Foreclosure Right of Second Mortgage Holder in Illinois

The right of second mortgage holder to foreclose in Illinois

REACT FINANCIAL, As Assignee of NATIONWIDE MORTGAGE PLAN AND TRUST,
Plaintiff-Appellant, v. DARREN R. LONG, SHERYLE A. LONG f/k/a SHERYLE A. HAAKE, LOUIS E. OLIVERO,
UNKNOWN OWNERS and NON-RECORD CLAIMANTS, Defendants-Appellees

Case Law
No. 3-05-0438
APPELLATE COURT OF ILLINOIS, THIRD DISTRICT
366 Ill. App. 3d 231; 852 N.E.2d 277; 2006 Ill. App. LEXIS 421; 304 Ill. Dec. 27

March 7, 2006, Submitted
May 25, 2006, Filed

Facts: A contracted a loan from bank X secured by a mortgage. There are other junior encumbrance in the property. Upon default, bank X commenced a foreclosure suit. The foreclosure complaint did not name any junior mortgagee as a party. X foreclosed its mortgage which later sold it.

Later, Bank X filed a complaint for declaratory judgment against junior mortgagee B seeking a determination that the junior mortgage had been foreclosed and was no longer valid.

The debtors subsequently defaulted on their payments on the second mortgage, held by B so it filed a complaint for foreclosure. Bank X opposed saying that junior mortgagee can no longer foreclose.

Issue: Whether the junior mortgagee had the right to file a separate foreclosure action even after the first foreclosure judgment was entered.

Ruling: Yes. 735 Ill. Comp. Stat. Ann. 5/15-1501(f) (2004) unambiguously gives a non-party mortgagee the right to file a separate foreclosure action after a first foreclosure judgment has been entered. That right is not conditioned on the junior mortgagee's redemption of the senior mortgage, nor could it be, because as we have explained, the junior mortgagee has no right to redeem. It is evident, therefore, that the Foreclosure Law has superseded the prior rule which made foreclosure by the junior mortgagee dependent on redemption.

Lesson Learned:A junior mortgagee’s rights are amply protected by law. While they have no equitable right of redemption, it can still enforce its rights via a foreclosure action. Junior mortgagee is not a necessary party to a foreclosure action by a senior mortgagee, but it may intervene if it so chooses as a non-party to the first foreclosure, the right to file a separate foreclosure action even after the first foreclosure judgment was entered.

Written by Kevin Levonas and Jerry L.