Illinois court holds that a mortgage made by unlicensed loan originator void

An assignee’s bona fide purchaser status may not save it from losing its right to enforce a security agreement. In First Mortgage Co., LLC v. Dina, 2-13-0567 (1st Dist. Ill. App. Ct. Mar. 31, 2014), the mortgagors appealed a mortgage foreclosure judgment arguing that the loan originator was not a licensed lender under the Residential Mortgage License Act of 1987 (License Act) (205 ILCS 635/1-1 et seq.) at the time the loan was made. Consequently, the mortgage contract was void and could not be enforced. Conceding that no Illinois decision have directly addressed unlicensed mortgage lending, the court found apposite a decision concerning the unlicensed corporate practice of medicine. _Chatham Foot Specialists, P.C. v. Health Care Service Corp_., 216 Ill.2d 366, 837 N.E.2d 48 (2005), held that courts will not enforce a contract involving a party who does not have a license called for by legislation that expressly prohibits the carrying on of the particular activity without a license where the legislation was enacted for the protection of the public, not as a revenue measure. The License Act, the court found, was likewise enacted to protect the public, and not to generate revenue. The stated purpose of this Act is to protect Illinois consumers seeking residential mortgage loans and to ensure that the residential mortgage lending industry is operating fairly, honestly and efficiently, free from deceptive and anti-competitive practices. The court was persuaded by the fact that the majority of states to have addressed the enforceability of mortgages made by unlicensed mortgage lenders have concluded that they are void as against public policy and so unenforceable. (Yet, it cited only a single Connecticut Supreme Court decision.) Following Chatham, and the reasoning in the Connecticut case, led the court to conclude that a mortgage made by an entity that lacked authorization under the License Act to conduct such business is void as against public policy. However, given that the originator’s status as an exempt entity under the License Act had not been established, the case was remanded for a hearing on that issue.

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