Advanced Foreclosure Defense in Illinois Seminar Topic: This material provides an in-depth examination of the process and procedure related to foreclosure defense. This material is intended to be a guide in general. As always, if you have any specific question regarding the state of the law in any particular jurisdiction, we recommend that you seek legal guidance relating to your particular fact situation. The course materials will provide the attendee with the knowledge and tools necessary to identify the current legal trends with respect to these issues. The course materials are designed to provide the attendee with current law, impending issues and future trends that can be applied in practical situations. Page 1
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About The Author Mr. Silverman is currently a Principal at Charles Aaron Silverman PC. His currently dealings are in Real Estate Litigation: Foreclosure Defense, Mechanic's Liens, City Administrative Hearings, Tenancy, Leases, and Evictions. He also handles Commercial Litigation and Transactional Work: Business Disputes, Sales Agreements, Trademarks, and Zoning Issues. He has been a Partner at Kaplan Silverman LLC; Of Counsel at Law Offices of Arnold Kaplan, Ltd.; and an Attorney at Charles Aaron Silverman, P.C. where he was a solo Practitioner in Chicago, IL serving Cook, Lake, and DuPage Counties for over three years. Mr. Silverman has given seminars on foreclosure defense, and pioneered tactics for the homeowner. Mr. Silverman obtained his Juris Doctor from DePaul University College of Law, and is honored to serve the Decalogue Society of Jewish Lawyers. Author s Email Address: Author s Website: chsilvlaw@yahoo.com http://www.charlesaaronsilvermanpc.com Author s Mailing Address: 123 West Madison St., Suite 1600 60602 Author s Phone Number: 312-498-5742 Page 3
I. Strategic Guidelines Remember two things: (1) Have an endgame (2) Play appellate chicken II. Issues to consider within the answer The allegations Capacity Delinquency The deemed and construed allegations Know each one, and answer each one Affirmative defenses The closing The handling of the loan modification Counterclaims Foreclosure Defense is (usually) about the mortgage. Foreclosure defense is lien law. There are two documents attached to the mortgage complaint, the note and the mortgage. If you don t have a defense to the note, you had better have a defense to the mortgage! Defending the allegations of an unpaid note usually does not happen. Your client borrowed money. Your client (usually) didn t pay the money. Some exceptions: Escrow problems (765 ILCS 910 will come up later) Force-placed insurance Page 4
Tax escrows, tax appeals Estoppel What was your client told? Was their reliance justifiable? Servicer as third-party defendant Identity theft Mortgage defenses, procedural and substantial Procedural, notices, see deemed allegation # 9. See paragraph 22 of the mortgage (if FHA backed), or the HUD rules about giving notice and a warning of acceleration. Find the acceleration letter. Is there anything wrong with it? Are there unjustified fees? Does it seek the next month? Is there a single number that can be pointed to or does it say call us? Substantial defenses. Can a closing be so bad, and so wrong, that a mortgage lien is unenforceable? Remember that your defenses are not usually in the note, they are in the mortgage. Reverse engineer the mortgage! That means go through the closing with a fine-tooth comb! It is well known that when the ultimate purpose of an agreement is illegal, the agreement is void. When there was no agreement to commit something illegal, but the result is one that is illegal, it would be logical to conclude that the contract is voided because Defendants did not contract to break the law. Similar to this reasoning, the Restatement of Contracts 580(1) states: Any bargain is illegal if either the formation or the performance thereof is prohibited by constitution or statute. (Bold emphasis added.) Page 5
Whenever an illegality of contract appears, regardless of whether it was pleaded, court will enter no judgment recognizing or enforcing terms of such contract. Continental Paper Grading Co. v. Howard T. Fisher & Associates, Inc., App.1954, 3 Ill.App.2d 118, 120 N.E.2d 577. III. Illegality is a material breach The case law interprets material breach as follows: The test for materiality... is whether the breach is of such a nature and of such importance that, if anticipated in advance, the contract would not have been entered into. Galesburg Clinic Ass n v. West, 302 Ill. App. 3d 1016, 1018 (Ill. App. 1999) (citing Trapkus v. Edstrom s, Inc., 140 Ill. App. 3d 720, 725 (Ill. App. 1986)). Understandably, Defendants would never have entered into a mortgage, or any other contract, with Plaintiff if they had known of the illegal activities alleged. A material breach by one party to a contract discharges the other party from performing its obligations. Quality Components Corp. v. Kel- Keef Enters., 316 Ill. App. 3d 998, 1016 (Ill. App. 2000); Dragon Construction, Inc. v. Parkway Bank & Trust, 287 Ill. App. 3d 29, 33 (Ill. App. 1997). Can you argue that the mortgage is void when the deemed allegation at 735 ILCS 5/1504(c)(7) says it is? You can argue with any allegation, deemed or normal. The plaintiff says one thing for summary judgment, the defendant says another, if you have a counter-affidavit then you have a material issue of fact. Page 6
A quick review of the deemed and construed allegations at 735 ILCS 5/1504(c) If a foreclosure complaint says enough things, we pretend it says more things! 1) The obligation was justly indebted, i.e. this money was properly loaned and the amount is correct 2) Exhibits are true and incorporated 3) The mortgagor owned the real estate when they signed 4) Mortgage was recorded 5) The defaults occurred as indicated 6) Right now the present owners are the present owners 7) Mortgage is a valid, prior, and paramount lien the big one 8) By reason of defaults we have a right to accelerate anyway 9) We gave proper notice of default The Big Issue 10) Any grace period elapsed 11) The advances are true and good they never tell us what the advances are 12) When confirmation comes 1504(d) is a what might be 1504(e) is an elaboration of a prayer for relief Page 7
IV. Constitutional allegations Defenses based on Plaintiff actions, even post-default Loan Modification games & estoppel Read Wigod v. Wells Fargo Bank, NA, 673 F. 3d 547 - a 2012 7th Circuit ruling (then read it again) Were late fees charged during a trial payment plan? The fastest loan modification I ever saw occurred when I pointed this out. V. Escrow Problems The Illinois Mortgage Escrow Account Act, ( The Escrow Act ), at 765 ILCS 910, charges an escrowee to with a fiduciary duty to act in accordance with the escrow instructions. Specifically, 910/8 of the Escrow Act states, in part, that only after taking reasonably good faith steps to verify nonpayment, within thirty days after such payment is due, may an escrowee establish or reestablish an escrow arrangement notwithstanding the provisions of this Act (bold emphasis added). The Escrow Act in part, in 910/9, states that failure of any mortgage lender operating within this State to comply with the provisions of this Act shall entitle the borrower to actual damages in a court action. While The Escrow Act is primarily written for tax escrows, relevant sections of the Act apply to other escrows. 765 ILCS 910/4 requires each mortgage lender, in conjunction with the granting or servicing of a mortgage on a single-family owner occupied residential property, to Page 8
comply with the provisions of the Act. 910/2 states, in part, that: As used in this Act, unless the context requires otherwise: (a) Escrow Account means any account established by the mortgage lender in conjunction with a mortgage loan on a residence, into which the borrower is required to make regular periodic payments and out of which the lender pays the taxes on the property covered by the mortgage. Further, 910/2 (d) defines an Escrow-like Arrangement as: [A]ny arrangement the intent of which is to serve the same purposes as an escrow account but which does not require the formal establishment of an account. 910/8 states that: If after terminating an escrow arrangement under the conditions of this Act, the borrower does not furnish to the lender sufficient evidence of payment of the taxes when due on the residence covered by the mortgage with respect to which the escrow arrangement was established, the lender, after taking reasonably good faith steps to verify nonpayment, may, within thirty days after such payment is due, establish or reestablish an escrow arrangement notwithstanding the provisions of this Act. The Escrow Act in part, 910/9, states that failure of any mortgage lender operating within this State to comply with the provisions of this Act shall entitle the borrower to actual damages in a court action. Next up, if the foreclosure was unjustified, see the Fair Credit Reporting Act 15 U.S.C. 1681 et seq. Challenge the negative information on the credit report, the bank will reaffirm it, then you sue them! Penalties and attorney fees Page 9
VI. Conclusion Get your client to write their desired conclusion down, and then, if they don t take it once offered, your fee rate changes Don t do this unless you are doing it in volume Don t ever promise anything Page 10