The Trusted Adviser April/May 2011 | Volume 4 • Number 3

Real Estate and Title Insurance News

Personal Representatives for Deceased Mortgagors in Foreclosure Actions

The Illinois Supreme Court recently held that a mortgagee must name a personal representative for a deceased mortgagor for a trial court to obtain subject matter jurisdiction and enter a valid judgment in a foreclosure action.ABN AMRO Mortgage Group v McGahan, 237 Ill 2d 526, 931 NE2d 1190 (Ill, 2010). The court ruled that a mortgage foreclosure is a quasi in rem action and the trial court must obtain jurisdiction over the mortgagor as a necessary party under the Illinois Mortgage Foreclosure Law. 735 ILCS 5/15-1501(a)(1). Without obtaining jurisdiction over a representative of the decedent, the court lacks subject matter jurisdiction and any foreclosure action against the decedent may be declared void.

Illinois state law provides that a party with legal rights against a dead person may bring an action against the deceased person&€™s personal representative within six months of the person&€™s death. 735 ILCS 5/13-209(b)(1). Accordingly, if a lender is aware of a mortgagor&€™s death when the mortgage comes into default, the lender should name the personal representative of the decedent&€™s estate when filing a foreclosure. The foreclosure will then be carried out in line with the probate of the decedent&€™s estate and the lender is able to obtain a valid judgment. If a lender institutes a foreclosure action against a decedent before learning of the decedent&€™s death, then the action may still be brought against the decedent&€™s personal representative under 735 ILCS 5/13-209(c). Under 735 ILCS 5/13-209(c), after learning of the death, the lender must proceed with reasonable diligence to substitute the personal representative as defendant in an amended complaint and serve process upon the personal representative.

Personal Representative in Probate

Lenders encounter a more difficult situation when a deceased mortgagor has no open probate and the foreclosing lender must have a personal representative appointed. Pursuant to Section 9-4 of the Probate Act of 1975, anyone desiring to have letters of administration issued on the estate of an intestate decedent must file a petition that shall state, if known: (a) the name and place of residence of the decedent at the time of his death; (b) the date and place of death; (c) the approximate value of the decedent's real and personal estate in this State; (d) the names and post office addresses of all heirs of the decedent and whether any of them is a minor or disabled person and whether any of them is entitled either to administer or to nominate a person to administer equally with or in preference to the petitioner; (e) the name and post office address of the person nominated as administrator; (f) the facts showing the right of the petitioner to act as or to nominate the administrator; (g) when letters of administrationde bonis nonare sought, the reason for the issuance of the letters; and (h) unless supervised administration is requested, the name and address of any personal fiduciary acting or designated to act pursuant to Section 28 3. Section 9-3(j) enables a decedent&€™s creditor to act as the administrator of the decedent&€™s estate, as long as there is no else willing and able to act as administrator. The lender must provide notice of the petition to issue letters of office to all those with preference over the lender, but if none object, then the court will name the lender as personal representative. 755 ILCS 5/9-4. If the lender is appointed administrator pursuant to Section 9-3(j), the lender becomes responsible for all of the regular duties of an administrator, and the lender owes a duty to all of the beneficiaries and creditors of the estate.

Claims Period in Probate

Lenders also must now be wary of the claims period that applies in probate. InFinancial Freedom v Kirgis, the defendant contended that because the plaintiff did not file its foreclosure complaint within the two-year limit set out in Section 18-12(b) of the Probate Act, it was barred from any recovery, because an action abates if it is filed against a dead individual after the statute of limitations in probate has ended without appointment of a personal representative. 377 Ill App 3d 107, 123; 877 NE2d 24, 38; 315 Ill Dec 537, 551 (1st D, 2007). There, the court determined that a mortgage foreclosure is anin remproceeding that enforced the mortgagee&€™s right against the property and that therefore mortgage foreclosure is a separate remedy available to the lender from filing a claim in the probate estate of the decedent. Without filing a claim, a lender would not be able to pursue a deficiency judgment against the deceased mortgagor, or any other form of personal liability, but a lender would be able to enforce its lien on title.McGahanspecifically overruledFinancial Freedom, finding mortgage foreclosure to be a quasiin remproceeding.McGahandid not make any holding with respect to filing a claim in a decedent&€™s estate. It is unclear what exactly this may mean, but there is a possibility that a lender must now file within the statutory limits for claims imposed upon a creditor in probate, or risk having its foreclosure case barred. To avoid this potential pitfall, the lender must file a claim on or before the date stated in the notice published and sent by the decedent&€™s representative pursuant to Section 18-3 of the Probate Act, or within two-years of the mortgagor&€™s death if the claim is not barred earlier by notice. 755 ILCS 5/18-12(a),(b).

Special Representative in Civil Procedure

A less burdensome option available to a foreclosing lender, if a personal representative for the decedent does not exist, is to ask the court to appoint a special representative for the purposes of defending the action. 735 ILCS 5/13-209(b)(2). Under Section 13-209(b)(2) of Civil Procedure, upon the motion of a party entitled to bring an action and after notice is provided to the decedent&€™s heirs or legatees, the court may appoint a special representative without opening an estate. TheMcGahancourt did not specify whether foreclosure counsel should appoint a personal representative in probate or a special representative in Civil Procedure. However, theMcGahanopinion did overrule an appellate court decision that reversed a circuit court opinion that specifically stated that foreclosure counsel should have obtained a special representative for a deceased mortgagor. 237 Ill 2d 530-1, 931 NE2d 1193-4, 342 Ill Dec 11-12. Steven Bashaw, who has been appointed a special representative in more than one hundred foreclosure matters sinceABN AMRO v McGahan, says: &€œThe special representative is an officer of the court who investigates and reports back to the court. In my reports as a special representative, I advise that the mortgagor died on whatever date he died, that he was then the owner of the property, and who the heirs are based on the information I can obtain. I outline the property&€™s current condition and what the equity is based on the current outstanding liens and its appraised value." Hudspeth, Kevin M. (2010). The Impact ofABN AMRO v McGahanon Already-Issued Foreclosures.Illinois Bar Journal. 98(10), 520. This option is preferable because the lender avoids the responsibility of administering the decedent&€™s entire estate. However, when a lender elects to have a special representative appointed under this section, the statute states that any recovery is limited to the proceeds of any liability insurance protecting the estate. 735 ILCS 5/13-209(b)(2). The meaning of this is not clear for foreclosure cases, but assuming that the language refers to money judgments, then in most foreclosure matters, this provision will not be relevant. In most foreclosure cases, no deficiency is requested, and in Cook County, a deficiency is not allowed by court. However, this is a limitation to bear in mind when representing a foreclosing lender.

The effect ofMcGahancontinues to be explored by courts, foreclosure counsel, and title companies. We can expect future litigation on the issue, elucidating more of the issues that this opinion has raised.ATG Members:For underwriting guidelines for appointing a personal or special representative, seeUnderwriting Guidelines: Personal Representatives for Deceased Mortgagors in Foreclosure Actions.






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[Last update: 4-21-11]