Seventh Circuit holds that the Rooker-Feldman doctrine does not bar claim for injury caused by fraudulent schemes despite the lender’s credit bid at the foreclosure sale

The Court of Appeals for the Seventh Circuit reversed a district court’s finding that a lender’s loan fraud recovery action was barred by the _Rooker-Feldman_ doctrine and claim preclusion due to prior credit bids entered in the foreclosures of the loans. In Freedom Mortgage Corp. v. Burnham Mortgage, Inc., No. 08-3007 (7th Cir., June 23, 2009) the lender sued several settlement service providers alleging that they fraudulently induced the extension of the mortgage loans at issue. However, the lender brought the action after it foreclosed the mortgage loans. In several of those foreclosures it bid the full amount of the judgment through credit bidding. The Court held that the _Rooker-Feldman_doctrine does not prevent (although it may limit) the pursuit of compen¬sation for injury caused by fraudulent schemes. As for claim preclusion, the Court noted that Illinois follows the ”same transaction” approach to the rule. So the questions litigated in a mortgage foreclosure action – which is whether the borrower paid – differ from the claims litigated in a case relating to fraudulent appraisals, misrepresentations, and racketeering activity. Although the defendants received the benefit of the lender being limited in its recovery by the value of its credit bids, the Seventh Circuit held that this does not eliminate damages, and nothing in the rule that a credit bid establishes the collateral’s value blocks any of the remedies sought by the lender.

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