ON RECONSIDERATION COOK COUNTY JUDGE AGAIN DEEMS $500,000+ NOTE UNENFORCEABLE & REQUIRES RELEASE OF MORTGAGE

In September 2023, a circuit court judge in Cook County, Illinois, Judge William Sullivan, delivered a painful blow to the mortgage industry when he dismissed a foreclosure complaint, declared the borrower’s $512,800 note unenforceable and ordered the lender, The Bank of New York (BONY), to record a release of the mortgage. The Bank of New York, as Trustee, etc., v. Bartelstein, Case No. 2007 CH 38051 (Ill. Cir. Ct. 2023)[i].

Although the court granted BONY’s request for rehearing on that ruling, Judge Sullivan ultimately reached the same conclusion, i.e., that BONY failed to strictly comply with contractual conditions precedent and that BONY was time-barred from redemanding and filing a new foreclosure action or action on the note. The Bank of New York, as Trustee for the Certificate Holders CWALT, Inc., Alternative Loan Trust 2006-J8, Mortgage Pass-Through Certificate, Series 2006-J8 v. Bartelstein, et al. Cook County Circuit Court Case No. 2007 CH 38051 (Chancery Division September 25, 2024).

To briefly recap the nearly two-decade history of this loan, in 2006 Debbie Bartelstein (Bartelstein) took out a loan for $512,800 and used the proceeds to purchase real property located in Glencoe, Illinois (the Property).[ii] Less than a year later, Bartelstein stopped making payments on her loan. BONY[iii] sent a demand letter in September 2007 and, three months later, when the default remained uncured, BONY initiated foreclosure proceedings. Notably, BONY did not bring an action on the note; however, BONY stated that it might seek a personal deficiency against Bartelstein.

Bartelstein filed an answer wherein she raised lack of capacity to sue and lack of standing[iv] as affirmative defenses.[v] BONY responded to the defenses and both BONY and Bartelstein moved for summary judgment. Although not pled in her answer, Bartelstein’s summary judgment motion also raised failure of conditions precedent and statute of limitations as affirmative defenses. Due to COVID-19 and several other delays not pertinent to this article, Judge Sullivan did not consider the merits of the parties’ summary judgment motions until February 2023 at which time he denied both motions.

In his order, the court found Bartelstein’s two newly raised defenses – failure of conditions precedent and statute of limitations – were improperly raised for the first time on summary judgment and “brought Plaintiff surprise and prejudice”; so, the court struck the defenses. However, Bartelstein moved for rehearing on that finding and the court determined its order striking the defenses was improper because BONY had ample time to respond to the newly raised defenses so there was no prejudice.[vi] The court then considered the merits of the defenses and found Bartelstein was entitled to summary judgment. BONY moved for rehearing and Judge Sullivan agreed to reconsider his prior ruling essentially for a third time, which brings us to Judge Sullivan’s most recent opinion.[vii]

Although he wrote a 69-page opinion, Judge Sullivan doubled down on his prior ruling. The court again concluded BONY’s demand letter was substantively defective because it failed to inform Bartelstein that she could reinstate the loan as opposed to “cure” the default after acceleration.[viii] The court noted, this “error of omission” was fatal. The court rejected BONY’s rebuttal argument that it substantially complied with conditions precedent noting BONY’s logic was “wholly incorrect both legally and factually” given Illinois’ strict compliance standard for evaluating conditions precedent.[ix] The court elaborated that had BONY’s demand letter notified Bartelstein of the right to reinstate the loan, she “could have taken action” before BONY filed its foreclosure complaint and avoided increased fees and costs.[x]

The court also stuck to its prior analysis and finding regarding Bartelstein’s statute of limitations defense.[xi] Noting the defense created an issue “of first impression for this Court…and the rest of Illinois,” the court again rejected BONY’s argument that “its request for a personal deficiency…created a claim on the Note sufficient to toll the statute of limitations.”[xii] The court agreed with Bartelstein that an action on the note is different from an action on the mortgage.[xiii] The former being an in personam proceeding and the latter being a quasi in rem proceeding.[xiv]  The court explained the fact BONY sought a personal deficiency against Bartelstein did not transform the “quasi in rem” action into an in personam action.[xv] Only an action on the note could toll the statute of limitations.

Next, the court identified the “primary source of contention” regarding the statute of limitations was the effect it had on the mortgage. Namely, because the note could not be enforced, the mortgage was “rendered extinguished” leaving Bartelstein with real property free of any liens.[xvi] Surprisingly, when considering this inequitable result and while noting the “undue burden” placed on lenders to both police borrowers and “stay on top” of lengthy litigation, the court was unwilling to modify its holding claiming it was “pigeonholed” by prior decisions of the Supreme Court and regulations created by the state legislature.[xvii]

Unfortunately, the worst is likely yet to come. The court already determined Bartelstein is entitled to an award of attorneys’ fees which, given the nearly two decades of litigation, may exceed the value of BONY’s lien. It still remains to be seen whether BONY will appeal this costly decision. Any appeal would most certainly include an appeal of the attorney fee order. We’ll continue to keep you apprised of any developments.

[i] You can read about the details of that decision in our eBlast article from last November.

[ii] Bartelstein, at p. 2-3. Future references to Judge Sullivan’s opinion are to these pages until indicated otherwise.

[iii] Judge Sullivan indicated Bartelstein executed the note and mortgage in favor of Guaranteed Rate, Inc.; however, he did not explain how or when BONY came to own the loan.

[iv] Judge Sullivan indicated Bartelstein alleged three affirmative defenses in her answer; however, he never identified the third affirmative defense. Bartelstein, at p. 4-5.

[v] Bartelstein, at p. 4-5. Future references to Judge Sullivan’s opinion are to these pages until indicated otherwise.

[vi] Bartelstein, at p. 6, 16-17. The Court relied on the following cases to support this conclusion: Hawkins v. Chicago Comm’n on Hum. Rels., 2020 IL App (1st) 191301, ¶ 29, 171 N.E.3d 21, 29 (2020); Hanley v. City of Chicago, 343 Ill. App. 3d 49, 53-54, 277 Ill.Dec. 140, 795 N.E.2d 808 (2003); Falcon Funding, LLC v. City of Elgin, 399 Ill. App. 3d 142, 156, 924 N.E.2d 1216, 1228 (2010).

[vii] Bartelstein, at p. 17.

[viii] Bartelstein, at p. 31, 37-41, 45. Future references to Judge Sullivan’s opinion are to these pages until indicated otherwise.

[ix] Bartelstein, at p. 44.

[x] Bartelstein, at p. 42.

[xi] Bartelstein, at p. 46.

[xii] Bartelstein, at p. 46-8.

[xiii] Bartelstein, at p. 53.

[xiv] Bartelstein, at p. 50.

[xv] Bartelstein, at p. 50, 52-3.

[xvi] Bartelstein, at p. 56-7.

[xvii] Bartelstein, at p. 60-5.