Illinois Supreme Court holds that a suit on the note is the same as a foreclosure suit seeking a deficiency for purposes of the “single refiling” rule.

The Illinois Supreme Court held in First Midwest Bank v. Cobo, 2018 IL 123038 (November 29, 2018) that a lawsuit for breach of a promissory note asserts the same cause of action as a prior foreclosure complaint when that foreclosure complaint specifically requested a deficiency judgment based on the same default of the same note.

At issue in Cobo was the application of Illinois’ “single refiling rule” to a mortgagee’s suit to foreclose a mortgage which also sought a deficiency judgment. In 2006, the lender brought a suit to foreclose a mortgage and a deficiency judgment in the event that a foreclosure sale failed to satisfy the indebtedness. The lender’s assignee subsequently voluntarily dismissed the suit and filed a new suit a few days later but only on the note. After two years of litigation, the assignee voluntarily dismissed the suit again. Shortly afterwards it filed a new action on the mortgage and the note.

The homeowner’s moved to dismiss the suit contending it was barred by Illinois’ “single refiling rule” which prohibits a plaintiff from refiling the same cause of action more than once. The circuit court denied the motion finding that a lawsuit based on a mortgage and a lawsuit based on a promissory note are not the same cause of action. The appellate court reversed and the Supreme Court affirmed.

Whether two complaints state the same claim does not depend on how the plaintiff labels the complaint. Rather, courts must use the “transactional test” which treats claims as being the same if they arise from a single group of operative facts. The Court determined that all three suits were the same because they alleged the same default date and all alleged that the homeowners were personally liable for the debt and each sought a personal judgment.

The court that although the form statutory complaint contained in Illinois’ foreclosure statute requires the plaintiff to attach a copy of the mortgage and note to the complaint, it does compel the plaintiff to seek a deficiency during the foreclosure proceedings. That the form complaint actually provides “a personal judgment for deficiency, if sought” was irrelevant to the court for the same reason, which is that the lender did not have to seek a deficiency when it filed the action in the first place. By including this language in the complaint the plaintiff was still preserving its claim for a deficiency; it invoked the note in the foreclosure complaint and threatened to seek a remedy based on the note.

The harmful consequences the plaintiff warned of – a limitation on the available remedies which will require lenders to file one suit under all possible instruments – can be avoided by not seeking a deficiency judgment. A plaintiff seeking to foreclose on a mortgage puts the note at issue and makes those facts “operative” only if the plaintiff also seeks to adjudicate the parties’ rights under the note.

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