Recent Illinois Foreclosure Decisions Favor Lenders

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HIGHLIGHTS:

  • Since 2008, lenders in Illinois have faced heightened scrutiny and a sharp rise in lender liability claims. Nevertheless, Illinois appellate courts have recently favored lenders by upholding existing statutory protections and enforcing the written terms found in loan documents.
  • Among other things, Illinois courts are enforcing the strict terms of guaranties and imposing sanctions for borrower delay tactics, and have confirmed that settlement agreements must comply with the state's Credit Agreements Act.

Court Confirms that Settlement Agreements Must Comply with Credit Agreements Act

In Van Pelt Construction, Co. v. BMO Harris Bank, N.A., 2014 IL App (1st) 121661 (March 27, 2014), that court confirmed the Illinois Credit Agreements Act reaches any agreement involving a loan. At issue in Van Pelt was a deed in lieu, but the ruling should apply to any agreements to resolve a defaulted loan. Van Pelt confirmed that any credit related agreement must: (1) be in writing, and (2) be signed by both parties. Merely exchanging emails, which was at issue in Van Pelt, is not sufficient because there is no document signed by the parties.

Courts Are Enforcing the Strict Terms of Guaranties

Courts are adhering to and enforcing the strict language found in guaranties. For example, in JP Morgan Chase Bank v. East-West Logistics, L.L.C., 2014 IL App (1st) 121111 (March 31, 2014), the court held that a guarantor can be pursued for the full amount due under the loan, without the bank first seeking recourse from the borrower. The court found that the terms of the guaranty, which included the "unconditional guaranty" of payment of all liabilities of the borrower, served as an "unlimited" guaranty, allowing the bank to seek payment from the guarantor upon the borrower's default. The JP Morgan court went on to enforce a waiver of rights and defense provision found in the guaranty, stating that when the waiver is clear and unambiguous, the guaranty agreement will be given full effect even when it contains broad statements of guarantor liability.

Predecessor Bank Records Admissible under Business Records Exception to Hearsay Rule

When the bank that originated the loan is not the bank foreclosing, commercial borrowers often contend that the successor bank cannot use the predecessor bank's records without someone from the prior bank actually testifying. The court in Bank of America v. Land, 2013 IL App (5th) 120283 (July 31, 2013) was the first in Illinois to directly reject that argument. The court in Land held that a bank may establish a proper foundation for admitting a prior bank's business records under the business records exception to the hearsay rule. The court in Land found that records from the predecessor bank are admissible as long as a bank employee is able to attest that the documents were kept and transferred in the ordinary course of business.

Courts Impose Sanctions for Borrower Delay Tactics

Too many borrowers raise frivolous defenses to foreclosures with little repercussion. These defenses delay foreclosures, clog the court system and increase costs. The appellate courts, which only see a fraction of the foreclosure cases on appeal, issued a warning in Parkway Bank & Trust Co. v. Korzen, 2013 IL App (1st) 130380 (September 23, 2013) that borrowers who bring non-meritorious defenses and use other tactics solely to delay the ultimate resolution of the foreclosure will be sanctioned. The court in Korzen specifically decided to publish its opinion because most of the non-meritorious foreclosure appeals are decided by unpublished orders. By issuing a published opinion, the court put everyone on notice that borrowers pressing similar appeals will be subject to sanctions.  

Topics:  Foreclosure, Mortgages, Professional Liability

Published In: Civil Procedure Updates, Finance & Banking Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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