Judicial Sale: Vacating before the Confirmation

The Illinois Mortgage Foreclosure Law, 735 ILCS 5/15-1101 et seq., strikes a balance between the competing interests of the mortgagee, mortgagor, and those who bid on foreclosed properties at judicial sales. Yet the precise weight of that balance was never clearly defined. In Household Bank, FSB v Lewis, 229 Ill 2d 173, 890 NE2d 934, 322 Ill Dec 15 (Ill 2008), the Illinois Supreme Court was confronted with a clear question: does the act allow a mortgagee to vacate a judicial sale just prior to the confirmation? Answering the question required the court to not just look at the statute, but to consider the balance of interests between the parties, and the fundamental rights of those who use the courts to resolve their disputes. Can the equity needs of the bidder block the mortgagee from trying to vacate the sale? Does a mortgagor's limited right of redemption also affect the mortgagee? Does using the courts to instigate a judicial sale bind the mortgagee to that choice?

The Illinois Supreme Court ruled in Household Bank, FSB v Lewis in clear favor of the mortgagee that under the act, such a sale can be vacated up until its confirmation. To understand the court's reasoning, the history of the case is critical.


In 1999, Lewis secured a home loan with a mortgage held by Household Bank (Household). When Lewis defaulted, Household began foreclosure proceedings under the Illinois Mortgage Foreclosure Act. Without any answer to the complaint, the court entered a default judgment for Household on March 17, 2005. On June 21, 2005, a sale was conducted with a high bid of $48,071 placed by Greenwich Investors. Eight days later, Household obtained a continuance to allow Lewis to try and find a private buyer. This search was successful, resulting in a sale price of $67,945. Immediately following the sale, Household sought to withdraw its request for confirmation of the judicial sale. This was granted by the court, followed by a request from Household to completely vacate the judicial sale.

Greenwich was granted leave to intervene and argued against the vacating of the sale, suggesting that doing so violated the Mortgage Foreclosure Act and would be a violation of justice. The court stressed the importance of bidders having confidence that the bidding process gave them some interest in the property. The circuit court sided with Household, vacating the sale and denying a motion for reconsideration from Greenwich.

As viewed by the Illinois appellate and Supreme Court, the case came before the lower court with several pertinent facts. While the judicial sale had already taken place, it had not been confirmed. And while the period of redemption had ended, it was both the mortgager and the mortgagee that desired the new private sale. At the center would ultimately fall Household's motion to withdraw its request for confirmation, a request which Greenwich believed a high bidder should be able to stifle. This placed the facts of the case in a unique middle ground, where the competing interests of the mortgager and mortgagee were directly adverse to the winner of the highest bid at the judicial sale. The lower court found that until the sale was confirmed, it was not final, and held that the sale could still be vacated while in that state.

The appellate court did not agree. In a succinct review, it held that vacating the sale constituted an abuse of discretion. It noted that under the act a court must confirm a sale unless injustice would result. Household Bank, FSB v Lewis, 373 Ill App 3d 420, 422-423 (1st D 2007). The appellate court found no injustice, because the right of redemption had expired before the judicial sale, and nothing revived it. In expanding this fact, the court of appeals limited both the mortgagee and mortgagor by the limited period of redemption. Thusly, the right of redemption that Lewis was granted by the statute, implicitly limited any rights Household might have to allow additional redemption. Because Lewis and Household lacked the right to redeem, and because Household had itself chosen to bring the issue to litigation, the court found that neither party could claim injustice from the natural functioning of the act. Without any injustice resulting from the sale, the statute required the court to confirm it. In coming to its conclusion, the focus of the appellate court was trained on the language of the act — it framed the question as almost entirely constrained to the language of the law. "Section 15-1508(b) of the Illinois Mortgage Foreclosure Law...provides that the trial court shall enter an order confirming the sale unless it finds that justice was not otherwise done." Id. at 422. This was a distinction that would be challenged on review.

The Supreme Court's Reasoning

The Illinois Supreme Court initiated its review by discounting the persuasive power of the lower court's reasoning, declaring its review to be de novo under City of Champaign v Torres, 214 Ill 2d 234 (Ill 2005). The court began its analysis with its ultimate conclusion, reversing the appellate court and affirming the circuit court — holding that the sale could be vacated. In doing so it took an alternate path from that of the prior court, framing the decision as one of statutory interpretation only in passing, the court actually focused on the fundamental nature of the lawsuit and the balance of the parties involved.

Greenwich, perhaps encouraged by the appellate court's strong adherence to the literal language of the statute, sought to argue that a circuit court's right to vacate the sale for particular reasons did not give it the right to vacate for any reason. The mere fact that the statute gave the power to vacate for injustice did not explicitly give it the ability to do so in other situations. This argument was based on prior decisions which enumerated the situations in which a court could act to vacate a sale. Washington Mutual Bank, FA, 369 Ill App 3d 526, 861 NE2d 1041, 308 Ill Dec 476 (1st D 2007). Household's position (now represented instead by the private buyer of the home), was that allowing the vacating of the sale was within the act's language and upheld its goals of promoting homeowner redemption.

But the Illinois Supreme Court refused to view the question as one regarding the circuit court's power to act, and looked instead at the powers of the parties. "In our view, however, the appellate court's focus on whether the circuit court abused its discretion was misguided." Household Bank, FSB v Lewis, 229 Ill 2d 173, 179, 890 NE2d 934, 937. Without a motion present, the court did not have anything it was required to confirm. "Although a motion to confirm was filed by Household, the mortgagee, the motion was withdrawn before any action on it was taken. A statutory prerequisite to the confirmation process was thereby eliminated." Id. In this way the court shifted the focus from the circuit court's choice to act or not.

The real question, then, was "whether the circuit court was obligated to proceed with the confirmation process even after Household, which initiated the foreclosure proceedings, elected not to pursue them." Id. at 179, 937-8. This required the court to address two underlying concerns. First, whether any redemption at all was possible once the period expired. And second, whether Household and Lewis could still choose redemption after the judicial sale had been conducted.

The court found the right or redemption is not a limited right. Where the appellate court saw the statutory period of redemption as the only period of redemption, the Illinois Supreme Court viewed it merely as the minimum required period of redemption. "By its terms, section 15-1605 does not purport to bar all redemptions. It merely extinguishes the 'equitable right of redemption.'" Id. at 183, 940. In this case it was not the homeowner who sought to redeem the home, but the mortgagee, Household. The court found that regardless of statutory limits on Lewis, Household maintains the right to allow a redemption as a matter of 'grace', a situation to which Section 15-1605 has no application. Even if this were not the case, the court made clear that the limitation on the right of redemption exists for the benefit of the mortgagee, Household. The court reaffirmed that "Illinois law recognizes that a party may waive a statutory provision designed for its benefit." Id. at 180, 938.

Having held that Household could allow redemption, and that the circuit court's authority was not the issue, the court needed to determine if Household had a right to cancel the judicial sale as a whole, even when it had reached the point where a motion to confirm had been submitted and withdrawn. The answer to this question turned on what the court viewed as the "basic principles" of a party's right to control its own litigation. Once Household availed itself of the remedies under the act, was it then under an obligation to pursue them?

The court recognized that Household began the litigation because it was the best option. This held true for the judicial sale as well. But once the private sale was organized, this was no longer their best course of action. "From Household's perspective, further pursuit of foreclosure proceedings would have been counterproductive." Id. at 179, 938. The private sale was promising to bring in a significantly higher sales price than the judicial sale. The court refused to interpret the law in a way that would bind a party to continue a suit when it became disadvantageous to them. "Consistent with this view, our system of civil justice has recognized that a plaintiff is ordinarily the master of his or her cause of action." Id. at 180, 938.

This decision was in line with prior cases. The first district appellate court held that a private sale after the redemption period by the mortgagor could be sufficient for a court to not confirm a judicial sale. There, the court found that after the private sale was completed, even though late, it would be inequitable to follow through on the judicial sale. Mortgage Electronic Registration Systems, Inc. v Thompson, 368 Ill App 3d 1035, 859 NE 2d 621, 307 Ill Dec 332 (1st D 2006). This is not the framework that the Illinois Supreme Court chose to use, but it provides another avenue to the same result. Once the private buyer had been found, even past the period of redemption, the existence of that option could have been enough to deny the confirmation or allow its withdrawl to promote equity and fairness.

In holding that Household could avert the use of litigation, the court reaffirmed the common law maxim that the plaintiff is master of his or her claim. "[T]hose who invoke the jurisdiction of the courts do not thereby irrevocably commit themselves to that course of action." People v American National Bank & Trust Co., 32 Ill 2d 115, 120-21, 203 NE 2d 897 (Ill 1965). In applying that maxim to the act, the court addressed the legislature-codified version of that rule found in Section 2-1009 of the Code of Civil Procedure. While the code allows for dismissals without prejudice up to a certain point in the case, the court noted that its restriction on time only applied to whether it was dismissed with, or without, prejudice. Even if a case, such as dealing with the judicial sale, had hit a certain point, a plaintiff still has the right to withdraw his or her claim by surrendering the available court remedies. Because Household had a private buyer, this was all it was seeking. "Household was, in effect, dismissing that claim with prejudice. The statutory restrictions governing voluntary dismissals without prejudice are therefore inapplicable." Household Bank, at 180-81, 939.

It is important to note that in its analysis, the court did not concern itself with the position of the high bidder. The high bidder's concerns are minimal because a high bidder is not transferred any legal interest in the property. Jennings v Dunphy, 174 Ill 86, 90-91, 50 NE 1045 (Ill 1898). Any bid put forward amounts merely to an irrevocable offer, not an agreement by both parties. This is evident by the fact that no sale is considered final until a court has confirmed it. Plaza Bank v Kappel, 334 Ill App 3d 847, 852, 779 NE 2d 359, 268 Ill Dec 745 (1st D 2002). The court further culled the idea of a legal right by noting how any interest such a bidder has is highly speculative. A court may decline to confirm a sale for myriad reasons, and a property may have damage or liens that the bidder is unaware of when placing a bid. Until the court confirms the sheriff's proceedings, there is not a true sale in the legal sense. Citicorp Sav. of Illinois v First Chicago Trust Co. of Illinois, 269 Ill App 3d at 300, 645 NE 2d 1038, 206 Ill Dec 786 (1st D 1995).

The court found that while stability in promoting judicial sales is important, such concerns do not come at the expense of allowing redemptions or the cost of the plaintiff's rights in a proceeding. Redemption is the method courts should favor whenever possible in a foreclosure proceeding. Skach v Sykora, 6 Ill 2d 215, 224, 127 NE 2d 453 (1955). This balance, clearly established in the history of caselaw, has not been altered by the legislature. "If the legislature had intended to impose such a prohibition, it could have specifically done so." Household Bank, at 182, 939.

Resolution and Conclusion

Despite being phrased as a statutory interpretation case, the Illinois Supreme Court used Household Bank to affirm the general goals of the Illinois Mortgage Foreclosure Law. If anything, the appellate court focused much more stringently on the language of the law itself, and concerned itself with the restrictions of procedure on the process. To the appellate court, the issue of a party's desires was not controlling. Once the process had begun, the procedure required a court to confirm the judicial sale when certain conditions were met. The fact that Household may have had a more lucrative offer was not enough — once it availed itself of the legal process, it was restricted by it.

The Illinois Supreme Court dismissed this contention. The case wasn't really about the statute at all, because by choosing to withdraw its motion, Household stopped it from activating. The only method that Greenwich could stop this would be if Household could be denied the right to end the litigation it started. The court found the appellate court's view unpalatable. Much like parties who choose to settle before a case is complete, Household availed itself of the courts as only one of many possible options. In doing so it did not lock itself into their use. While withdrawing might have expended Household's right to pursue the matter again in the courts, that was a choice that Household had the option to exercise.

At its resolution, the decision affirms that in all parts of the foreclosure proceeding, from the initial claim to the confirmation of the judicial sale, the interests of the mortgagee are paramount, the act and its provisions embody a variety of protections the mortgagee can invoke or waive, and provide one of many possible means by which a foreclosure may be concluded. Any authority a speculative bidder might have lacks the power to constrain a mortgagee by attempting to use laws designed for the very opposite of that purpose. Unless the legislature addresses the issue, the goal of redemption outweighs the concern that bidders may lack confidence in the process of a judicial sale.

Posted on: Thu, 11/13/2008 - 2:03pm