Failure To Pay Open Taxes Prior To The Foreclosure Sale Precludes A Mortgagor From Paying The Taxes From Surplus Proceeds From The Sale

Bank of America, N.A. v. Higgin, 2014 IL App (2d) 131302 (Sept. 26, 2014), a recent appellate decision from Illinois, should serve as a cautionary tale for plaintiff mortgagees in setting their bid at sale. Following judgment of foreclosure, the mortgagee bid $1,905,374.78, which was $83,305.25 more than the judgment amount. When it moved to confirm the bid, Plaintiff asked the court to apply the surplus to the unpaid outstanding taxes claiming it was a reasonable expense for Plaintiff to secure possession of the property. In a subsequent motion, Plaintiff clarified that it had intended to pay the taxes before the sale and therefore inadvertently had included the amount of unpaid outstanding taxes as part of its credit bid. In other words the Plaintiff thought it had paid outstanding taxes before sale but it hadn’t. In support of its request, Plaintiff cited Illinois foreclosure law that in order to protect the lien of the mortgage, it may become necessary for plaintiff to pay taxes and assessments which have been or may be levied upon the mortgaged real estate. Defendant mortgagors objected claiming they were entitled to the surplus because the foreclosure rules only allow the sale proceeds to be applied to the reasonable expenses of securing possession before sale. They argued that a judicial sale purchaser take subject to existing liens and cannot have sale proceeds applied to clearing title. The circuit court sided with Plaintiff, but the appellate court reversed. It held that a mortgagee’s right to reimbursement for advances is limited to advances made before sale. The court rejected Plaintiff’s argument that reimbursement for taxes was the same as reimbursement for fees and costs, for which the foreclosure rules allow reimbursement after the sale. Fees, the court observed, refer to attorneys and other professional fees and costs mean things like the costs of publication, costs of procuring and preparing documentary evidence and costs of procuring abstracts of title, Torrens certificates, foreclosure minutes and a title insurance policy. Thus, a plaintiff can recover fees and costs through the end of proceedings, but not other advances. This is consistent with terms in mortgages that allow the mortgagee to make the mortgagor bear the expenses of the suit. By contrast, the provisions for recovery of expenditures necessary to preserve the plaintiff’s interests allow such recovery up until the time of sale only. That pattern is consistent with the recognition that, in ordinary circumstances, such payments after sale protect the buyer’s interests, not the mortgagee’s. Therefore, Defendants were entitled to receive the surplus proceeds.

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