Wells Fargo Bank, N.A. v. McCluskey

ILLINOIS OFFICIAL REPORTS
Supreme Court

Wells Fargo Bank, N.A. v. McCluskey, 2013 IL 115469

Caption in Supreme WELLS FARGO BANK, N.A., Appellant, v. KATIE McCLUSKEY,
Court: Appellee.

Docket No. 115469

Filed November 21, 2013

Held Where vacation of a default judgment of mortgage foreclosure and a
(Note: This syllabus setting aside of the judicial sale is sought, civil procedure law may be
constitutes no part of utilized prior to a motion to confirm the sale, but not after, when the more
the opinion of the court restrictive foreclosure statute governs—denial of relief to debtor upheld
but has been prepared under even the more liberal civil procedure law.
by the Reporter of
Decisions for the
convenience of the
reader.)

Decision Under Appeal from the Appellate Court for the Second District; heard in that
Review court on appeal from the Circuit Court of Du Page County, the Hon.
Robert G. Gibson, Judge, presiding.

Judgment Appellate court judgment reversed.
Circuit court judgment affirmed.
Counsel on James V. Noonan and Michael H. Walsh, of Noonan & Lieberman, Ltd.,
Appeal of Chicago, for appellant.

Julia Topik and Mark A. Laws, both of Chicago, and Lloyd Brooks, of
Matteson, for appellee.

Justices JUSTICE THEIS delivered the judgment of the court, with opinion.
Chief Justice Garman and Justices Freeman, Kilbride, Karmeier, and
Burke concurred in the judgment and opinion.
Justice Thomas took no part in the decision.

OPINION

¶1 In this residential mortgage foreclosure action, we are asked to consider whether, after
a judicial sale of property, a party may seek to vacate an underlying default judgment of
foreclosure under section 2-1301(e) of the Code of Civil Procedure (the Code) (735 ILCS
5/2-1301(e) (West 2010)) or whether the Illinois Mortgage Foreclosure Law (the Foreclosure
Law) (735 ILCS 5/15-1101 et seq. (West 2010)) governs the mode of procedure. For the
reasons that follow, we hold that after a motion to confirm the judicial sale has been filed,
the Foreclosure Law governs.

¶2 BACKGROUND
¶3 In 2009, Katie McCluskey executed a promissory note in the principal amount of
$330,186 secured by a mortgage on her home. The mortgage was held by Wells Fargo Bank,
N.A. McCluskey subsequently defaulted on the loan obligation. In July 2010, Wells Fargo
initiated foreclosure proceedings pursuant to the Foreclosure Law. McCluskey was served
with process on July 20, 2010, but did not answer or otherwise plead. Thereafter, on October
18, 2010, the circuit court entered an order of default and judgment of foreclosure. The
judgment indicated that the statutory period of redemption would expire on February 20,
2011, after which time the property would be sold.
¶4 On February 24, 2011, seven months after the judgment of foreclosure was entered, and
on the date set for judicial sale, McCluskey, through counsel, filed an emergency motion to
stay the sale and to vacate the default judgment. Therein, she acknowledged service of
process and that she was in default on the loan. She explained that she diligently sought a
loan forbearance or loan modification agreement with the bank, but was unable to reach an
agreement. She further explained that her husband had obtained new employment and was
now able to make the monthly payments on their mortgage. At the hearing on the motion, the

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 parties settled on an agreed order pursuant to which McCluskey withdrew her motion to
vacate the default judgment, and Wells Fargo agreed to postpone the judicial sale for 75 days
to allow McCluskey to negotiate a loan modification agreement with the bank.
¶5 Negotiations on the loan were unsuccessful and, on May 12, 2011, the rescheduled date
for the judicial sale, Wells Fargo was the successful bidder on the property at a purchase
price of $235,985.69. On May 26, 2011, 10 months after the judgment of foreclosure,
McCluskey, through new counsel, filed a new motion to vacate the default judgment and set
aside the sale pursuant to section 2-1301(e) of the Code. Therein, McCluskey alleged for the
first time that she had meritorious defenses to the complaint, including that (1) the affidavit
in support of the judgment of foreclosure was not in compliance with the requirements of
Supreme Court Rule 191 because the loan officer did not have personal knowledge of the
facts of the case; and (2) evidence existed that Wells Fargo was not the current holder of the
note and, therefore, lacked standing to bring suit.
¶6 On August 30, 2011, following a hearing, the circuit court denied McCluskey’s motion
to vacate, finding that she had waived her objections to the default and had voluntarily
withdrawn her original motion in return for the postponement of the judicial sale. Since she
had received the benefit of the parties’ agreement, and had agreed that the sale could go
forward on the postponed date absent an agreement on the loan negotiations, the court
determined that she could not now seek to rescind her agreement. Additionally, the court
entered an order, over McCluskey’s objection, confirming the judicial sale and finding that:
(1) all notices required by the Foreclosure Law were given; (2) the sale was fairly and
properly made; (3) the sale proceeded in accordance with the terms of the court’s judgment;
and (4) justice was done. McCluskey filed her notice of appeal, challenging the court’s ruling
on the motion to vacate the default judgment. She did not challenge the order confirming the
sale of the property. Thereafter, her motions to stay the execution of the judgment were
denied in both the circuit court and appellate court.
¶7 On appeal, McCluskey argued that the circuit court abused its discretion in denying her
motion to vacate the judgment of foreclosure. Wells Fargo maintained that the motion to
vacate the default pursuant to section 2-1301(e) of the Code conflicted with section 15-
1508(b) of the Foreclosure Law, which governs the mode of procedure for confirming a
judicial sale. In support, Wells Fargo relied upon Mortgage Electronic Registration Systems,
Inc. v. Barnes, 406 Ill. App. 3d 1 (2010). Barnes held that the Foreclosure Law takes
precedence over any inconsistent statutory provisions, and that a borrower could not utilize
section 2-1301(e) to circumvent section 15-1508(b) of the Foreclosure Law after the motion
to approve the sale had been filed because section 15-1508(b) limits the court’s discretion
to refuse confirmation of the sale to four specified grounds and is therefore more restrictive
than section 2-1301(e). Id. at 4-5.
¶8 The appellate court reversed, rejecting Barnes, and, instead, relying upon Merchants
Bank v. Roberts, 292 Ill. App. 3d 925 (1997), held that the Foreclosure Law does not
preclude the circuit court from granting relief under section 2-1301(e) following a judicial
sale if the movant can present a compelling excuse for lack of diligence, as well as a
meritorious defense to the underlying judgment. 2012 IL App (2d) 110961, ¶ 13. The court
remanded the matter to the circuit court to exercise its discretion and consider McCluskey’s

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 motion under the standards applicable to section 2-1301(e) of the Code. 2012 IL App (2d)
110961, ¶ 18. We allowed Wells Fargo’s petition for leave to appeal. Ill. S. Ct. R. 315 (eff.
Feb. 26, 2010).

¶9 ANALYSIS
¶ 10 Wells Fargo contends that the appellate court erred in holding, contrary to Barnes, that
a borrower may seek to vacate a default judgment of foreclosure, after the judicial sale, under
the standards of section 2-1301(e) of the Code. The resolution of this conflict involves the
relationship between section 2-1301(e) of the Code (735 ILCS 5/2-1301(e) (West 2010)) and
section 15-1508(b) of the Foreclosure Law (735 ILCS 5/15-1508(b) (West 2010)). The issue
is one of statutory construction, a question of law, which we review de novo. LaSalle Bank
National Ass’n v. Cypress Creek 1, LP, 242 Ill. 2d 231, 237 (2011).
¶ 11 Section 2-1301(e) of the Code sets forth the terms under which the court may exercise
its discretion to set aside any default, and the terms under which it may entertain that motion:
“The court may in its discretion, before final order or judgment, set aside any default,
and may on motion filed within 30 days after entry thereof set aside any final order
or judgment upon any terms and conditions that shall be reasonable.” 735 ILCS 5/2-
1301(e) (West 2010).
¶ 12 Section 2-1301(e) is generally available “to seek relief from any nonfinal order of default
or default judgment or from a final default judgment within 30 days of its entry.” 4 Richard
A. Michael, Illinois Practice § 42:5, at 516 (2d ed. 2011). In the context of a mortgage
foreclosure proceeding, it is well settled that in the absence of a Supreme Court Rule 304(a)
finding in the judgment of foreclosure, “it is the order confirming the sale, rather than the
judgment of foreclosure, that operates as the final and appealable order in a foreclosure
case.” EMC Mortgage Corp. v. Kemp, 2012 IL 113419, ¶ 11. Accordingly, a motion to
vacate a default judgment of foreclosure brought before the order confirming the sale or
within 30 days thereafter would be timely.
¶ 13 Wells Fargo initially maintains that to allow a motion to vacate a default judgment of
foreclosure after the judicial sale has taken place, even if the motion is timely, would be
inconsistent with the procedures set forth in section 15-1508(b) of the Foreclosure Law,
which govern the confirmation of judicial sales.
¶ 14 Section 15-1508(b) of the Foreclosure Law provides:
“Upon motion and notice in accordance with court rules applicable to motions
generally, which motion shall not be made prior to sale, the court shall conduct a
hearing to confirm the sale. Unless the court finds that (i) a notice [of the sale] ***
was not given, (ii) the terms of sale were unconscionable, (iii) the sale was conducted
fraudulently or (iv) that justice was otherwise not done, the court shall then enter an
order confirming the sale.” 735 ILCS 5/15-1508(b) (West 2010).
¶ 15 In considering the laws governing the interplay between these two procedural statutes,
article II, section 1-108(a), of the Code provides in pertinent part that “[t]he provisions of
Article II *** apply to all proceedings covered by Articles III through XIX of this Act except

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 as otherwise provided in each of the Articles III through XIX, respectively.” 735 ILCS 5/1-
108(a) (West 2010). Article XV, which governs the Foreclosure Law, provides that generally
article II governs the mode of procedure, but if inconsistent with the provisions of the
Foreclosure Law, then the Foreclosure Law controls. 735 ILCS 5/15-1107(a) (West 2010);
Teerling Landscaping, Inc. v. Chicago Title & Trust Co., 271 Ill. App. 3d 858, 866 (1995).
Thus, we must determine whether the standards applicable to a motion to vacate a default
judgment under section 2-1301(e) are inconsistent with the sale confirmation procedures set
forth in section 15-1508(b) of the Foreclosure Law.
¶ 16 Generally, a liberal policy exists with respect to vacating defaults under section 2-
1301(e). In re Haley D., 2011 IL 110886, ¶ 69; 4 Richard A. Michael, Illinois Practice
§ 42:5, at 515 (2d ed. 2011) (the motion is “marked by a liberal policy toward the vacation
of default judgments, and imposes few requirements to sustain a determination in the
defendant’s favor”). A default has been described as an action taken to punish for disobeying
the court’s command and “should only be condoned when, as a last resort, it is necessary to
give the plaintiff his just demand.” Widicus v. Southwestern Electric Cooperative, Inc., 26
Ill. App. 2d 102, 109 (1960). As this court has observed, when a court is presented with a
request to set aside a default, the overriding question is “whether or not substantial justice
is being done between the litigants and whether it is reasonable, under the circumstances, to
compel the other party to go to trial on the merits.” Haley D., 2011 IL 110886, ¶ 69.
Although relevant, the party need not necessarily show a meritorious defense and a
reasonable excuse for failing to timely assert such defense. Id. ¶ 57. “What is just and proper
must be determined by the facts of each case, not by a hard and fast rule applicable to all
situations regardless of the outcome.” Widicus, 26 Ill. App. 2d at 109.
¶ 17 In the context of a typical motion to vacate a default, the plaintiff files a cause of action,
the defendant fails to appear or otherwise plead, and the court ultimately enters a default
judgment. Within 30 days of its issuance, the defendant moves to vacate it. In exercising its
discretion, the court balances the severity of the penalty and the attendant hardship on the
plaintiff if required to proceed to a trial on the merits. See, e.g., Venzor v. Carmen’s Pizza
Corp., 235 Ill. App. 3d 1053, 1057-58 (1992).
¶ 18 Nevertheless, a party seeking to vacate a default judgment of foreclosure after the judicial
sale of the mortgaged property necessarily must also seek to set aside the judicial sale. Under
the Foreclosure Law, after a judicial sale and a motion to confirm the sale has been filed, the
court’s discretion to vacate the sale is governed by the mandatory provisions of section 15-
1508(b). See Household Bank, FSB v. Lewis, 229 Ill. 2d 173, 179 (2008) (holding that the
court’s exercise of discretion under the mandatory terms of section 15-1508(b) is triggered
when invoked by a motion to confirm the sale). Pursuant to section 15-1508(b), upon motion
and notice, the court shall confirm the sale unless the court finds that: (i) proper notice of the
sale was not given; (ii) the terms of the sale were unconscionable; (iii) the sale was
conducted fraudulently; or (iv) justice was otherwise not done. 735 ILCS 5/15-1508(b) (West
2010). Thus, a party seeking to set aside the sale at that point is limited to the three specified
grounds related to defects in the sale proceedings, or to the fourth ground, that “justice was
otherwise not done.” 735 ILCS 5/15-1508(b) (West 2010).
¶ 19 What constitutes an injustice under section 15-1508(b)(iv) is not expressly defined in the

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 statute. 735 ILCS 5/15-1508(b)(iv) (West 2010). This court has not had occasion to construe
the extent of the trial court’s discretion under the justice provision or the standards by which
the court assesses whether justice was done in this context. Nevertheless, it appears to merely
codify the long-standing discretion of the courts of equity to refuse to confirm a judicial sale.
See Levy v. Broadway-Carmen Building Corp., 366 Ill. 279, 288 (1937). Long before the
codification of the Foreclosure Law, courts have retained the power to vacate a sale where
unfairness is shown that is prejudicial to an interested party. Evans v. Hunold, 393 Ill. 195,
199 (1946) (“Where fraud or unfairness is shown from any source which operates to the
prejudice of an interested party, a court of chancery is abundantly justified in refusing to
approve a sale.”). However, the contours of that discretion have been described as “not a
mere arbitrary discretion but must be exercised in accordance with established principles of
law.” Shultz v. Milburn, 366 Ill. 400, 403 (1937). It was explained that in the absence of
fraud or irregularity, courts would not refuse to confirm a judicial sale merely to protect an
interested party “against the result of his own negligence.” Id. at 405.
¶ 20 In the appellate court cases that have considered the justice provision under 15-
1508(b)(iv), the court has balanced the interests of the parties and exercised its equitable
authority to vacate a sale, applying traditional equitable principles. For example, in Fleet
Mortgage Corp. v. Deale, 287 Ill. App. 3d 385 (1997), the court found that where the lender
mistakenly proceeded with a foreclosure sale after the borrowers had exercised their right to
redeem and sold the property to another party for the full judgment amount, the borrowers’
right to redeem was impacted. After balancing the conflicting interests involved, the court
held that the trial court did not err in finding that justice was not otherwise done where the
lender’s error prevented the borrowers from pursuing their redemption rights. Id. at 386-87.
The court recognized the import of requiring stability in judicial sales, but found that interest
could not be given ascendancy over protecting the redemption rights of the mortgagors. Id.
at 389.
¶ 21 In Commercial Credit Loans, Inc. v. Espinoza, 293 Ill. App. 3d 923 (1997), the appellate
court affirmed the trial court’s finding that justice was not otherwise done where, coupled
with a sales price that represented one-sixth of the property’s proven, fair market value, the
lender’s conduct in repeatedly ignoring the borrower’s requests about what steps she should
take to redeem the property prevented her from pursuing her right to redeem. Id. at 927.
¶ 22 In both Deale and Espinoza, it was the lender’s conduct that prevented the borrowers
from protecting their interest in the property and affected their right to redeem the property,
which underpinned the court’s finding of injustice under section 15-1508(b). In contrast, the
court in Bayview Loan Servicing, LLC v. 2010 Real Estate Foreclosure, LLC, 2013 IL App
(1st) 120711, held that an intervenor did not meet its burden to show that justice was not
done under section 15-1508(b) where its complained-of error was the result of the
intervenor’s own negligence. Id. ¶ 40.
¶ 23 Although in both a proceeding to vacate a default judgment under section 2-1301(e) and
a section 15-1508(b) hearing, justice is the driving force; it is the nature, procedural posture,
and the facts and circumstances of the case that inform the court’s equitable discretion and
understanding of whether justice is being done. Therefore, our consideration of whether a
section 2-1301(e) proceeding is inconsistent with a section 15-1508(b) proceeding is

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 informed by the statutory framework of the Foreclosure Law, looking at the statute as a
whole. Wisnasky-Bettorf v. Pierce, 2012 IL 111253, ¶ 16 (a statute should be evaluated as
a whole and each provision should be construed in connection with every other section).
¶ 24 The General Assembly has set out a carefully crafted procedural process to balance the
competing interests of the lender in enforcing its security interest as efficiently as possible,
and the competing interests of the borrower in attempting to protect her equity in the
property. Where a judgment of foreclosure is entered, the procedural framework culminates
in the confirmation of sale and possession of the property. Each step in the foreclosure action
seeks to “terminate legal and equitable interests in real estate” (735 ILCS 5/15-1203 (West
2010)), while additionally providing specific built-in protections to the borrower’s equity in
the property. These protections include time allotted for the right to reinstatement of the
mortgage (735 ILCS 5/15-1602 (West 2010)), the equitable and statutory rights of
redemption (735 ILCS 5/15-1603(b), 15-1605 (West 2010)), and notice of the judicial sale
(735 ILCS 5/15-1507(c) (West 2010)). Once a judgment of foreclosure has been entered and
the borrower’s reinstatement and redemption rights have expired, the property shall be sold
at a foreclosure sale unless the lender agrees to accept other terms. 735 ILCS 5/15-1603(h),
15-1507(a) (West 2010).
¶ 25 As this statutory framework reveals, once a motion to confirm the sale under section 15-
1508(b) has been filed, the court has discretion to see that justice has been done, but the
balance of interests has shifted between the parties. At this stage of the proceedings,
objections to the confirmation under section 15-1508(b)(iv) cannot be based simply on a
meritorious pleading defense to the underlying foreclosure complaint. To allow the borrower
to utilize the standards of a section 2-1301(e) motion to both set aside the judicial sale and
also unravel the underlying foreclosure judgment—after being given ample statutory
opportunity to respond to the allegations of the complaint, and after being fully informed of
the court process—would indeed be inconsistent with the need to establish stability in the
judicial sale process. See Household Bank, 229 Ill. 2d at 181-82 (recognizing the need to
promote stability in the conduct of judicial sales). Furthermore, it would allow the borrower
to circumvent the time limitations for redemption and reinstatement and essentially allow for
a revival of those provisions that is otherwise explicitly precluded by the Foreclosure Law.
735 ILCS 5/15-1603(c)(1) (West 2010) (“Once expired, the right of redemption *** shall not
be revived.”).1 Rather, the justice provision under section 15-1508(b)(iv) acts as a safety
valve to allow the court to vacate the judicial sale and, in rare cases, the underlying
judgment, based on traditional equitable principles. Consequently, we find that the more
liberal standards applicable to a motion to vacate a default judgment under section 2-1301(e)

1
Additionally, we note that the new supreme court rules on mortgage foreclosure aim to
alleviate many of the problems arising with regard to potential pleading defects in the underlying
foreclosure proceeding, thereby resolving these issues at the earliest possible time. See, e.g., Ill. S.
Ct. R. 113(b) (eff. May 1, 2013) (requiring “a copy of the note, as it currently exists, including all
indorsements and allonges,” to be attached to the complaint at the time of filing); Ill. S. Ct. R. 113(c)
(eff. May 1, 2013) (adopting new rules governing the form and content of the affidavit of
indebtedness and providing a model prove-up affidavit).

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 are inconsistent with the more restrictive sale confirmation procedures set forth in section
15-1508(b) of the Foreclosure Law.
¶ 26 To vacate both the sale and the underlying default judgment of foreclosure, the borrower
must not only have a meritorious defense to the underlying judgment, but must establish
under section 15-1508(b)(iv) that justice was not otherwise done because either the lender,
through fraud or misrepresentation, prevented the borrower from raising his meritorious
defenses to the complaint at an earlier time in the proceedings, or the borrower has equitable
defenses that reveal he was otherwise prevented from protecting his property interests. After
a motion to confirm the sale has been filed, it is not sufficient under section 15-1508(b)(iv)
to merely raise a meritorious defense to the complaint. See, e.g., Barnes, 406 Ill. App. 3d at
4-5; Nationwide Advantage Mortgage Co. v. Ortiz, 2012 IL App (1st) 112755, ¶ 26;
Deutsche Bank National Trust Co. v. Snick, 2011 IL App (3d) 100436, ¶ 9 (court held it was
far too late to assert the defense of standing where the plaintiff had already moved for
confirmation of the judicial sale). This interpretation is consistent with the legislative policy
of balancing the competing objectives of efficiency and stability in the sale process and
fairness in protecting the borrower’s equity in the property and preserving the integrity of the
sale. Household Bank, 229 Ill. 2d at 181-82.
¶ 27 Accordingly, we hold that up until a motion to confirm the judicial sale is filed, a
borrower may seek to vacate a default judgment of foreclosure under the standards set forth
in section 2-1301(e). Traditional considerations of due diligence and whether there is a
meritorious defense will remain relevant in the court’s consideration of whether substantial
justice has been done between the parties and whether it is reasonable to vacate the default.
However, after a motion to confirm the judicial sale has been filed, a borrower seeking to set
aside a default judgment of foreclosure may only do so by filing objections to the
confirmation of the sale under the provisions of section 15-1508(b).
¶ 28 In reaching our holding, we find the appellate court misconstrued both Barnes and
Roberts. In rejecting Barnes, the appellate court misread section 15-1107(a) of the
Foreclosure Law, which provides that any inconsistent provisions of the Code shall not apply
to the Foreclosure Law, as applying only to nonmortgage liens and encumbrances. 2012 IL
App (2d) 110961, ¶ 12. Although the appellate court purported to follow Roberts, the court
in Roberts was not asked to set aside the underlying judgment of foreclosure, or to consider
the inconsistencies between a section 2-1301(e) proceeding and a section 15-1508(b) hearing.
The court in Roberts ultimately remanded for a hearing under section 15-1508(b), which is
consistent with our analysis today. Roberts, 292 Ill. App. 3d at 931-32.
¶ 29 After resolving the interplay between these two procedural statutes, we next apply the
principles to the facts in this case. Here, the record reveals that McCluskey filed her motion
to vacate the judgment of foreclosure on May 26, 2011, two weeks after the judicial sale.
However, at the time she filed her motion, Wells Fargo had not yet sought to confirm the
sale. Wells Fargo maintains that this fact should not change our analysis because it argues
that the sale marks the point where the borrower is divested of her property rights and that
once divested of those rights, it would be inconsistent with the Foreclosure Law to allow the
borrower to vacate the underlying judgment of foreclosure. We disagree.

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¶ 30 Section 15-1404 of the Foreclosure Law provides that the interests of the borrower are
terminated by the judicial sale, “provided the sale is confirmed.” 735 ILCS 5/15-1404 (West
2010). Thus, it is the confirmation of the sale that ultimately divests the borrower of her
property rights. Where the mandatory provisions of section 15-1508(b) had not yet been
triggered under the statute, it was not inconsistent with the Foreclosure Law for the court to
entertain a motion to vacate the judgment of foreclosure under the standards of section 2-
1301(e). See 735 ILCS 5/15-1107(a) (West 2010).
¶ 31 Nevertheless, even under the standards for vacating a default under section 2-1301(e),
we find the circuit court did not err in denying McCluskey’s motion. The record reveals that
despite being properly served, as well as having notice of the default, notice of the judgment
of foreclosure, and notice of the sale, McCluskey waited 10 months after the default
judgment and after the sale to raise her pleading defenses for the first time. Moreover, she
actively participated in the proceedings, admitting that she defaulted on the loan and seeking,
through counsel, to stay the sale to negotiate a loan modification. Where she had ample
opportunity to raise the alleged pleading defects, chose not to pursue them, actively
participated in the proceedings, and admitted the default, the circuit court did not err in
denying her motion to vacate the default judgment of foreclosure.

¶ 32 CONCLUSION
¶ 33 For all of the foregoing reasons, we reverse the judgment of the appellate court and
affirm the judgment of the circuit court.

¶ 34 Appellate court judgment reversed.
¶ 35 Circuit court judgment affirmed.

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