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Noonan and Lieberman keeps you current on litigation news with its regular Case Law Update focusing on important and emerging trends in federal and state case law. Case Law Update is edited by attorney James V. Noonan.

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January 2012

ILLINOIS APPELLATE COURT HOLDS THAT A SUMMONS BEARING THE CLERK’S STAMPED NAMED, INSTEAD OF CURSIVE SIGNATURE, IS A VALID SUMMONS

In National City v. Majerczyk (Case No. 11-0640, December 23, 2011), the mortgagors appealed the circuit court’s denial of their motion to vacate the order approving the foreclosure sale. Mortgagors argued that the trial court did not acquire personal jurisdiction because the summons served upon them bore only the stamped name of the clerk of the Circuit Court of Cook County instead of her cursive signature. The issue before the First District Illinois Appellate Court was what constitutes a signature for the purpose of Rule 101(a)? That rule provides that “summons shall be issued under the seal of the court, [at]tested in the name of the clerk, and signed with his name.”. In affirming the trial court’s judgment, the Appellate Court reviewed its prior precedents where it held that “a signature is the act of putting down a person’s name to attest the validity of the instrument,” however; it was not required to be written in a cursive form. Instead, the signature may be stamped, printed or made legible by using any other device. Black’s Law Dictionary also defines signature as “[a] person’s name or mark written by that person or the person’s direction.” Based on this authority the court concluded that the clerk’s stamped name constituted her signature for the purpose of the Rule 101(a) and affirmed the trial court’s judgment.

IF A CONSUMER’S TESTIMONY IS BASED ON FIRSTHAND KNOWLEDGE IT IS SUFFICIENT TO OVERCOME TILA’S PRESUMPTION OF DELIVERY FOR THE PURPOSE OF SUMMARY JUDGMENT

In Marr v. Bank of America, (No. 11-1424 December 6, 2011), the consumer filed a rescission action alleging that at the closing of the mortgage loan he only received one copy of the Notice of Right to Cancel (“Notice”), instead of two copies as required by TILA. During depositions the consumer testified that he did not have time to review the loan documents at closing but he left the closing with a folder containing all the closing documents. The consumer testified that he placed the folder in his filing cabinet and did not disturb it until two years later. The lender moved for summary judgment supported by the Notice, bearing the consumer’s acknowledgement that he received two copies, and an affidavit from closing agent who testified that she followed her standard practice at the closing which included providing consumers with two copies of the Notice. The consumer submitted his own affidavit disputing what the closing agent said happened at the closing. The district court granted summary judgment in favor of lender and the consumer appealed. In reversing the district court’s judgment, the 7th Circuit Court of Appeals first noted that pursuant to section 1635© of TILA the borrower’s signed acknowledgment that he received two copies of the Notice created only a rebuttable presumption of delivery. To overcome this presumption at summary judgment stage, the borrower only “needed to produce enough evidence to permit a reasonable jury to find that he did not receive the two copies.” The appellate court held such evidence may be in the form of “uncorroborated, self-serving testimony, if based on personal knowledge or firsthand experience * * * as such testimony can be evidence of disputed material facts.” The appellate court did not address the “envelope theory” but found that the borrower’s testimony that what happened at the closing the deviated from what the closing agent said was her standard practice was enough to permit a reasonable jury to find in his favor. Accordingly, it reversed the grant of summary judgment and remanded for further proceedings.

A BORROWER’S “KNOWING AND VOLUNTARY” WAIVER OF HIS RIGHT OF RESCISSION IN A LOAN MODIFICATION AGREEMENT UPHELD AND THE DISCLOSURE OF THE APR INCORPORATING A PERFORMANCE BASED-REDUCTION IN RATE COMPLIED WITH TILA

The borrower in In Re Angelo DiVittorio (1st Cir., No. 11-1188, January 6, 2012) took out an adjustable rate mortgage which included a performance-based rate reduction feature that lowered the rate if the borrower timely made the first twenty-four monthly payments. He later filed a chapter 13 bankruptcy where he successfully negotiated a modification of the loan reducing the annual rate and changing the loan from an adjustable to a fixed rate loan. As part of the modification agreement, the borrower also “knowingly and voluntarily” released the assignee of the loan from any claims in connection with the loan. The borrower defaulted on the modified loan, filed another bankruptcy, and in an Adversary proceeding sought to rescind the original loan under the Massachusetts Consumer Credit Cost Disclosure Act (MCCCDA), (which is modeled after, and interpreted in accordance with, TILA), claiming that the incorporation of a performance-based rate reduction to calculate the APR violated TILA and thus MCCCDA. The TILA disclosure also allegedly significantly underestimated the Finance Charge. The Bankruptcy court found that the borrower failed to state a claim because the incorporation of the performance-based rate reduction in the calculation of the APR did not violate TILA and because his right of rescission in recoupment was waived when he signed the release of claims. The district court affirmed and the borrower appealed to the First Circuit Court of Appeals where he argued that the waiver was ineffective because TILA and MCCCDA are consumer protection laws and the rights they bestow can only be waived under very limited circumstances. The Appellate Court found TILA and MCCCDA’s requirements for waiver were not applicable to a waiver of rescission right in recoupment – brought six years after the loan was consummated – because recoupment was not a right “created” by TILA or MCCCDA. The right was created by state law; the consumer protection laws merely preserved the right. The Appellate Court also rejected the borrower’s challenge to the inclusion of the performance-based reduction in the APR calculation. TILA requires that the disclosures, including the APR, must reflect the terms of the legal obligation between the parties. The terms of the note obligated the borrower to make payments of principal and interest every month, while the creditor was obligated to reduce the rate if the borrower makes the twenty-four monthly payments timely. Accordingly, the performance-based rate reduction “reflected the legal obligation of the borrower to make timely monthly payments”, which accorded with TILA. The Court also rejected the contention that the increased interest rate resulting from a late payment was not “unanticipated” and therefore a Finance Charge, because borrower was a subprime borrower and likely to default within the first period. The FRB’s Official Staff Commentary makes clear, however, that any increase in the interest rate resulting from a borrower’s failure to make timely payment was unanticipated and thus properly excluded from the Finance Charge calculation.

A PERSONAL DEFICIENCY JUDGMENT MAY BE ENTERED AGAINST A MORTGAGEE IN ILLINOIS WHO IS SERVED BY “ABODE SERVICE”

In Metrobank v. Cannatello (No. 11-0529, January 9, 2012), mortgagee brought a complaint to foreclose a mortgage and a personal deficiency against the mortgagor in case the foreclosure did not satisfy the judgment. The mortgagee served the summons and complaint on the mortgagor by way of “abode service”. When he failed to appear the trial court entered a default judgment of foreclosure and ordered the property sold to pay the judgment. The bid price was insufficient to pay the judgment resulting in a deficiency. The mortgagee then moved to confirm the sale and requested that a personal judgment be entered against the mortgagor for the deficiency. The trial court confirmed the foreclosure sale but refused the request for a deficiency judgment holding that under section 15-1508(e) of the Illinois Mortgage Foreclosure Law (IMFL) it can only enter a personal deficiency judgment against a person who is personally liable on the note if there has been “personal service”. Here, service was obtained via “abode service” which the trial court held did not qualify as “personal service”. In reversing the trial court’s decision, the First District Illinois Appellate Court observed that the IMFL requires that the manner of service of pleading be in accordance with the Code of Civil Procedure. It found that “abode service”, made in accordance with section 2-203 of the Code, was “personal service” for purposes of a deficiency. Recognizing that the Illinois Supreme Court recently clarified that a foreclosure action is a quasi in rem proceeding, a court hearing a foreclosure need only have personal jurisdiction over the defendant before the entry of a personal judgment. “Abode service” is sufficient to confer personal jurisdiction on the court over a defendant in any action in law or equity so “abode service” qualifies as “personal service” under section 1508(e) of IMFL. Because the there was personal service, it was wrong for the trial court to deny the mortgagee a deficiency judgment.