The legal odyssey of the validity of a mortgage made by an unlicensed mortgage broker in Illinois may soon be over

The background: In 2014, the Illinois Appellate Court held in First Mortgage Co. v. Dina, 2014 IL App (2d) 130567, 11 N.E.3d 343 (Dina I) that under the Illinois’ Residential Mortgage License Act (Act) if the originating mortgagee was not licensed a the time of origination the mortgage was void. The court vacated the prior foreclosure judgment and remanded the cause based on uncertainty about the originator’s licensure status.

In the period between the remand and the new foreclosure judgment, the General Assembly amended the Act so as to trump the Dina I holding. As amended, the Act now provides that a loan originated by a person without a license will not render the mortgage invalid. It also provided “The changes made to this Section by this amendatory Act of the 99th General Assembly are declarative of existing law”.

On remand, the trial court granted judgment in favor of the plaintiff assignee based not on the amendment, but because the Act was inapplicable to the originator who did not engage in business in Illinois. The mortgagors appealed.

The court first determined that the Act did indeed apply to the originator finding no exemptions in the Act for an entity that does so in rare or isolated instances. “In a regulatory context, nomadic ‘fly-by-night’ operations are an obvious concern, so courts would not expect to see a rule of construction that works against punishment for entities that have established courses of business but attempt to avoid regulatory attention by limiting contact with any one state.”
It next considered the constitutional challenges. It found the amendment did not violate the special-legislation clause of the Illinois Constitution because it did not give special treatment to unlicensed residential mortgage brokers; it merely prevents them from suffering forfeitures. “The General Assembly had a rational basis to conclude that voiding a mortgage made by an unlicensed lender is an excessively harsh result when the Act provides for other penalties.”

The court then looked at the interrelated issues of whether the amendment was unacceptably retroactive and whether it violated separation-of-powers principles. The court agreed with the mortgagors that the legislature cannot make itself the ultimate arbiter of what the Act meant before it was amended. But that does not mean the amendment was fatally flawed. Reading the “declarative of existing law” clause in the Act is an ordinary statement of the law’s retroactivity and a clear expression that the amendment be applied retroactively.

That said, the General Assembly may not dictate the judicial interpretation of a statute already in existence, only the supreme court can. This is a matter of the “separation of powers” embodied in the Illinois Constitution. It is logically difficult to “perceive how the declaration and the amendments by the 80th General Assembly can be simply a clarification of the intent of the 77th General Assembly…”. The legislature may pass legislation only to prospectively change a judicial construction of a statute. Any claim to reverse a decision stating a judicial construction therefore is constitutionally objectionable. Thus, the amendment by itself does not bar the application of Dina I.

The mortgagors therefore urged dismissal under the law of the case doctrine. While the doctrine did apply, the court was not bound to apply it when there has been an intervening change in the law, which the amendment to the Act was. And by declining to apply Dina I, the court may avoid an inequitable result. The trial court’s judgment was affirmed. First Mortgage Co. v. Dina, 2017 IL App (2d) 170043 (November 15, 2017).

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