BCGS, LLC v. Jaster
Annotate this Case
No. 3--97--0784
_________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
SECOND DISTRICT
_________________________________________________________________
BCGS, L.L.C., Assignee of ) Appeal from the Circuit Court
Residential Financial ) of Du Page County.
Corporation, )
)
Plaintiff, )
) No. 96--CH--507
v. )
)
LEONARD J. JASTER, )
)
Defendant and Counter- )
plaintiff-Appellee )
)
)
(Sharon E. Jaster, a/k/a Sharon )
E. Aycock; Stephen M. Deitsch; )
Nonrecorded Claimants; Unknown )
Tenants; and Unknown Owners, )
Defendants; Elizabeth L. ) Honorable
Krueger, P.C., Defendant and ) Bonnie M. Wheaton,
Counterdefendant-Appellant). ) Judge, Presiding.
_________________________________________________________________
JUSTICE BOWMAN delivered the opinion of the court:
Plaintiff, BCGS, foreclosed on the mortgage it held on the
residential property of the mortgagor, defendant Leonard Jaster.
BCGS is not a party to this appeal. At the time of foreclosure,
defendant Elizabeth L. Krueger, P.C. (Krueger) held a junior lien
on the property. Jaster allowed the redemption period to lapse and
subsequently offered the successful bid to purchase the property at
the judicial foreclosure sale. The trial court confirmed the sale,
extinguished Krueger's lien, and awarded the surplus funds to
Jaster. Krueger timely appeals. We affirm in part, reverse in
part, and remand.
The following summary of facts is taken from the record on
appeal. On June 6, 1996, BCGS filed a complaint to foreclose its
mortgage executed by Jaster and his former spouse. The complaint
named Jaster and Krueger, among others, as defendants; the
remaining defendants are not parties to this appeal. On July 8,
1996, Krueger filed its answer, admitting that it held an interest
in and an equitable right to redeem the subject property. In its
answer, Krueger also requested that the trial court take an
accounting of amounts due and owing to it. Krueger's interest
consisted of a $33,637.70 junior lien attachment against the
property, which resulted from Krueger's representation of Jaster's
former spouse in a dissolution proceeding. After the dissolution,
Jaster's former spouse filed for bankruptcy and eventually quit-
claimed her interest in the property to Jaster.
On July 26, 1996, BCGS filed a motion for summary judgment,
acknowledging Krueger's judgment lien. On August 7, 1996, Jaster
filed his appearance and counterclaim. In his counterclaim, Jaster
acknowledged Krueger's judgment lien on the property and requested
that the trial court declare the lien on his property void and find
that the lien attached only to his former spouse's property. On
August 9, 1996, Jaster filed his answer to BCGS's complaint,
admitting that he was in default of his mortgage obligation.
On September 4, 1996, the trial court entered its judgment of
foreclosure and order of sale. The order provided that if the
property was not redeemed by January 11, 1997, the expiration date
for the statutory period of redemption, a judicial sale would be
held. The order also provided that, the proceeds of the sale would
be applied to the costs of the sale first and to BCGS second. Any
surplus was to be brought into court for a determination of its
disposition. Finally, the order stated that, if the property was
not redeemed and the property was sold at a judicial sale,
defendants would lose all rights in the property. Also, on
September 4, the trial court granted BCGS's motion for summary
judgment against Krueger and Jaster.
On November 4, 1996, Krueger filed a motion to strike and
dismiss Jaster's counterclaim, asserting that Jaster took
possession of the property subject to all existing liens. Krueger
also alleged that Jaster's counterclaim failed to state a cause of
action. On December 18, 1996, BCGS filed a notice of judicial sale
of real estate mortgage foreclosure which set the judicial sale for
January 14, 1997. At the sale, Jaster bid $100,000 on the property
and was the highest bidder. On January 21, 1997, pursuant to
Jaster's motion, the trial court ordered that Jaster's motion to
adjudicate Krueger's lien be withdrawn.
On January 23, 1997, Krueger filed motions to set aside the
judicial sale and to waive bond. In the motion to set aside the
judicial sale, Krueger alleged that it received no actual notice
and that justice was not served. On February 24, 1997, Jaster
filed a motion to set aside Krueger's lien. Jaster alleged that he
discovered Krueger's lien only after he received his former
spouse's quitclaim deed for the property. Jaster argued that,
because he is now the sole owner of the property, Krueger's lien
should not encumber his interest in the property.
On February 25, 1997, Krueger filed its amended motion to set
aside the sale or in the alternative to affirm its lien on the
property. After a series of responsive pleadings, the trial court
confirmed the judicial sale in an order dated April 30, 1997. On
June 3, 1997, the trial court denied Krueger's motion to affirm its
lien. Both Jaster and Krueger filed motions to receive the sale
surplus. On July 11, 1997, the trial court awarded the $6,534.54
surplus to Krueger. Jaster then filed a motion to reconsider on
July 23, 1997, maintaining that Krueger's junior lien was
extinguished by the judicial foreclosure sale and that he should be
entitled to the surplus.
In a memorandum opinion and order filed September 25, 1997,
the trial court found that Jaster and his former spouse were owners
of the property that was subsequently foreclosed and that Jaster,
the mortgagor, was also the successful bidder at the foreclosure
sale. The trial court determined that, pursuant to Kling v.
Ghilarducci, 3 Ill. 2d 454 (1954), Jaster took title to the
property free and clear of Krueger's lien. The trial court also
found that Krueger's actions of filing an appearance and answer to
the complaint were insufficient to protect its lien on the
property. Finally, the trial court ordered the surplus proceeds
from the property to be turned over to Jaster. Krueger timely
appeals.
Krueger raises five principal contentions on appeal: (1) the
trial court abused its discretion in confirming the judicial sale;
(2) the trial court erred in determining that Krueger had proper
notice of the judicial sale; (3) the trial court erred in
confirming the sale prior to determining the priorities of the
junior lienholders and ruling on Krueger's motion to affirm its
lien; (4) the trial court erroneously failed to apply Hack v. Snow,
338 Ill. 28 (1929); and (5) the trial court improperly awarded the
surplus proceeds to Jaster.
I
Krueger's first contention on appeal is that the trial court
abused its discretion in confirming the judicial foreclosure sale.
Krueger argues that, although the statutory redemption period had
expired, Jaster's purchase constituted a redemption because he was
the original mortgagor. Krueger relies on Citicorp Savings v.
First Chicago Trust Co., 269 Ill. App. 3d 293 (1995), as support
for the proposition that the mortgagor may redeem the property
after the period of redemption. According to Krueger, Jaster was
not a bona fide purchaser but an interested party with knowledge of
all defects in title. Krueger asserts that Jaster, in an attempt
to clear title to the property, allowed the property to go into
foreclosure only so he could retake title free and clear of
Krueger's lien. As a result of the trial court's confirmation of
sale, Krueger was prejudiced.
Jaster replies that the trial court properly confirmed the
sale. He argues that a redemption can only take place during the
redemption period and, in this case, the redemption period had
expired. He maintains that because the redemption period expired
and his rights in the property were extinguished, he was a stranger
to the proceedings and therefore a bona fide purchaser at the
foreclosure sale.
In Illinois, a judicial foreclosure sale is not complete until
it has been approved by the trial court. Commercial Credit Loans,
Inc. v. Espinoza, 293 Ill. App. 3d 923, 927 (1997). Pursuant to
section 15--1508(b) of the Illinois Mortgage Foreclosure Law
(Mortgage Foreclosure Law), the trial court shall conduct a hearing
to confirm the sheriff's sale of foreclosed property and shall
enter an order confirming the sale unless it finds that "(i) a
notice required in accordance with subsection (c) of Section 15--
1507 was not given, (ii) the terms of sale were unconscionable,
(iii) the sale was conducted fraudulently or (iv) that justice was
otherwise not done ***." 735 ILCS 5/15 1508(b) (West 1996). The
disapproval of a sale is warranted upon a showing of unfairness
that prejudices an interested party. Espinoza, 293 Ill. App. 3d at
927, citing Citicorp Savings v. First Chicago Trust Co., 269 Ill.
App. 3d 293, 300 (1995). A trial court exercises broad discretion
in approving or disapproving a judicially mandated sale. Fleet
Mortgage Corp. v. Deale, 287 Ill. App. 3d 385, 388 (1997).
In this case, the trial court did not abuse its discretion in
confirming the judicial sale. Neither section 15--1508(b) nor any
other statute or judicial decision requires that the purchaser at
a judicial sale shall not have notice of the outstanding rights of
others in order to take title free and clear of those rights.
Section 15--1509(c) of the Mortgage Foreclosure Law (735 ILCS
5/15 1509(c) (West 1996)) expressly provides that all outstanding
claims on property that has been the subject of a foreclosure and
sale pursuant to the law are extinguished. The purchaser of such
property, therefore, takes the property free of such claims,
regardless of his knowledge of the claims.
The fact that Jaster had knowledge of Krueger's lien does not
distinguish him from other potential purchasers of the property.
Krueger's lien was recorded. Therefore, all purchasers would be
deemed to have constructive notice of its lien. See Pacemaker Food
Stores, Inc. v. Seventh Mont Corp., 117 Ill. App. 3d 636, 645-46
(1983) (purchasers are charged with notice of whatever appears of
record).
In addition, contrary to Krueger's assertion, Jaster's
purchase of the property is not considered a redemption merely
because he occupies the status of a mortgagor. Krueger's argument
contravenes the express language of the Mortgage Foreclosure Law
which provides that, "[o]nce expired, the right of redemption ***
shall not be revived" (735 ILCS 5/15--1603(c)(1) (West 1996)).
Here, Jaster's purchase of the property occurred after the
expiration of the redemption period and, therefore, cannot be
considered a redemption.
Furthermore, even though Jaster was the mortgagor, he was not
precluded from purchasing the property at the judicial sale and
taking title to that property free and clear of Krueger's interest.
When a mortgagor has given a warranty of title in a junior
mortgage, courts will not permit the mortgagor to extinguish the
junior lien by purchasing the property at a judicial sale held on
the foreclosure of a first mortgage. See Dorff v. Bornstein, 277 N.Y. 236, 242, 14 N.E.2d 51, 54 (1938). When there is no such
warranty, however, and no evidence of fraud, a mortgagor may take
title free and clear of any junior liens by making the successful
bid at the judicial sale held on a foreclosure of a senior lien.
See Mooney v. Provident Savings Bank, 308 N.J. Super. 195, 202, 705 A.2d 816, 820 (Ch. Div. 1997).
In this case, there was no warranty of title that prevented
Jaster from extinguishing Krueger's lien because this lien was not
based on a junior mortgage. Also, contrary to both Krueger's
assertion and the dissent's conclusion, there is no evidence of
fraud or collusive activity by Jaster. Faced with BCGS's decision
to foreclose its mortgage, Jaster acted in accordance with the
Mortgage Foreclosure Law to avoid losing his home. The Mortgage
Foreclosure Law did not require him to redeem his property and,
following the expiration of that redemption period, did not
prohibit him from purchasing the property at the foreclosure sale.
There is also no indication that the price Jaster bid for the
property was unreasonable. In addition, section 15--1509(c) of the
Mortgage Foreclosure Law, which extinguishes all outstanding claims
on property that has been the subject of a foreclosure and sale,
does not exempt from its application property that has been
purchased by a mortgagor. See 735 ILCS 5/15 1509(c) (West 1996).
Although Jaster admitted that his goal during the foreclosure
proceedings was to remove the liens from his property, this
statement is not evidence of fraud, especially given that, under
section 15--1509(c) of the Mortgage Foreclosure Law, this is the
effect of foreclosure of a senior lien and sale of the property.
See 735 ILCS 5/15--1509(c) (West 1996). Jaster's actions,
therefore, were proper under the Mortgage Foreclosure Law.
Krueger's argument that the sale was prejudicial to Krueger is
undermined by the fact that Krueger was made a party to the
foreclosure proceedings and the trial court's finding that Krueger
had notice of the judicial sale of the property. Krueger,
therefore, had the opportunity to protect its interest in the
property pursuant to its lien.
Krueger's reliance on Citicorp Savings v. First Chicago Trust
Co., 269 Ill. App. 3d 293 (1995), is unpersuasive. In Citicorp,
the mortgagors defaulted on their mortgage with Citicorp, the
mortgagee. Thereafter, the statutory right to reinstate their
mortgage expired. A sale was set for March 10, 1993. Despite the
expiration of the statutory reinstatement period, Citicorp
indicated to the mortgagors that it would accept either a payoff or
a reinstatement through March 15, 1993. The mortgagors' right to
redeem the property also expired. Citicorp subsequently
represented to the mortgagors' attorney that the sale date would be
changed from March 10 to March 16. On March 12, 1993, three days
prior to the expiration date in Citicorp's letter, the mortgagors
contacted Citicorp to reinstate their mortgage. Citicorp, however,
informed the mortgagors that a judicial sale had already been held
and the property had been sold. The trial court vacated the sale,
noting that it was held by mistake. Citicorp, 269 Ill. App. 3d at
296.
On appeal, the reviewing court determined that it would have
been against the interests of justice for the trial court to have
confirmed the sale given that Citicorp had represented to the
mortgagors that the sale would be postponed and that the sale took
place by mistake. Citicorp, 269 Ill. App. 3d at 300-01. The
court's holding was based on the fact that the mortgagee had led
the mortgagors to believe that the redemption period had been
extended. Unlike Citicorp, in the present case, there is no
evidence that would warrant an extension of the redemption period
beyond that provided in the Mortgage Foreclosure Law. For these
reasons, we affirm the trial court's order confirming the sale of
the property to Jaster.
II
Krueger's next contention on appeal is that the trial court
erred in confirming the sale because Krueger did not receive notice
of the sale. Krueger argues that the trial court failed to
consider the affidavits of its employees, in which they averred
that they had not received notice of the sale. Krueger also points
to two notices of judicial sale contained in the court file as
evidence that the additional notice was filed with the clerk of the
circuit court instead of being sent to Krueger.
Jaster replies that Krueger received sufficient notice of the
sale. In support of his argument, Jaster relies on the affidavit
of mailing from BCGS's attorney, in which he averred that notice
was sent to all parties on December 16, 1996. Jaster also
maintains that notice of the sale was published for three
consecutive weeks in the Carol Stream Press. In addition, Jaster
asserts that Krueger had actual notice of the sale. He argues that
Krueger's attorney testified that Krueger did know of the sale
because a paralegal from the office had called to inquire about the
sale. Moreover, the day before the sale, Krueger's attorney made
an offer to purchase the property.
Section 15--1507(c) of the Mortgage Foreclosure Law (735 ILCS
5/15 1507(c) (West 1996)) sets forth the notice requirements
governing a judicial sale. This provision requires that, inter
alia, the responsible party provide notice to "all parties in the
action who have appeared and have not theretofore been found by the
court to be in default for failure to plead." 735 ILCS 5/15--
1507(c)(3) (West 1996). A party entitled to notice of sale who did
not receive such notice may request that the sale be set aside by
filing a motion with supporting affidavits prior to the
confirmation of the sale. 735 ILCS 5/15--1508(c) (West 1996).
The question of whether Krueger received notice of the sale
involves a dispute of fact. A trial court's findings of fact are
entitled to great deference and should not be overturned on review
merely because the reviewing court may have reached a different
result. Lake County Grading Co. v. Advance Mechanical Contractors,
Inc., 275 Ill. App. 3d 452, 463-64 (1995). A trial court's
findings of fact will only be set aside when they are against the
manifest weight of the evidence. In re Application of the County
Treasurer, 131 Ill. 2d 541, 549 (1989). A finding is against the
manifest weight of the evidence when the opposite conclusion is
clearly evident. Case v. Forloine, 266 Ill. App. 3d 120, 125
(1993).
The trial court's finding that Krueger had notice was not
against the manifest weight of the evidence. The record contains
two notices of judicial sale filed December 18, 1996, and December
30, 1996, respectively, and a notice of filing filed December 30,
1996. An affidavit of mailing dated December 16, 1996, is attached
to the notice of filing. The affidavit contains a service list
that includes Krueger's name. In confirming the sale, the trial
court determined that the notice of filing constituted prima facie
evidence. Neither the affidavits of Krueger's employees nor the
duplicate notice of sale in the trial court record is conclusive of
whether Krueger received notice of the sale. In light of this
evidence and our deference to the trial court's findings, we
conclude that the trial court did not err in determining that
Krueger received notice of the sale.
Our conclusion that the trial court did not err in refusing to
set aside the sale due to defective notice is also supported by
evidence in the record that on January 13, 1997, the day before the
sale, Krueger's attorney contacted BCGS by faxing a letter that
included an offer to purchase the property. Not only did the
letter contain an offer, but it also included a statement that
indicated that Krueger was aware of the sale date. Moreover, at
the hearing on Krueger's motion to set aside the sale, Krueger's
attorney stated that a paralegal from Krueger's office called to
inquire about the sale but did not ask where it would be held.
III
Krueger also challenges the trial court's failure to establish
the priorities of the junior lienholders prior to the confirmation
of the judicial sale. Krueger urges that we follow NBD Highland
Park Bank, N.A. v. Wien, 251 Ill. App. 3d 512, 519 (1993), in which
the reviewing court determined that the trial court committed
reversible error when it failed to set the priorities of the junior
lienholders prior to the confirmation of the judicial sale.
In response, Jaster argues that the Mortgage Foreclosure Law
does not require a trial court to set the priorities of junior
lienholders prior to the confirmation of sale. Furthermore, Jaster
maintains that because Krueger was the only junior lienholder,
unlike the multiple junior lienholders in Wien, the trial court was
not required to prioritize.
Krueger's reliance on Wien is misplaced. Although the trial
court in Wien deferred its determination of the priority of the
valid interests, as Jaster correctly notes, that case concerned
multiple lienholders. The trial court was therefore required to
establish the priority of any valid interest. Unlike Wien, in this
case, Krueger was the only junior lienholder claiming an interest
in the property. In the absence of other claims, there was no need
for the trial court to determine the issue of priority.
Accordingly, we find Krueger's contention meritless.
Krueger appears to be raising an additional challenge to the
trial court's decision to rule upon the confirmation of the sale
before Krueger's motion to affirm the lien. The record indicates
that at the April 30, 1997, hearing, the trial court was faced with
deciding two issues: the confirmation of the sale and the motion to
affirm Krueger's lien. It ruled on the confirmation of sale issue
first because it found that this issue was dispositive. The trial
court stated that if it decided to set aside the sale, the issue of
the affirmance of Krueger's lien would be rendered moot because a
new sale would be held which would provide Krueger with an
opportunity to bid on the property. In a similar fashion, Krueger
made a strategical decision to first request a ruling on its motion
to affirm its lien because, if the trial court ruled in its favor,
Krueger would not subsequently challenge the confirmation of sale.
The Mortgage Foreclosure Law contains no requirement mandating the
order of resolution of a confirmation of sale and a motion to
affirm a lien. In the absence of such authority, we find no error
with the order that the trial court employed when it ruled on these
issues.
IV
Krueger's next contention on appeal is that the trial court
erred in failing to apply Hack v. Snow, 338 Ill. 28 (1929). In
Hack, the court held that liens are not extinguished when a
mortgagor redeems property before the expiration of the right of
redemption. Hack, 338 Ill. at 32. Unlike Hack, in this case, the
right of redemption had expired. Thus, as Jaster correctly notes,
because his purchase cannot be considered a redemption, we find
that the trial court did not err in finding Hack inapplicable.
V
Krueger's final contention on appeal is that the trial court
erred in awarding the surplus proceeds to Jasper. Krueger argues
that it attempted to protect its interests in the lien by filing an
answer to the mortgage foreclosure petition and a motion to set
aside the sale, and by petitioning the court to establish priority
of the lien before the confirmation of the sale. Jaster replies
that the trial court properly awarded him the surplus. He
maintains that Krueger's lien was extinguished because it did not
protect its lien and, therefore, Krueger was not entitled to the
surplus.
In its order, the trial court stated that, because Krueger's
lien had been extinguished by the judgment of foreclosure and the
expiration of the period of redemption, Krueger had no valid claim
to the surplus. The trial court deferred its decision as to the
distribution of the surplus proceeds until after the confirmation
of the sale. A foreclosure is an equitable proceeding (see
Kankakee Federal Savings & Loan Ass'n v. Mueller, 134 Ill. App. 3d
943, 946 (1985)), and we believe it was unfair for the court to
wait until after the confirmation of the sale to determine the
distribution of the surplus and then deny Krueger any interest in
the surplus based on the fact that the confirmation of the sale had
extinguished its lien. See Kankakee, 134 Ill. App. 3d at 946
(holding that a defaulted junior lienholder was entitled to surplus
proceeds from the foreclosure sale because the mortgagor admitted
the existence of the lien, the trial court deferred distribution of
the surplus until after the sale, and the junior lienholder
presented proof of the amount of its lien at the proceedings on the
distribution of the surplus).
Although, after a hearing, the trial court may have determined
that Krueger's lien, as Jaster claimed, was not valid to begin
with, the trial court conducted no such inquiry. Because it was
improper to deny Krueger the opportunity to demonstrate its right
to the surplus, we reverse the trial court's order awarding Jaster
the surplus proceeds and remand the cause for further proceedings
to determine whether Krueger was entitled to the surplus based on
the lien it possessed at the time of the foreclosure.
For the foregoing reasons, the judgment of the circuit court
of Du Page County is affirmed in part and reversed in part, and
the cause is remanded for further proceedings consistent with this
opinion.
Affirmed in part and reversed in part; cause remanded.
INGLIS, J., concurs.
JUSTICE HUTCHINSON, dissenting:
The majority concludes that the trial court was correct in
confirming a judicial foreclosure sale to Jaster, the owner of
redemption who admittedly accepted a deed to his property
encumbered with a $33,000 lien, later determined that he would
prefer not to have such a lien encumbering his property,
voluntarily allowed his property to lapse into foreclosure
proceedings for the admitted purpose of removing the lien, waited
for the statutory period of redemption to expire, then bid a price
exceeding the redemption amount at the sale, resulting in the
removal of Krueger's lien. The majority finds no evidence of fraud
or collusive activity by Jaster. For the following reasons, I
respectfully dissent.
Pursuant to section 15--1508(b) of the Illinois Mortgage
Foreclosure Law (Mortgage Foreclosure Law) (735 ILCS
5/15 1508(b)(West 1996)), the trial court shall conduct a hearing
to confirm the sheriff's sale of a foreclosed property and shall
enter an order confirming the sale unless it finds, inter alia,
"that justice was otherwise not done." 735 ILCS 5/15 1508(b)(iv)
(West 1996). After reviewing the record, statutory authority, and
appropriate case law, I believe that justice was not otherwise done
and that the trial court abused its discretion in confirming the
sale.
The majority determines that, once Jaster's statutory period
of redemption expired, he stepped into the shoes of a common
purchaser. Although the Mortgage Foreclosure Law does not
expressly prohibit owners from repurchasing their property at a
judicial foreclosure sale, it does not expressly allow it either.
Hence, we have an issue of first impression. I do, however,
believe that, when read in their entirety, the redemption and
foreclosure statutes imply that owners of redemption may not
transform themselves into purchasers by virtue of an expiration
date.
By definition, Jaster is clearly an "owner of redemption."
See 735 ILCS 5/15 1212 (West 1996)(defining "owner of redemption"
as a "mortgagor, or other owner or co-owner of the mortgaged real
estate"). By statute, a "purchaser" at a judicial foreclosure sale
receives a receipt and a certificate of sale. 735 ILCS
5/15 1507(e), (f) (West 1996). All claims are thereafter barred
once title is passed and vested to the purchaser. 735 ILCS
5/15 1509(b), (c) (West 1996). However, the Mortgage Foreclosure
Law fails to define "purchaser." The Uniform Commercial Code (810
ILCS 5/1 101 et seq. (West 1996)) generally defines "purchaser" as
"a person who takes by purchase." 810 ILCS 5/1--201(33) (West
1996). Jaster certainly falls within this general definition. Our
supreme court has had occasion to offer a more precise and
applicable definition: "[A] person who takes title to real
property in good faith for value without notice of outstanding
rights or interests of others. A bona fide purchaser takes such
title free of any interests of third persons, except such interests
of which [she or] he has notice." Daniels v. Anderson, 162 Ill. 2d 47, 57 (1994).
In Kling v. Ghilarducci, 3 Ill. 2d 454 (1954), our supreme
court specifically excluded "owners" when discussing the rights of
bona fide purchasers. The Kling court stated:
"A bona-fide purchaser, other than the owner, on an
unconditional sale of real property pursuant to a regular
foreclosure acquires a clear and absolute title as against all
parties to the suit and their privies which relates back to
the mortgage so as to cut off all intervening rights and
equities." (Emphasis added). Kling, 3 Ill. 2d at 462; see
also State Life Insurance Co. v. Freeman, 308 Ill. App. 127,
140 (1941).
Under our supreme court's rationale, only a purchaser who is bona
fide may acquire property free and clear of third-party interests.
Not doing so would render the statutes that define and distinguish
those terms meaningless.
Here, the record reflects that Jaster acknowledges receiving
a quitclaim deed from his former spouse in November 1995 which
transferred any interest she had in the property to him at that
time. The property interest that Jaster received included
Krueger's lien. Jaster admitted his knowledge of Krueger's lien
when he attempted to clear title to the property, sometime prior to
the judicial foreclosure sale. During the pendency of these
proceedings, Jaster filed his appearance and a pleading titled
"counterclaim," which acknowledged Krueger's judgment lien on the
property and requested an adjudication of the lien. The trial
court, in an agreed order, set arguments on Jaster's pleading and
Krueger's motion to strike on January 21, 1997. However, once
Jaster became the successful bidder at the sale conducted on
January 14, 1997, Jaster prepared an order, which the trial court
entered on January 21, 1997, allowing Jaster to "voluntarily
withdraw" his "[m]otion to Adjudicate the Lien of *** Krueger."
Jaster clearly failed to establish that he had no actual or
constructive notice of Krueger's lien interest in the property.
Based on Jaster's knowledge of Krueger's lien interest, which, as
the record reflects, predates the date of the judicial foreclosure
sale, Jaster did not take title without notice of outstanding
rights or interests of others. Therefore, Jaster should not be
considered a bona fide purchaser. As such, he should not be
allowed to take title to his property free of any interests of
third persons or parties, including Krueger.
The record also reflects that Jaster did not take title in
good faith. The record reflects that Jaster's admitted motivation
was to clear title to the property by dissolving Krueger's lien.
The purpose of a mortgage foreclosure is to enforce the payment of
a mortgagor's debt. Skach v. Sykora, 6 Ill. 2d 215, 221 (1955).
The redemption statute permits a debtor the opportunity to avoid
forfeiting the property to creditors as well as allowing creditors
the opportunity to recoup their losses incurred by the mortgage
debt. Skach, 6 Ill. 2d at 221. It is doubtful that the
legislature contemplated that an owner of redemption or mortgagor
might, after the redemption period provided for her or his benefit
had expired, enter into some scheme to realize something to the
mortgagor's benefit out of the mortgaged premises. See Gilbert v.
Smith, 167 Ill. App. 255, 261 (1912). To allow an owner or
mortgagor to do so otherwise would be tantamount to fraud. This
court should be unwilling to adopt such an interpretation of the
foreclosure and redemption statutes. See Holland v. Fulbert, Inc.,
371 N.Y.S.2d 509 (N.Y. App. Div. 1975)(refusing to allow an owner
of the equity of redemption to cut off the junior mortgagee by
purchasing the senior mortgage at a foreclosure sale). I believe
that Jaster's conduct regarding the circumstances surrounding the
foreclosure and subsequent repurchase of his own property, coupled
with his motion practice concerning the adjudication of Krueger's
lien, clearly reflects a showing of fraudulent conduct that the
majority fails to acknowledge.
The majority states that no redemption may occur after the
statutory time to redeem has expired. I disagree. Cases abound in
which owners of redemption are allowed to redeem their property
despite the statutory expiration date. See Commercial Credit
Loans, Inc. v. Espinoza, 293 Ill. App. 3d 923 (1997); Citicorp
Savings v. First Chicago Trust Co., 269 Ill. App. 3d 293, 300-01
(1995); see also, e.g., People v. Meyers, 158 Ill. 2d 46, 60 (1994)
(stating that "[t]he law favors redemption of *** property by its
owner"). Therefore, the expiration of the statutory redemption
period does not serve as an absolute bar to redemption. I firmly
believe that an owner of redemption, or mortgagor, does not morph
into a bona fide purchaser upon the expiration of the redemption
period. In the present case, had Jaster wished to redeem after
January 11, 1997, and expressed his desire to BCGS, then it was
likely, in the interests of justice, that BCGS would have accepted
the amount needed to pay off the mortgage plus its costs. In doing
so, it is also likely that Jaster could have even redeemed his
property at a lesser amount than for what he bid on it at the
judicial foreclosure sale.
The majority also commented on Krueger's efforts to protect
its interest in the property pursuant to its lien. I feel
compelled to note that Krueger made every effort to protect its
interest during the pendency of the foreclosure suit, including an
attempt to bid at the judicial foreclosure sale, but was unable to
do so because of a lack of communication regarding the location of
the sale. In any event, I find these efforts unimportant when
justice is the paramount issue.
The majority would remand this case to allow Krueger to
"demonstrate its right to the surplus" to the trial court.
Although I am assuaged by the majority's remand of this issue, I am
concerned that it is "too little, too late."
Future implications of this decision are horrific and likely
contrary to legislative intent. The majority's decision means that
mortgagors, when faced with an unwanted lien on their property,
should simply stop paying on their mortgage, allow the property to
fall into foreclosure, allow the redemption period to pass, and
then successfully bid on the property to retake title free and
clear of all junior liens.
Because I believe that justice was otherwise not done (see 735
ILCS 5/15--1508(b)(iv)(West 1996)), I respectfully dissent.
_________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
SECOND DISTRICT
_________________________________________________________________
BCGS, L.L.C., Assignee of ) Appeal from the Circuit Court
Residential Financial ) of Du Page County.
Corporation, )
)
Plaintiff, )
) No. 96--CH--507
v. )
)
LEONARD J. JASTER, )
)
Defendant and Counter- )
plaintiff-Appellee )
)
)
(Sharon E. Jaster, a/k/a Sharon )
E. Aycock; Stephen M. Deitsch; )
Nonrecorded Claimants; Unknown )
Tenants; and Unknown Owners, )
Defendants; Elizabeth L. ) Honorable
Krueger, P.C., Defendant and ) Bonnie M. Wheaton,
Counterdefendant-Appellant). ) Judge, Presiding.
_________________________________________________________________
JUSTICE BOWMAN delivered the opinion of the court:
Plaintiff, BCGS, foreclosed on the mortgage it held on the
residential property of the mortgagor, defendant Leonard Jaster.
BCGS is not a party to this appeal. At the time of foreclosure,
defendant Elizabeth L. Krueger, P.C. (Krueger) held a junior lien
on the property. Jaster allowed the redemption period to lapse and
subsequently offered the successful bid to purchase the property at
the judicial foreclosure sale. The trial court confirmed the sale,
extinguished Krueger's lien, and awarded the surplus funds to
Jaster. Krueger timely appeals. We affirm in part, reverse in
part, and remand.
The following summary of facts is taken from the record on
appeal. On June 6, 1996, BCGS filed a complaint to foreclose its
mortgage executed by Jaster and his former spouse. The complaint
named Jaster and Krueger, among others, as defendants; the
remaining defendants are not parties to this appeal. On July 8,
1996, Krueger filed its answer, admitting that it held an interest
in and an equitable right to redeem the subject property. In its
answer, Krueger also requested that the trial court take an
accounting of amounts due and owing to it. Krueger's interest
consisted of a $33,637.70 junior lien attachment against the
property, which resulted from Krueger's representation of Jaster's
former spouse in a dissolution proceeding. After the dissolution,
Jaster's former spouse filed for bankruptcy and eventually quit-
claimed her interest in the property to Jaster.
On July 26, 1996, BCGS filed a motion for summary judgment,
acknowledging Krueger's judgment lien. On August 7, 1996, Jaster
filed his appearance and counterclaim. In his counterclaim, Jaster
acknowledged Krueger's judgment lien on the property and requested
that the trial court declare the lien on his property void and find
that the lien attached only to his former spouse's property. On
August 9, 1996, Jaster filed his answer to BCGS's complaint,
admitting that he was in default of his mortgage obligation.
On September 4, 1996, the trial court entered its judgment of
foreclosure and order of sale. The order provided that if the
property was not redeemed by January 11, 1997, the expiration date
for the statutory period of redemption, a judicial sale would be
held. The order also provided that, the proceeds of the sale would
be applied to the costs of the sale first and to BCGS second. Any
surplus was to be brought into court for a determination of its
disposition. Finally, the order stated that, if the property was
not redeemed and the property was sold at a judicial sale,
defendants would lose all rights in the property. Also, on
September 4, the trial court granted BCGS's motion for summary
judgment against Krueger and Jaster.
On November 4, 1996, Krueger filed a motion to strike and
dismiss Jaster's counterclaim, asserting that Jaster took
possession of the property subject to all existing liens. Krueger
also alleged that Jaster's counterclaim failed to state a cause of
action. On December 18, 1996, BCGS filed a notice of judicial sale
of real estate mortgage foreclosure which set the judicial sale for
January 14, 1997. At the sale, Jaster bid $100,000 on the property
and was the highest bidder. On January 21, 1997, pursuant to
Jaster's motion, the trial court ordered that Jaster's motion to
adjudicate Krueger's lien be withdrawn.
On January 23, 1997, Krueger filed motions to set aside the
judicial sale and to waive bond. In the motion to set aside the
judicial sale, Krueger alleged that it received no actual notice
and that justice was not served. On February 24, 1997, Jaster
filed a motion to set aside Krueger's lien. Jaster alleged that he
discovered Krueger's lien only after he received his former
spouse's quitclaim deed for the property. Jaster argued that,
because he is now the sole owner of the property, Krueger's lien
should not encumber his interest in the property.
On February 25, 1997, Krueger filed its amended motion to set
aside the sale or in the alternative to affirm its lien on the
property. After a series of responsive pleadings, the trial court
confirmed the judicial sale in an order dated April 30, 1997. On
June 3, 1997, the trial court denied Krueger's motion to affirm its
lien. Both Jaster and Krueger filed motions to receive the sale
surplus. On July 11, 1997, the trial court awarded the $6,534.54
surplus to Krueger. Jaster then filed a motion to reconsider on
July 23, 1997, maintaining that Krueger's junior lien was
extinguished by the judicial foreclosure sale and that he should be
entitled to the surplus.
In a memorandum opinion and order filed September 25, 1997,
the trial court found that Jaster and his former spouse were owners
of the property that was subsequently foreclosed and that Jaster,
the mortgagor, was also the successful bidder at the foreclosure
sale. The trial court determined that, pursuant to Kling v.
Ghilarducci, 3 Ill. 2d 454 (1954), Jaster took title to the
property free and clear of Krueger's lien. The trial court also
found that Krueger's actions of filing an appearance and answer to
the complaint were insufficient to protect its lien on the
property. Finally, the trial court ordered the surplus proceeds
from the property to be turned over to Jaster. Krueger timely
appeals.
Krueger raises five principal contentions on appeal: (1) the
trial court abused its discretion in confirming the judicial sale;
(2) the trial court erred in determining that Krueger had proper
notice of the judicial sale; (3) the trial court erred in
confirming the sale prior to determining the priorities of the
junior lienholders and ruling on Krueger's motion to affirm its
lien; (4) the trial court erroneously failed to apply Hack v. Snow,
338 Ill. 28 (1929); and (5) the trial court improperly awarded the
surplus proceeds to Jaster.
I
Krueger's first contention on appeal is that the trial court
abused its discretion in confirming the judicial foreclosure sale.
Krueger argues that, although the statutory redemption period had
expired, Jaster's purchase constituted a redemption because he was
the original mortgagor. Krueger relies on Citicorp Savings v.
First Chicago Trust Co., 269 Ill. App. 3d 293 (1995), as support
for the proposition that the mortgagor may redeem the property
after the period of redemption. According to Krueger, Jaster was
not a bona fide purchaser but an interested party with knowledge of
all defects in title. Krueger asserts that Jaster, in an attempt
to clear title to the property, allowed the property to go into
foreclosure only so he could retake title free and clear of
Krueger's lien. As a result of the trial court's confirmation of
sale, Krueger was prejudiced.
Jaster replies that the trial court properly confirmed the
sale. He argues that a redemption can only take place during the
redemption period and, in this case, the redemption period had
expired. He maintains that because the redemption period expired
and his rights in the property were extinguished, he was a stranger
to the proceedings and therefore a bona fide purchaser at the
foreclosure sale.
In Illinois, a judicial foreclosure sale is not complete until
it has been approved by the trial court. Commercial Credit Loans,
Inc. v. Espinoza, 293 Ill. App. 3d 923, 927 (1997). Pursuant to
section 15--1508(b) of the Illinois Mortgage Foreclosure Law
(Mortgage Foreclosure Law), the trial court shall conduct a hearing
to confirm the sheriff's sale of foreclosed property and shall
enter an order confirming the sale unless it finds that "(i) a
notice required in accordance with subsection (c) of Section 15--
1507 was not given, (ii) the terms of sale were unconscionable,
(iii) the sale was conducted fraudulently or (iv) that justice was
otherwise not done ***." 735 ILCS 5/15 1508(b) (West 1996). The
disapproval of a sale is warranted upon a showing of unfairness
that prejudices an interested party. Espinoza, 293 Ill. App. 3d at
927, citing Citicorp Savings v. First Chicago Trust Co., 269 Ill.
App. 3d 293, 300 (1995). A trial court exercises broad discretion
in approving or disapproving a judicially mandated sale. Fleet
Mortgage Corp. v. Deale, 287 Ill. App. 3d 385, 388 (1997).
In this case, the trial court did not abuse its discretion in
confirming the judicial sale. Neither section 15--1508(b) nor any
other statute or judicial decision requires that the purchaser at
a judicial sale shall not have notice of the outstanding rights of
others in order to take title free and clear of those rights.
Section 15--1509(c) of the Mortgage Foreclosure Law (735 ILCS
5/15 1509(c) (West 1996)) expressly provides that all outstanding
claims on property that has been the subject of a foreclosure and
sale pursuant to the law are extinguished. The purchaser of such
property, therefore, takes the property free of such claims,
regardless of his knowledge of the claims.
The fact that Jaster had knowledge of Krueger's lien does not
distinguish him from other potential purchasers of the property.
Krueger's lien was recorded. Therefore, all purchasers would be
deemed to have constructive notice of its lien. See Pacemaker Food
Stores, Inc. v. Seventh Mont Corp., 117 Ill. App. 3d 636, 645-46
(1983) (purchasers are charged with notice of whatever appears of
record).
In addition, contrary to Krueger's assertion, Jaster's
purchase of the property is not considered a redemption merely
because he occupies the status of a mortgagor. Krueger's argument
contravenes the express language of the Mortgage Foreclosure Law
which provides that, "[o]nce expired, the right of redemption ***
shall not be revived" (735 ILCS 5/15--1603(c)(1) (West 1996)).
Here, Jaster's purchase of the property occurred after the
expiration of the redemption period and, therefore, cannot be
considered a redemption.
Furthermore, even though Jaster was the mortgagor, he was not
precluded from purchasing the property at the judicial sale and
taking title to that property free and clear of Krueger's interest.
When a mortgagor has given a warranty of title in a junior
mortgage, courts will not permit the mortgagor to extinguish the
junior lien by purchasing the property at a judicial sale held on
the foreclosure of a first mortgage. See Dorff v. Bornstein, 277 N.Y. 236, 242, 14 N.E.2d 51, 54 (1938). When there is no such
warranty, however, and no evidence of fraud, a mortgagor may take
title free and clear of any junior liens by making the successful
bid at the judicial sale held on a foreclosure of a senior lien.
See Mooney v. Provident Savings Bank, 308 N.J. Super. 195, 202, 705 A.2d 816, 820 (Ch. Div. 1997).
In this case, there was no warranty of title that prevented
Jaster from extinguishing Krueger's lien because this lien was not
based on a junior mortgage. Also, contrary to both Krueger's
assertion and the dissent's conclusion, there is no evidence of
fraud or collusive activity by Jaster. Faced with BCGS's decision
to foreclose its mortgage, Jaster acted in accordance with the
Mortgage Foreclosure Law to avoid losing his home. The Mortgage
Foreclosure Law did not require him to redeem his property and,
following the expiration of that redemption period, did not
prohibit him from purchasing the property at the foreclosure sale.
There is also no indication that the price Jaster bid for the
property was unreasonable. In addition, section 15--1509(c) of the
Mortgage Foreclosure Law, which extinguishes all outstanding claims
on property that has been the subject of a foreclosure and sale,
does not exempt from its application property that has been
purchased by a mortgagor. See 735 ILCS 5/15 1509(c) (West 1996).
Although Jaster admitted that his goal during the foreclosure
proceedings was to remove the liens from his property, this
statement is not evidence of fraud, especially given that, under
section 15--1509(c) of the Mortgage Foreclosure Law, this is the
effect of foreclosure of a senior lien and sale of the property.
See 735 ILCS 5/15--1509(c) (West 1996). Jaster's actions,
therefore, were proper under the Mortgage Foreclosure Law.
Krueger's argument that the sale was prejudicial to Krueger is
undermined by the fact that Krueger was made a party to the
foreclosure proceedings and the trial court's finding that Krueger
had notice of the judicial sale of the property. Krueger,
therefore, had the opportunity to protect its interest in the
property pursuant to its lien.
Krueger's reliance on Citicorp Savings v. First Chicago Trust
Co., 269 Ill. App. 3d 293 (1995), is unpersuasive. In Citicorp,
the mortgagors defaulted on their mortgage with Citicorp, the
mortgagee. Thereafter, the statutory right to reinstate their
mortgage expired. A sale was set for March 10, 1993. Despite the
expiration of the statutory reinstatement period, Citicorp
indicated to the mortgagors that it would accept either a payoff or
a reinstatement through March 15, 1993. The mortgagors' right to
redeem the property also expired. Citicorp subsequently
represented to the mortgagors' attorney that the sale date would be
changed from March 10 to March 16. On March 12, 1993, three days
prior to the expiration date in Citicorp's letter, the mortgagors
contacted Citicorp to reinstate their mortgage. Citicorp, however,
informed the mortgagors that a judicial sale had already been held
and the property had been sold. The trial court vacated the sale,
noting that it was held by mistake. Citicorp, 269 Ill. App. 3d at
296.
On appeal, the reviewing court determined that it would have
been against the interests of justice for the trial court to have
confirmed the sale given that Citicorp had represented to the
mortgagors that the sale would be postponed and that the sale took
place by mistake. Citicorp, 269 Ill. App. 3d at 300-01. The
court's holding was based on the fact that the mortgagee had led
the mortgagors to believe that the redemption period had been
extended. Unlike Citicorp, in the present case, there is no
evidence that would warrant an extension of the redemption period
beyond that provided in the Mortgage Foreclosure Law. For these
reasons, we affirm the trial court's order confirming the sale of
the property to Jaster.
II
Krueger's next contention on appeal is that the trial court
erred in confirming the sale because Krueger did not receive notice
of the sale. Krueger argues that the trial court failed to
consider the affidavits of its employees, in which they averred
that they had not received notice of the sale. Krueger also points
to two notices of judicial sale contained in the court file as
evidence that the additional notice was filed with the clerk of the
circuit court instead of being sent to Krueger.
Jaster replies that Krueger received sufficient notice of the
sale. In support of his argument, Jaster relies on the affidavit
of mailing from BCGS's attorney, in which he averred that notice
was sent to all parties on December 16, 1996. Jaster also
maintains that notice of the sale was published for three
consecutive weeks in the Carol Stream Press. In addition, Jaster
asserts that Krueger had actual notice of the sale. He argues that
Krueger's attorney testified that Krueger did know of the sale
because a paralegal from the office had called to inquire about the
sale. Moreover, the day before the sale, Krueger's attorney made
an offer to purchase the property.
Section 15--1507(c) of the Mortgage Foreclosure Law (735 ILCS
5/15 1507(c) (West 1996)) sets forth the notice requirements
governing a judicial sale. This provision requires that, inter
alia, the responsible party provide notice to "all parties in the
action who have appeared and have not theretofore been found by the
court to be in default for failure to plead." 735 ILCS 5/15--
1507(c)(3) (West 1996). A party entitled to notice of sale who did
not receive such notice may request that the sale be set aside by
filing a motion with supporting affidavits prior to the
confirmation of the sale. 735 ILCS 5/15--1508(c) (West 1996).
The question of whether Krueger received notice of the sale
involves a dispute of fact. A trial court's findings of fact are
entitled to great deference and should not be overturned on review
merely because the reviewing court may have reached a different
result. Lake County Grading Co. v. Advance Mechanical Contractors,
Inc., 275 Ill. App. 3d 452, 463-64 (1995). A trial court's
findings of fact will only be set aside when they are against the
manifest weight of the evidence. In re Application of the County
Treasurer, 131 Ill. 2d 541, 549 (1989). A finding is against the
manifest weight of the evidence when the opposite conclusion is
clearly evident. Case v. Forloine, 266 Ill. App. 3d 120, 125
(1993).
The trial court's finding that Krueger had notice was not
against the manifest weight of the evidence. The record contains
two notices of judicial sale filed December 18, 1996, and December
30, 1996, respectively, and a notice of filing filed December 30,
1996. An affidavit of mailing dated December 16, 1996, is attached
to the notice of filing. The affidavit contains a service list
that includes Krueger's name. In confirming the sale, the trial
court determined that the notice of filing constituted prima facie
evidence. Neither the affidavits of Krueger's employees nor the
duplicate notice of sale in the trial court record is conclusive of
whether Krueger received notice of the sale. In light of this
evidence and our deference to the trial court's findings, we
conclude that the trial court did not err in determining that
Krueger received notice of the sale.
Our conclusion that the trial court did not err in refusing to
set aside the sale due to defective notice is also supported by
evidence in the record that on January 13, 1997, the day before the
sale, Krueger's attorney contacted BCGS by faxing a letter that
included an offer to purchase the property. Not only did the
letter contain an offer, but it also included a statement that
indicated that Krueger was aware of the sale date. Moreover, at
the hearing on Krueger's motion to set aside the sale, Krueger's
attorney stated that a paralegal from Krueger's office called to
inquire about the sale but did not ask where it would be held.
III
Krueger also challenges the trial court's failure to establish
the priorities of the junior lienholders prior to the confirmation
of the judicial sale. Krueger urges that we follow NBD Highland
Park Bank, N.A. v. Wien, 251 Ill. App. 3d 512, 519 (1993), in which
the reviewing court determined that the trial court committed
reversible error when it failed to set the priorities of the junior
lienholders prior to the confirmation of the judicial sale.
In response, Jaster argues that the Mortgage Foreclosure Law
does not require a trial court to set the priorities of junior
lienholders prior to the confirmation of sale. Furthermore, Jaster
maintains that because Krueger was the only junior lienholder,
unlike the multiple junior lienholders in Wien, the trial court was
not required to prioritize.
Krueger's reliance on Wien is misplaced. Although the trial
court in Wien deferred its determination of the priority of the
valid interests, as Jaster correctly notes, that case concerned
multiple lienholders. The trial court was therefore required to
establish the priority of any valid interest. Unlike Wien, in this
case, Krueger was the only junior lienholder claiming an interest
in the property. In the absence of other claims, there was no need
for the trial court to determine the issue of priority.
Accordingly, we find Krueger's contention meritless.
Krueger appears to be raising an additional challenge to the
trial court's decision to rule upon the confirmation of the sale
before Krueger's motion to affirm the lien. The record indicates
that at the April 30, 1997, hearing, the trial court was faced with
deciding two issues: the confirmation of the sale and the motion to
affirm Krueger's lien. It ruled on the confirmation of sale issue
first because it found that this issue was dispositive. The trial
court stated that if it decided to set aside the sale, the issue of
the affirmance of Krueger's lien would be rendered moot because a
new sale would be held which would provide Krueger with an
opportunity to bid on the property. In a similar fashion, Krueger
made a strategical decision to first request a ruling on its motion
to affirm its lien because, if the trial court ruled in its favor,
Krueger would not subsequently challenge the confirmation of sale.
The Mortgage Foreclosure Law contains no requirement mandating the
order of resolution of a confirmation of sale and a motion to
affirm a lien. In the absence of such authority, we find no error
with the order that the trial court employed when it ruled on these
issues.
IV
Krueger's next contention on appeal is that the trial court
erred in failing to apply Hack v. Snow, 338 Ill. 28 (1929). In
Hack, the court held that liens are not extinguished when a
mortgagor redeems property before the expiration of the right of
redemption. Hack, 338 Ill. at 32. Unlike Hack, in this case, the
right of redemption had expired. Thus, as Jaster correctly notes,
because his purchase cannot be considered a redemption, we find
that the trial court did not err in finding Hack inapplicable.
V
Krueger's final contention on appeal is that the trial court
erred in awarding the surplus proceeds to Jasper. Krueger argues
that it attempted to protect its interests in the lien by filing an
answer to the mortgage foreclosure petition and a motion to set
aside the sale, and by petitioning the court to establish priority
of the lien before the confirmation of the sale. Jaster replies
that the trial court properly awarded him the surplus. He
maintains that Krueger's lien was extinguished because it did not
protect its lien and, therefore, Krueger was not entitled to the
surplus.
In its order, the trial court stated that, because Krueger's
lien had been extinguished by the judgment of foreclosure and the
expiration of the period of redemption, Krueger had no valid claim
to the surplus. The trial court deferred its decision as to the
distribution of the surplus proceeds until after the confirmation
of the sale. A foreclosure is an equitable proceeding (see
Kankakee Federal Savings & Loan Ass'n v. Mueller, 134 Ill. App. 3d
943, 946 (1985)), and we believe it was unfair for the court to
wait until after the confirmation of the sale to determine the
distribution of the surplus and then deny Krueger any interest in
the surplus based on the fact that the confirmation of the sale had
extinguished its lien. See Kankakee, 134 Ill. App. 3d at 946
(holding that a defaulted junior lienholder was entitled to surplus
proceeds from the foreclosure sale because the mortgagor admitted
the existence of the lien, the trial court deferred distribution of
the surplus until after the sale, and the junior lienholder
presented proof of the amount of its lien at the proceedings on the
distribution of the surplus).
Although, after a hearing, the trial court may have determined
that Krueger's lien, as Jaster claimed, was not valid to begin
with, the trial court conducted no such inquiry. Because it was
improper to deny Krueger the opportunity to demonstrate its right
to the surplus, we reverse the trial court's order awarding Jaster
the surplus proceeds and remand the cause for further proceedings
to determine whether Krueger was entitled to the surplus based on
the lien it possessed at the time of the foreclosure.
For the foregoing reasons, the judgment of the circuit court
of Du Page County is affirmed in part and reversed in part, and
the cause is remanded for further proceedings consistent with this
opinion.
Affirmed in part and reversed in part; cause remanded.
INGLIS, J., concurs.
JUSTICE HUTCHINSON, dissenting:
The majority concludes that the trial court was correct in
confirming a judicial foreclosure sale to Jaster, the owner of
redemption who admittedly accepted a deed to his property
encumbered with a $33,000 lien, later determined that he would
prefer not to have such a lien encumbering his property,
voluntarily allowed his property to lapse into foreclosure
proceedings for the admitted purpose of removing the lien, waited
for the statutory period of redemption to expire, then bid a price
exceeding the redemption amount at the sale, resulting in the
removal of Krueger's lien. The majority finds no evidence of fraud
or collusive activity by Jaster. For the following reasons, I
respectfully dissent.
Pursuant to section 15--1508(b) of the Illinois Mortgage
Foreclosure Law (Mortgage Foreclosure Law) (735 ILCS
5/15 1508(b)(West 1996)), the trial court shall conduct a hearing
to confirm the sheriff's sale of a foreclosed property and shall
enter an order confirming the sale unless it finds, inter alia,
"that justice was otherwise not done." 735 ILCS 5/15 1508(b)(iv)
(West 1996). After reviewing the record, statutory authority, and
appropriate case law, I believe that justice was not otherwise done
and that the trial court abused its discretion in confirming the
sale.
The majority determines that, once Jaster's statutory period
of redemption expired, he stepped into the shoes of a common
purchaser. Although the Mortgage Foreclosure Law does not
expressly prohibit owners from repurchasing their property at a
judicial foreclosure sale, it does not expressly allow it either.
Hence, we have an issue of first impression. I do, however,
believe that, when read in their entirety, the redemption and
foreclosure statutes imply that owners of redemption may not
transform themselves into purchasers by virtue of an expiration
date.
By definition, Jaster is clearly an "owner of redemption."
See 735 ILCS 5/15 1212 (West 1996)(defining "owner of redemption"
as a "mortgagor, or other owner or co-owner of the mortgaged real
estate"). By statute, a "purchaser" at a judicial foreclosure sale
receives a receipt and a certificate of sale. 735 ILCS
5/15 1507(e), (f) (West 1996). All claims are thereafter barred
once title is passed and vested to the purchaser. 735 ILCS
5/15 1509(b), (c) (West 1996). However, the Mortgage Foreclosure
Law fails to define "purchaser." The Uniform Commercial Code (810
ILCS 5/1 101 et seq. (West 1996)) generally defines "purchaser" as
"a person who takes by purchase." 810 ILCS 5/1--201(33) (West
1996). Jaster certainly falls within this general definition. Our
supreme court has had occasion to offer a more precise and
applicable definition: "[A] person who takes title to real
property in good faith for value without notice of outstanding
rights or interests of others. A bona fide purchaser takes such
title free of any interests of third persons, except such interests
of which [she or] he has notice." Daniels v. Anderson, 162 Ill. 2d 47, 57 (1994).
In Kling v. Ghilarducci, 3 Ill. 2d 454 (1954), our supreme
court specifically excluded "owners" when discussing the rights of
bona fide purchasers. The Kling court stated:
"A bona-fide purchaser, other than the owner, on an
unconditional sale of real property pursuant to a regular
foreclosure acquires a clear and absolute title as against all
parties to the suit and their privies which relates back to
the mortgage so as to cut off all intervening rights and
equities." (Emphasis added). Kling, 3 Ill. 2d at 462; see
also State Life Insurance Co. v. Freeman, 308 Ill. App. 127,
140 (1941).
Under our supreme court's rationale, only a purchaser who is bona
fide may acquire property free and clear of third-party interests.
Not doing so would render the statutes that define and distinguish
those terms meaningless.
Here, the record reflects that Jaster acknowledges receiving
a quitclaim deed from his former spouse in November 1995 which
transferred any interest she had in the property to him at that
time. The property interest that Jaster received included
Krueger's lien. Jaster admitted his knowledge of Krueger's lien
when he attempted to clear title to the property, sometime prior to
the judicial foreclosure sale. During the pendency of these
proceedings, Jaster filed his appearance and a pleading titled
"counterclaim," which acknowledged Krueger's judgment lien on the
property and requested an adjudication of the lien. The trial
court, in an agreed order, set arguments on Jaster's pleading and
Krueger's motion to strike on January 21, 1997. However, once
Jaster became the successful bidder at the sale conducted on
January 14, 1997, Jaster prepared an order, which the trial court
entered on January 21, 1997, allowing Jaster to "voluntarily
withdraw" his "[m]otion to Adjudicate the Lien of *** Krueger."
Jaster clearly failed to establish that he had no actual or
constructive notice of Krueger's lien interest in the property.
Based on Jaster's knowledge of Krueger's lien interest, which, as
the record reflects, predates the date of the judicial foreclosure
sale, Jaster did not take title without notice of outstanding
rights or interests of others. Therefore, Jaster should not be
considered a bona fide purchaser. As such, he should not be
allowed to take title to his property free of any interests of
third persons or parties, including Krueger.
The record also reflects that Jaster did not take title in
good faith. The record reflects that Jaster's admitted motivation
was to clear title to the property by dissolving Krueger's lien.
The purpose of a mortgage foreclosure is to enforce the payment of
a mortgagor's debt. Skach v. Sykora, 6 Ill. 2d 215, 221 (1955).
The redemption statute permits a debtor the opportunity to avoid
forfeiting the property to creditors as well as allowing creditors
the opportunity to recoup their losses incurred by the mortgage
debt. Skach, 6 Ill. 2d at 221. It is doubtful that the
legislature contemplated that an owner of redemption or mortgagor
might, after the redemption period provided for her or his benefit
had expired, enter into some scheme to realize something to the
mortgagor's benefit out of the mortgaged premises. See Gilbert v.
Smith, 167 Ill. App. 255, 261 (1912). To allow an owner or
mortgagor to do so otherwise would be tantamount to fraud. This
court should be unwilling to adopt such an interpretation of the
foreclosure and redemption statutes. See Holland v. Fulbert, Inc.,
371 N.Y.S.2d 509 (N.Y. App. Div. 1975)(refusing to allow an owner
of the equity of redemption to cut off the junior mortgagee by
purchasing the senior mortgage at a foreclosure sale). I believe
that Jaster's conduct regarding the circumstances surrounding the
foreclosure and subsequent repurchase of his own property, coupled
with his motion practice concerning the adjudication of Krueger's
lien, clearly reflects a showing of fraudulent conduct that the
majority fails to acknowledge.
The majority states that no redemption may occur after the
statutory time to redeem has expired. I disagree. Cases abound in
which owners of redemption are allowed to redeem their property
despite the statutory expiration date. See Commercial Credit
Loans, Inc. v. Espinoza, 293 Ill. App. 3d 923 (1997); Citicorp
Savings v. First Chicago Trust Co., 269 Ill. App. 3d 293, 300-01
(1995); see also, e.g., People v. Meyers, 158 Ill. 2d 46, 60 (1994)
(stating that "[t]he law favors redemption of *** property by its
owner"). Therefore, the expiration of the statutory redemption
period does not serve as an absolute bar to redemption. I firmly
believe that an owner of redemption, or mortgagor, does not morph
into a bona fide purchaser upon the expiration of the redemption
period. In the present case, had Jaster wished to redeem after
January 11, 1997, and expressed his desire to BCGS, then it was
likely, in the interests of justice, that BCGS would have accepted
the amount needed to pay off the mortgage plus its costs. In doing
so, it is also likely that Jaster could have even redeemed his
property at a lesser amount than for what he bid on it at the
judicial foreclosure sale.
The majority also commented on Krueger's efforts to protect
its interest in the property pursuant to its lien. I feel
compelled to note that Krueger made every effort to protect its
interest during the pendency of the foreclosure suit, including an
attempt to bid at the judicial foreclosure sale, but was unable to
do so because of a lack of communication regarding the location of
the sale. In any event, I find these efforts unimportant when
justice is the paramount issue.
The majority would remand this case to allow Krueger to
"demonstrate its right to the surplus" to the trial court.
Although I am assuaged by the majority's remand of this issue, I am
concerned that it is "too little, too late."
Future implications of this decision are horrific and likely
contrary to legislative intent. The majority's decision means that
mortgagors, when faced with an unwanted lien on their property,
should simply stop paying on their mortgage, allow the property to
fall into foreclosure, allow the redemption period to pass, and
then successfully bid on the property to retake title free and
clear of all junior liens.
Because I believe that justice was otherwise not done (see 735
ILCS 5/15--1508(b)(iv)(West 1996)), I respectfully dissent.
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
