- Use It or Lose It When Pursuing Personal Deficiency Judgments
- June 2, 2016 | Author: Charles A. Walgreen
- Law Firm: Weltman, Weinberg & Reis Co., L.P.A. - Chicago Office
- On June 5, 2015, the First District of the Illinois Appellate Court issued its decision in LSREF2 Nova Investments III, LLC v. Michelle Coleman1, relating to breach-of-note actions following a mortgage foreclosure. The decision impacts how all mortgage lenders in Illinois should pursue personal deficiency judgments.
In Coleman, the predecessor of LSREF2 Nova Investments III filed a complaint seeking to foreclose Michelle Coleman's mortgage. The Court entered a judgment of foreclosure and sale, stating that "[i]n the case there is any deficiency in the amount [due], the plaintiff . . . shall be entitled to a deficiency judgment against the defendant . . . ." However, the order approving the report of sale and distribution of property stated there would be an in rem deficiency judgment (against the property only).
Following the foreclosure, LSREF2 Nova Investments III filed another complaint against Coleman, this time seeking to enforce the promissory note. In response, Coleman filed a motion to dismiss2. In her motion, Coleman argued that the breach-of-note action was barred by res judicata, the principle that prohibits multiple lawsuits between the same parties involving the same facts and issues3.
In order for res judicata to be invoked, three factors must be present:
- Final judgment on the merits
- Identity of causes of action
- Identities of the parties or their privies4
The Court stated that the issue raised in the breach-of-note action could have been resolved in the foreclosure action. According to the Court, the operative facts were identical — namely, the pursuit of the deficiency caused by the plaintiff's default. As a result, due to res judicata, the trial Court properly dismissed the breach-of-note action with prejudice.
For mortgage lenders in Illinois, this decision essentially means "use it or lose it" when pursuing personal deficiency judgments.
Mortgagees may pursue foreclosure and bring a lawsuit on the note in one of two ways:
- Consecutively. The mortgagee initiates a breach-of-note action and obtains a judgment. Then, in a separate proceeding, the mortgagee files a complaint to foreclose the mortgage. When the foreclosure is complete and the mortgagee obtains a personal deficiency judgment against the mortgagor, the two judgments are merged into one.
- Concurrently. This method is more popular and arguably more cost-effective. The mortgagee brings an action to foreclose the mortgage and, at the same time, requests a personal deficiency judgment following the sale of the property. The mortgagee also should enter the deficiency in the judgment of foreclosure and sale order, if the Court has jurisdiction to do so.
12015 IL App (1st) 140184
2735 ILCS 5/2-619(a)(4)
3Turczak v. First Am. Bank, 2013 IL App (1st) 121964, at ¶ 22.
4Id. at ¶¶ 22-23
5184 Ill. 2d 290, 310 (1998)
6Id. at 311