In LVNV Funding, LLC v. Trice, 2015 IL 116129, the Illinois Supreme Court recently held that only the absence of personal or subject matter jurisdiction renders a circuit court’s judgment void. Thus, a judgment entered with jurisdiction that is based on a void contract is not itself void, it is merely voidable. This decision significantly limits the applicability of First Mortgage Co. v. Dina, 2014 IL App (2d) 130567 cert. denied, 386 Ill. Dec. 475, in which the Illinois Appellate Court for the Second District held that a mortgage is void ab initio if originated by a lender not licensed under the Illinois Residential Mortgage License Act (the Act), 205 ILCS 635/1-1 et al. Following that decision, defaulting borrowers whose foreclosures have been long decided have been returning to court in droves on section 2-1401 (735 ILCS 5/2-1401) petitions claiming their mortgages, and by extension any judgment entered on their mortgages, are void. The Second District Appellate Court recently limited this practice in JPMorgan Chase, N.A. v. Ontiveros, 2015 IL App (2d) 140145, as we detailed here. But, Trice effectively eliminates this avenue once and for all.
Although procedurally complicated, in Trice, the appellant argued that a judgment entered in favor of a debt collector was void because the debt collector was not properly registered under the Illinois Collection Agency Act when it filed the underlying lawsuit. The Supreme Court disagreed, noting that judgments entered with jurisdiction, no matter how erroneous, are not void, they are voidable. The appellee’s failure to register as a debt collector did not undermine the trial court’s personal jurisdiction over the parties or its jurisdiction over the subject matter of the dispute. As such, the appellee’s failure to register as a debt collector did not render the underlying judgment void. The Court went on to explain that the failure to register as a debt collector was certainly an error, and if raised by the appellant in the trial court in a timely fashion prior to judgment, may have warranted dismissal of the appellee’s lawsuit, reversal on direct appeal, or the setting aside of the final judgment under 2-1401 if the requirements of that provision were established. But that error did not result in a void judgment.
The Trice decision did not explicitly deal with a challenge under the Act, but its impact on the foreclosure arena will be profound. The holding in Trice—that judgments obtained by unlicensed debt collectors are not void—applies equally to judgments obtained by unlicensed mortgage lenders. By cutting off a borrower’s ability to claim an underlying judgment is void simply because their mortgage is void under Dina, Trice forces borrowers to satisfy the meritorious defense and due diligence prongs of section 2-1401 when bringing a post-judgment petition. Smith v. Airoom, Inc., 114 Ill.2d 209, 220 (1986). The due diligence requirement will be particularly difficult, if not impossible, for any borrower to satisfy as the Act has been in place since 1987 and there are generally no legitimate reasons why the borrower could not bring that defense in the original trial court foreclosure proceedings.
A significant number of Dina challenges currently being litigated were brought under section 2-1401 and Trice effectively defeats those claims. That itself is a significant victory that should not be downplayed. There is still work to be done, however, in limiting the fallout from the Dina decision. For instance, while Trice now stands as binding precedent that should defeat post-confirmationDina challenges, it does not apply in cases where Dina is raised prior to confirmation, because the void/voidable distinction is not relevant in the pre-confirmation context. Those pre-confirmation cases continue to be litigated with little guidance yet from the Illinois Appellate Courts.