Final order in mortgage foreclosure action bars all claims against the mortgagee, even a claim for fraud upon the court

In Taylor v. Bayview Loan Servicing, LLC, 2019 IL App (1st) 172652 (July 25, 2019), the Plaintiffs brought an action against the lender who foreclosed a mortgage on their home in a prior proceeding. Plaintiff’s contended the foreclosure was wrongful and the lender had committed fraud upon the court. For about a month prior to the formal completion of a mortgage foreclosure proceeding, the Plaintiff’s lender purportedly issued an IRS 1099-C notice indicating the lender was “discharging” $214,346.59 of the debt. According to Plaintiffs, this meant the lender had discharged the underlying lien.

Even though the lender had written off the debt, in the foreclosure proceedings it continued to seek and eventually obtained a personal deficiency judgment. When Plaintiffs learned about the IRS 1099-C notice after the foreclosure, they sued the lender for violations of the federal Fair Debt Collection Practices Act, common law fraud, fraudulent concealment, negligent misrepresentation, and intentional infliction of emotional distress.

The lender moved to dismiss alleging that the suit was barred by res judicata and under section 15-1509(c) of the Illinois Mortgage Foreclosure Law, which provides that the vesting of title following the foreclosure sale is an entire bar to all claims of any party to the proceeding. 735 ILCS 5/15–1509(c). The trial court agreed that dismissal was warranted under section 15-1509(c) and dismissed the complaint.

The Plaintiff’s appealed. In the appellate court, they argued that section 15-1509(c) does not apply to bar their complaint where the foreclosure order is void due to fraud. The court observed that the language in that section providing that the vesting of title by deed “shall be an entire bar of *** all claims of parties to the foreclosure” to be “clear and unambiguous.” It conceded that the statute carves out two exceptions to the bar: (1) where a party seeks to challenge the judgment as void due to lack of personal or subject matter jurisdiction and (2) where a party may seek relief in the form of claiming an interest in the proceeds of the sale.

The Plaintiffs argued the first exception applied. The order approving the sale and awarding the lender a personal deficiency judgment was a void order because it was procured by fraud. The court disagreed, observing that it is evident from the Plaintiffs’ briefs that they were working under a misapprehension of what the term “void” means.

“Void” is not interchangeable with “voidable”, the court observed. Whether a judgment is void or voidable depends on whether the court entering the challenged order possessed jurisdiction over the parties and the subject matter. A voidable judgment, however, is one entered erroneously by a court having jurisdiction. It is not subject to collateral attack. Thus, once a court acquires jurisdiction, an order will not be rendered void merely because of an error or impropriety in the issuing court’s determination of the law. Even subsequent fraud, concealment, or perjury will not render its order void.

Because the trial court had jurisdiction, the Appellate Court held the order entered in the foreclosure proceedings was not void. And even if the trial court erred in entering the order, as the Plaintiffs contended, it would merely be voidable which is not an exception to section 15-1509(c)’s bar. The trial court’s judgment was affirmed.

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