U.S. Bank Nat'l Ass'n v. Johnston

• Decision Date: 13 June 2016
• Docket Number: No. 2–15–0128.,2–15–0128.
• Citation: U.S. Bank Nat'l Ass'n v. Johnston, 55 N.E.3d 742, 404 Ill.Dec. 268 (Ill. App. 2016)
• Parties: U.S. BANK NATIONAL ASSOCIATION, as Trustee for Structured Asset Investment Loan Trust, Mortgage Pass–Through Certificates, Series 2005–3, Plaintiff–Appellant, v. Ann M. JOHNSTON; Ronald D. Johnston, a/k/a Ronald Dean Johnston; and Jeffrey D. Smith, Defendants–Appellee (Mortgage Electronic Registration Systems, Inc., Intervenor–Appellant, First State Bank, s/i/i to Valley Community Bank, Unknown Owners, and Nonrecord Claimants, Defendants).
• Court: Appellate Court of Illinois

55 N.E.3d 742

404 Ill.Dec. 268

U.S. BANK NATIONAL ASSOCIATION, as Trustee for Structured Asset Investment Loan Trust, Mortgage Pass–Through Certificates, Series 2005–3, Plaintiff–Appellant

v.Ann M. JOHNSTON; Ronald D. Johnston, a/k/a Ronald Dean Johnston; and Jeffrey D. Smith, Defendants–Appellee (Mortgage Electronic Registration Systems, Inc., Intervenor–Appellant, First State Bank, s/i/i to Valley Community Bank, Unknown Owners, and Nonrecord Claimants, Defendants).

No. 2–15–0128.

Appellate Court of Illinois, Second District.

June 13, 2016.

William J. Holloway, of King Holloway LLC, of Chicago, for appellant U.S. Bank National Association.

David F. Standa, J. Matthew Goodin, and Ryan M. Holz, all of Locke Lord LLP, of Chicago, for appellant Mortgage Electronic Registration Systems, Inc.

Nathan B. Grzegorek, of Larson & Associates, P.C., of Chicago, for appellee Jeffery D. Smith.

OPINION

Justice McLAREN delivered the judgment of the court, with opinion.

¶ 1 Plaintiff, U.S. Bank National Association (U.S. Bank), filed a foreclosure action against defendants Ann M. Johnston, Ronald D. Johnston (the Johnstons), and Jeffrey D. Smith. The Johnstons and Smith moved to dismiss U.S. Bank's complaint, based on a prior default judgment entered in favor of Valley Community Bank (VCB). Smith also argued that he was a bona fide purchaser for value of the subject property. The trial court dismissed U.S. Bank's complaint as barred by res judicata. On appeal, U.S. Bank argues, inter alia, that the trial court erred by ruling that its foreclosure action was barred by res judicata. We reverse and remand for further proceedings.

¶ 2 I. BACKGROUND

¶ 3 On November 3, 1997, the Johnstons executed a mortgage and a note against their real property located at 112 North 1st Street, Geneva, Illinois (the property). This mortgage conveyed a lien interest in the property to VCB, as security for a note in the principal sum of $57,650. This mortgage was recorded with the Kane County recorder of deeds on November 13, 1997.

¶ 4 On January 28, 2005, the Johnstons executed a second mortgage and note against the property, in the principal sum of $244,500. The mortgagee of the mortgage was intervenor, Mortgage Electronic Registration Systems, Inc. (MERS), which acted as nominee for the lender, BNC Mortgage, Inc. (BNC). The MERS mortgage and the BNC note were recorded with the Kane County recorder of deeds on March 11, 2005. The definitions section of the MERS mortgage provided the following:

“(C) ‘MERS' is Mortgage Electronic Registration Systems, Inc. MERS is a separate corporation that is acting solely as a nominee for Lender and Lender's successors and assigns. MERS is the mortgagee under this Security Instrument * * * and has an address and telephone number of P.O. Box 2026, Flint MI 48501, tel. (888) 679–MERS.

(D) ‘Lender’ is BNC MORTGAGE, INC., A DELAWARE CORPORATION.”

The MERS mortgage also provided the following:

“This Security Instrument secures to Lender (i) the repayment of the Loan and all renewal and modifications of the Note; and (ii) the performance of Borrower's covenants and agreements under the Security Instrument and the Note. For this purpose, Borrower does hereby mortgage, grant and convey to MERS (solely as nominee for Lender and Lender's successors and assigns) and to the successors and assigns of MERS, the following described property [ (legal description and address of the property provided) ].

* * *

* * * Borrower understands and agrees that MERS holds only legal title to the interest granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender's successors and assigns) has the right to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property.”

¶ 5 On June 9, 2006, the Johnstons executed a third mortgage and note against the property. This mortgage conveyed a lien interest in the property to VCB, as security for a note in the principal sum of $95,796.99. This 2006 VCB mortgage was recorded with the Kane County recorder of deeds on August 15, 2007.

¶ 6 On January 29, 2009, VCB filed a foreclosure complaint, naming as defendants the Johnstons and “BNC MORTGAGE, INC. NOW OWED [sic ] BY CHASE HOME FINANCE, LLC.”

¶ 7 VCB issued summons on “C.T. Corporation as registered agent of Chase Home Finance, LLC.” The summons was served February 23, 2009, on C.T. Corporation in Plantation, Florida. The summons identified “Chase Home Finance, LLC” as “Defendant Corporation.”

¶ 8 On July 30, 2009, the trial court entered a default judgment in favor of VCB in its foreclosure action. The default judgment provided in part:

“That any and all interest that BNC Mortgage, Inc., now owned by Chase Home Finance LLC has in the property located at 112 N. 1st St., Geneva, IL be and is hereby foreclosed and terminated, as they have failed to appear or answer after being served on Feb. 23, 2009.”

¶ 9 According to a document recorded with the Kane County recorder of deeds on October 14, 2009, “[p]rior to” May 27, 2009, MERS, as nominee for BNC, assigned the Johnstons' mortgage to U.S. Bank. The assignment was notarized on August 6, 2009.

¶ 10 On November 5, 2009, the trial court entered a consent judgment in the VCB foreclosure action, providing in part:

“That the effect of said judgment by consent will satisfy the mortgage of indebtedness and vest absolute title to the mortgaged real estate known as 112 N. 1st Street, Geneva, IL 60134 to Valley Community Bank free and clear of all claims and liens and interest of the mortgagor including rights of reinstatement and redemption and the rights of all other persons made parties to the foreclosure whose interest are subordinate to that of Plaintiff.”

¶ 11 On January 29, 2010, VCB sold the property to Smith.

¶ 12 On July 13, 2011, U.S. Bank filed a motion to quash summons. On January 27, 2014, the trial court, Judge Leonard J. Wojtecki presiding, denied U.S. Bank's motion.

¶ 13 On June 9, 2014, U.S. Bank filed a complaint to foreclose its mortgage against the property. MERS moved to intervene to “preserve its absolute right to service of process in any foreclosure proceeding that seeks to impact MERS's recorded interest in real property.” The trial court granted MERS's motion to intervene.

¶ 14 On July 18, 2014, the Johnstons filed a motion to dismiss U.S. Bank's foreclosure complaint pursuant to section 2–619(a)(4) of the Code of Civil Procedure (Code) (735 ILCS 5/2–619(a)(4) (West 2014)). The Johnstons argued that U.S. Bank's complaint was barred by res judicata, based on the consent judgment entered in the VCB foreclosure action.

¶ 15 On August 6, 2014, Smith filed a motion to dismiss U.S. Bank's foreclosure complaint pursuant to sections 2–619(a)(4) and 2–619(a)(9) of the Code (735 ILCS 5/2–619(a)(4), (a)(9) (West 2014)). Smith argued that U.S. Bank's complaint was barred by res judicata and collateral estoppel, based on the default and consent judgments entered in the VCB foreclosure action. Smith also argued that he was a bona fide purchaser for value pursuant to section 21401(e) of the Code (735 ILCS 5/2–1401(e) (West 2014)).

¶ 16 Smith's motion to dismiss alleged the following facts. Prior to the 2006 VCB mortgage, “the Johnstons delivered a mortgage lien interest in the [property] to [MERS], as nominee for [BNC]. * * * As evidenced by the BNC mortgage, MERS' role in this transaction was to act solely as BNC's ‘nominee,’ and the rights under the instrument, inure to BNC.” “BNC closed its doors in 2007. * * * Nothing in the Kane County Recorder's grantor-grantee index reflected the identity of BNC's successor until August 6, 2009, when an assignment of the BNC Mortgage to U.S. Bank (the ‘Assignment’) was recorded.” VCB filed its foreclosure complaint on January 29, 2009. Because “MERS was merely the ‘nominee’ for the entity entitled to the benefits provided by the BNC Mortgage and the assignment of the instrument had yet to be recorded, VCB's counsel in the [VCB foreclosure action] consulted with Ronald [Johnston] regarding the identity of the current holder of the BNC Note and Mortgage in an effort to provide notice of the proceeding. * * * Ronald [Johnston] advised VCB's counsel that all statements reflecting sums due under the BNC Note and Mortgage had been sent by Chase Home Finance, LLC's [sic ] (‘CHF’) and all payments had been remitted to CHF's offices in Florida. Accordingly, VCB joined ‘[BNC] now owned by [CHF]’ as a party/defendant in order to extinguish the lien of the BNC Mortgage. * * * VCB served CHF by causing its summons and complaint to be delivered to the company's registered agent.”

¶ 17 Smith attached to his motion to dismiss the affidavit of his attorney, Nathan Grzegorek, who stated the following. U.S. Bank produced “documents which demonstrate that [it] serves as the title-holding trustee for a securitizing pool (the ‘Trust’) of several thousand mortgage loans, including the BNC Note and Mortgage. Pursuant to the underlying Trust Agreement dated March 1, 2005 (the ‘Trust Agreement’), Aurora Loan Services LLC was designated master servicer, and JPMorgan Chase Bank, N.A. (‘JPMorgan’) served as servicer for the mortgage loans held by the Trust. JPMorgan, in turn, entered into a subservicing agreement (the ‘Sub–Servicing Agreement’) which designated CHF as a sub-servicer for the BNC Note.” Smith attached the “Sub–Servicing Agreement” but did not attach the alleged “Trust Agreement.” Smith also attached the VCB foreclosure complaint, the summons issued in the VCB foreclosure action, the consent judgment in the same lawsuit, the BNC mortgage, and the affidavit of Ronald Johnston.

¶ 18 On September 24, 2014, U.S. Bank filed a response to Smith's and the Johnstons' motions to dismiss, alleging and arguing the following. On January 29, 2009, VCB filed a foreclosure action to foreclose both of its mortgages against the property. VCB did not name or serve MERS or U.S. Bank in its...