Illinois passes legislation ratifying the validity of foreclosure judgments where there was a defect in the service summons

Two pieces of legislation recent passed the both houses of the Illinois General Assembly that affect foreclosure and mortgage related litigation. Both are awaiting the signature of the governor.

The first bill, SB2432, was clearly directed at redressing the consequences of the 2015 decision of Arch Bay Holdings, LLC-Series 2010B v. Perez, 2015 IL App (2d) 141117, 43 N.E.3d 562 which held that a summons issued in a foreclosure action in which the defendant’s name was not listed on the face of the summons was fatally defective, which meant the previously judgment of foreclosure was void for lack of personal jurisdiction. Where the foreclosure decree is declared void, it may be attacked at any time. Since Arch Bay Holdings, aggressive (and in some cases, unscrupulous) attorneys and speculators have been signing up foreclosed mortgagors to vacate foreclosures several years later citing a defect in the summons.

SB2432 amends the Code of Civil Procedure to provide that a court’s jurisdiction is not affected by a technical error in the format of a summons if the summons had been issued by a clerk of the court, the person or entity to be served is identified as a defendant on the summons, and the summons is properly served. The Code was also amended to reflect that if a petition is filed to reopen a foreclosure proceeding, the purchaser or successor purchaser of the property who was not a party to the foreclosure action will be entitled to remain in possession until the foreclosure action is defeated or the previously foreclosed defendant redeems from the foreclosure sale if the purchaser has been in possession of the property for more than six months.

The legislation closed another loophole in collateral attacks on foreclosure judgments, as well. It requires that the petition to reopen the foreclosure name all persons who were parties to the foreclosure as well as all current owners, occupants or persons with a recorded interest in the property.

The legislation also added a statute of limitations on actions to reopen foreclosures The Code now provides that six months after the effective date of the amendment, an action for the recovery of real property following a foreclosure must be brought within two years after the possession through the foreclosure is taken.

The legislation also added a section to the Code which provides that every person in the actual possession of property as a purchaser following a foreclosure is deemed to be the legal owner of the lands if for two successive years the person continues in possession and pays all the taxes on the property.

Finally, the legislation amended the state’s Mortgage Rescue Fraud Act to discourage the aggressive practices of the attorneys and others bringing these actions. It is now a violation of the Act for a distressed property consultant to, among other things, enter into, enforce, or act upon any agreement with a foreclosure defendant, whether the foreclosure is completed or otherwise, if the agreement provides for a division of proceeds between the foreclosure defendant and the distressed property consultant derived from litigation related to the foreclosure.

The second piece of legislation is an amendment to the Presumptively Void Transfers Article of the Probate Act Probate Act. HB5047 makes changes regarding the rebuttable presumption that a transfer instrument intending to effectuate a transfer of real property after the transferor’s death. Such a transfer is void if the transferee is a caregiver and the fair market value of the transferred property exceeds $20,000. The legislation now provides that a bona fide purchaser or a mortgagee for value may take the subject property free and clear of an action challenging the transfer instrument if the transfer to the bona fide purchaser or mortgagee occurs before the recordation of a lis pendens for an action challenging the transfer. It also sets forth the conditions under which a financial institution or similar entity will not be liable for distributing or releasing the property when the transfer is challenged.

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