Locke Lord QuickStudy: Illinois Appellate Court Clarifies Dina, Holds Void Mortgages Do Not Equal Void Judgments

In JPMorgan Chase, N.A. v. Ontiveros, 2015 IL App (2d) 140145-U, the Illinois Appellate Court for the Second District recently clarified the difference between a void contract and a void judgment, thereby limiting the applicability of First Mortgage Co. v. Dina, 2014 IL App (2d) 130567 cert. denied, 386 Ill. Dec. 475. In Dina, the Appellate Court held that a mortgage is void ab initio if originated by a lender not licensed under the Illinois Residential Mortgage License Act, 205 ILCS 635/1-1 et al. That decision led to an influx of challenges by foreclosure defendants, and more troubling, by former defendants in cases where final judgments had already been entered. Numerous defaulting borrowers whose foreclosures were long ago resolved have returned to court on section 2-1401 petitions claiming their mortgages, and by extension any judgment entered on their mortgages, are void and the foreclosure judgments should be vacated. Ontiveros significantly curtails defendants ability to utilize section 2-1401 going forward.

In Ontiveros, the appellant claimed that a judgment entered in favor of an unlicensed debt collector was void, relying by analogy on Dina. Id. at ¶19. The Appellate Court disagreed and clarified Dina, holding that a judgment is only void if the entering court lacks either subject matter or personal jurisdiction. Id. at ¶21. Personal jurisdiction was not in dispute, and Illinois trial courts possess general subject matter jurisdiction over foreclosures pertaining to property within Illinois. Id. at ¶¶22. As such, because the trial court acted with personal and subject matter jurisdiction, the judgment could not be void, even if the mortgage arguably was. Id. at ¶24:  “We must emphasize that our holding of voidness [in Dina] applied to the contract, and not to a judgment of the trial court” (emphasis in original).

The Ontiveros decision is presently unpublished and did not deal expressly with a challenge under the Illinois Residential Mortgage License Act. Nevertheless, it is a substantial victory for lenders, servicers, and bona fide third-party purchasers. By holding that a void mortgage does not equate to a void judgment, the Ontiveros court effectively established that Dina challenges to completed foreclosures will fail in the face of the twin hurdles imposed by 735 ILCS 5/15-1509 and 735 ILCS 5/2-1401.

Under section 15-1509, upon confirmation of sale, the selling officer issues a deed, the deed transfers title, and the transfer of title bars any further claims of parties to the foreclosure. The Illinois Appellate Court has held that section 15-1509 bars section 2-1401 petitions that challenge completed foreclosures, unless the underlying judgment is void. U.S. Bank Nat’l Ass’n v. Prabhakaran, 2013 IL App (1st) 111224; see also Deutsche Bank Nat’l Trust Co. v. Brewer, 2012 IL App (1st) 111213. Given the holding in Ontiveros, section 15-1509 appears to be a dispositive response to Dina challenges raised after title has transferred.

Similarly, section 2-1401 requires a defendant to diligently raise any arguments he may have in the trial court. Smith v. Airoom, Inc., 114 Ill.2d 209 (1986). The diligence requirement is only relaxed if the judgment is void. Sarkissian v. Chi. Bd. of Educ., 201 Ill. 2d 95, 102 (2002). Because the Illinois Residential Mortgage License Act was enacted in 1987, borrowers will not be able to establish due diligence after having failed to raise a license challenge during the original foreclosure proceeding. Accordingly, Ontiveros establishes that the due diligence requirement of section 2-1401 will be a second insurmountable barrier to post-judgment Dina challenges.

We have previously expressed our view that the Dina case was wrongly decided. There is still a long way to go to address the fallout from that decision. Nevertheless, Ontiveros represents a positive step toward limiting the application of Dina -- especially if the decision is ultimately published as citable precedent. Lenders, servicers, and bona fide third-party purchasers should rest a little easier knowing that post-judgment Dina challenges face a new and significant obstacle.

For more information on the matters discussed in this Locke Lord QuickStudy, please contact the authors.