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Get the Personal Deficiency Judgment or Be Twice Vexed

00089063     By Erin Showerman

It has long been the law in Illinois that a mortgagee may pursue a foreclosure action and bring a lawsuit on the note consecutively or concurrently. Farmer City State Bank v. Champaign National Bank, 138 Ill. App. 3d 847 (1985). The principle has been useful to lenders seeking to circumvent foreclosure obstacles by separately filing a foreclosure and a claim for recovery on the note. However, a recent appellate court case has held that lenders who fail to obtain a deficiency judgment after asserting their right to one in a foreclosure action are barred from later seeking a deficiency judgment on the underlying note.

In LSREF2 Nova Investments III, LLC v. Michelle Coleman, the lender filed a complaint to foreclose its mortgage and obtained a judgment of foreclosure and sale that stated that it was entitled to a deficiency judgment against Coleman. Nonetheless, when the foreclosure court confirmed the judicial sale of the property the order only provided for an in rem deficiency judgment instead of a personal deficiency judgment. LSREF2 then filed a complaint seeking to enforce the promissory note against Coleman.

Coleman moved to dismiss the suit arguing that it was barred by the doctrine of res judicata. The appellate court agreed finding that the complaint to foreclose the mortgage explicitly sought a personal deficiency judgment against Coleman, that the Illinois Mortgage Foreclosure Law (“IMFL”) allowed for a personal money judgment to be entered against a defendant in a foreclosure action and that the judgment of foreclosure and sale entitled the lender to a deficiency judgment after the sale of the property. LSREF2 Nova Investments III, LLC v. Coleman, 2015 IL App (1st) 140184, ¶14-15. The lender’s failure to obtain an in personam deficiency judgment as requested in the foreclosure complaint barred its ability to recover the amount of the deficiency in a separate suit because the claim for deficiency could have been decided in the foreclosure action. Id. at ¶16.

The appellate court based its reasoning on the Illinois Supreme Court decision Skolnik v. Petella, a factually similar matter where the court found that “neither the parties nor the courts may be twice vexed with the same cause of action.” Skolnik v. Patella, 376 Ill. 500 (1941). Lenders should be careful to properly assert and protect their right to a personal deficiency judgment in a foreclosure action by complying with the requirements of the IMFL and local rules or risk losing the ability to pursue it in a later suit.

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