August 14, 2018

by Masum Patel
Anselmo Lindberg & Associates, LLC – USFN Member (Illinois)

The Illinois Second District Court of Appeals issued its revised ruling in U.S. Bank Trust N.A. v. Lopez, 2018 Ill. App. (2d) 160967 on May 4, 2018. The original ruling was slated to be a victory for defendants on the issue of standing in Illinois. However, the reissued opinion reaffirms the current state of Illinois law, reestablishes the status quo concerning what has been known about standing in Illinois, and allows foreclosing lenders to breathe easier and remain confident in their current practices.

Background
Initially, the Second District reversed a Circuit Court of DuPage County ruling that struck, among other things, the defendant’s affirmative defense of lack of standing based upon the fact that the promissory note attached to the plaintiff’s complaint was specially indorsed to HUD, while the plaintiff was instead U.S. Bank Trust (as owner trustee for Queen’s Park Oval Asset Holding Trust). U.S. Bank filed a petition for rehearing, which spurred the Second District’s reversal of that original November 14, 2017 ruling.

Rehearing
Upon rehearing, the Second District withdrew its ruling and reissued a new opinion, finding that U.S. Bank did have standing to foreclose despite the note attached to its complaint being indorsed to HUD. The court based its reissued ruling on the fact that U.S. Bank amended its complaint to revise the statement of its capacity to foreclose from “legal holder” of the note to “non-holder in possession of the note with rights of a holder.” The Uniform Commercial Code (which Illinois has adopted) makes clear that a non-holder in possession with the rights of a holder can enforce a note.

Ultimately, the Second District came to the conclusion that U.S. Bank did possess the requisite capacity to foreclose. While the defendants were correct in asserting that a party must have standing at the time the suit is filed, the reissued opinion illustrates that by amending its complaint to state that it was a non-holder in possession of the note, by presenting the original note in court, and by producing an assignment of mortgage that predated the complaint, the plaintiff showed that it had standing at the time the suit was filed.

Significance
Why should lenders and servicers care? As previously stated, the original ruling positioned itself to be a sideways victory for defendants in foreclosure and would have left the issue of standing in Illinois up in the air. Now, the revised ruling reaffirms the basic and well-established notion that standing must be established at, or prior to, “first legal,” and that the correct capacity to sue must be pleaded in the complaint. While the plaintiff in Lopez later amended its complaint to correct its capacity, if it were not truly a “non-holder with the rights of a holder” at the time the case was filed, dismissal would have been proper.

Accordingly, it is vitally important to: (1) assert the appropriate capacity from the day the complaint is filed to avoid these issues altogether; and (2) ensure that any note indorsements and collateral documentation are thoroughly reviewed prior to referral and complaint filing. Failure to take caution in this review and preparation may result in a case at any stage — Lopez was post-sale confirmation — being unwound and dismissed. This can require a complete restart (or worse); a future filing is barred if Illinois’s single refiling rule is violated.

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