Appeal from the Circuit Court of Du Page County. No. 92-CH-1034. Honorable John S. Teschner, Judge, Presiding.
Released for Publication January 4, 1996. Petition for Leave to Appeal Denied April 3, 1996.
The Honorable Justice Inglis delivered the opinion of the court: McLAREN, P.j., and Geiger, J., concur.
The opinion of the court was delivered by: Inglis
The Honorable Justice INGLIS delivered the opinion of the court:
Plaintiff, Westbank, appeals an order of the circuit court of Du Page County which granted summary judgment in favor of defendant, Marie V. Maurer. The order rescinded a mortgage held by Westbank on a residence owned by defendant. We affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.
On June 7, 1991, plaintiff refinanced an existing $135,000 loan which had been made to Michael G. Sebela & Associates, Ltd., and Michael G. Sebela, personally. Michael G. Sebela & Associates, Ltd., was an Illinois corporation engaged in the business of providing legal services, and Michael G. Sebela was an attorney licensed to practice law in the State of Illinois. Mr. Sebela has subsequently been disbarred as a result of embezzling client funds for his personal use.
The original $135,000 loan had been secured by two certificates of deposit which were held by Joseph Kosik, Mr. Sebela's uncle. However, Mr. Kosik became uncomfortable with the pledge and requested that plaintiff switch the collateral on the loan to a second mortgage secured by Mr. Sebela's personal residence. However, after further research, plaintiff discovered that Mr. Sebela's personal residence was clouded by an outstanding mechanics lien which had been filed against the property. It appears that Mr. Sebela was able to convince his wife's elderly grandmother, defendant in the case at bar, to assist him by pledging her personal residence as security for the loan. Knowing of Mr. Sebela's extremely weak credit condition, plaintiff compiled little if any documentation concerning defendant's involvement prior to approving and processing the loan. No one warned defendant of the significance of her acts.
Subsequently, on June 7, 1991, plaintiff released one of Mr. Kosik's certificates of deposit in the amount of $100,000 and rewrote Mr. Sebela's loan into two separate loans. The first loan was for $35,000 and was secured by an assignment of a trust certificate in the amount of $50,000. This loan is not pertinent to the case at bar. The second loan was for $100,000 and was secured by a second mortgage on defendant's home. The $100,000 loan provided for monthly payments of $1,349.35 and was due to mature in one year.
In connection with the $100,000 loan, defendant signed the mortgage and hypothecation which granted plaintiff a mortgage on her residence. Defendant is the grandmother of Karen Sebela, Mr. Sebela's wife. At the time the mortgage was executed, defendant was 83 years old. She is now approximately 88 years old. Defendant did not sign the documents in the presence of the loan officer despite the fact that the officer wrongfully notarized the documents as if she had been in his presence. It would appear that plaintiff compiled little if any documentation regarding defendant when it granted Mr. Sebela his loan. Plaintiff further did not provide defendant with any of the disclosures enumerated in section 1635 of the Truth in Lending Act (Act) (15 U.S.C.A. § 1635 (West 1982)).
Mr. Sebela, however, signed a waiver of his disclosure rights pursuant to the Act. Defendant executed no such waiver, nor was any evidence presented to indicate that plaintiff ever requested that defendant sign such a waiver. (See Official Staff Commentary to Regulation Z, 46 Fed. Reg. 50,288 (1981) (noting that each party entitled to rescind a transaction must sign a waiver form in order for the waiver to be effective).) Nothing in the record would indicate that defendant was doing anything other than helping her granddaughter's husband in a personal situation by executing the mortgage documents.
In exchange for defendant signing the mortgage document, Mr. and Mrs. Sebela granted defendant a mortgage on their home in the amount of $100,000. However, the mortgage was not recorded until November 18, 1991. In the interim, the Sebelas obtained another loan from Ford Consumer Finance for approximately $63,000 and executed another mortgage on their residence which was recorded ahead of defendant's mortgage. Thus, defendant's mortgage on the Sebela residence was in a third position behind two previously recorded mortgages.
Plaintiff subsequently was investigated by the Federal Deposit Insurance Corporation (FDIC) and a cease and desist order was issued. The order found that plaintiff had engaged in hazardous lending practices and ordered that plaintiff take immediate steps to remedy those situations. The FDIC and the Illinois Commissioner of Banks and Trust Companies Examination Report both specifically criticized the Sebela loan for improper documentation and failure to follow proper banking procedures.
On December 11, 1992, Mr. and Mrs. Sebela filed a chapter 7 bankruptcy proceeding, and Mr. Sebela's liability on the subject loan was discharged on July 1, 1993. On July 26, 1993, Mr. Sebela also filed a bankruptcy proceeding on behalf of Michael G. Sebela & Associates. The record, however, fails to indicate whether the corporation also received a bankruptcy discharge.
On October 22, 1992, plaintiff filed the present foreclosure action against defendant. On April 12, 1993, Mr. Sebela filed an appearance for Michael Sebela, Karen M. Sebela, Marie V. Maurer (defendant), and Michael G. Sebela & Associates. On May 25, 1993, Mr. Sebela filed an answer and affirmative defenses on behalf of defendant, himself, and his law firm.
On August 23, 1993, Mr. Sebela initiated a chapter 11 bankruptcy proceeding on behalf of defendant. Subsequently, the bankruptcy court determined that there existed a conflict of interest between defendant and Mr. Sebela and required that defendant secure independent counsel. Defendant retained Joseph Vosicky to represent her in the bankruptcy proceeding. Subsequently, Mr. Vosicky filed a motion to withdraw defendant's answer in the case at bar on the basis that Mr. Sebela filed the original answer without consulting with defendant in any manner. The court allowed the motion, and on August 15, 1994, defendant filed a new answer and affirmative defense. In her affirmative defense, defendant alleged that: (1) she had not been properly joined as a defendant in the action; (2) the mortgage and hypothecation agreements were voidable in point of law; and (3) plaintiff has expended unnecessary time and expense in prosecuting the matter.
On February 1, 1995, defendant filed a motion for summary judgment seeking the rescission of the mortgage. In her motion for summary judgment, defendant argued that pursuant to the Act, she had a right to rescind the mortgage due to plaintiff's failure to provide her with proper notice documenting her rescission rights. (See 15 U.S.C.A. § 1635 (West 1982).) After hearing argument on the issue, the trial court granted defendant's motion and ordered that the mortgage entered into between plaintiff and defendant be rescinded. Further, in order to put plaintiff in the same position as it was before the mortgage was entered into, the court ordered that the mortgage in the amount of $100,000 held by defendant on the Sebelas' residence be assigned to plaintiff. The trial court further granted defendant statutory damages of $1,000 (15 U.S.C.A. § 1640 (West Supp. 1995)) but denied her request for attorney fees.
This timely appeal follows. On appeal, plaintiff argues that the trial court erred in granting summary judgment in favor of defendant, alleging that defendant did not have a right to rescind the mortgage because the loan transaction was for business and not consumer credit. Defendant cross-appeals, arguing ...