Deutsche Bank National Trust Company v. Iordanov

The First District Appellate Court once again affirmed its position that if an affirmative defense is not timely filed, it is forfeited.

In the case Deutsche Bank National Trust Company v. Iordanov, 2016 IL App (1st) 152656 (2016), the homeowner, Iordanov, raised the affirmative defense of standing upon the final hearing – a motion to reconsider confirmation of sale. His argument revolved around the issue that the Plaintiff, Deutsche Bank, was assigned the mortgage after the lawsuit was filed. The Appellate Court stated that Mr. Iordanov waived this argument because he did not timely raise it. Affirmative defenses should be raised in the Answer, or shortly thereafter with leave of the Court. Courts generally do not permit leave to file affirmative defenses after summary judgment has been entered.

What makes this case damaging to Defendants is that the Appellate Court, in dicta, goes on to find the following legal conclusions:

  • Mortgage Assignments can be oral. It does not need to physically exist. A written assignment can be prepared after the fact to memorialize the transfer.
  • The Defendant under such a scenario has the burden to show that there was no oral assignment – a nearly impossible task.
  • A Defendant cannot rely solely on the Bank’s filings to raise the affirmative defense of standing. The Defendant must produce something more than the mortgage, note, and assignments to rebut the strong presumption that the Bank is entitled to bring the foreclosure lawsuit.
  • The First District specifically rejects the Second District’s ruling on a similar matter in the case Deutsche Bank National Trust Company v. Gilbert, 2012 IL App (2d) 120164. The Court in Gilbert found that the Defendant could make a prima facie showing that the Bank did not have standing to foreclose at the time of the lawsuit filing, by proffering a late or non-existent assignment. The Iordanov Court says this burden-shifting runs contrary to the Illinois Supreme Court’s position that lack of standing must be plead and proved by the Defendant alone.

With this ruling it is clear that if a Defendant homeowner wants to successfully assert the affirmative defense of standing in the First District, he/she must obtain evidence beyond the mortgage and note documents filed by the foreclosing Bank to have a chance.

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For a more detailed analysis of affirmative defenses to a Complaint, check out NCLC’s Foreclosures Guide.


File Your Answer and Affirmative Defenses

After the bank has filed its complaint, a homeowner will have thirty days to answer or otherwise plead. The “otherwise plead” will include items such as motions to quash service, motion for bill of particulars, etc.

But to answer, you will need to go through the foreclosure complaint, line by line, and specifically answer each item. As contemplated under the rules of civil procedure, a defendant should either admit or deny each allegation. However, not every allegation is that straightforward, as some allegations require the Defendant to obtain more information before answering, and some allegations are merely statements of law that do not need to be answered. Some allegations may not be directed at the Defendant, and therefore the Defendant does not need to answer.

Once the Defendant in a foreclosure matter has answered all of the allegations, the Defendant also needs to answer the “deemed” allegations. These are statutory in nature, and can be found at 735 ILCS 5/15-1504(c). The Defendant should again admit or deny every deemed allegation.

The Answer is crucial, but straightforward. The heart of it is whether the Defendant defaulted on the mortgage or not. Most foreclosure defense clients have one way or another defaulted on the mortgage. Usually it is because they have stopped making payments (I recognize that there are a considerable amount of people out there who have been wrongfully foreclosed on. In such a case, the Defendant should deny in their Answer that they defaulted).

In circumstances where a homeowner did default, but wishes to fight the foreclosure, affirmative defenses can be raised. Affirmative defenses are defenses that defeat the plaintiff’s right to receive a remedy despite the Defendant’s default on the mortgage. They are as follows:

Standing. This is the main one that every defendant raises. Essentially the argument goes – I have defaulted on my mortgage, but the party bringing the lawsuit against me is not my bank. Therefore, it has no right to foreclose. While it is true that a foreclosing bank must have standing to bring a foreclosure, and it must have standing before the case is brought, it turns out that the Illinois Mortgage Foreclosure Law is very open as to who can bring a foreclosure. A foreclosure can be brought by the mortgagee, the owner of the note, the servicer, a receiver, or any agent of any of the above. This means that as long as the foreclosing bank has some connection, however tenuous, to the homeowner’s bank, the Court will allow it to proceed.

If you believe your client has a standing issue, you can check the Mortgage and Note first. It is important to verify that the Note has been indorsed in blank (meaning any holder can enforce it). Check the indorsements to make sure they make sense. If the bank has attached an assignment of mortgage, make sure that it is in line with what the Note shows. If the transfers do not add up, or there has been no transfer at all to the foreclosing bank, then the homeowner may have a standing argument. But remember, if the Note has been indorsed in blank, the chance of a victory on a standing defense is slim to none.

For more information related to this argument, see our article on the foreclosing bank here.

Failure of Condition Precedent. Mortgages usually contain a clause wherein the mortgage bank is required to send a 30 day notice to a homeowner in default before it initiates a foreclosure proceeding. Illinois courts have found that if the 30 day notice was not sent, then the foreclosing bank has failed to satisfy a condition to foreclosure and the case must be dismissed. When this happens, the foreclosing bank will need to then send the 30 day notice and begin the foreclosure anew. This is good to buy some time for a homeowner, but it is not a permanent solution to the foreclosure. Also note, some Courts have found that this is not an affirmative defense at all.

Failure to Mitigate Damages. The basis of this affirmative defense is that in contract law, the non-defaulting party should not “run up the bill” on the defaulting party, but instead should take steps to minimize its loss in the contract. For a mortgage foreclosure the theory goes that the foreclosing bank could have/ should have modified the mortgage to bring the mortgage current and make it more affordable for the homeowner. Under such a scenario, the foreclosing bank would actually be doing itself a favor because it will turn a non-performing loan back into a performing loan. This reduces its damages. Courts do not buy this argument since banks do not have an obligation to modify any particular mortgage (many banks have obligations under various agreements to perform modifications generally, but they are not required to modify any specific person’s mortgage).

Dina Defense. This defense is essentially that a mortgage is against public policy, and should not exist. For more about this defense, see here.

This list is not exclusive, but instead highlights a few of the main affirmative defenses that come up. It is always worthwhile to try a new affirmative defense if the opportunity presents itself, because that is where law is made.

Once the homeowner’s answer and affirmative defenses have been filed, the bank’s attorney will either file a motion to strike the affirmative defenses, or a combined motion for summary judgment and to strike the affirmative defenses.

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The foreclosing Bank is not the “lender” on my client’s mortgage.

When a homeowner takes out a mortgage loan, the party listed as the “lender” on the mortgage is the originating bank, a/k/a the originator. Rarely will this be the same party that is now bringing the foreclosure lawsuit.

Typically, after originating a mortgage, the originator sells/assigns the loan to a trust, and transfers servicing rights to a “servicer.” The “servicer” is the party that brings the lawsuit on behalf of the trust. Occasionally, as is the case with portfolio loans, the originator, investor, and servicer are the same party. Clients are often confused when they are sued by an entity titled something along the lines of GENERIC BANK, as TRUSTEE, on behalf of GENERIC STRING OF NUMBERS AND NONSENSE WORDS TRUST. Many homeowners believe they have an automatic standing defense, because this party is not the original lender. However, it is perfectly legal for a servicer to bring a lawsuit on behalf of the investor. Illinois’ rules on who can bring a foreclosure lawsuit are very broad, which means that a standing defense will usually be stricken.

From a practice perspective, it is important to know who the original lender was on the mortgage. If the lender was not licensed in Illinois under the Residential Mortgage License Act of 1987 AND was not exempt from that statute, the mortgage may be found by the court to be void. For the Appellate case that came to this conclusion, see First Mortgage Co. v. Dina, 2014 IL App (2d) 130567 (2014). The subject licensing act is Residential Mortgage License Act of 1987 (License Act) (205 ILCS 635/1-1 et seq. (West 2006)). What is also interesting about this case is that the Court stated that this defense can be brought at any time during the foreclosure (even if not pleaded in the answer), because the mortgage would be void as against public policy. Even if the Defendant fails to raise the argument, the Court can find that the mortgage is void, sua sponte. Very powerful stuff!

What does it mean to have a void mortgage? Well it would mean that the bank cannot sustain a foreclosure lawsuit, as they do not have a valid lien on the property. This does not mean however that the homeowner can walk away free and clear. The bank can still maintain an unjust enrichment action against the homeowner personally, who used the bank’s money to purchase their home. So it would make sense that once the bank gets its judgment against the homeowner, it could then turn around and slap a new lien on the property and attempt to re-institute a foreclosure proceeding.

One last thing to mention: a lot of plaintiff’s attorneys firms (Bank Attorneys) have posted on their websites and in trade journals that the Dina case has no teeth. Do not believe this, as they have a vested interest in as few people using this defense as possible.

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For a general guide on Foreclosure, check out NOLO’s guidebook on Amazon.