Page 41 - Sharp-Hundley 2012

Mortgage Law Roundup

Sharp Thinking

No. 76 Perspectives on Developments in the Law from The Sharp Law Firm, P.C. November 2012

Forbearance Agreements Are Enforceable, Court Rules

Forbearance agreements, including waivers of defenses and other concessions which the lender
sought in exchange for forbearing, are legally enforceable, even against consumers, a panel of the
Illinois Appellate Court has ruled.

In Eastern Savings Bank, FSB v. Flores, 2012 IL App (1st) 112979, plaintiff had commenced a
mortgage foreclosure suit and allegedly effected service which defendant later claimed was defective.
As a part of loan modification negotiations, lender and defendant entered into a forbearance
agreement under which plaintiff agreed to suspend the foreclosure if defendant made certain
payments; upon the payment of those payments, the loan was to be modified. However, the
agreement further provided that if it was not so performed defendant waived all “defenses, set-offs, or
counterclaims to any foreclosure proceeding except as to the non-existence of a default under this
agreement” and that she “consent[ed] to the entry of foreclosure judgment and any foreclosure sale
that may be conducted by lender in the event that Borrower defaults”.

After defendant defaulted, she tried to avoid the forbearance agreement and to contest the service
that had allegedly been made. However, the appellate panel found that contest
barred by the waivers in the forbearance agreement. “This court has . . . made
clear that ‘Illinois (law) permits a party to contractually waive all defenses,’” the
court wrote, rejecting an attempt to limit previous authority to sophisticated
commercial entities. “[T]he waiver of defenses and the acknowledgment of
service of process are valuable consideration that a lender seeks in exchange for
entering into a forbearance agreement, and for these provisions not to be enforced would diminish
the incentive for lenders to enter into forbearance agreements,” it said. “[T]he forbearance agreement
does not conflict with the public policy of Illinois.”

Caveat Emptor: § 2-1401 Applies to Plaintiff’s Motion to Vacate Sale

Section 2-1401 of the Illinois Code of Civil Procedure (735 ILCS 5/2-1401) applies when a
plaintiff/judgment creditor has “buyer’s remorse” and seeks to vacate the foreclosure sale through
which it acquired the subject property, an Illinois Appellate Court panel has held.

Among other things, that means that when the motion to vacate the sale is brought more than 30
days after confirmation of the sale, the plaintiff must “allege[] facts that would have prevented entry of
the judgment if they had been known by the trial court,” said the court in CitiMortgage, Inc. v. San
Juan, 2012 IL App (1st) 110626.

At issue there was an apartment unit in a cooperative that was undergoing conversion to a
condominium. It appears that plaintiff and/or its counsel lacked a grasp of the nature of the former,
and that they did not communicate about the latter. The result was that after the sale was confirmed,

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Sharp Thinking is an occasional newsletter of The Sharp Law Firm, P.C. addressing developments in the law which may be of interest. Nothing contained in Sharp
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