Illinois Appellate Court Affirms that Lender May Pursue Either a Mortgage or a Promissory Note to Remedy Unpaid Debt

Laura Turczak and Robert Lew purchased a house in 2007. They arranged a mortgage with Wells Fargo Bank for $391,250.  They also took out a second mortgage with First American Bank for $73,335. In 2002, Lew and Turczak stopped paying the loans. 

Wells Fargo filed to foreclose its mortgage in June 2010. The same month, First American sued Lew and Turczak for repayment of the second mortgage.

On Sept. 3, 2010, Wells Fargo received a variable foreclosure order that found Lew, Turczak and First American in default.  Judgment was entered for foreclosure and sale in the total amount of $408,597.92. 

On Dec. 21, 2010, First American obtained a default judgment against Lew and Turczak for the second mortgage totaling $80,986.93.

Lew and Turczak arranged a short sale of their house between Sept. 3, 2010 and March 10, 2011. The short sale would be subject to approval by both Wells Fargo and First American.

First American refused to consent to any sale unless its balance due was first paid. Lew and Turczak could not come up with $480,000 that they would need in order to go through with the short sale. The best offer they received was $277,000, an amount which would not even cover Wells Fargo’s first mortgage, much less First American’s second mortgage. 

First American agreed to release its mortgage lien if paid $6,000. Lew and Turczak paid $3,000 and Wells Fargo paid the other $3,000. Lew and Turczak alleged that First American violated the federal Fair Debt Collections Practices Act as well as the Illinois Consumer Fraud Act  and the Interlocutory Order. Lew and Turczak went to trial alleging that First American foreclosed on the second mortgage and then essentially extorted the $6,000 payment from the plaintiffs. 

First American moved to dismiss. It argued that the default judgment did not bar it from pursuing payment citing Illinois law allowing creditors to “consecutively as well as concurrently pursue remedies.”

The trial judge agreed with that position and dismissed Lew and Turczak’s case with prejudice, though it did so without ever issuing a written order explaining its reasoning. Lew and Turczak took this appeal. 

Because there was no transcript of the trial court’s reasoning or a transcript of the parties’ oral argument, a bystander’s report would be pointless, the court said. That was the case because the trial court “declined to issue a written opinion or, apparently, explain his rulings in open court.”  In addition, the appellate court took the opportunity to encourage trial judges to explain their rulings to justify the substance of their decisions.

Lew and Turczak asserted that First American was wrong to seek repayment for the mortgage and then seek to leverage the promissory note. They claimed that the doctrine of res judicata barred this double use.

In order to show that res judicata applies, Lew and Turczak needed to demonstrate that a final judgment was entered, that the causes of action were identical and that the parties were identical. No one contested that a final judgment was issued, or that the parties were identical, but the causes of actions were not identical.

“Well-settled Illinois case law,” the appellate court noted, “permits lenders to bring separate enforcement actions on the mortgage and the note.”

Several cases support the proposition that despite the almost-inevitable proximity in time, an overlap of parties between a promissory note and mortgage, the remedies should be treated as separate transactions.

In the end, the appellate court stated that Lew and Turczak did not present any compelling reason to abandon what the court called “settled law.”  Therefore, the trial court’s order dismissing the case that Lew and Turczak brought was affirmed. 

Laura Turczak and Robert Lew v. First American Bank, 2013 IL App. (1st) 121964 (Oct. 2, 2013).

Kreisman Law Offices has been handling real estate litigation, business litigation and probate litigation for individuals, families and businesses for more than 37 years in and around Chicago, Cook County and its surrounding areas, including Glenview, Brookfield, Northbrook, Glen Ellyn, Skokie, Schaumburg, Deerfield, Winnetka, Wilmette, Park Ridge, Harwood Heights, Chicago (Jefferson Park, Polish Village, Humboldt Park, Logan Square) and Des Plaines, Ill.

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