DD 7/11/08 Lender may cancel foreclosure even after sale has occurred (but prior to court confirmation) in order to facilitate short sale by borrower.

>
>Daily Development for Friday, July 11, 2008
>by: Patrick A. Randolph, Jr.
>Elmer F. Pierson Professor of Law
>UMKC School of Law
>Of Counsel: Husch Blackwell Sanders
>Kansas City, Missouri
>
>
>MORTGAGES; FORECLOSURE; FINALITY: Trial court has discretion to vacate a foreclosure sale that occurred after the mortgagor’s pre sale statutory right of redemption had elapsed, for purpose of facilitating a “short sale” by mortgagor with mortgagee’s consent, notwithstanding objection by the foreclosure purchaser.

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>Household Bank, FSB v. Lewis, 2008 Westlaw 2132467 (5/22/08).
>
>Mortgagor defaulted on a home mortgage held by Bank. On August 27, 2003, Bank filed a foreclosure complaint and moved for an entry of default judgment. In March 2005, the trial court entered a judgment of foreclosure and sale specifying that the statutory period for redemption would expire on June 17, 2005.

>On June 21, Greenwich purchased the house at the foreclosure sale, paying substantially less than the debt. Bank filed a motion to approve the sale, but later continued the motion to allow Mortgagor to negotiate a short sale. Two weeks later, Bank withdrew its motion to confirm and filed a motion to vacate the sale to Greenwich, so as to allow a short sale by the Mortgagor to Tate for a sum greater than the price to be paid by Greenwich. The trial court vacated the judicial sale to Greenwich, and a month later mortgagor sold the property for one third more than the foreclosure bid, and Bank accepted such payment in full satisfaction of the defaulted debt.

>Greenwich appealed the trial court’s vacating of the sale. The Illinois Court of Appeals reversed, but the Supreme Court of Illinois took the case and affirmed the trial court.

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>In Illinois, “a judicial foreclosure sale is not complete until it has been approved by the trial court.” Washington Mutual Bank, FA v. Boyd, 861 N.E.2d 1041, 1041 (Ill. App. Ct., 2006). The court of appeals had reasoned, nevertheless that a trial court must approve an order confirming a judicial sale unless it finds that justice is not otherwise done. Id. But here’s what the statute says:

>"Upon motion and notice in accordance with court rules applicable to motions generally, which motion shall not be made prior to sale, the court shall conduct a hearing to confirm the sale. Unless the court finds that (i) a notice required in accordance with subsection (c) of Section 15-1507 [735 ILCS 5/15-1507] was not given, (ii) the terms of sale were unconscionable, (iii) the sale was conducted fraudulently or (iv) that justice was otherwise not done, the court shall then enter an order confirming the sale." 735 ILCS 5/15-1508(b) (West 2004).

>The lower court of appeals had reasoned that, although the short sale price to Ms. Tate exceeded the judicial sale price to Greenwich, the trial court abused its discretion by vacating because Greenwich had participated in a proper sale following the expiration of any redemption right in mortgagor. Thus, there was no injustice.

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>But the Illinois Supreme Court noted that a final sale was complete only after the mortgagee had filed a motion for confirmation. It seemed to be of the view that such motion would terminate any independent discretion by the trial court. Here, the Bank did file such a motion, but withdrew it after the mortgagor convinced it that a short sale was possible.

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>In essence the court took the view that Bank, the plaintiff in the foreclosure proceeding, was in control of the litigation, and could terminate it at any time until the proceedings were final. As to the expectations of the foreclosure sale purchaser, the court simply stated that there weren’t any, at least not until the judicial foreclosure process has run its course and title is confirmed in the purchaser. And, although this of course might lead to some interference with commercial expectation, the court concluded, the price was worth paying, at least until the legislature concluded otherwise:

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>Greenwich's argument presupposes that protecting the position of third-party bidders should be the preeminent principle guiding our construction of the laws governing judicial sales. We find no support for that view. It is true that our court has 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.' " . . . At the same time, however, the courts have also consistently held that the law favors redemptions . . . and protection of a mortgagor's equity in the property. . . (Citations omitted)

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>Comment: The bottom line rule that the interests of the mortgagee, but not the interests foreclosure purchaser, are relevant in adjudicating finality to the judicial foreclosure process, is a clear policy decision that indeed the Illinois legislature ought to consider.

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