The Illinois Supreme Court Rules Foreclosures Are Quasi In Rem Actions: How This Impacts You

On June 4, 2010, the Illinois Supreme Court in ABN Amro Mortgage Group, Inc. v. McGahan, affirmed a state court’s decision that all mortgagors, even deceased mortgagors, must be made a party to foreclosure actions in Illinois. As a result, lenders and servicers will have significant procedural burdens to successfully foreclose when a mortgagor is deceased.

Mortgage lienholders argued that when personal liability is not sought in a foreclosure case, it is an in rem proceeding (against the property only) so that a deceased mortgagee need not be named and served to foreclose on property. This argument was successful for a good period of time in the Cook County Courts of Chicago, and lenders benefited by avoiding the delay and costs of Illinois’s cumbersome statutes to obtain jurisdiction over and serve process on deceased mortgagors.

The Court unambiguously stated for the first time in its history that Illinois mortgage foreclosures are quasi in rem proceedings. In its discussion, it explained that in rem actions are actions against a property where the property is the “wrong-doer” and no person needs to be named in the action, not even the owner. Quasi in rem actions, however, affect a particular person’s interest in a particular thing and both the person and the property must be made parties in those actions.

A foreclosure is an action against certain parcel of real estate that affects the mortgagor’s interest in that property, and so it is a quasi in rem action. In foreclosures, a person is the “wrong-doer” by defaulting on the note, and the case is seeking to enforce the note through the mortgaged property. Because a foreclosure seeks to extinguish a mortgagor’s interest in property, he or she must be a party defendant. The Court noted this comports with the Illinois Mortgage Foreclosure Law (IMFL) which states that a mortgagor is a “necessary party” to foreclosures. Deceased mortgagors are not except from this rule, and must be named and served with a foreclosure complaint in order to confer upon the court the necessary subject matter jurisdiction.

However, the only way a court obtains subject matter jurisdiction over a deceased person in Illinois is through a statute, specifically 735 ILCS 5/13-209. This statute is a confusing maze at its best, and when applied to mortgage foreclosures, it is inadequate and awkward. This article will not discuss its intricacies, but will focus on its effect, starting with its requirement that a personal representative be substituted for the deceased and served in any lawsuit.

The best case scenario is when a personal representative has already been appointed in a probate case. The lender may file or amend its complaint to name and serve the personal representative in the stead of the deceased. The representative may then defend the foreclosure, but the lender has the lawsuit set towards judgment of foreclosure and sale.

However, if no probate estate has been opened, a representative must be appointed and served for the court to gain subject matter jurisdiction over the deceased defendant. The lender may do this, but its motion for a representative must notice all “heirs and legatees as the court directs.” This imposes a burden upon the lender to at least search for, if not find, those parties when it is in no situation to have any knowledge of who those persons may be. And with the burden, comes delay and more costs.

Any delay may be magnified if the court appoints a relative who has an interest in delaying the foreclosure as the representative. For instance, a special representative has certain duties under another statute, 735 ILCS 5/2-1008, such as notifying heirs and legatees of their appointment within 90 days. The foreclosure will be delayed as long as the representative delays the notification.

There is a myriad of other ways that a foreclosure could be stalled under these two statutes. This decision will mostly impact those cases where a single owner who mortgaged real estate passes away, and so will not affect the majority of foreclosures in Illinois. But when it does, a lender will face substantial procedural obstacles in its efforts to obtain a judgment of foreclosure and sale. This decision begs for a legislative solution to provide lenders in Illinois a less cumbersome means to foreclose on property when the mortgagor is deceased.

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