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Illinois
Foreclosures

JP Morgan Chase Bank v Frankhauser, 383 Ill App 3d 254, 890 NE2d 592, 321 Ill Dec 870 (2nd D 2008).

Facts:JP Morgan Chase Bank (JP Morgan) filed an instant mortgage foreclosure against Breck Franhauser, Elaine Frankhauser, Steve Georgas and Lea Georgas. JP Morgan also named National City Mortgage Co. (National City) as defendant stemming from a separate loan and mortgage made to the mortgagors for the same property. None of the defendants appeared in court to defend the action and the trial court entered a default judgment and a judgment of foreclosure and sale. Pathfinder Holdings, LLC (Pathfinder) was the winning bidder at the sheriff's sale.

National City moved pursuant to Section 2-1301(e) of the Code of Civil Procedure to vacate the May 12, 2006, default judgment and the order of foreclosure and sale. The trial court granted the motion and vacated the May 12, 2006, orders. Then, Pathfinder moved the trial court to reconsider and argued the motion to vacate by National City should have been treated as a petition for relief pursuant to Section 2-1401 of the Code because it was brought more than 30 days after the entry of the May 12, 2006, orders. The trial granted Pathfinder's motion and confirmed the sale and distribution of the property. National City appealed the trial court's order.

Holding:Affirmed in part, vacated in part, and remanded for further proceedings. The appellate court made three key holdings: (1) the trial court erred in construing National City's July 28, 2006, filing as a petition to vacate pursuant to Section 2-1401 of the Code rather than a motion under Section 2-1301(e) of the code; (2) even if its filing was properly characterized as a Section 2-1401 petition to vacate, the trial court erred in determining the requirements for vacatur had not satisfied; and (3) the trial court erred in confirming the foreclosure sale.

Regarding the first issue, the court stated that "whether the trial court properly characterized National City's motion to vacate as a Section 2-1401 petition rather than a Section 2-1301(e) motion depends on whether the trial court's May 12, 2006, judgment of foreclosure was a final order." The Illinois Supreme Court has stated a judgment ordering the foreclosure of a mortgage is not final and appealable until the trial court enters an order approving the sale and directing the distribution. However, a judgment of foreclosure is final and immediately appealable where it contains language pursuant to Rule 304(a) that there is no just reason for delaying enforcement or appeal. In this case the judgment of foreclosure did contain a Rule 304(a) finding that "there was no just cause for delaying the enforcement of this Judgment, or an appeal therefrom."

Regarding the second issue, the court looked to Section 2-1401 and found the petitioner, to be entitled to relief, must affirmatively set forth specific factual allegations supporting each of the following elements: (1) the existence of a meritorious defense or claim; (2) due diligence in presenting this defense or claim to the circuit court in the original complaint; and (3) due diligence in filing the Section 2-1401 petition for relief.

Due diligence under Section 2-1401 requires the petitioner to have a reasonable excuse for failing to act within the appropriate time. National City was notified by being properly served with a summons along with notices of the proceedings sent by JP Morgan. National City notes Illinois courts sometimes relax the due diligence requirement when necessary to prevent the unjust entry of default judgments and to effect substantial justice. However, the petitioner must also show the presence of additional circumstances indicating that the party obtaining the default judgment would gain an unfair, unjust, or unconscionable advantage if the judgment were not vacated. Under these circumstances the court found no evidence National City was hindered or prevented by JP Morgan from presenting its defense and conclude a relaxation of the due diligence requirement was not appropriate in this case.

Regarding the third issue, a judicial foreclosure sale is not complete until it has been approved by the trial court. Under Section 15-1508(b) of the Foreclosure Law, the trial court shall confirm the sale unless one of the following is true: (1) there has been a failure to give proper notice; (2) the terms of sale were unconscionable; (3) the sale was conducted fraudulently; or (4) justice was otherwise not done. 735 ILCS 5/15-1508(b). Illinois courts have generally held that mere inadequacy of price is not a sufficient reason to disturb a judicial sale unless there were some other irregularities. Pursuant to Section 15-1508(b) of the Foreclosure Law, the trial court is directed to conduct a hearing on the confirmation of the foreclosure sale and it's empowered under certain circumstances to examine whether the terms of the sale were unconscionable.

National City offered two pieces of evidence to establish the fair market value of the subject property and because the difference between the sale price and the current value was drastic, an evidentiary hearing was required. Also, because National City was a party to the litigation, under Section 15-1508 of the Foreclosure Law it had the authority to object to the sale and to be heard on its complaints the sale price was unconscionable and justice was not done. Then, even though National City failed to appear to defend the action it did appear before the trial court had heard or ruled upon the motion to confirm and approve the sale. Therefore, National City had the right to assert its objection to the terms of the sale on the basis that justice was not done and because National City adequately supported its objection with valuation evidence, the trial court was obligated to conduct an evidentiary hearing to determine the conscionability of the sale and whether justice was done.

[Last update: 6-18-09]