ILLINOIS APPELLATE COURT AFFIRMS JUDGMENT FOR BANK EXPUNGING ERRONEOUS RELEASE OF $1.5 MILLION MORTGAGE
Earlier this month, Illinois’ First District Appellate Court issued an opinion wherein it affirmed a summary judgment of foreclosure in favor of Wilmington Savings Bank (“Wilmington”) despite a previously recorded release of the subject mortgage. Wilmington Savings Fund Society, FSB, etc. v. Herzog, 2023 IL App (1st) 221467-U. In 2006, Herzog took out a $1.5 million dollar loan with Wells Fargo.[i] Later, he entered into two modification agreements, the latter of which increased his loan balance to $1.728 million as of April 3, 2008.[ii] Five days after modifying the loan, Wells Fargo mistakenly recorded a release of the original mortgage in the amount of $1.5 million. Notwithstanding the release, Herzog continued to make his mortgage payments until he defaulted in late 2010.
Wells Fargo filed a foreclosure action against Herzog in July 2011. Later, Wells Fargo amended its complaint to also seek declaratory relief that its mortgage was valid and to seek expungement of the erroneous April 2008 release.[iii] Herzog responded to the amended complaint and asserted that Wells Fargo released his mortgage and therefore did not have a valid lien on his property that could be foreclosed.[iv] In May 2015, Wells Fargo executed an affidavit wherein it rescinded the release and indicated it was “null and void” since a valid lien still existed on the property.[v] Wilmington substituted into the case as the party plaintiff in 2017 and proceeded to summary judgment.[vi] Wilmington argued that Herzog recognized the validity of the lien by continuing to make payments after the erroneous release of mortgage.[vii] Wilmington also asserted the release was not a valid contract because Herzog failed to pay any consideration for the release. At the time of judgment, in January 2021, the amount due under the mortgage exceeded $2.4 million.
In opposition to summary judgment, Herzog argued that whether a valid mortgage existed after Wells Fargo recorded the release was a disputed fact which prevented summary judgment.[viii] Herzog further asserted Wilmington failed to prove it did not receive consideration in exchange for the release.[ix] The trial court rejected Herzog’s arguments, entered judgment in favor of Wilmington and appointed a selling officer who sold the property at auction for $1,088,000.[x] Wilmington then sought confirmation of the sale and an eviction order which Herzog opposed on the basis that the sale price was inadequate. The court “approved the sale and entered a deficiency judgment of $1,574,091.18 against Herzog.”[xi] Herzog appealed both the foreclosure and deficiency judgments.[xii]
On appeal, Herzog argued the release of his mortgage prevented foreclosure in the absence of “evidence of fraud, duress, illegality, or mutual mistake” in the creation of the release.[xiii] He also argued the sale should be vacated based on the amount of the sale being “patently inequitable.” Prior to reaching the propriety of the mortgage foreclosure or the sale, the First District explained that it must first determine whether the erroneous release was even a valid contract.[xiv] The Court concluded it was not. To be a valid contract, the Court explained, the release must be “supported by an offer, acceptance and consideration.”[xv] Wilmington argued there was a “total lack of consideration” for the release of the mortgage. [xvi] The Court agreed.
The Court relied on language in the release which indicated that the release was given “in consideration of the payment of the indebtedness secured by the borrower.”[xvii] The evidence Wilmington presented showed the indebtedness at the time the release was executed was in excess of $1.7 million. Since Herzog failed to present any evidence showing he paid off the indebtedness, the release was invalid for want of consideration and the Court concluded that Wilmington maintained “a valid, existing mortgage against Herzog.”[xviii] The Court affirmed the propriety of the foreclosure judgment and then addressed Herzog’s challenges to the sale and deficiency judgment.
The Court rejected Herzog’s argument that the $1,088,000 sale price was “unconscionably low” because Herzog failed to present any credible evidence of the fair market value of the property and failed to demonstrate the sale process was flawed in any way.[xix] The Court explained absent fraud or other irregularity in the sale process, the “price at which the property is sold is the conclusive measure of its value.” The Court affirmed both lower court orders concluding the sale was proper, the sale price was reasonable, and Wilmington was entitled to foreclosure and a deficiency judgment. Lastly, the Court remanded the matter and directed the lower court to enter a declaratory judgment to expunge the release from the record which the Court surmised was clearly created in error.
[i] Herzog, at ¶5.
[ii] Herzog, at ¶6. References to this case are to this citation until noted otherwise.
[iii] Herzog, at ¶8, ¶12.
[iv] Herzog, at ¶14.
[v] Herzog, at ¶13.
[vi] Herzog, at ¶¶8-9, 19.
[vii] Herzog, at ¶19. References to this case are to this citation until noted otherwise.
[viii] Herzog, at ¶20.
[ix] Herzog, at ¶21.
[x] Herzog, at ¶¶23-6.
[xi] Herzog, at ¶28.
[xii] Herzog, at ¶29.
[xiii] Herzog, at ¶31. References to this case are to this citation until noted otherwise.
[xiv] Herzog, at ¶47. References to this case are to this citation until noted otherwise.
[xv] Herzog, at ¶51.
[xvi] Herzog, at ¶53. References to this case are to this citation until noted otherwise.
[xvii] Herzog, at ¶57. References to this case are to this citation until noted otherwise.
[xviii] Herzog, at ¶61. References to this case are to this citation until noted otherwise.
[xix] Herzog, at ¶¶70-72. References to this case are to this citation until noted otherwise.
