Gen. Elec. Credit Corp. v. AMER. NAT. BANK & TRUST

• Citation: 562 F. Supp. 456
• Decision Date: 27 April 1983
• Docket Number: No. 82 C 4686.,82 C 4686.
• Court: U.S. District Court — Northern District of Illinois
• Parties: GENERAL ELECTRIC CREDIT CORPORATION, Plaintiff, v. AMERICAN NATIONAL BANK & TRUST COMPANY OF CHICAGO, as Trustee under Trust Agreement dated December 17, 1981 and known as Trust No. 54844, American National Bank and Trust Company of Chicago, as Trustee under Trust Agreement dated Sept. 14, 1978, and known as Trust No. 43879, Victor J. Vaccaro, Andrew P. Vaccaro, Bette L. Vaccaro, Central National Bank in Chicago, Murphy & Boyle Chartered, Century Lumber Company, Inc., Darien Mechanical Industries, Inc., I. Gottlieb and Association, Inc., R.B. Traub, d/b/a All-Line Electric Company, Columbia Pipe and Supply Company, Unknown Owners and Non-Record Claimants, Defendants.

562 F. Supp. 456

GENERAL ELECTRIC CREDIT CORPORATION, Plaintiff, v. AMERICAN NATIONAL BANK & TRUST COMPANY OF CHICAGO, as Trustee under Trust Agreement dated December 17, 1981 and known as Trust No. 54844, American National Bank and Trust Company of Chicago, as Trustee under Trust Agreement dated Sept. 14, 1978, and known as Trust No. 43879, Victor J. Vaccaro, Andrew P. Vaccaro, Bette L. Vaccaro, Central National Bank in Chicago, Murphy & Boyle Chartered, Century Lumber Company, Inc., Darien Mechanical Industries, Inc., I. Gottlieb and Association, Inc., R.B. Traub, d/b/a All-Line Electric Company, Columbia Pipe and Supply Company, Unknown Owners and Non-Record Claimants, Defendants.

No. 82 C 4686.

United States District Court, N.D. Illinois, E.D.

April 27, 1983.

Mark S. Lieberman, Robert R. Tepper, Rochelle S. Dyme, Ronald A. Damashek, Rosenthal & Shanfield, Chicago, Ill., for plaintiff.

Jay Erens, William E. Rattner, Norman G. Plotkin, Levy & Erens, Chicago, Ill., for defendants.

MEMORANDUM OPINION

PRENTICE H. MARSHALL, District Judge.

Plaintiff General Electric Credit Corporation is a citizen of New York and Connecticut. It filed this lawsuit in federal court under 28 U.S.C. § 1332 (1976).¹ In counts I and III of its complaint, plaintiff seeks to foreclose on mortgages it holds on certain property in which defendants have an interest. These counts also name as defendants "unknown owners and non-record claimants." These defendants are persons or entities that may have interests in the mortgaged property that are unrecorded and which plaintiffs have not been able to identify.²

Defendants³ moved to dismiss the foreclosure counts for lack of subject matter jurisdiction. They argued that since by definition plaintiff did not know the identities of the unknown owners and non-record claimants, plaintiff could not affirmatively allege that these defendants were not citizens of New York or Connecticut, and hence could not establish federal jurisdiction.⁴ Plaintiff's initial response was to drop the unknown owners and non-record claimants as defendants, making their citizenship irrelevant to determining whether federal jurisdiction exists over this action. Defendants persisted, however, arguing that the unknown owners and non-record claimants would be bound by a judgment of foreclosure in this action even if not named as defendants, meaning that they either were still in substance before the court or else they were necessary parties without which the action could not proceed.

Under the federal rules of civil procedure, a person

shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties, or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest.

Fed.R.Civ.P. 19(a). Based on the parties' memoranda on the motion to dismiss, it appeared that the unknown owners and non-record claimants would be bound by the judgment in this case even if they were not named as defendants, meaning that their ability to protect their interests in the mortgaged property would be impaired if the action proceeded in their absence.⁵ Moreover, if they were not bound by our judgment, then their interests in the property would survive the judgment and act as a cloud on title, meaning that complete relief could not be provided to plaintiff. Accordingly, we granted defendants' motion to dismiss the complaint for failure to join the unknown owners and non-record claimants.

Plaintiff has moved for reconsideration of the previous ruling. In its motion, plaintiff informs the court of two facts of which it was not aware at the time of the previous ruling. First, plaintiff has not served the unknown owners and non-record claimants with notice by publication as required by Illinois law if they are to be bound by the judgment of foreclosure. Hence, plaintiff argues, the interests of unknown owners and non-record claimants will be unaffected by the judgment. Second, plaintiff has obtained a commitment from Chicago Title and Trust Company to insure the title obtained from the mortgage foreclosure sale despite the "cloud" created by the unadjudicated interests of unknown owners and non-record claimants. Thus, as a practical matter, plaintiff contends, the title the purchaser at the foreclosure sale can obtain without joining unknown owners and non-record claimants will be marketable, and hence all parties can obtain complete relief in their absence.

In analyzing any joinder problem, the interests of the absent parties in the litigation must first be analyzed.⁶ The first question rule 19(a) asks is whether complete relief can be accorded among those already parties without joining the absent parties. The parties appear to agree that complete relief can be accorded. There is no dispute that, given plaintiff's title insurance commitment, the title the purchaser would receive if a judgment of foreclosure is entered in this case would be fully marketable so that plaintiff is fully protected by its ability to assure that the mortgaged property will fetch its full market price at the sale.⁷ Nor is there any contention that defendants' ability to protect their interests will be in any way compromised if the absent parties are not joined.

Thus, this case devolves onto the second question rule 19(a) poses, whether the unknown owners and non-record claimants have interests such that the disposition of this case in their absence will impair their ability to protect their interests or subject any party to a risk of multiple or inconsistent liability.⁸

The only interest in the mortgaged property which unknown owners and nonrecord claimants have is their right to redeem the mortgaged property.⁹ While it is true that under Illinois law redemption rights may be barred even where the nonrecord claimants are not named as defendants, this may only be done where plaintiff submits an appropriate affidavit to the clerk of court and notice by publication against non-record claimants is had. See Ill.Rev.Stat. ch. 110, §§ 15-105 to 06 (1981).¹⁰ Plaintiff assures us that it has not filed the prescribed affidavit nor caused the required service to be had.¹¹ Accordingly, the statutory requirements for barring the right of redemption have not been fulfilled, and the rights of redemption held by the absent parties will be unaffected by this action. There is a long line of cases holding that where persons holding rights of redemption have not been properly served and brought before the court, their rights of redemption are unaffected by the decree of foreclosure. See Elieff v. Lincoln Nat. Life Ins. Co., 369 Ill. 408, 17 N.E.2d 47 (1938); Rodman v. Quick, 211 Ill. 546, 71 N.E. 1087 (1904); Rose v. Walk, 149 Ill. 60, 36 N.E. 555 (1894); Dunlap v. Wilson, 32 Ill. 517, 524-25 (1863); Ohling v. Luitjens, 32 Ill. 23, 30-31 (1863); Bradley v. Snyder, 14 Ill. 263 (1853). See also Callner v. Greenburg, 376 Ill. 212, 214-15, 33 N.E.2d 437, 438-39 (1941).¹² Thus, the decree of foreclosure will not bind the unknown owners and non-record claimants. There will have been no "foreclosure" as to them, and hence their ability to assert whatever liens they may have on the property as well as their rights of redemption will be unaffected by the judgment in this action.¹³

Because there will be no judgment of foreclosure as to the unknown owners and non-record claimants and hence no effect on their interest in the mortgaged property, this action will not impair their ability to assert their interests and hence they need not be joined as defendants. See McCulloch v. Glasgow, 620 F.2d 47 (5th Cir.1980); Holt v. King, 250 F.2d 671, 674-75 (10th Cir.1957); Skelly Oil Co. v. Wickham, 202 F.2d 442, 446 (10th Cir.1953); Chance v. Buxton, 170 F.2d 187 (5th Cir. 1948); Thompson v. Tualatin Hills Park and Recreation District, 496 F.Supp. 530, 538 (D.Or.1980). This suit may proceed as an in personam action that will bind only the named parties. As one court put it,

A suit to foreclose a mortgage is a proceeding to determine the existence, extent and priority of a mortgage lien and to obtain the sale of the real property pledged to secure its satisfaction. As a general rule, a junior lienor or mortgagee is not a necessary party to a foreclosure proceeding in order to confer jurisdiction upon a court to enter a judgment foreclosing a mortgage. A junior mortgagee is made a party to a foreclosure proceeding in order to determine his legal rights in the mortgaged property, to bind him to the decree of the court, and to cut off his equity of redemption, or his right of statutory redemption. Accordingly, a junior mortgagee is a limited participant in a foreclosure action.

United States v. Scholnick, 606 F.2d 160, 165 (6th Cir.1979) (footnote and citations omitted). Here plaintiff does not seek to determine the rights of unknown owners and non-record claimants in the mortgaged property, bind them to the decree of the court, or cut off their rights of redemption. Hence there is no need to join them as defendants.

Defendants also argue that even if unknown owners and non-record claimants will not be bound by a decree of foreclosure, they will be affected by the lis pendens notice plaintiff has filed with respect to the mortgaged property. The lis pendens statute provides,

Every ... suit seeking equitable relief, affecting or involving real property shall, from the time of the filing in the office of the recorder of deeds in the county where real estate is located of a notice ... setting forth the title of the cause, the parties to it, the court where it was brought and a description of the real estate, be

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