Buyers Beware When it Comes to Foreclosed Property in Illinois!

With extortion as their goal, a group of opportunistic entrepreneurs are recruiting foreclosed property owners in Illinois to assert highly technical jurisdictional challenges designed to divest innocent third parties from ownership of real estate previously sold at foreclosure sale.

Under the scheme, perpetrators comb through court records – sometimes involving cases closed more than 10 years ago – to identify technical defects in the manner a former owner was served with summons and a foreclosure complaint. After identifying a defect, the former mortgagor is solicited to participate in an effort to unwind the foreclosure with a promise of payment of a small portion of sums extorted from the current owner in order to retain ownership.

In many instances, the foreclosed owner abandoned the property long before receiving the solicitation in the belief that any interest in the real estate was foreclosed. All too often, the former owner has no substantive defense to the foreclosure and is unaware that if their mortgage lender is forced to re-foreclose, they may face a large personal money judgment to the extent any subsequent foreclosure sale fails to yield the amount necessary to satisfy the increased debt now due their lender.

The scheme involves Section 2-1401 of the Illinois Code of Civil Procedure, 735 ILCS 5/2-1401, which provides a mechanism for defendants to seek relief from final judgments. When such a request is based upon the absence of personal jurisdiction, there is arguably no limitation as to when the challenge may be asserted. Sarkissian V. Chicago Bd. of Ed., 201 Ill. 2d 95, 104 (2002).  

In the context of foreclosure cases, the fact a property was sold by a foreclosing lender to an innocent third party may have no bearing on the former owner’s entitlement to relief. Concord Air, Inc. v. Malarz, 2015 IL App (2d) 140639 ¶ 40. That being the case, if a foreclosed owner’s jurisdictional challenge is successful, the third party may be divested from ownership since the purchaser’s interest is derivative of the now reopened foreclosure.

While 735 ILCS 5/2-1401(e) affords some protection to third-party purchasers, this provision is limited to circumstances where the jurisdictional defect does not appear in “the record proper.” In this regard, recent appellate decisions have determined that many jurisdictional defects can be discerned by combing through the record in the underlying foreclosure. In many instances, however, the jurisdictional defect is difficult, if not almost impossible, for a lay person to discern. Among the defects asserted are the following:

• The absence of a record reflecting that the clerk of the circuit court mailed notice to a mortgagor of service by publication as required by 735 ILCS 5/2-206 when the foreclosing lender was otherwise unable to locate and serve the mortgagor in the state.

• The failure of a mortgage lender to seek appointment of a private investigator statutorily authorized to serve summons and complaint in a downstate county before serving a defendant in Cook County.

• The failure of a foreclosing lender to identify each named defendant on the face of a foreclosure summons.

Due to the hyper-technical nature of these defects, a proposed purchaser of previously foreclosed Illinois property – even real estate sold multiple times since completion of the proceeding – is well-advised to consult with counsel prior to closing.

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