Judicial confirmation of the sale is the final hurdle in the foreclosure process in Illinois in both commercial and residential cases. Upon entry of a judgment of foreclosure, the real estate that is the subject of the judgment must be sold at a judicial sale on the terms and conditions specified in the judgment of foreclosure. 735 ILCS 5/15-1507(a)-(b). But, title does not pass to a successful bidder until the sale is confirmed by the court and, under the Illinois Mortgage Foreclosure Law’s sale confirmation statute, 735 ILCS 5/15-1508(b), a court may void a foreclosure sale if (1) notice of sale was not given; (2) the terms of the sale were unconscionable; (3) the sale was conducted fraudulently; or (4) “justice was otherwise not done.” Parties bidding at foreclosure sales should be aware that bidding significantly less than the appraised value of the property could result in an evidentiary hearing and a delay in confirmation of the sale.
Prior to the enactment of 1987 amendments to the Illinois Mortgage Foreclosure Law, Illinois courts held that mere inadequacy of price was not a sufficient reason to disturb a foreclosure sale absent evidence of mistake, fraud, or violation of duty by the officers conducting the sale. Illini Fed. Sav. & Loan Ass'n v. Doering, 162 Ill. App. 3d 768, 771-72 (5th Dist. 1987). The sale confirmation statute was enacted to create a new, limited level of inquiry of foreclosure sales but was not intended to require an evidentiary hearing after every sale. Sewickley, LLC v. Chi. Title Land Trust Co., 2012 IL App (1st) 112977, ¶ 29.
When reviewing sales, courts continue to look to whether there is “a current appraisal or other current indicia of value which is so measurably different than the sale price as to be unconscionable.” Deutsche Bank National v. Burtley, 371 Ill. App. 3d 1, 9 (2006). Courts also consider marketing efforts, economic conditions, and remoteness in time of appraisals. Koenig & Strey GMAC Real Estate v. Renaissant 1000 S. Mich. I, LP, 2011 IL App (1st) 103036-U, ¶ 33. The sale price must not be so grossly inadequate as to “shock the conscience.” Resolution Trust Corp. v. Holtzman, 248 Ill. App. 3d 105, 113 (1993). But, “the foreclosure price need not match the actual or estimated value of the property.” Burtley, 371 Ill. App. 3d at 8. So, confirmation of a sale can, and often is, achieved when a plaintiff bids less than the appraised property value, which could benefit a judgment creditor seeking a deficiency judgment against a borrower or guarantor. Note, however, that obtaining deficiency judgments, especially in residential foreclosure cases, can be an uphill battle. See Stephen J. Butler, Taking Deficiency Judgments in Foreclosure, Illinois State Bar Association Newsletter on Commercial Banking, Collections, and Bankruptcy, vol. 56, no. 1 (July 2011).
Although there is no bright line rule regarding what constitutes an unconscionably low sale price, case law suggests that bidding 50-70 percent of the appraised value is safe, assuming other statutory requirements are satisfied. For example, the Illinois Appellate Court has upheld sales where the successful bid was approximately half of the appraised property value. See, e.g., Renaissant, supra at ¶ 37 (finding that an $11.3 million sale price was not so grossly inadequate as to shock the conscience when the property was appraised at $21,586,500); see also BMO Harris Bank, N.A. v. Aleshire, 2014 IL App (1st) 131917-U, ¶ 54 (finding sale price “not so low as to require an evidentiary hearing.”) The Renaissant court found that the circuit court abused its discretion in refusing to confirm a foreclosure sale when the sale price “was more than 50 percent of the original appraised value of the property and close to 70 percent of the circuit court’s later predetermined price of $16.5 million.” Id. The court also rejected the stale $21,586,500 appraised value, finding that the appraisal, in light of marketing efforts, was “less probative of the property’s true market value than the actual winning bid price” elicited at the sale. Id. at ¶ 33.
On the other hand, successful bids below 50 percent of the appraised property value can raise eyebrows and may trigger evidentiary hearings. For example, the appellate court affirmed a trial court’s refusal to confirm a sale on grounds of both unconscionability and that “justice was not otherwise done” when a non-English speaker attempting to redeem her mortgage was “shrugged off” by the mortgagee and the sale price of the property at auction was determined to be one-sixth the value of the property. Commercial Credit Loans, Inc. v. Espinoza, 293 Ill. App. 3d 915, 927-28 (1997). Even though mere inadequacy of price is generally not a sufficient reason to disturb a foreclosure sale, Holtzman, supra, 113-14, courts tend to examine sales more closely when there is a significant disparity between appraised value and sale price.See JP Morgan Chase Bank v. Fankhouser, 383 Ill. App. 3d 254, 265-66 (2008) (where property was valued between $325,000 and $385,000, and the property sold for $32,212.40, the drastic difference between prices necessitated an evidentiary hearing); Merchants Bank v. Roberts, 292 Ill. App. 3d 925, 931 (1997) (finding mortgagors entitled to an evidentiary hearing to determine the fairness of a judicial sale when mortgagors submitted affidavits indicating that the value of the property was 50 percent greater than the amount secured at the judicial sale).
Illinois circuit courts have discretion in confirming foreclosure sales and in conducting evidentiary hearings prior to confirmation. After obtaining a judgment of foreclosure in an amount greater than the value of the property, plaintiffs should keep in mind marketing efforts and remoteness in time of appraisals, and weigh the potential risks of credit-bidding significantly less than the appraised property (i.e., the potential of triggering limited discovery and an evidentiary hearing where the fairness of the sale is examined) versus the benefits (i.e., obtaining a larger deficiency judgment).