Homeowner had no right of redemption in Illinois

Bankruptcy did not permit foreclosure avoidance in Illinois

NORMA I. COLON, Debtor-Appellant, v. OPTION ONE MORTGAGE CORPORATION, and/or its assigns, Appellee.

Case Law
No. 02-2593
UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT
319 F.3d 912; 2003 U.S. App. LEXIS 2389; Bankr. L. Rep. (CCH) P78,797; 40 Bankr. Ct. Dec. 237

December 13, 2002, Argued
February 11, 2003, Decided

Facts: Debtor A defaulted in the payment of obligation, prompting mortgagee to foreclose the subject property. On May 16, 2001, a judgment for foreclosure and sale was entered in that foreclosure proceeding; on January 7, 2002, the sheriff conducted a foreclosure sale of the residence. On January 10, 2002, prior to the judicial confirmation hearing mandated by the Illinois Mortgage Foreclosure Law, debtor A filed a voluntary petition under Chapter 13 of the Bankruptcy Code. She also filed a Chapter 13 plan, which provided for the cure of her default on the note and mortgage. On February 4, on motion by mortgagee, the bankruptcy court lifted the automatic stay thus allowing to proceed in the Illinois foreclosure action.

Issue: Whether the court was correct in lifting the automatic stay order?

Ruling: Yes. Debtor had no right to redeem the residence at the time she filed her plan under Chapter 13. Therefore, the bankruptcy court did not abuse its discretion in determining that the automatic stay should have been lifted. Also, the state court was permitted to determine whether the foreclosure sale conducted prior to the filing of the Chapter 13 petition suffered from any of the statutory infirmities that would have rendered it void. If the state court determined that the sale was valid, the sale would be final, and the mortgagee would be deprived of no right under either the bankruptcy code or state law. If the state court determined that the sale was void, the mortgagee would have the rights under the bankruptcy code and state law of a debtor whose property had not yet undergone a judicial sale.

Lesson Learned: : It is important to following the Illinois Mortgage Foreclosure Act, 735 Ill. Comp. Stat. 5/15-1501-09 which sets forth a multi-step process, culminating in a hearing after the property is purchased in a sheriff's sale. More precisely, the Illinois statute requires that, after the sheriff's sale, there must be a hearing before the state court. That court must approve the sale unless it determines that the sale was flawed in one of four ways: (1) the notice given was not proper; (2) the sale terms were unconscionable; (3) the sale involved fraud; or (4) justice was not otherwise done. 735 Ill. Comp. Stat. 5/15-1508(b). If the court approves the sale, the purchaser is permitted to exchange the certificate of sale issued at the foreclosure sale for a deed that conveys title.

Written by Kevin Levonas and Jerry L