “Reply to Defendant’s Affirmative Defenses.” The Dinas missed the deadline to respond to the motion for summary judgment. Subsequently, they sought additional time to respond and filed a proposed response, supported by an exhibit, asserting that FMCI and FMC were not registered to do business in Illinois nor were they licensed under the License Act, among other claims.

FMC replied by asserting (1) the Dinas could not raise new defenses in a response to a motion, therefore forfeiting that defense, and (2) the Dinas were wrong on the merits. FMC argued that, under the Limited Liability Company Act (805 ILCS 180/1-1 et seq. (2010)), an LLC’s failure to register does not impair its contracts. Additionally, FMC argued that pursuing a legal proceeding did not constitute engaging in business within Illinois. FMC also stated that it was registered as a bank by the National Information Center (NIC) under the laws of Oklahoma and was consequently exempt from the License Act.

The trial court granted the motion for summary judgment, and entered the judgment for foreclosure and sale the same day. FMC filed a notice of sale, and the Dinas responded by reasserting their claim that FMC was not properly registered and licensed. The trial court approved the report of the sale, and the Dinas moved for reconsideration, reasserting the arguments they made in their objection to confirmation. The motion was denied, and the Dinas timely appealed.


Holding: Vacated and Remanded. On appeal, the Dinas argued that FMC and FMCI were not licensed mortgage lenders or exempt entities, and that contracts made by unlicensed entities were void. They also asserted that FMC, as an unregistered LLC, was barred by § 45-45 of the LLC Act (805 ILCS 180/45-45 (2010)) from bringing any civil action in Illinois. Alternatively, the Dinas argued that confirmation of the sale was an injustice, because an agreement to modify the loan would have benefitted both parties.

FMC responded by arguing that the claims based on the License and LLC Acts were procedurally barred. Alternatively, regarding the Licensing Act, FMC argued that it was exempt from the Act’s requirements. Further, FMC argued that the Dinas’ claims about the unreasonableness of the sale were not sufficient to establish that the trial court abused its discretion by confirming the sale.

The court, in holding for the Dinas, first addressed FMC’s claim that it was exempt from the licensing requirements of the Licensing Act. The claim was irrelevant because, regardless of FMC’s exemption status, the party that generated the mortgage agreement was FMCI. Further, the NIC source FMC cited did not establish it as an entity covered with exempt status. Because FMCI was not an exempt entity, the court then considered the consequences of a violation of the License Act.

Agreeing with the Dinas, the court stated that FMCI lacked a license, in violation of the statute, and voided the mortgage agreement. Citing Chatham Foot Specialists, P.C. v. Health Care Service Corp., 216 Ill. 2d 366 (2005), the court quoted, “[C]ourts will not enforce a contract involving a party who does not have a license called for by legislation that expressly prohibits [the] particular activity without a license where the legislation was enacted for the protection of the public, not as a revenue measure.” Because the License Act was enacted to protect the public, and not to generate revenue, unlicensed parties were found incapable of recovering fees for services or otherwise enforcing contracts. Chatham, 216 Ill. 2d at 380-81. In support of its holding, the court, citing the Connecticut Supreme Court in Solomon v. Gilmore, 731 A.2d 280 (Conn. 1999), found “that a court could not assist in the enforcement of a contract the purpose of which is to violate the law,” and that this was the majority view of most jurisdictions.

The court concluded that mortgages made by entities lacking authorization under the License Act to conduct business were void on public policy grounds. Further, distinguishing the License Act from other Acts which held that contracts formed by unlicensed entities were not void, the court found that the License Act distinguished itself by the strong public-policy statement in section 1-2(b).


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By: ATG Underwriting Department | Posted on: Mon, 08/18/2014 - 5:04pm