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In October 2013 an Illinois appellate court issued an opinion very favorable to mortgage lenders, clarifying the options that lenders have when homeowners are in default on their mortgage payments. Illinois homeowners should be aware of the ruling and the impact it could have on them.

Homeowners sue mortgage lender

The plaintiffs in the case owned a home and had two mortgages on the property. The homeowners fell behind in their payment for both mortgages, and the first mortgage lender obtained a foreclosure judgment against the homeowners. Prior to a sheriff's sale of the home, the second mortgage lender sued the homeowners for the balance of the mortgage and obtained a judgment against the homeowners. The homeowners were able to find a buyer for the home before the house went to a sheriff's sale and wanted to arrange a short sale of the property. The first mortgage lender agreed to the sale on the condition that the second mortgage lender also agreed. The second mortgage lender said it would release its mortgage on the property if the homeowners paid $6,000. The homeowners paid the bank and sold the home.

The homeowners later brought suit against the second mortgage lender, claiming that the bank violated the Fair Debt Collection Practices Act and the Consumer Fraud Act by having the homeowners pay $6,000 to release the home for the short sale. The homeowners argued that the bank falsely represented that it had a valid second mortgage on their property because the mortgage was extinguished as a matter of law by the foreclosure judgment that the first lender obtained and the deficiency judgment that the second lender had obtained against the homeowners. The homeowners argued that since the second lender chose only to sue on the note and did not seek a foreclosure judgment in the same suit, the doctrine of res judicata prevented any further foreclosure action on the mortgage after the second lender obtained the judgment.

Appellate court rules in bank's favor

The trial court dismissed the homeowners' claim, and they appealed. The appellate court upheld the lower court's dismissal, and in so doing spelled out the options that lenders have when homeowners are in default on mortgage payments. The court said that lenders may proceed consecutively in actions on mortgage notes and foreclosure judgments; these actions need not occur in the same suit. The court also held that unless a property has proceeded to a sheriff's sale approved by judicial order, the rights of the mortgage holders, even junior mortgage holders, are not extinguished.

Speak with an attorney

The appellate court's ruling protects the rights of mortgage lenders, to the detriment of homeowners. It is more important than ever for homeowners to be aware of their rights to prevent abuses of the foreclosure process. If you have questions about saving a home from foreclosure, speak with a skilled foreclosure defense lawyer who can discuss your options with you.

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