ILLINOIS COURT REVERSED FORECLOSURE JUDGMENT FINDING MORTGAGE ONLY ENCUMBERED ONE-HALF OF THE REAL PROPERTY

Last month Illinois’ First District reversed a final judgment of foreclosure entered in favor of US Bank finding the mortgagor only had a one-half interest in the property and could not mortgage more than he owned. Thomas v. U.S. Bank Tr., N.A., 2025 IL App (1st) 230439 (February 27, 2025). Mr. Miller and Ms. Thomas purchased their marital home in 1996 as joint tenants and in 2002 mortgaged the property and received $84,900 in loan proceeds from RBC Mortgage Company (RBC).[i]

A year later Mr. Miller signed a note in favor of Wells Fargo Bank and refinanced the RBC loan with a Wells Fargo mortgage. The Wells Fargo loan was for $110,000 and a portion of the loan proceeds were used to pay off the RBC mortgage in full.[ii]  Notably, while Mr. Miller signed both the note and mortgage, Ms. Thomas only signed the mortgage and noted underneath her signature that she executed the mortgage solely for the purpose of waiving her homestead rights.

Ms. Thomas and Mr. Miller divorced in 2015.[iii] As part of the martial settlement, Mr. Miller quitclaimed his interest in the marital home to Ms. Thomas who agreed to be “solely liable for the mortgage, taxes and insurance.” Ms. Thomas continued making mortgage payments for a couple years but defaulted in 2017, so Wells Fargo initiated foreclosure proceedings. US Bank acquired the Wells Fargo loan thereafter.[iv] Ostensibly prompted by the foreclosure, Ms. Thomas initiated an action to quiet title against US Bank asserting she “should be free of the mortgage” because she did not know Mr. Miller refinanced the property, she did not know that she was signing a mortgage in favor of Wells Fargo, and she did not personally receive the Wells Fargo mortgage proceeds.[v]

The lower court consolidated the foreclosure and quiet title actions. In response to the quiet title complaint, US Bank alleged Ms. Thomas ratified its mortgage through the marital settlement agreement and by making monthly mortgage payments.[vi] US Bank also asserted Ms. Thomas was estopped from denying the validity of the mortgage because she accepted the benefits of living at the property and having Wells Fargo payoff the RBC mortgage. Lastly, US Bank asserted Ms. Thomas would be unjustly enriched if the mortgage did not encumber the entire property.[vii] US Bank moved for summary judgment on the quiet title action and its foreclosure claim.[viii]

The trial court entered a summary judgment of foreclosure in favor of US Bank and denied the relief requested in Ms. Thomas’ complaint to quiet title.[ix] Ms. Thomas appealed that order claiming the trial court failed to “correctly apply the law or alternatively find that the mortgage was ambiguous.”[x] The First District agreed that the Wells Fargo mortgage did not encumber the entire property based on three dispositive findings. Firstly, Ms. Thomas did not sign the Wells Fargo note and explicitly clarified that her signature on the mortgage was not as a co-borrower, but only for the purpose of waiving her homestead exemption.[xi] The Court noted this “handwritten qualification” must be given effect and the only reasonable interpretation of that language was that Mr. Miller was the sole borrower.

Secondly, the Court noted that Mr. Miller and Ms. Thomas owned the property as joint tenants at the time Mr. Miller took out the mortgage so Mr. Miller could not mortgage the entire property without the consent of Ms. Thomas, only his one-half interest.[xii] Given his ownership interest and the qualifying language under Ms. Thomas’ signature, the intent of the parties was that Wells Fargo mortgage would only encumber Mr. Miller’s one-half interest in the property.[xiii]

Thirdly, the Court found US Bank’s equitable claims (unjust enrichment, equitable lien or equitable subrogation) to be meritless. The unjust enrichment claim was barred by the 5-year statute of limitations since Wells Fargo originated the loan in 2003 and equitable relief was not sought until 2018.[xiv] The equitable lien and equitable subrogation claims failed because US Bank “requested that the trial court enforce the Wells Fargo loan [that] it inherited” instead of “being put in the shoes of the RBC mortgage” it paid off.[xv] Since US Bank sought to “enforce the latest agreement instead of reinstituting the last valid agreement, its claim for equitable lien or subrogation fail[ed].”

This opinion is subject to a potential rehearing or further appeal to the Illinois Supreme Court. The decision, although harsh, is not a surprise. At a minimum, US Bank should have pled in the alternative to be subrogated to the RBC lien it paid off. Although that likely would not have made US Bank whole due to accruing interest, fees and costs, partial relief would have been better than the result here, which was no relief at all.

[i] Thomas, at P3.

[ii] Thomas, at P4. Future references to this case are to this citation until indicated otherwise.

[iii] Thomas, at P5. Future references to this case are to this citation unless indicated otherwise.

[iv] Thomas, at P1.

[v] Thomas, at P6. Future references to this case are to this citation until indicated otherwise.

[vi] Thomas, at P7. Future references to this case are to this citation until indicated otherwise.

[vii] Thomas, at P23.

[viii] Thomas, at P11. Future references to this case are to this citation until indicated otherwise.

[ix] Thomas, at P12. Future references to this case are to this citation until indicated otherwise.

[x] Thomas, at P14. Future references to this case are to this citation until indicated otherwise.

[xi] Thomas, at P23. Future references to this case are to this citation until indicated otherwise.

[xii] Thomas, at P29.

[xiii] Thomas, at P30-1.

[xiv] Thomas, at P26.

[xv] Thomas, at P28. Future references to this case are to this citation until indicated otherwise.