First Mortgage Company v. Dina

Citation: 2017 IL App (2d) 170043Docket: 2-17-0043

Court: Appellate Court of Illinois; March 1, 2018; Illinois; State Appellate Court

Original Court Document: View Document

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First Mortgage Company initiated foreclosure proceedings against Daniel and Gratziela Dina, who argued that First Mortgage lacked standing as it was not the original mortgagee, First Mortgage Company of Idaho, LLC (FMCI), nor its successor. In a previous ruling (Dina I), the court vacated a foreclosure judgment due to uncertainty over FMCI's licensing status under the Residential Mortgage License Act of 1987, which could render the Dinas’ mortgage void if FMCI was unlicensed. Subsequently, the Illinois General Assembly amended the Act, rejecting the ruling from Dina I. On remand, the trial court ruled in favor of First Mortgage, stating that the Act did not apply to FMCI, as it was not conducting business in Illinois. The appellate court affirmed this judgment, acknowledging that while the Act was applicable to FMCI, an exception to the law-of-the-case doctrine, due to the legislative amendment, justified the trial court's ruling. The underlying foreclosure complaint was filed on May 21, 2010, and the Dinas raised defenses, including standing and licensing issues, before the court allowed a late response to First Mortgage's summary judgment motion.

First Mortgage claimed exemption from licensing requirements under the Act, asserting its status as a registered bank in Oklahoma. The court granted a summary judgment for foreclosure and sale on August 14, 2012, confirming the sale on February 19, 2013, despite objections from the Dinas. After the Dinas appealed, the appellate court addressed three key issues: the procedural forfeiture of the Dinas’ lack-of-licensure defense, the existence of a material fact regarding First Mortgage's licensure, and whether lack of a license constituted a defense to foreclosure. The court vacated the summary judgment, concluding that First Mortgage did not prove the entity that originated the mortgage was exempt from the Act, rendering the mortgage void as against public policy. The Dinas' defense was deemed not forfeited due to public policy implications, even though it was raised improperly. The court remanded for further proceedings, and First Mortgage's petition for supreme court review was denied.

Subsequently, on May 13, 2015, First Mortgage sought additional time to file a new summary judgment motion, citing pending Illinois legislation (HB2814) that could overturn the appellate court's decision regarding the validity of a loan contract despite lack of licensure. The court allowed until July 8, 2015, for this filing. On that date, First Mortgage submitted a new motion, arguing that the anticipated legislative amendment reflected the intent of the statute and maintained that the Act only applied to entities engaged in residential mortgage lending in Illinois, emphasizing that FMCI had only made one loan in the state—the one in question.

On July 23, 2015, the General Assembly enacted Public Act 99-113, amending section 1-3(e) of the Act to state that a mortgage loan brokered, funded, originated, serviced, or purchased by an unlicensed party is not invalid solely due to a violation of this section, with the amendment deemed declarative of existing law. In their response on September 10, 2015, the Dinas contended that the lack-of-licensure defense was still applicable, citing two reasons: the law of the case from Dina I barred First Mortgage from claiming the Act did not apply, and the amendment was constitutionally defective if applied retroactively. The court ruled in favor of First Mortgage on February 11, 2016, identifying five key legal issues, including the applicability of the law of the case doctrine, the licensing requirement for FMCI given its limited transactions in Illinois, and the constitutional implications of retroactive application of the amendment.

The court decided to address the Dinas' constitutional challenges only if necessary, determining that the Act did not apply to the case at hand. It resolved the first two issues negatively for the Dinas. Specifically, the court interpreted section 1-3(a) of the Act, which mandates licensing for entities engaged in mortgage activities, to exclude isolated transactions. It concluded that FMCI's involvement was an isolated transaction, supported by uncontradicted evidence, and thus did not require a license under the Act.

An exception to the law-of-the-case doctrine exists when legislative changes affect controlling law, as established in Hoffmann v. Hoffmann. The court granted First Mortgage’s motion for summary judgment, resulting in a foreclosure judgment, followed by a judicial sale and its confirmation, with no objections raised by either party. The Dinas appealed, presenting four arguments: (1) the court erred by ruling FMCI was not subject to licensure under the Act due to having made only one mortgage in Illinois; (2) the amendment to the law violates the Illinois Constitution's prohibition against retroactive application; (3) the amendment violates separation of powers by attempting to nullify a prior decision (Dina I); and (4) it infringes the Special Legislation Clause by creating a separate class of brokers. Only the first argument directly challenges the trial court’s decision, while the others preemptively counter First Mortgage’s potential defense of the amendment as an alternative basis for upholding the decision. The Dinas seek to vacate the summary judgment, foreclosure judgment, and sale confirmation, requesting a remand for dismissal with prejudice. In response, First Mortgage contends that the court's ruling was correct and that the Dinas' constitutional arguments lack merit, asserting that the amendment merely clarified existing law regarding the validity of mortgages secured by loans made in violation of the Act. The court noted that it would avoid constitutional issues when possible, but in this case, the applicability of the Act to FMCI must be addressed, as it applies to entities involved in various aspects of residential mortgage loans without exceptions for isolated actions. The review of statutory interpretation is conducted de novo.

Section 1-3(a) prohibits any individual or entity from brokering, funding, originating, servicing, or purchasing residential mortgage loans in Illinois without a license from the Commissioner. While it does not explicitly mention "engaging in business" in Illinois, it implies a territorial limitation based on a long-standing legal principle that statutes lack extraterritorial effect unless explicitly stated. The interpretation of when the statute is violated remains unclear; it could either require regular business activity within Illinois or merely involve some business activities occurring there. However, an exemption for isolated transactions is deemed unlikely due to concerns over transient operations evading regulation.

First Mortgage claims that section 1-3(h) provides an exemption, which is rejected. This section clarifies that the Act applies to all entities operating as residential mortgage bankers in Illinois, regardless of licensing status under previous regulations. It emphasizes that existing mortgage lenders or brokers must comply with the current Act, reinforcing that the transition from the Old Act does not create new exemptions. Thus, section 1-3(h) serves to ensure continuity in licensing requirements without permitting exemptions based on prior licensing under the Old Act.

Section 1-4(d) of the Act (205 ILCS 635/1-4(d) (West 2006)) strongly opposes interpreting section 1-3 to allow an isolated-incident exemption. This interpretation aligns with the Act's structure, particularly as section 1-3(a) clarifies that licensing provisions do not apply to entities exempted under section 1-4(d). Specifically, section 1-4(d) defines “exempt person or entity” to include those who do not typically originate mortgage loans and who engage in limited transactions (no more than 10 residential mortgage loans per year for personal investment). The language indicates a comprehensive exemption list, emphasizing that the legislature intended for it to be exhaustive. The inclusion of exemptions for entities not regularly engaged in regulated transactions addresses the issue of isolated transactions.

FMCI is not exempt from the Act, leading to a need to examine the Dinas’ constitutional challenges regarding the amendment. The Dinas assert that the amendment violates Illinois' special-legislation clause, but this claim is unfounded. The analysis also covers whether the amendment is retroactively problematic and if it breaches separation-of-powers principles. Ultimately, the amendment can be interpreted to avoid constitutional issues. However, First Mortgage’s request to interpret the amendment as reversing a prior ruling (Dina I) is seen as an infringement on judicial authority.

The Dinas contend that an amendment contravenes the Illinois Constitution's special-legislation clause by providing preferential treatment to unlicensed mortgage brokers over their licensed counterparts. The court disagrees, stating that the clause prohibits special privileges for certain groups while excluding similarly situated individuals. A two-prong test is applied to assess violations: (1) whether there is discrimination in favor of a select group, and (2) whether the classification is arbitrary. The amendment is evaluated under the rational-basis test, as it does not affect fundamental rights or involve suspect classifications. The court finds that the amendment does not offer special treatment but rather prevents severe penalties for unlicensed brokers, allowing the General Assembly a rational basis for its decision.

Additionally, the Dinas argue that the amendment infringes upon separation-of-powers principles and retroactivity prohibitions by interpreting prior law. First Mortgage maintains that the amendment merely clarifies existing law regarding the voiding of mortgages secured by unlicensed lenders. The court acknowledges that while the General Assembly cannot unilaterally interpret the law retroactively, the Dinas' assertion that the amendment is fundamentally flawed is incorrect. Instead, the court suggests that potential issues can be resolved by interpreting the amendment's "declarative of existing law" clause as a standard statement on retroactivity.

Illinois does not have a general prohibition against amendments with retroactive effect. The applicable analysis for determining retroactivity follows the two-part framework established by the Supreme Court in Landgraf v. USI Film Products. This analysis is adapted for Illinois law due to section 4 of the Statute on Statutes, which simplifies the process to a one-step test. The first step assesses whether the legislature explicitly indicated the retroactivity of the statute; any explicit intent will prevail unless deemed unconstitutional. If the legislative intent is ambiguous, the second step evaluates whether the amendment would impair existing rights, increase liability for past actions, or impose new duties on completed transactions. Such amendments cannot be applied retroactively if they do have these effects.

Section 4 provides a default rule: procedural amendments may be applied retroactively, whereas substantive amendments cannot. Therefore, the approach for Illinois amendments is to consider any explicit retroactivity statement first, and if absent, to apply section 4’s default rule. The assertion that retroactive amendments are always unconstitutional is incorrect.

Additionally, while the case Roth contains language that may support the Dinas' viewpoint regarding retroactive amendments, it specifically dealt with a legislative attempt to increase penalties for a crime retroactively, which is unconstitutional under the ex post facto clause. Thus, Roth does not imply a blanket prohibition on all retroactive amendments.

The Dinas contested the amendment's retroactivity, claiming it lacked a clear intent for retroactive application. However, the court disagreed, citing the amendment's statement that "the changes made to this Section are declarative of existing law," indicating a strong intent for maximal retroactive effect. This interpretation aligns with the principles established in Maloney and Roth, which prevent the General Assembly from dictating judicial interpretations of existing statutes. While the legislature can prospectively amend judicial constructions, it cannot retroactively alter them through subsequent declarations of intent. The court emphasized that the separation of powers, as outlined in the Illinois Constitution, prohibits such retroactive interpretations by the General Assembly.

The court noted that prior amendments to the relevant statute date back to the 1980s, and the absence of a direct relationship between the amendments and the original legislative intent complicates claims of clarification. Despite conflicting interpretations from other appellate districts, the court asserted that the General Assembly lacks the authority to definitively interpret conflicting judicial decisions, a power reserved for the Illinois Supreme Court.

The court recognized that while the General Assembly's statement could serve as a declaration of retroactivity, it must be presumed constitutional, with an interpretation that reflects the legislature's true intent. The intent to grant the amendment retroactive effect was clear, and unless constitutionally objectionable, the difference between declaring an amendment as declarative of existing law and asserting it has full retroactive scope is nominal. Ultimately, while the amendment does not preclude the application of prior judicial decisions, the court chose to depart from those decisions, exercising its judicial authority.

The Dinas requested a reversal of the summary judgment and dismissal of the foreclosure action with prejudice, referencing the law-of-the-case doctrine as established in Dina I. However, the court declined this request, noting that the doctrine does not apply when there is an intervening change in the law. The court cited two recognized exceptions to the doctrine: a higher court ruling contrary to a previous decision and a finding that the prior decision was palpably erroneous. Additionally, the trial court introduced a third exception for legislative changes during appeals, suggesting that such changes have the same effect as a contrary ruling by the Illinois Supreme Court.

The court acknowledged that this third exception is supported by precedents from federal and other state courts, allowing for deviation from settled law in the event of new evidence or manifest injustice. It concluded that the legislative amendment concerning the validity of mortgages made by unlicensed lenders reflects a change in public policy, which should not enforce a forfeiture that is no longer required. 

The court affirmed that the Dinas did not possess a matured right to a lien-free interest and that declining to apply Dina I would not impose new obligations or lead to injustice. It emphasized that recognizing the intervening-change-in-law exception prevents an inequitable result and aligns with the principles of judicial consistency and separation of powers. Ultimately, the court affirmed the trial court’s judgment, indicating that it can uphold the decision on any grounds present in the record, regardless of the trial court’s reasoning.