Aurora Loan Services, Inc. v. Craddieth

• Decision Date: 31 March 2006
• Docket Number: No. 05-1858.,05-1858.
• Citation: 442 F.3d 1018
• Parties: AURORA LOAN SERVICES, INC., Plaintiff, v. Frank CRADDIETH and Peggy Craddieth, Defendants-Appellees. Appeal of: Midwest Real Estate Investment Company, Intervenor-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

442 F.3d 1018

AURORA LOAN SERVICES, INC., Plaintiff, v. Frank CRADDIETH and Peggy Craddieth, Defendants-Appellees.

Appeal of: Midwest Real Estate Investment Company, Intervenor-Appellant.

No. 05-1858.

United States Court of Appeals, Seventh Circuit.

Argued October 24, 2005.

Decided March 31, 2006.

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Elizabeth K. Meyers, Fisher & Fisher, Chicago, IL, for Plaintiff.

Andrew R. Greene (argued), Sonnenschein, Nath & Rosenthal, Chicago, IL, for Defendants-Appellees.

Arthur W. Friedman (argued), Miller, Shakman & Hamilton, Chicago, IL, for Intervenor-Appellant.

Before POSNER, WILLIAMS, and SYKES, Circuit Judges.

POSNER, Circuit Judge.

This appeal by Midwest Real Estate Investment Company arises out of a diversity suit to foreclose a mortgage that Aurora, the plaintiff, owned on the Craddieths' home. The substantive issues are governed by Illinois law.

The suit was filed, and a foreclosure judgment entered, in 1999. But for reasons that are unclear, the foreclosure sale was not conducted until October 2004. Midwest was the high bidder, bidding $107,818.44. (The appraised value of the property was $170,000.) However, two or three weeks before the sale the Craddieths had obtained alternative financing that would have enabled them to retain their home: They had arranged for a loan in the form of a sale. They would sell their home to a third party pursuant to an installment land contract that provided that the "buyer" would hold the title to the property until the Craddieths had made their final payment of the sale price, that is, had fully repaid the loan, at which point the title would revert the Craddieths.

On the morning of the day of the foreclosure sale, the Craddieths' lawyer notified the court that his clients had made an alternative arrangement for paying back Aurora. But he mistakenly described the alternative as a "real" sale of the home to someone other than Midwest, rather than as a financing arrangement that would allow the Craddieths to keep their home. The judge, thinking that therefore the Craddieths were "going to be out of their house no matter what," refused to stop the foreclosure sale, at which Midwest was the high bidder. Midwest tendered the $107,818.44 purchase price to the court official who had conducted the sale, and the official issued Midwest a certificate of sale.

But before Midwest could take title to the property the foreclosure sale had to be confirmed by the district court. On November 16 the district judge convened a hearing on Aurora's motion to confirm the sale to Midwest. At the hearing, at which Midwest was not present, it was revealed that the Craddieths had indeed found a lender who was willing to pay the amount due Aurora on the mortgage. So, on December 21, the judge denied Aurora's motion to confirm the sale.

Eight days later, Midwest moved the district court for leave to intervene in the foreclosure suit under Rule 24(a) of the Federal Rules of Civil Procedure. Without ruling on the motion, the judge vacated the foreclosure judgment, explaining "I'm not going to allow this poor man who has lost his house due to a fault of attorney problems and now he's willing to pay the amount—he's lived there 23 years—just his house to be basically taken away from him." For what had seemed inevitable to the judge—the loss of the Craddieths' home either to Midwest or to the substitute "buyer"—now seemed preventable. Later, the Craddieths' lender having paid off Aurora's mortgage, the judge dismissed the foreclosure suit, whereupon he also dismissed all pending motions, including Midwest's motion to intervene, on the ground that they were moot in light of that dismissal.

So Midwest has appealed; but it must overcome a series of jurisdictional obstacles before we can consider the merits of the appeal. There is first a question whether Midwest had standing to intervene in the district court under Rule 24(a)(2) of the civil rules. (There is no contention that it might qualify for intervention as a matter of right under Rule 24(a)(1), and we need not consider whether it might have a compelling case for permissive intervention, under Rule 24(b).) If it did not have standing, it has no right to appeal the dismissal of the suit. "The standing Article III requires must be met by persons seeking appellate review, just as it must be met by persons appearing in courts of first instance." Arizonans for Official English v. Arizona, 520 U.S. 43, 64, 117 S.Ct. 1055, 137 L.Ed.2d 170 (1997); see also Diamond v. Charles, 476 U.S. 54, 68, 106 S.Ct. 1697, 90 L.Ed.2d 48 (1986); Korczak v. Sedeman, 427 F.3d 419 (7th Cir.2005); Tachiona v. United States, 386 F.3d 205, 211 (2d Cir.2004).

Rule 24(a)(2) entitles a person to intervene who "claims an interest relating to the property or transaction which is the subject of the action," provided that the outcome of the suit would impair his ability to protect that interest and his interest is not adequately protected by an existing party. There was no doubt that Midwest's ability to protect its interest in acquiring the Craddieths' house would be impaired unless it intervened and that no existing party to the foreclosure suit would protect Midwest's interest—Aurora was indifferent (it was going to be paid in full either by Midwest or by the Craddieths' new lender) and the Craddieths opposed. The question is whether Midwest had the kind of "interest" that Rule 24(a)(2) requires.

To be entitled to intervene under that provision, with the full rights of a party including (critically in this case) the right to appeal, the applicant's interest must be one on which an independent federal suit could be based, consistent with Article III's requirement that only a case or controversy can be litigated in a federal court at any stage of the proceeding. Arizonans for Official English v. Arizona, supra, 520 U.S. at 64-65, 117 S.Ct. 1055; Korczak v. Sedeman, supra, 427 F.3d at 421-22. The interest must be a claim to a legally protected right that is in jeopardy and can be secured by the suit. E.g., Tachiona v. United States, supra, 386 F.3d at 211; City of Cleveland v. Nuclear Regulatory Commission, 17 F.3d 1515, 1516-17 (D.C.Cir.1994) (per curiam). The principle is one of federal law but the nature and extent of the interest that a foreclosure-sale certificate confers, and therefore whether it can be the ground of a federal suit, depend on the law that defines the rights that such a certificate creates. FMC Corp. v. Boesky, 852 F.2d 981, 993 (7th Cir.1988); Bochese v. Town of Ponce Inlet, 405 F.3d 964, 981 (11th Cir.2005); Cantrell v. City of Long Beach, 241 F.3d 674, 684 (9th Cir.2001). In this case, that is the law of Illinois. So we look to that law to see whether the holder of the certificate has the kind of stake that Article III requires.

The right that the certificate confers resembles the right created by a contract for the purchase of land. Such a contract does not confer ownership of the land, but normally one can bring a suit for specific performance if the seller reneges, and the suit if successful will compel the seller to hand over to the buyer the title to the property. Resolution Trust Corp. v. Ruggiero, 994 F.2d 1221, 1225 (7th Cir.1993). Of course there are defenses to a suit to enforce a contract, but no one would suppose that the fact that a contract claim may fail deprives the suitor of a solid "interest" in the contract, interest enough certainly to justify intervention under Rule 24(a)(2). Otherwise Article III would bar most federal court actions for breach of contract even when the requirements of diversity jurisdiction were satisfied.

Similarly, although there are defenses to the confirmation of a foreclosure sale, they are limited by statute to lack of notice; the terms of the sale were unconscionable; the sale was conducted fraudulently; or "justice was otherwise not done." 735 ILCS 5/15-1508(b). The first three defenses would be normal defenses in a contract case. The last is pretty open-ended, though this depends in part on what exactly "doing justice" means in this context. We examine that issue later; suffice it here to say that it is not so open-ended as to make the interest conferred by a foreclosure-sale certificate illusory. It is a solid legally protected interest, its solidity being further suggested by the fact that the vast majority of foreclosure sales are confirmed routinely. Basil H. Mattingly, "The Shift from Power to Process: A Functional Approach to Foreclosure Law," 80 Marquette L.Rev. 77, 114 (1996). In Colon v. Option One Mortgage Corp., 319 F.3d 912, 921 (7th Cir.2003), we called the interest of the high bidder at the foreclosure sale "a potentially binding contract," and explained that "under [Illinois] state law, after the completion of the judicial sale, assuming that the redemption period has run, the purchaser at that sale has a presumptive right to eventual ownership of the property, a right contingent on the highly circumscribed authority of the state court to void the sale on any of the four grounds set forth in the statute."

Twice, Illinois appellate courts have held that the high bidder at a foreclosure sale has a legally protected interest even though that interest "evaporates upon the trial court's determination that the judicial sale will not be confirmed." Citicorp Savings v. First Chicago Trust Co., 269 Ill. App.3d 293, 206 Ill.Dec. 786, 645 N.E.2d 1038, 1043-45 (1995); Commercial Credit Loans, Inc. v. Espinoza, 293 Ill.App.3d 915, 228 Ill.Dec. 410, 689 N.E.2d 282, 287 (1997). Citing Citicorp, the court in Espinoza said that "as certified high bidders in the foreclosure sale of Espinoza's property, appellants have some interest in litigation involving the property. High bidders should be able to pursue their appeal." Id. The court in Citicorp had said that "it is settled law that a non-party may bring an appeal when that person has a direct,...