U.S. Bank Trust National Ass'n. v. Lopez ( 2018 )

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Appellate Court Date: 2018.08.15
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U.S. Bank Trust National Ass’n v. Lopez, 2018 IL App (2d) 160967
Appellate Court U.S. BANK TRUST NATIONAL ASSOCIATION, Not in Its
Caption Individual Capacity but Solely as Owner Trustee for Queen’s Park
Oval Asset Holding Trust, Plaintiff-Appellee, v. MARIO A. LOPEZ,
a/k/a Mario Augusto Lopez-Franco; MARTHA D. LOPEZ; and
UNKNOWN OWNERS and NONRECORD CLAIMANTS,
Defendants-Appellants.
District & No. Second District
Docket No. 2-16-0967
Filed May 4, 2018
Decision Under Appeal from the Circuit Court of Du Page County, No. 14-CH-473;
Review the Hon. Robert G. Gibson, Judge, presiding.
Judgment Affirmed in part and vacated in part.
Cause remanded.
Counsel on Daniel S. Khwaja, of Chicago, for appellants.
Appeal
Louis J. Manetti Jr., Margaret A. Manetti, Gregory J. Moody, and
Lauren T. Riddick, of Codilis & Associates, P.C., of Burr Ridge, for
appellee.
Panel JUSTICE BURKE delivered the judgment of the court, with opinion.
Justices McLaren and Schostok concurred in the judgment and
opinion.
OPINION
¶1 Plaintiff, U.S. Bank Trust National Association, as owner trustee for Queen’s Park Oval
Asset Holding Trust, filed a foreclosure suit against defendants, Mario A. Lopez, a/k/a Mario
Augusto Lopez-Franco, and Martha D. Lopez. Defendants raised the affirmative defense that
plaintiff lacked standing when it filed the suit. Defendants also raised the affirmative defenses
that plaintiff violated Illinois Supreme Court Rule 113(b) (eff. May 1, 2013) and failed to
comply with Title 24, section 203.604, of the Code of Federal Regulations (Code) (24 C.F.R.
§ 203.604 (2014)). The trial court struck defendants’ affirmative defenses, granted plaintiff
summary judgment, and entered a judgment of foreclosure and sale. On appeal, defendants
challenged the trial court’s orders striking their affirmative defenses and granting plaintiff
summary judgment. On November 14, 2017, this court filed its opinion. We reversed the
judgment of foreclosure and sale, vacated the order approving the sale, and dismissed the
foreclosure. Specifically, we determined that plaintiff lacked standing. Plaintiff filed a timely
petition for rehearing, disputing that holding. We granted the petition for rehearing and
withdrew our opinion. For the reasons that follow, we hold that the trial court did not err in
striking the affirmative defenses concerning standing and Rule 113(b). However, we hold that
there are factual issues regarding plaintiff’s compliance with section 203.604 and that the trial
court erred in striking that affirmative defense. Therefore, we vacate the judgment of
foreclosure and sale and remand the cause for further proceedings.
¶2 I. BACKGROUND
¶3 A. Initial Foreclosure Proceedings and Amended Complaint
¶4 On March 11, 2014, plaintiff filed a complaint to foreclose the mortgage on property
owned by defendants. The complaint attached the mortgage and the note. The note bore two
indorsements, one from the original lender to Countrywide Bank, FSB (Countrywide), and the
second from Countrywide to the Secretary of Housing and Urban Development (HUD), a
nonparty to the case. The note included no indorsements or assignments to plaintiff. The
complaint alleged in paragraph “n” that plaintiff was the “legal holder of the indebtedness.”
¶5 On May 12, 2014, defendants filed an answer with affirmative defenses, claiming that
plaintiff lacked standing because the note attached to the complaint was indorsed to HUD and
not to plaintiff, that plaintiff failed to comply with Rule 113(b) because the note did not show
an indorsement to plaintiff, and that plaintiff failed to comply with Title 24, section 203.604, of
the Code.
¶6 On November 7, 2014, plaintiff amended its complaint to resolve any issue regarding the
note. The allegations were substantially similar to those in the original complaint except that it
alleged in paragraph “n” that “on March 11, 2014[,] Plaintiff was a non-holder in possession of
the Note with rights of a holder. Plaintiff is currently the legal holder of the Note.” Also,
plaintiff attached a copy of the note bearing the same two indorsements, one from the original
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lender to Countrywide and the second from Countrywide to HUD. The amended complaint
included an “allonge to note” that was not filed with the original complaint. The allonge, which
is undated, contains a special indorsement from HUD to Queen’s Park Oval Asset Holding
Trust, the trust for which plaintiff was the owner trustee.
¶7 B. Defendants’ Motion to Dismiss the Amended Complaint
¶8 On December 24, 2014, defendants filed a motion to dismiss plaintiff’s amended
complaint, pursuant to section 2-619.1 of the Code of Civil Procedure (735 ILCS 5/2-619.1
(West 2014)). They repeated the arguments they raised in their affirmative defenses that
plaintiff lacked standing and violated Rule 113(b). Defendants claimed that the defect could
not be cured by amendment. Following arguments, the court denied defendants’ motion to
dismiss, without prejudice.
¶9 C. Defendants’ Affirmative Defenses to the Amended Complaint
¶ 10 On April 16, 2015, defendants filed an answer to plaintiff’s amended complaint and
repeated their previous affirmative defenses. They argued again that, when the case was filed,
plaintiff lacked standing, as the note attached to the complaint was indorsed to HUD and no
assignment to plaintiff was attached. Defendants maintained that the allonge attached to
plaintiff’s amended complaint contained an indorsement executed after the filing of the
original complaint. Defendants supported their answer with judicial admissions made by
plaintiff throughout the proceedings that it was not in possession of an indorsed note at the time
of the original filing. Defendants alleged that plaintiff violated Rule 113(b) when it amended
the complaint to include the allonge. Defendants also alleged that plaintiff failed to comply
with Title 24, section 203.604, of the Code because plaintiff did not provide the required
face-to-face meeting or offer defendants “an opportunity to conduct one.”
¶ 11 D. Striking the Affirmative Defenses, Summary Judgment, and Judicial Sale
¶ 12 Plaintiff filed a motion to strike the affirmative defenses, pursuant to section 2-619.1. The
motion attached a January 16, 2014, assignment of the mortgage from HUD to plaintiff
(without the note), various affidavits, and a Federal Express (FedEx) tracking label. Plaintiff
argued that the standing defense was insufficiently pleaded because defendants did not
properly articulate how plaintiff lacked standing and defendants failed to support their claim
that a violation of Rule 113 compelled dismissal. Plaintiff maintained that the assignment
established its legal capacity as a nonholder with the rights of a holder when the original
complaint was filed.
¶ 13 At the hearing on the motion to strike, plaintiff produced the original note, and the trial
court read a description of it into the record. The trial court determined that plaintiff was a
nonholder with the rights of a holder. Following the hearing, the trial court granted plaintiff’s
motion and struck the affirmative defenses with prejudice.
¶ 14 With the affirmative defenses stricken, the trial court granted plaintiff’s motion for
summary judgment and entered a judgment of foreclosure and sale on July 18, 2016. The
judicial sale occurred, and the court granted plaintiff’s motion to confirm the sale on
November 7, 2016. Defendants timely appeal from the court’s orders striking their affirmative
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defenses and granting plaintiff summary judgment.
¶ 15 II. ANALYSIS
¶ 16 Defendants argue that plaintiff lacked standing to sue, violated Rule 113(b), and failed to
strictly adhere to the mandated servicing guidelines of Title 24, section 203.604, of the Code.
We examine each issue in turn.
¶ 17 Plaintiff’s motion to strike defendants’ affirmative defense of standing was brought
pursuant to section 2-619.1 of the Code of Civil Procedure (735 ILCS 5/2-619.1 (West 2016)).
A motion under section 2-619.1 allows a party to combine a section 2-615 (735 ILCS 5/2-615
(West 2016)) motion to dismiss based upon insufficient pleadings with a section 2-619 (735
ILCS 5/2-619 (West 2016)) motion to dismiss based upon certain defects or defenses. 735
ILCS 5/2-619.1 (West 2016); Carr v. Koch, 2011 IL App (4th) 110117, ¶ 25 (citing Edelman,
Combs & Latturner v. Hinshaw & Culbertson, 338 Ill. App. 3d 156, 164 (2003)). When the
legal sufficiency of a complaint is challenged by a section 2-615 motion to dismiss, all
well-pleaded facts in the complaint are taken as true and a reviewing court must determine
whether the allegations of the complaint, construed in the light most favorable to the plaintiff,
are sufficient to establish a cause of action upon which relief may be granted. King v. First
Capital Financial Services Corp., 215 Ill. 2d 1, 11-12 (2005). On the other hand, a motion to
dismiss under section 2-619 admits the legal sufficiency of the complaint but asserts an
affirmative matter that defeats the claim. Id. at 12. If a cause of action is dismissed due to the
affirmative matter asserted in a section 2-619 motion to dismiss, the questions on appeal are
whether there is a genuine issue of material fact and whether the moving party is entitled to
judgment as a matter of law. Illinois Graphics Co. v. Nickum, 159 Ill. 2d 469, 494 (1994). We
review de novo an order striking a pleading pursuant to section 2-619.1. Carr, 2011 IL App
(4th) 110117, ¶ 25.
¶ 18 The doctrine of standing requires that a party have a real interest in the action and its
outcome. Wexler v. Wirtz Corp., 211 Ill. 2d 18, 23 (2004). A party’s standing to sue must be
determined as of the time the suit is filed. Deutsche Bank National Trust Co. v. Gilbert, 2012
IL App (2d) 120164, ¶ 24. “[A] party either has standing at the time the suit is brought or it
does not.” Village of Kildeer v. Village of Lake Zurich, 167 Ill. App. 3d 783, 786 (1988). An
action to foreclose upon a mortgage may be filed by a mortgagee or by an agent or successor of
a mortgagee. Gilbert, 2012 IL App (2d) 120164, ¶ 15.
¶ 19 Typically, lack of standing to bring an action is an affirmative defense, and the burden of
proving the defense is on the party asserting it. Lebron v. Gottlieb Memorial Hospital, 237 Ill.
2d 217, 252 (2010); Bayview Loan Servicing, LLC v. Cornejo, 2015 IL App (3d) 140412, ¶ 12.
In Gilbert, however, we stated that, once the defendant “made out a prima facie showing that
[the plaintiff] lacked standing, the burden shifted to [the plaintiff] to refute this evidence or
demonstrate a question of fact.” Gilbert, 2012 IL App (2d) 120164, ¶ 17 (citing Triple R
Development, LLC v. Golfview Apartments I, L.P., 2012 IL App (4th) 100956, ¶ 12). In
Rosestone Investments, LLC v. Garner, 2013 IL App (1st) 123422, ¶ 28, the First District
criticized our statement in Gilbert as violating the principle that “lack of standing is an
affirmative defense, which [the] defendant alone has the burden to plead and prove.” The First
District noted that Triple R Development “concerned neither standing nor foreclosure
proceedings” but, rather, “the burden of persuasion on a motion for summary judgment.”
(Emphasis in original.) Id. The First District concluded, “It is unclear what result the Gilbert
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court would have reached had it required [the] defendant, rather than [the] plaintiff, to bear the
ultimate burden.” Id.
¶ 20 We are puzzled by the First District’s criticism. In Gilbert, the plaintiff’s lack of standing
was asserted in the defendant’s motion for summary judgment. Gilbert, 2012 IL App (2d)
120164, ¶ 7. On a motion for summary judgment, the burden of persuasion is always on the
movant, but the burden of production can shift. Triple R Development, 2012 IL App (4th)
100956, ¶ 12. When we ruled that the defendant had “made out a prima facie showing that [the
plaintiff] lacked standing” (Gilbert, 2012 IL App (2d) 120164, ¶ 17), we shifted to the plaintiff
not “the ultimate burden” to show its standing (Rosestone, 2013 IL App (1st) 123422, ¶ 28) but
merely the burden of production on the motion for summary judgment: to “refute [the
movant’s] evidence or demonstrate a question of fact” (Gilbert, 2012 IL App (2d) 120164,
¶ 17). Indeed, we specifically declined to decide whether, by statute (735 ILCS
5/15-1504(a)(3)(N) (West 2008)), the legislature had placed the ultimate burden on the
plaintiff. Gilbert, 2012 IL App (2d) 120164, ¶ 16. Thus, though the First District accused us of
concocting a baseless “burden-shifting scheme” (Rosestone, 2013 IL App (1st) 123422, ¶ 28),
the “scheme” was merely that which applies on a motion for summary judgment, which was
the procedural posture of the case before us.
¶ 21 That said, the disagreement in the above cases has no bearing on this case. Here, the
procedural posture was plaintiff’s section 2-619.1 motion to strike defendants’ affirmative
defense of lack of standing. Regardless of where the burden (or burdens) lay, the trial court
properly granted that motion.
¶ 22 Defendants’ standing defense attacks plaintiff’s position only as the holder of the note
when the original complaint was filed. 1 Plaintiff’s amended complaint (with the allonge
attached) indicates that it is presently the holder of the note, but it alleges that, when the
original complaint was filed, it was a nonholder in possession of the note with the rights of a
holder. The standing defense never challenged this assertion. Further, plaintiff’s contention
that it had the rights of a holder when the original complaint was filed was supported by the
assignment from HUD to plaintiff, which predated the filing of that complaint.
¶ 23 Pursuant to section 3-301 of the UCC, a person can enforce a negotiable instrument as a
holder or as a nonholder in possession of the instrument who has the rights of a holder. 810
ILCS 5/3-301 (West 2014). The fact that here the note was indorsed to HUD, and not to
plaintiff, when the original complaint was filed proves only that plaintiff was not the holder of
the note at that time. By attaching a copy of the note to the original complaint, and later
presenting the original note in open court, plaintiff validated that it was a nonholder in
possession of the note. Further, the assignment of the mortgage from HUD to plaintiff, which
predated the filing of the original complaint, showed that plaintiff had the right to enforce the
note at that time. See HSBC Bank USA, N.A. v. Hardman, No. 12 C 00481, 2013 WL 515432,
at *4 (N.D. Ill. Feb. 12, 2013) (note was not indorsed to plaintiff, but plaintiff had rights of a
holder through the assignment of the mortgage); Deutsche Bank v. Tucker, No. 11 C 8062,
2012 WL 2872456, at *2-3 (N.D. Ill. July 12, 2012) (note was not indorsed to plaintiff, but
plaintiff had rights of a holder to enforce through a pooling and servicing agreement).
The Uniform Commercial Code (UCC) defines “holder” to mean “the person in possession of a
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negotiable instrument that is payable either to bearer or to an identified person that is the person in
possession.” 810 ILCS 5/1-201(21)(A) (West 2014).
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¶ 24 Defendants attempt to distinguish Hardman and Tucker by arguing that the notes in those
were unindorsed, whereas the note in the present case was indorsed to HUD. We fail to see any
distinction between a note payable under its terms to an entity that is not the plaintiff and a note
payable through indorsement to an entity that is not the plaintiff. Both situations establish only
that the plaintiff is not the holder of the note. Plaintiff concedes that it was not the holder of the
note when the original complaint was filed. Defendants’ argument sheds no light on whether
plaintiff was in possession with the rights of a holder.
¶ 25 Similarly, defendants cite section 3-201 of the UCC (810 ILCS 5/3-201 (West 2014)) to
demonstrate that negotiation of a note requires an indorsement by the holder. Section 3-201
simply details how one becomes a holder and, again, has nothing to do with a nonholder’s
potential ability to enforce an instrument under section 3-301.
¶ 26 Defendants rely on Gilbert and Bayview Loan Servicing, L.L.C. v. Nelson, 382 Ill. App. 3d
1184 (2008), where both plaintiffs claimed standing as holders of the notes. In Gilbert, the note
and mortgage identified as the mortgagee Mortgage Electronic Registration Systems, Inc.
(MERS), not the plaintiff. Gilbert, 2012 IL App (2d) 120164, ¶ 17. The assignment of the
mortgage to the plaintiff was executed after the complaint had been filed, and the plaintiff’s
attempt to show an earlier assignment through affidavit was inadmissible. Id. ¶¶ 17, 19. In
Nelson, there was no assignment to the plaintiff of any interest in the mortgage or the note
before the complaint was filed. Nelson, 382 Ill. App. 3d at 1187-88. In neither case was there
competent evidence establishing the plaintiff as the holder of the note. In this case, the
mortgage clearly was assigned to plaintiff before the original complaint was filed, and the
complaint attached a copy of the note. Thus, there was evidence establishing that plaintiff was
in possession of the note with the rights of a holder to enforce the note. Striking defendants’
affirmative defense on standing was proper.
¶ 27 Defendants next contend that the trial court erred in denying their section 2-619.1 motion
to dismiss based on a violation of Rule 113(b). Defendants argue that plaintiff violated Rule
113(b) because it attached to the original complaint a note that was indorsed to HUD and that
the later production of the allonge transferring the note to the trust established the violation
because the allonge was not attached to the original complaint.
¶ 28 Rule 113(b) provides that, in addition to the documents listed in section 15-1504 of the
Illinois Mortgage Foreclosure Law (735 ILCS 5/15-1504 (West 2014)), “a copy of the note, as
it currently exists, including all indorsements and allonges, shall be attached to the mortgage
foreclosure complaint at the time of filing.” Ill. S. Ct. R. 113(b) (eff. May 1, 2013).
¶ 29 Plaintiff attached to the original complaint all the necessary documents that existed at the
time of filing. These did not include the allonge, as it did not exist at that time. It might have
been prudent for plaintiff to attach the assignment, which was executed before the original
complaint was filed, but that was not called for under the rule. Accordingly, plaintiff did not
violate Rule 113(b).
¶ 30 Finally, defendants contend that granting plaintiff’s section 2-619.1 motion to strike was
inappropriate on the issue of plaintiff’s compliance with Title 24, section 203.604, of the Code.
¶ 31 Defendants’ mortgage was insured by HUD, and therefore it is subject to specific servicing
requirements. See 24 C.F.R. § 203.500 (2014); Federal National Mortgage Ass’n v. Moore,
609 F. Supp. 194, 196 (N.D. Ill. 1985). The failure to comply with HUD’s servicing
requirements is a defense to a mortgage foreclosure action. PNC Bank, National Ass’n v.
Wilson, 2017 IL App (2d) 151189, ¶ 18.
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¶ 32 Section 203.604(b) requires that “[t]he mortgagee must have a face-to-face interview with
the mortgagor, or make a reasonable effort to arrange such a meeting, before three full monthly
installments due on the mortgage are unpaid.” 24 C.F.R. § 203.604(b) (2014). “A reasonable
effort to arrange a face-to-face meeting with the mortgagor” has two elements. Id.
§ 203.604(d). The first element “shall consist at a minimum of one letter sent to the mortgagor
certified by the Postal Service as having been dispatched.” Id. The second element “shall also
include at least one trip to see the mortgagor at the mortgaged property.” Id. A mortgagor may
not institute foreclosure proceedings before complying with section 203.604. See id.
§ 203.500.
¶ 33 Defendants contend (in their original appellants’ brief) that plaintiff never sent a letter,
certified by the postal service as having been dispatched, offering a meeting with plaintiff as
required by section 203.604. Defendants offered the affidavit of Mario Lopez declaring
nonreceipt of any certified letter offering a face-to-face meeting.
¶ 34 Plaintiff asserted in the trial court and on appeal that a letter was sent (albeit through
FedEx) to defendants on August 5, 2011, and that a field representative visited the subject
property on August 9 and August 16, 2011, and met with Mario Lopez. According to plaintiff,
this assertion, which was supported by affidavit, demonstrates substantial compliance with the
mandated servicing guidelines of section 203.604. Plaintiff attached to its affidavit an exhibit
purporting to be the letter sent to defendants on August 5, 2011, and an exhibit purporting to be
the FedEx shipping label.
¶ 35 Defendants maintain that there was no visit to the property and no meeting with a
representative of plaintiff. They assert that, without receiving a certified letter, they could not
have known that a visit to the property would have occurred. Furthermore, defendants contend
that whether plaintiff ever visited the property is inconsequential, as section 203.604 requires
both the sending of a certified letter and a personal visit to constitute a reasonable effort at
arranging a face-to-face meeting. Plaintiff maintains that sending the letter via FedEx is merely
a technical defect in the notice because it is a reliable way of sending documents, sharing
characteristics with certified mail. Plaintiff correctly notes that section 203.604 does not
require proof of delivery. Rather, it requires only that the letter be certified as “having been
dispatched.” 24 C.F.R. § 203.604(d) (2014).
¶ 36 Since the filing of this appeal, this court in U.S. Bank Trust National Ass’n v. Hernandez,
2017 IL App (2d) 160850, ¶¶ 32-33, held that the plaintiff failed to prove, as a matter of law,
that it fulfilled section 203.604(d)’s “attempt-by-letter” requirement because the FedEx
shipping label did not demonstrate conclusively that the plaintiff sent the defendants a letter
offering a face-to-face meeting. Notably, we did not decide “whether use of a private carrier
can constitute substantial compliance with the ‘attempt-by-letter’ requirement of section
203.604(d), for even if we construed the section in [the bank’s] favor, we would hold that [the
bank] failed to comply with its requirements.” Id. ¶ 32.
¶ 37 As in Hernandez, plaintiff here has failed to offer proof of dispatch as a matter of law.
Plaintiff presented only the shipping label, which does not demonstrate irrefutably that
plaintiff sent defendants a letter offering a face-to-face meeting. See id. Plaintiff cites a
55-page record of a “screenprint,” which purportedly shows a dispatch. But plaintiff does not
identify the specific page showing the dispatch. The various notations on the “screenprint” do
not explicitly identify the dispatch, and plaintiff does not identify the relevant notation to
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support its position. Further, the affidavit of Kacy Prather does not explain how the
“screenprint” establishes the dispatch.
¶ 38 Furthermore, in his affidavit, Mario Lopez specifically denied that he received a letter by
certified mail from plaintiff and denied being “offered a face-to-face meeting at a local
Housing and Urban Development office, one of plaintiff’s local banks, or other H.U.D. related
servicing office.” Construing his affidavit in the light most favorable to defendants, as we must
(see Floyd v. Rockford Park District, 355 Ill. App. 3d 695, 699 (2005)), we read it as denying
that he received any letter offering defendants a face-to-face meeting. See Hernandez, 2017 IL
App (2d) 160850, ¶ 34.
¶ 39 In its petition for rehearing, plaintiff argues that the “Assignment of Mortgage from HUD
to Plaintiff pre-dates the filing of the complaint and thereby illustrates the removal of HUD
requirements from the loan—i.e., a non-HUD insured loan cannot logically be said to have
HUD-mandated requirements.” Plaintiff did not raise this argument in the trial court or in its
original response brief filed in this appeal, and we find that it is forfeited. See IPF Recovery
Co. v. Illinois Insurance Guaranty Fund, 356 Ill. App. 3d 658, 666 (2005). We express no
opinion as to the merits of this claim.
¶ 40 Accordingly, we conclude that granting plaintiff’s motion to strike was improper because
plaintiff did not establish as a matter of law that it complied with section 203.604.
¶ 41 III. CONCLUSION
¶ 42 For the preceding reasons, we affirm the order granting plaintiff’s motion to strike
defendants’ affirmative defenses relating to standing and Rule 113(b). We vacate the order
granting plaintiff’s motion to strike defendant’s affirmative defense concerning plaintiff’s
compliance with Title 24, section 203.604, of the Code. Further, we vacate the judgment of
foreclosure and sale, and we remand the cause for further proceedings.
¶ 43 Affirmed in part and vacated in part.
¶ 44 Cause remanded.
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