The impact of ABN AMRO v McGahan on already-issued foreclosures.
The Illinois Supreme Court recently held that a trial court lacks subject matter jurisdiction in mortgage foreclosure actions filed against deceased borrowers unless the lender names a personal representative for the decedent. The author wonders whether that could render some already-issued foreclosure orders void and, if so, what that might mean for the property in question.
In ABN AMRO Mortgage Group v McGahan (1) the Illinois Supreme Court held that mortgage foreclosure actions are "quasi in rem" proceedings that affect both people and property, not, as previously assumed, "in rem" proceedings that affect property only.
This is not simply a matter of choosing among arcane lawyer-Latin labels--the practical implications of this decision are profound. It means that a trial court lacks subject matter jurisdiction in mortgage foreclosure actions filed against deceased mortgagors unless the lender names a personal representative for the decedent. (2)
This is good news for relatives of deceased borrowers, some of whom did not even learn about a foreclosure affecting them because they were not personally served. But it also casts doubt on property that has already been disposed of and cases that have already been decided, even in some cases when the defendants did have notice.
Before ABN AMRO, foreclosure firms throughout the state routinely proceeded with foreclosures against deceased borrowers without naming personal representatives. (3) After ABN AMRO, the trial courts in those cases arguably lacked subject matter jurisdiction. (4) If that is true, every order entered in those foreclosure cases--including the judgment of foreclosure, the order approving sale, and the order of possession--could be void and subject to direct or collateral attack at any time. (5)
That in turn could raise questions about property governed by those orders--including the finality of judicial sales, the enforceability of pending orders of possession, and the clarity of title to third-party purchasers.
This article outlines the case law that led to ABN AMRO, discusses the law governing attacks against void orders, and addresses some of the practical implications of a trial court having entered foreclosure orders without subject matter jurisdiction.
The history of ABN AMRO
It is instructive to look at the law and the cases that led up to the supreme court's decision in ABN AMRO.
The general rule in Illinois is that a lawsuit against a dead person is void for lack of subject matter jurisdiction. (6) Under 735 ILCS 5/13-209, a litigant suing a deceased person may name a personal representative for the decedent if one exists. If one does not, the court may appoint a special representative "for the purposes of defending the action." (7)
In Keller v Walker, (8) the appellate court vacated a default judgment because the trial court lacked subject matter jurisdiction to enter the judgment until it appointed a special representative for the decedent under 13-209. (9) In Wells Fargo Bank v McQueen, (10) a Cook County trial court relied on Keller to dismiss a foreclosure complaint against a deceased mortgagor.
In McQueen, the plaintiff lender sought to foreclose and named both the mortgagor and his estate, despite knowing that the mortgagor was dead and no estate had been opened for him. The court questioned its own subject matter jurisdiction in light of Keller. In response, the plaintiff argued that Keller was an in personam proceeding in which the decedent himself was being sued, while a mortgage foreclosure action is an in rem proceeding in which the property is the subject of the suit.
In a detailed written opinion, the circuit court rejected the plaintiff's position, finding that a mortgage foreclosure action is a quasi in rem, not an in rem, proceeding. It noted that the Illinois Mortgage Foreclosure Law ("IMFL") includes the mortgagor as a necessary party, and it distinguished a mortgage foreclosure action, which seeks relief against a piece of property through a named individual, from a true in rem proceeding, which seeks relief solely against the property. (11)
Based on its finding that mortgage foreclosure actions are quasi in rem proceedings requiring the plaintiff to name the mortgagor, the court reasoned that the usual rules governing lawsuits against deceased persons should apply to the case. (12)
Based on its McQueen opinion, the circuit court dismissed mortgage foreclosure complaints in two similar cases, ABN AMRO and Charter One Bank v Hunter. (13) The appellate court reversed the circuit court's dismissal of both cases, finding that mortgage foreclosure actions are in rem proceedings and that failing to name a personal representative for a deceased mortgagor "did not divest the trial court of subject matter jurisdiction." (14)
In a decision reciting much of the circuit court's discussion in McQueen, the supreme court overruled the appellate court. (15) The supreme court definitively declared mortgage foreclosure actions to be quasi in rem proceedings where the mortgagor is a necessary party: "The question at issue here is whether a mortgagee must name a personal representative for a deceased mortgagor in a mortgage foreclosure proceeding in order for the circuit court to acquire subject matter jurisdiction ... [W]e conclude that it must." (16)
Because a court's lack of subject matter jurisdiction cannot be waived and any order entered without subject matter jurisdiction is void and subject to direct or collateral attack at any time, (17) the supreme court's ruling calls into question orders previously entered in mortgage foreclosure actions where the lender failed to name a personal representative for a deceased mortgagor.
Attacking foreclosure orders entered against deceased mortgagors
Before any court may enter a binding judgment or order, it must have personal jurisdiction over the parties and subject matter jurisdiction over the lawsuit itself. (18) Otherwise the order is void, and void orders are subject to direct or collateral attack at any time. (19)
Under section 2-1401 of the Illinois Code of Civil Procedure, attacks against final orders typically require the attacker to show due diligence and a meritorious defense, but not when a jurisdictional defect appears from the record. (20) And while 2-1401 (e) protects bona fide purchasers of real property sold at judicial sales against the vacation or modification of judgments and orders initiating the sales, that protection does not apply when the record shows a problem with jurisdiction. (21)
When does a jurisdictional defect appear from the record? In Bank of New York v Unknown Heirs and Legatees (Hatch), (22) the appellate court reversed a trial court's ruling that 2-1401 (e) protected the interests of third parties who had purchased property at a judicial foreclosure sale where allegations of improper service on a named defendant appeared from the record.
"In determining whether a lack of jurisdiction is apparent from the record," the court stated, "reviewing courts look to the whole record, which includes the pleadings, the return on process, the jury verdict, and the court's judgment or decree." (23) It found that the trial court's lack of jurisdiction appeared from the record "in the form of plaintiff's defective affidavit and the allegations set forth in defendant's motions." (24)
The jurisdictional defect of failing to name a personal representative for a deceased mortgagor often appears from the record. For example, in McQueen, the plaintiff's complaint alleged "upon information and belief" that the mortgagor was dead, and its affidavit for publication attached the results of Social Security Death Index search showing that the mortgagor had died before the complaint was filed. (25)
Moreover, the IMFL's form complaint requires plaintiffs to identify both the mortgagor and the current owners of the property. (26) When the mortgagor is dead, the foreclosure complaint often alleges that the decedent is the mortgagor but that his or her unknown heirs and legatees are the current property owners. (27)
A complaint that only named the mortgagor's unknown heirs and legatees either failed to name the living mortgagor, who is a necessary party under the IMFL, (28) or did not name a personal representative for the deceased mortgagor, who is required under ABN AMRO. Also, the returns for attempts of service on the mortgagor, if named, or the affidavits of publication for service against either the mortgagor or unknown heirs and legatees typically refer to the results of death record searches, which indicate the mortgagor's status as dead or alive. (29)
All of these documents are likely to be matters of record showing the trial court's lack of subject matter jurisdiction, as is the absence of orders appointing a special representative for the mortgagor under 13-209.
If the trial court lacked subject matter jurisdiction to enter the judgment of foreclosure, the order approving sale, or any other foreclosure orders, those orders are arguably void and subject to direct or collateral attack at any time. (30) And if the court's lack of jurisdiction appears from the record, which it almost always will, Hatch dictates that 2-1401's general due diligence and meritorious defense requirements do not apply and third party purchasers not parties to the foreclosure action remain unprotected against the repercussions of a court vacating those orders. (31)
Lack of subject matter jurisdiction: the practical impact
Most foreclosure actions follow the same timeline: the court enters a judgment of foreclosure, the property is sold at judicial sale (either to the plaintiff or a third-party bidder), and the court confirms the sale and grants possession to the purchaser 30 days after entry of the order. (32) In a foreclosure action against a deceased mortgagor where the lender failed to name a personal representative and the court lacked subject matter jurisdiction, all of these orders--the judgment of foreclosure, the order confirming sale, and the order of possession--may be void and subject to direct or collateral attack at any time. (33) This calls into question the finality of judicial sales, the enforceability of pending orders of possession, and the clarity of title to third party purchasers.
Consider the following scenario. An elderly mother borrows money to buy property to live in with her three adult children, executing a note and mortgage. During the loan's pendency, the mother dies.
After the lender stops receiving payments, it files a foreclosure suit naming her as a defendant. The lender's process server discovers that the mother is dead, that no probate estate has been opened, and that the house is occupied by her three adult children.
Instead of moving to appoint a special representative, the lender moves to amend its complaint to dismiss the mother and name the three adult children and her unknown heirs and legatees. Attached to the motion is i) the process server's affidavit stating that the mother is dead with no estate and ii) the mother's death certificate.
When the three adult children fail to answer the complaint after being served, the lender moves for a default judgment of foreclosure, which the court grants. The lender purchases the property at auction, and the court subsequently approves the sale and grants the lender possession 30 days after the date of its order.
Under these facts, the three adult children would presumably be within their rights as named parties with a possessory interest in the property to challenge any orders entered against them as void for lack of subject matter jurisdiction. According to ABN AMRO, the trial court lacked subject matter jurisdiction to enter orders binding any defendants unless a special representative was appointed for the mother. (34)
Note that the court could lack jurisdiction whether or not the defendants were served, participated in the underlying litigation, or raised the issue of subject matter jurisdiction. It could even be required to restore the status quo by ordering a lender who had changed the locks after taking possession to give the new keys to the displaced defendants before restarting the foreclosure.
The trial court's lack of subject matter jurisdiction raises problems for parties other than the lender. Under the hypothetical above, if the lender sold the property to new owners, they would not be protected as bona fide purchasers under 2.-1401(e). The court's jurisdictional defect would appear in the record from the lender's motion to amend its complaint, making the orders upon which their property rights are premised subject to attack. (35) Even if no one challenged the void orders in court, the cloud on the new owner's chain of title could lead a title company not to offer title insurance. (36)
The parties in ABN AMRO did not raise these issues, (37) and the court did not raise them on its own accord. Of course, courts could carve out public policy exceptions to the rule espoused in ABN AMRO to promote stability in the real estate market, (38) deciding, for example, to only apply the rule's jurisdictional consequences prospectively. (39) But the ruling clearly complicates life for lenders and subsequent purchasers where the lender failed to name a personal representative for a deceased mortgagor.
Without subject matter jurisdiction, all of a court's foreclosure orders--including the judgment of foreclosure, the order approving sale, and the order of possession--are potentially void and subject to either direct or collateral attack at any time. (40)
Prior to the ABN AMRO ruling, plaintiffs seeking to foreclose mortgages in Illinois rarely named personal representatives for deceased mortgagors. (41) The viability of foreclosure orders after ABN AMRO could therefore depend on whether the mortgagor was dead or alive when the orders were entered. That creates uncertainty about the finality of judicial sales, the enforceability of orders of possession, and the clarity of title to third party purchasers.
Perspectives on ABN AMRO v McGahan
Think Kevin Hudspeth's view of the potential effects of ABN AMRO v McGahan is extreme?
Here's what Lisle lawyer and regular IBJ contributor Steven Bashaw has to say: "The prospect of mass quantities of foreclosures being held void is absolutely there. Kevin's analysis is very accurate. He's pointed out a huge flaw in the foreclosure system that is very difficult to deal with."
Bashaw is concerned that the decision "opens the door to reopen cases in which there was some equity. All the cases in which the mortgagor was deceased and no special representative was appointed are subject to being vacated as void."
One possible result, he fears, may be that "third-party purchasers will not be willing to bid fair market value for a property if they see that there were unknown heirs, which will signal to them that the mortgagor was deceased, and no special representative was appointed. Title insurance companies may not want to insure those properties. And owners who already purchased those properties, refinanced their mortgage loans, and thought they were saving a few hundred dollars by not purchasing title insurance for themselves could be in big trouble."
Staff attorney Dan Lindsey of the Legal Assistance Foundation of Chicago finds no fault in Hudspeth's reasoning. But Lindsey doubts that the effects Hudspeth posits will ever occur. "You would have to charge the third-party buyer with knowledge not only of what the record disclosed, that is, the death of the mortgagor, but also of what the state of law was going to be sometime in the future, that is, how the supreme court would decide ABN AMRO v McGahan.That would be unreasonable."
Patricia Nelson of Chicago Volunteer Legal Services also doubts the scenarios envisioned by Hudspeth will ever come to pass."l can't think of an instance where an heir might have the money to bother getting the suit voided and then pay off the mortgage. Unless the deceased owner owed very little on the mortgage, any potential heir that wants to do something about saving the property and who didn't get notice because no representative was ever appointed is going to have to come up with a lot of money to do something, because the interest is going to continue to accrue throughout the foreclosure process."
"The problem is money"
Some lawyers have expressed uncertainty as to how to proceed in the wake of ABN AMRO v McGahan. Bashaw, who now represents defendants in foreclosure matters, explains the historic and new procedures under the statute. "As a plaintiff's lawyer for 25 years, if I discovered after filing suit that the mortgagor was deceased, I would simply file an affidavit saying the mortgagor was deceased and there was no probate estate and no executor, and then amend the complaint to name any known or unknown heirs and devisees. Then I would publish notice against unknown heirs."
After ABN AMRO v McGahan, he says, plaintiffs who discover the death of a mortgagor after filing suit check death and probate records to verify the death and find out whether any probate estate has been opened. If no estate has been opened, a plaintiff will move the court for the appointment of a special executor and name that person in addition to heirs or unknown heirs.
Bashaw says he's been appointed a special executor in more than a hundred foreclosure matters since the circuit court issued the decision that was the subject of ABN AMRO v McGahan."The special representative is an officer of the court who investigates and reports back to the court. In my reports as a special representative, I advise that the mortgagor died on whatever date he died, that he was then the owner of the property, and who the heirs are based on the information I can obtain. I outline the property's current condition and what the equity is based on the current outstanding liens and its appraised value."
Champaign lawyer John Bramfeld criticizes what he sees as a lack of guidance in the supreme court's decision. "I fail to see how this new decision makes it easier to keep a house. The problem is always money. Now, instead of informally dealing with the known heirs (and heirs living in the house are always known) we have passed off the problem to some unspecified special representative.This person will have to be paid, and he will be paid initially by the bank. If the heirs want to keep the house, they will have to pay the bank back. Since money has always been the problem, the problem has now gotten bigger."
Bramfeld believes "the supreme court would have done better to issue a rule on how to deal with appointing a representative for people no one knows and, in the overwhelming majority of cases, whose only asset is a house worth less than the debt."--Helen Gunnarsson
(1.) ABN AMRO, 237 Ill 2d 526, 2010 WL 2222126 (Ill Sup Ct).
(2.) Id at * 1.
(3.) See Wells Fargo Bank v McQueen, 2006 WL 6085410, No 05 CH 12864, slip op at 1 n 1 (Cir Ct Cook County, Nov 2, 2006), modified Mar 29, 2007.
(4.) See ABN AMRO, 2010 WL 2222126 #1. For discussion regarding prospective versus retroactive application of ABN AMRO, see note 39 and accompanying text.
(5.) See Sarkissian v Chicago Board of Education, 201 Ill 2d 95, 103, 776 NE2d 195, 201 (2002) (noting that judgments and orders entered absent subject matter jurisdiction are "void[ ] and may be attacked at any time or in any court, either directly or collaterally.").
(6.) See Volkmar v State Farm Mutual Auto Ins Co, 104 Ill App 3d 149, 151, 432 NE2d 1149, 1151 (5th D 1982).
(7.) 735 ILCS 5/13-209(b)(2).
(8.) Keller, 319 Ill App 3d 67, 744 NE2d 381 (3d D 2001).
(9.) Id at 71, 744 NE2d at 384.
(10.) McQueen, No 05 CH 12864, slip op.
(11.) McQueen, slip op at 6-9. The court used civil forfeiture proceedings and proceedings against vessels under maritime law as examples of true in rem actions.
(12.) Id at 10-11.
(13.) ABN AMRO, 2010 WL 2222126 *2.
(14.) ABN AMRO Mortgage Group, Inc v McGahan, 388 Ill App 3d 900, 903, 906 NE2d at 21, 23 (1st D 2009).
(15.) ABN AMRO, 2010 WL 2222126 * 7.
(16.) Id at * l.
(17.) Sarkissian at 103, lib NE2d at 201.
(20.) Id at 104, 776 NE2d at 202 ("[T]he allegation that the judgment or order is void substitutes for and negates the need to allege a meritorious defense and due diligence"); In re Custody of Ayala, 344 Ill App 3d 574, 583-84, 800 NE2d 524, 534 (1st D 2003) (distinguishing between void and voidable orders).
(21.) 735 ILCS 5/2-1401(a).
(22.) 369 Ill App 3d 472, 860 NE2d 1113 (1st D 2006).
(23.) Id at 477, 860 NE2d at 1118.
(24.) Id. For additional case law discussing when jurisdictional defects appear from the record, see In re County Collector, 397 Ill App 3d 535, 550, 921 NE2d 462, 476-77 (1st D 2009); Mid-America Federal Sav and Loan Assn v Kosiewicz, 170 Ill App 3d 316, 321-24, 524 NE2d 663, 666-68 (2d D 1988).
(25.) McQueen, Slip op at 2.
(26.) See 735 ILCS 5/15-1504(a)(3)(C), (K).
(27.) See, for example, Wells Fargo Bank v Unknown Heirs and Legatees of Ida White, No 09 CH 28430, Amended Complaint to Foreclose Mortgage at 1, 2 (Cir Ct Cook County Dec 3, 2009).
(28.) 735 ILCS 5/15-1501(a).
(29.) See, for example, Aurora Loan Services v Unknown Heirs and Devisees of Tahal Singh, No 09 CH 28238, Affidavit of Special Process Server (Cir Ct Cook County Sep 2, 2009) (stating: "The defendant could not be served at this address. The defendant is deceased.").
(30.) See Sarkissian at 103, 776 NE2d at 201.
(31.) Hatch at 475, 860 NE2d at 1117. The appellate court's ruling in Hatch related to the trial court's personal jurisdiction over one of the mortgagor's "unknown heirs and legatees," Hatch at 475, 860 NE2d at 1117, but there is no reason its logic would not also extend to a trial court's subject matter jurisdiction over a lawsuit against a deceased mortgagor.
(32.) See 735 ILCS 5/15-1506, 1507, 1508.
(33.) See Sarkissian at 103, 776 NE2d at 201; Ayala at 583-84, 800 NE2d at 534.
(34.) ABN AMRO, 2010 WL 2222126 * 1. In addition to seeking appointment of a special representative under 13-209, the lender could also have presumably opened a probate estate for the deceased mortgagor and named the estate's administrator as the personal representative. See McQueen, slip op at 17.
(35.) See Hatch at 477, 860 NE2d at 1118-19; Ayala at 583-84, 800 NE2d at 534.
(36.) Consider Steinbrecher v Steinbrecher, 197 Ill 2d 514, 528-29, 759 NE2d 509, 518 (2001) (noting that the "finality and permanence (of property sales] is relied on by both purchasers and others in connection with the purchase of the property, including financial institutions, title insurers, realtors, and tenants").
(37.) See generally ABN AMRO, No 107954, Oral Arguments (Ill Sup Ct Jan 20, 2010), available at www.state.il.us/court/Media/On_Demand.asp.
(38.) Illinois courts have "long recognized the need to promote stability in the conduct of judicial sales so as not to 'impair that confidence so essentially necessary to induce persons to become purchasers when real estate is offered for sale under a judgment or decree of a court."' Household Bank FSB v Lewis, 229 Ill 2d 173, 181-82, 890 NE2d 934, 39 (2008), citing Abbott v Beebe, 226 Ill 417, 420, 80 NE2d 991 (1907), quoting Conover v Musgrave, 68 Ill 58, 62 (1873). See also Steinbrecher at 528, 759 NE2d at 518 ("Illinois law protects the integrity and finality of property sales, including judicial sales").
(39.) Because the rule that suing a deceased defendant deprives the court of subject matter jurisdiction is long standing in Illinois, Keller at 70, 744 NE2d at 384 ("[T]he law is well settled that the court lacks subject matter jurisdiction where a party files a suit against a deceased person"), ABN AMRO did not create a new requirement so much as decline to carve out an exception to the existing rule. Therefore, applying the consequences of McGahan to orders entered prior to the decision would not seem to amount to retroactive application. But that does not necessarily mean a court could not choose to only apply ABN AMRO's consequences prospectively for public policy reasons. Consider Allcock v Allcock, 107 Ill App 3d 150, 153, 437 NE2d 392, 394 (3d D 1982) ("The absence of subject matter jurisdiction renders a judgment void. In the interest of finality of judgments, such a finding is narrowly construed. Only in the case of a clear usurpation of power by the court will a judgment be rendered void for want of jurisdiction.") (internal citations omitted). Consider also Wells Fargo Bank v McQueen, 2007 WL 5595440, 05 CH 12864, slip op at 5 (Cir Ct Cook County Mar 29, 2007), modifying original Nov 2, 2006, order ("[S]ubject-matter jurisdiction is a legal construct, not empirical science. As a construct, it may bend to the particularities of mortgage foreclosures, but it is not a trial court's place to do the bending.").
(40.) See Sarkissian at 103, 776 NE2d at 201.
(41.) See McQueen, 2006 WL 6085410, slip op at 1 n 1.
Kevin M. Hudspeth is a law clerk to the Mortgage Foreclosure/Mechanics Lien Section of the Circuit Court of Cook County's Chancery Division, where his responsibilities include reviewing default and contested mortgage foreclosure motions and helping prepare a judicial benchbook on mortgage foreclosure.
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|Author:||Hudspeth, Kevin M.|
|Publication:||Illinois Bar Journal|
|Date:||Oct 1, 2010|
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