Section 15-1507
The notice content and conduct of the foreclosure sale is set forth in the Illinois mortgage Foreclosure Law. 735 ILCS 5/15-1507. The publication and notice requirements are set forth in Section 5/15-1507, and mandate the information to be given in the sale notice, (although an "immaterial error in the information shall not invalidate the legal effect of the notice"), as well as the timing and forum of publication. Continuance of sales from time to time are provided for in Section 5/15-1507(c)(4), and no notice need be published in the event a sale is continued for less than 60 days; although it is important and mandated that the sale officer announce the continuance at the time of the sale, and whether this is limited to a single continuance or multiple continuances, each of less than 60 days, has yet to be presented to an Appellate Court.
Bankruptcy Stay Timing
After the judgment has been entered, often mortgagors suddenly become proactive in their attempts to avoid losing their home through a foreclosure sale. Inevitably, that process often leads the borrower to consider filing a Chapter 13 Bankruptcy to obtain the protection of the bankruptcy stay. Many times, that consideration takes place on the eve of the foreclosure sale. Until recently, and for a number of years, there has been a divergence of opinion in the Northern District of Illinois Bankruptcy Court about whether a debtor is able to reinstate a mortgage default while a foreclosure is pending by filing a Chapter 13 Bankruptcy following the sale but before confirmation. (See In re Crawford, 217 B.R. 558, In re McEwen, 199 B.R. 382.) A number of Bankruptcy Judges, interpreting the rule in 11 U.S.C. 1322 (c)(1) that “a default with respect to, or that gave rise to, a lien on the debtor’s principal residence may be cured…until such time as the residence is sold at a foreclosure sale that is conducted in accordance with …(state law)”, had found that the sale was not actually “conducted” until the confirmation by the trial court pursuant to 735 ICLS 5/15-1508, and therefore a debtor was permitted to file at any time prior to confirmation. The result would be that the debtor could then reinstate or cure the default through the plan regardless of the fact that the redemption period had expired in the foreclosure and the sale had been held. Other Bankruptcy Judges, however, have interpreted the word “conducted” in this section to mean that once the sale occurred and a bid is accepted, the debtor no longer can cure the default, and therefore can not file a Bankruptcy petition imposing a stay on the foreclosure during the period from sale to confirmation.
Now, at least in the Northern District of Illinois for the time being, the law is settled. A debtor can not file between sale and confirmation according to the law set fort in the recent decision in Colon v. Option One Mortgage Corp., (7th Cir., February 11, 2003). There was no dispute that Norma Colon filed her Chapter 13 Bankruptcy seeking to cure the default upon the mortgage on her home after the foreclosure sale, but before the confirmation of that sale. The Bankruptcy Court and the District Court held that the right of redemption under the Bankruptcy Code, applying Illinois mortgage foreclosure law, expired on the completion of the foreclosure sale and does not continue during the period between that sale and the confirmation of the sale by the Court. Although the confirmation is more than a mere formality, the state court is limited in its ability to deny confirmation to an examination under 735 ILCS 5/15-1508 of whether (1) notice was improper, (2) a fraud committed, (3) an unjust result or (4) unconscionable result would be the outcome. Noting that “Congress clearly intended to extend the debtor’s right to cure to the outer limits allowed under state law…[but] the intent could not have included a desire to permit the debtor, through creative invocation of bankruptcy protection, to do an end-run around state lawonce all substantive events have come and gone.”, the Seventh Circuit decision by Circuit Judge Ripple affirmed the decisions below. “Any other result would allow a federal procedural mechanism to afford greater rights than would otherwise be available under state substantive law.” Once the highest bid is accepted, the sale has occurred and been “conducted” as defined by the Bankruptcy Code. The inclusion of the provision that the sale is “conducted” when held in accordance to “applicable non-bankruptcy law” clearly leaves the substantive mortgage foreclosure of the state in which the property is located in place, and allows “the states the right to fix the outer limits of the right to redeem…the states have the last word in determining the scope of the right of redemption”. Illinois law provides that the sale is not to take place until the redemption period expires. The rights of the purchaser at the sale attach at the time of the sale subject only to the “highly circumscribed authority of the state court to void the sale on any of the grounds set forth in the statute.” Ms. Colon’s redemption rights had expired prior to the sale, and therefore only ”If the sale is void, she will have the rights under the Code and state law of a debtor whose property has not yet undergone a judicial sale.”
Terms of Sale, Officer and Third Party Bidders
The 'most commonly asked questions about sales" are the terms and what is being sold. It is critical to make certain the terms, ("cash" "AS IS"), are set forth in the public notice. Equally important, is to assure that "no warranties or representations" relating to the nature or extent of title are communicated or implied. Relating to what is being sold and what representations can be relied upon at sale, see Marino v. United Bank of Illinois, N.A., (1985), 137 Ill.App.3d 523, 484 N.E.2d 935, where a request by a bidder at a foreclosure sale for advice of status of liens which were not being foreclosed was dealt with by the Court. The more recent case of Davis v. Stramaglio, (1st Dist. 1991), 154 Ill.Dec. 356, 568 N.E.2d 356, extended the Court's protection of the validity of the sale and the purchasers' interest unless the purchaser had notice of an error or irregularity in the sale documents, (or, presumably, the conduct of the sale). A concerted attack on the statutory scheme of foreclosure sales was mounted in the case before the First District. Mountain States Mortgage Center v. Allen, (1993 1St Dist.) 257 Ill.App.3d 372, 628 N.E.2d 1052, 195 Ill.Dec. 588. In his decision, Justice Dom Rizzi found that the sales could be conducted by a sale officer other than the Sheriff of the County and in a place other than the courthouse. 735 ILCS 2-1401(e) also contains a statutory protection for the rights of third party bona fide purchaser without notice of defects at the sale, and discussions of this law can be found in State Bank of Lake Zurich v. Thill, (1986), 113 Ill.2d 294, 497 N.E.2d 1156, 100 Ill.Dec. 794, and Mid-America Federal v. Kosiewicz, (2nd Dist. 1988), 170 Ill.App.3d 316, 524 N.E.2d 663, 120 Ill.Dec. 633. The Second District has ruled that even where the strict publication requirements of the Illinois Mortgage Foreclosure Law are not followed, the Court may approve the sale IF the defendants themselves received actual notice of the sale. Cragin Federal v. American National Bank, (2nd Dist. 1994) 161 Ill.App.3d 115, 633 N.E.2d 1011.
Sometimes the most confusing part about a foreclosure sale is the bidding protocol. Who is entitled to ”credit bid” and who must pay cash, and what sum must be tendered at what junction is equally difficult to discern. In World Savings and Loan Association v. AmerUs Bank, (1st Dist., November 16, 2000), the Court visits familiar territory to mortgage foreclosure attorneys, but with a different result than some recent case law; pointing out that sometimes it is most important to consider whose interests are being affected at confirmation of sale to determine what the courts may do.
The appeal was taken by a junior mortgagee from the confirmation of the sale to a third party bidder. The sale publication notice and judgment provided that the terms of the sale were to be “Cash”. When the Plaintiff sought to confirm the sale, AmerUs Bank opposed the confirmation and alleged that the sheriff failed to follow the terms of the sale by allowing the third party bidder, Dorota Wasik, to pay 10% of the sale price at the time of the sale and the balance within 24 hours, while rejecting the higher bid of AmerUs because its attorney did not have cash-on-hand at the sale and did not attempt to ‘credit bid’. (AmerUs Bank had wired transferred sufficient funds to bid to its attorney, but his own bank inadvertently delayed crediting the law firm’s account until the day following the sale, and as a result he had no “cash” at sale.) Even though AmerUs Bank’s attorney had obtained the plaintiff’s permission to bid without cash on hand, provided he obtained the cash before 5 pm of the same day, the sheriff’s deputy determined the inability to tender cash at the time of sale invalidated the AmerUs bid and held the sale over; resulting in the sale to Wasik on a second round of bidding. At the hearing on confirmation, Dorota Wasik filed an affidavit stating that in reliance upon her successful bid at the sale, she contracted to sell her current home in anticipation of moving into the subject premises as her new home. The deputy sheriff testified that the policy of his office was to require 10% down in the form of cash or a certified check at the time of the sale and payment of the balance within 24 hours, and that this policy was announced before commencing each sale. AmerUs argued on appeal that the sheriff’s conduct deprived it of its interest in the subject property without due process of law and that the trial court erred in considering Wasik’s affidavit.
Section 15-1507(b) of the Illinois Mortgage Foreclosure Law provides that the sale officer derives his authority to hold the sale from the judgment, and it is his duty to conform to the court’s order. Justice Barth, (who had last served in the trial courts in the Chancery Division of Cook County where he regularly presided over foreclosure cases and confirmation of sales), nonetheless notes that there was no specific requirement of a cash sale in the judgment in this case, and reviewing cases where deviation from the trial court’s order provided cause for setting aside a judicial sale, holds that there was no clear departure from the sale terms set forth in the judgment here. “To give a party in [AmerUs]’s position the ability to delay a sale any time the order does not directly address an issue which arises at the sale could have serious implications for the orderly administration of judicial sales…Had the judgment contained more specific terms of sale…this dispute could have been avoided. In any event, the circumstances surrounding this sale did not give rise to irregularities which would have required the trial court to set it aside.” While the trial court should not have considered the disputed evidence regarding the sale of Wasik’s residence in reliance upon the sale, “The trial court’s consideration of this evidence does not warrant a reversal here, however… It is proper for a trial court to balance the hardship that would result to a third party bidder if the sale is not confirmed against the hardship which would result to other interested parties if the sale to the third-party is confirmed.” Noting that “…because [AmerUs] could attempt to recover the debt from the [owners] through other means. The hardships which [AmerUs] and the [owners] allegedly have suffered are a natural result of any sale to a third-party bidder.”. Justice Barth concludes that “Therefore, this is not a situation where the actions of the sheriff’s department had the effect of unilaterally depriving [AmerUs] of its property rights without notice or an opportunity to be heard.”, and affirmed the confirmation of the sale.
It is clear that the position of AmerUs as a junior mortgagee, (which probably did not prove-up in the judgment and therefore could not tendered a “credit bid” in any event), was the most important aspect of this case. The mortgagor/owners were served with process by publication and therefore their interests were really not at issue as in the Espinosa and Deal decisions where the confirmation of third-party sales was denied in order to avoid an unjust result. Not to be overlooked is the potential for the precedent in this case to combine with that in Phoenix Bond and Indemnity Co. v. Pappas, (1st Dist., January 25, 2000), (discussed below), to stand for the proposition that the sale officer has significant implied powers to set reasonable grounds for the conduct of the sale.
