First Mortgage Co. v. Dina

Citation: 2014 IL App (2d) 130567Docket: 2-13-0567

Court: Appellate Court of Illinois; July 14, 2014; Illinois; State Appellate Court

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The appellate court vacated the summary judgment for foreclosure granted to First Mortgage Company, LLC (plaintiff) and remanded the case due to the unresolved question of whether First Mortgage Company of Idaho, LLC (FMCI), the original lender, was properly licensed under the Residential Mortgage License Act. The court found that a material issue of fact existed regarding FMCI's licensing status, which precluded the grant of summary judgment. Defendants, Daniel and Gratziela Dina, asserted that the mortgage was unenforceable as contrary to public policy because FMCI was unlicensed, and their method of raising this defense did not constitute a forfeiture of their claim. The court noted that the defendants had previously denied the plaintiff's status as the mortgagee and raised several defenses, including lack of standing and failure to mitigate damages. The decision highlighted that the plaintiff did not adequately prove its standing as the mortgagee and emphasized the importance of proper licensing in enforcing mortgage contracts.

Defendants missed the deadline to respond to a motion for summary judgment and requested additional time, filing a proposed response that included an exhibit. They argued that neither “First Mortgage Company of Idaho, LLC” nor “First Mortgage Company, LLC” was registered or licensed in Illinois, and claimed that the plaintiff was improperly collecting insurance premiums despite defendants having a valid policy. They contended that the plaintiff was pursuing a wrongful foreclosure that should be dismissed with prejudice. The court allowed the filing, prompting a reply from the plaintiff, which asserted that the defendants forfeited new defenses by not raising them earlier. The plaintiff also argued that, under the LLC Act, an unregistered LLC's failure to register does not invalidate contracts and that pursuing legal action does not equate to conducting business in Illinois. Additionally, the plaintiff claimed exemption from licensing requirements under the License Act, asserting they were a registered bank in Oklahoma. The plaintiff had obtained insurance for the property after receiving notice of potential coverage lapses. The court granted the summary judgment on August 14, 2012, and approved a foreclosure sale set for November 20, 2012. Defendants continued to assert their claims of improper registration and licensing in response to the motion to confirm the sale. The court approved the report of sale on February 19, 2013. Defendants’ motion for reconsideration was denied, leading to a timely appeal. On appeal, defendants maintained that neither the plaintiff nor FMCI was a licensed mortgage lender and argued that contracts made by unlicensed entities are void, referencing Carter-Shields v. Alton Health Institute. They also claimed that confirmation of the sale was unjust, given the potential benefits of a loan modification. The plaintiff countered that the claims were procedurally barred and argued exemption from the Licensing Act. Moreover, the plaintiff contended that defendants' claims of unreasonableness in the sale did not demonstrate an abuse of discretion. Defendants replied that their claims were timely and that public policy allowed the court to review the Licensing Act violation despite procedural issues.

A court grants summary judgment only when the evidence, including pleadings and affidavits, shows no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law. The review of such orders is conducted de novo. Defendants' claim under the License Act is correct and conclusive, eliminating the need to consider their other claims. A factual dispute exists regarding the mortgage lender’s status under the License Act, which is significant. While Illinois has not directly addressed the enforceability of a mortgage from an unlicensed entity, both Illinois law and related statutes from other states indicate that a violation of the License Act renders a contract unenforceable. The contract's void status also aligns with public policy, meaning that any procedural errors in raising defenses do not negate them. 

The plaintiff argues it is exempt from the License Act, citing a statute that exempts certain financial institutions, including banks. However, the plaintiff, defined as a "domestic entity" under Oklahoma law, is not the relevant party in this case since FMCI, not the plaintiff, issued the loan. The License Act prohibits unlicensed entities from engaging in mortgage-related activities, making FMCI's licensing status critical. The definitions provided by the National Information Center do not support the plaintiff’s claim to be classified as a bank. Since FMCI’s exempt status is unproven, the violation of the License Act leads to the mortgage being void. Illinois case law does not specifically address unlicensed mortgage lending, but similar cases suggest that courts will not support claims based on illegal acts.

Courts will not enforce contracts involving parties without the necessary licenses mandated by legislation designed to protect the public, rather than to generate revenue. Specifically, contracts made by unlicensed individuals for personal services are deemed unenforceable. Illinois courts have consistently ruled that when licensing requirements aim to ensure public safety through properly trained practitioners, unlicensed parties cannot recover fees or enforce contracts. The License Act's purpose is to protect consumers in the residential mortgage market, ensuring fair and honest practices free from deception. Most states have found mortgages from unlicensed lenders void as contrary to public policy. The Connecticut Supreme Court in Solomon v. Gilmore supported this view, stating courts cannot enforce contracts intended to violate the law. Although Kentucky courts have ruled differently by stating that explicit legislative intent for unenforceability is necessary, Illinois follows the precedent set in Chatham and concurs with Solomon's reasoning, declaring mortgages from unlicensed entities void as against public policy.

While the legislature can designate contracts made in violation of licensing laws as unenforceable, the License Act’s explicit protective purpose sufficiently conveys this intent. The court distinguishes between the License Act and the Sales Finance Agency Act; the latter does not possess a strong public-policy statement and has been interpreted to allow enforcement of certain contracts despite licensing violations. Enforcing contracts from unlicensed lenders would undermine the License Act’s stated objectives. Finally, the court considers whether defendants forfeited their defense regarding the lack of a necessary license, as the plaintiff claims that failure to raise this issue in an answer constitutes forfeiture.

Defendants improperly raised FMCI’s lack of a required license, but did not forfeit this defense due to public policy considerations. While affirmative defenses are typically required to be included in an answer and can be forfeited if not properly raised, courts have the discretion to examine issues of public policy even if not expressly raised by the parties. A court of equity must refuse to enforce provisions that violate public policy, and it is appropriate for a court to consider such matters sua sponte. In this instance, the defense differed from typical affirmative defenses due to its public interest implications. The plaintiff was afforded a fair opportunity to respond to the defense. Consequently, the court concluded that it erred in granting summary judgment for foreclosure, necessitating the vacation of both the foreclosure judgment and the order confirming the sale. The case is remanded for further proceedings.