In response to a foreclosure, the mortgagors in Federal Nat’l Mortgage Ass’n v. Obradovich, No. 14-CV-04664 (N.D. Ill. May 28, 2020) countersued their lender, the mortgage loan servicer and the contractor their lender retained to manage the winterization of the property claiming a sub-contractor botched the job and caused extensive damage. They also asserted the lender improperly began foreclosure proceedings when the parties were in the midst of discussing a short sale.
The district court granted the lender summary judgment on the foreclosure claim, finding that the lender had established a prima facie case and proffered reliable affidavit testimony proving the amount of the default. The court rejected the mortgagors’ contention that the judgment was not warranted because, among other, things the lender did not conduct itself in good faith or comply with the Making Home Affordable Program (“HAMP”) or Home Affordable Foreclosure Alternatives programs. The court found the mortgagors had failed to point to any evidence to sustain this or any of the other defenses. The court also disallowed the mortgagors’ argument that summary judgment was improper because the issues raised in their counterclaims were not resolved. The court said the mortgagors’ default was a matter independent from whether they may pursue monetary damages for their claims of trespass, negligence, and violation of various consumer protection laws.
The court then addressed the mortgagors’ various counterclaims. Regarding the trespass claim, the court noted that the lender and servicer directed the contractor to enter the property, but was the entry lawful? The lender, the servicer, and the contractor (“counterclaim defendants”) pointed to the provision in the mortgage that allowed the lender to do “whatever is reasonable or appropriate to protect [the lender’s] interest in the Property” where the mortgagors fail to perform their obligations under the mortgage or abandoned the property, Reasonable or appropriate actions include “securing and/or repairing the Property.” The mortgagors answered that they never abandoned the property so the lender did not act reasonably or appropriately in entering and winterizing the property.
The court noted that “abandonment” in the context of Illinois foreclosure law is governed by statute and that statute requires not only that the mortgagors no longer use the property as their principal residence, but there must exist at least two conditions from a list of eleven set out in the statute. The counterclaim defendants made no effort to show that any of the statutory conditions existed and the mortgagors’ never professed an intention to abandon the property. This question of fact precluded summary judgment.
The counterclaim defendants also contended they cannot be held liable for trespass or negligence because the sub-contractors who entered the property were not their agents and they did not direct their actions. The mortgagors responded by pointing to the lender’s guidelines which suggest it controlled the manner and method by which subcontractors carried out property preservation; including directives relating to winterization. The court agreed there was a question of fact whether the guidelines governed the lender’s and servicer’s relationships with the sub-contractors requiring that summary judgment be denied. It also denied the contractor’s summary judgment because the contractor could require sub-contractors to follow specific guidelines without precisely knowing how a contractor performed the finer details of a given task.
The court also denied summary judgment on the mortgagors’ consumer fraud claim alleging that it was a deceptive and unfair practice to lock them out of the property without warning, even though they were in the process of selling the home, and intentionally causing or failing to repair the damage to the property to bully them into an expedited foreclosure process. The court found there was no evidence that the lender and servicer were actively involved in a deceptive practice, but the fact that they instructed the contractor to winterize and change the locks, did not repair damage from the allegedly botched winterization, and refused to accept a reduced short-sale offer to account for the damage, could be viewed as unfair under the consumer fraud statute.
Finally, the court denied summary judgment to the servicer under the Fair Debt Collection Practices Act because it qualified as a debt collector and a reasonable jury could find retaining the contractor to enter and winterize the property was for the purpose of collecting a debt. The servicer had already expressed its intent to foreclose when it directed the contractor to change the locks—suggesting that it was preparing to take possession of and sell the property, not merely protecting its interest in it. A reasonable jury could also find that the circumstances under which the servicer told its agent to enter the property without permission resulted in a breach of the peace and thereby violated the FDCPA’s prohibition on taking nonjudicial action to dispossess the debtor of their property when the collector has no present right to possess the property. The court, however, said that the contractor was not liable under the FDCPA because it was not a debt collector.
Author
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Jim is a founding partner of Noonan & Lieberman. Jim has more than 25 years of experience in civil litigation on behalf of creditors, servicers, business and real estate owners.
