The opinion of the court was delivered by: Justice Bowman delivered the opinion of the court
Appeal from the Circuit Court of Du Page County. No. 96--CH--507
Honorable Bonnie M. Wheaton, Judge, Presiding.
Plaintiff, BCGS, foreclosed on the mortgage it held on the residential property of the mortgagor, defendant Leonard Jaster. BCGS is not a party to this appeal. At the time of foreclosure, defendant Elizabeth L. Krueger, P.C. (Krueger) held a junior lien on the property. Jaster allowed the redemption period to lapse and subsequently offered the successful bid to purchase the property at the judicial foreclosure sale. The trial court confirmed the sale, extinguished Krueger's lien, and awarded the surplus funds to Jaster. Krueger timely appeals. We affirm in part, reverse in part, and remand.
The following summary of facts is taken from the record on appeal. On June 6, 1996, BCGS filed a complaint to foreclose its mortgage executed by Jaster and his former spouse. The complaint named Jaster and Krueger, among others, as defendants; the remaining defendants are not parties to this appeal. On July 8, 1996, Krueger filed its answer, admitting that it held an interest in and an equitable right to redeem the subject property. In its answer, Krueger also requested that the trial court take an accounting of amounts due and owing to it. Krueger's interest consisted of a $33,637.70 junior lien attachment against the property, which resulted from Krueger's representation of Jaster's former spouse in a dissolution proceeding. After the dissolution, Jaster's former spouse filed for bankruptcy and eventually quit-claimed her interest in the property to Jaster.
On July 26, 1996, BCGS filed a motion for summary judgment, acknowledging Krueger's judgment lien. On August 7, 1996, Jaster filed his appearance and counterclaim. In his counterclaim, Jaster acknowledged Krueger's judgment lien on the property and requested that the trial court declare the lien on his property void and find that the lien attached only to his former spouse's property. On August 9, 1996, Jaster filed his answer to BCGS's complaint, admitting that he was in default of his mortgage obligation.
On September 4, 1996, the trial court entered its judgment of foreclosure and order of sale. The order provided that if the property was not redeemed by January 11, 1997, the expiration date for the statutory period of redemption, a judicial sale would be held. The order also provided that, the proceeds of the sale would be applied to the costs of the sale first and to BCGS second. Any surplus was to be brought into court for a determination of its Disposition. Finally, the order stated that, if the property was not redeemed and the property was sold at a judicial sale, defendants would lose all rights in the property. Also, on September 4, the trial court granted BCGS's motion for summary judgment against Krueger and Jaster.
On November 4, 1996, Krueger filed a motion to strike and dismiss Jaster's counterclaim, asserting that Jaster took possession of the property subject to all existing liens. Krueger also alleged that Jaster's counterclaim failed to state a cause of action. On December 18, 1996, BCGS filed a notice of judicial sale of real estate mortgage foreclosure which set the judicial sale for January 14, 1997. At the sale, Jaster bid $100,000 on the property and was the highest bidder. On January 21, 1997, pursuant to Jaster's motion, the trial court ordered that Jaster's motion to adjudicate Krueger's lien be withdrawn.
On January 23, 1997, Krueger filed motions to set aside the judicial sale and to waive bond. In the motion to set aside the judicial sale, Krueger alleged that it received no actual notice and that Justice was not served. On February 24, 1997, Jaster filed a motion to set aside Krueger's lien. Jaster alleged that he discovered Krueger's lien only after he received his former spouse's quitclaim deed for the property. Jaster argued that, because he is now the sole owner of the property, Krueger's lien should not encumber his interest in the property.
On February 25, 1997, Krueger filed its amended motion to set aside the sale or in the alternative to affirm its lien on the property. After a series of responsive pleadings, the trial court confirmed the judicial sale in an order dated April 30, 1997. On June 3, 1997, the trial court denied Krueger's motion to affirm its lien. Both Jaster and Krueger filed motions to receive the sale surplus. On July 11, 1997, the trial court awarded the $6,534.54 surplus to Krueger. Jaster then filed a motion to reconsider on July 23, 1997, maintaining that Krueger's junior lien was extinguished by the judicial foreclosure sale and that he should be entitled to the surplus.
In a memorandum opinion and order filed September 25, 1997, the trial court found that Jaster and his former spouse were owners of the property that was subsequently foreclosed and that Jaster, the mortgagor, was also the successful bidder at the foreclosure sale. The trial court determined that, pursuant to Kling v. Ghilarducci, 3 Ill. 2d 454 (1954), Jaster took title to the property free and clear of Krueger's lien. The trial court also found that Krueger's actions of filing an appearance and answer to the complaint were insufficient to protect its lien on the property. Finally, the trial court ordered the surplus proceeds from the property to be turned over to Jaster. Krueger timely appeals.
Krueger raises five principal contentions on appeal: (1) the trial court abused its discretion in confirming the judicial sale; (2) the trial court erred in determining that Krueger had proper notice of the judicial sale; (3) the trial court erred in confirming the sale prior to determining the priorities of the junior lienholders and ruling on Krueger's motion to affirm its lien; (4) the trial court erroneously failed to apply Hack v. Snow, 338 Ill. 28 (1929); and (5) the trial court improperly awarded the surplus proceeds to Jaster.
Krueger's first contention on appeal is that the trial court abused its discretion in confirming the judicial foreclosure sale. Krueger argues that, although the statutory redemption period had expired, Jaster's purchase constituted a redemption because he was the original mortgagor. Krueger relies on Citicorp Savings v. First Chicago Trust Co., 269 Ill. App. 3d 293 (1995), as support for the proposition that the mortgagor may redeem the property after the period of redemption. According to Krueger, Jaster was not a bona fide purchaser but an interested party with knowledge of all defects in title. Krueger asserts that Jaster, in an attempt to clear title to the property, allowed the property to go into foreclosure only so he could retake title free and clear of Krueger's lien. As a result of the trial court's confirmation of sale, Krueger was prejudiced.
Jaster replies that the trial court properly confirmed the sale. He argues that a redemption can only take place during the redemption period and, in this case, the redemption period had expired. He maintains that because the redemption period expired and his rights in the property were extinguished, he was a stranger to the proceedings and therefore a bona fide purchaser at the foreclosure sale.
In Illinois, a judicial foreclosure sale is not complete until it has been approved by the trial court. Commercial Credit Loans, Inc. v. Espinoza, 293 Ill. App. 3d 923, 927 (1997). Pursuant to section 15-- 1508(b) of the Illinois Mortgage Foreclosure Law (Mortgage Foreclosure Law), the trial court shall conduct a hearing to confirm the sheriff's sale of foreclosed property and shall enter an order confirming the sale unless it finds that "(i) a notice required in accordance with subsection (c) of Section 15--1507 was not given, (ii) the terms of sale were unconscionable, (iii) the sale was conducted fraudulently or (iv) that Justice was otherwise not done ***." 735 ILCS 5/15-1508(b) (West 1996). The disapproval of a sale is warranted upon a showing of unfairness that prejudices an interested party. Espinoza, 293 Ill. App. 3d at 927, citing Citicorp Savings v. First Chicago Trust Co., 269 Ill. App. 3d 293, 300 (1995). A trial court exercises broad discretion in approving or disapproving a judicially mandated sale. Fleet Mortgage Corp. v. Deale, 287 Ill. App. 3d 385, 388 (1997).
In this case, the trial court did not abuse its discretion in confirming the judicial sale. Neither section 15--1508(b) nor any other statute or judicial decision requires that the purchaser at a judicial sale shall not have notice of the outstanding rights of others in order to take title free and clear of those rights. Section 15--1509(c) of the Mortgage Foreclosure Law (735 ILCS 5/15-1509(c) (West 1996)) expressly provides that all outstanding claims on property that has been the subject of a foreclosure and sale pursuant to the law are extinguished. The purchaser of such property, therefore, takes the property free of such claims, regardless of his knowledge of the claims.
The fact that Jaster had knowledge of Krueger's lien does not distinguish him from other potential purchasers of the property. Krueger's lien was recorded. Therefore, all purchasers would be deemed to have constructive notice of its lien. See Pacemaker Food Stores, Inc. v. Seventh Mont Corp., 117 Ill. App. 3d 636, ...