Deficiency Judgment Not Set-off by Lender’s Resale of Property
In a recent case arising out of a foreclosure in DuPage county (Old Second National Bank v. Jafry, 2016 IL App (2d) 150825 (June 28, 2016) DuPage Co.), the appellate court ruled that even though the lender (who had foreclosed the defendant) had already made back a portion of what it was owed by the defendant through a subsequent sale, it was still allowed to collect the entire deficiency from the defendant.
The defendants had guaranteed a loan made by Old Second National Bank. Subsequently, the mortgagor defaulted, and the bank foreclosed the property. The bank purchased the property for $900,000 at the sheriff’s sale, and the trial court entered a deficiency judgment against the defendants in the amount of $577,876. After four months, the bank sold the property to a third-party purchaser for $1,320,000. The bank then sought to collect the full deficiency judgment of $577,786.
Since the bank had already made back a large portion of what it had lost when it sold the property for $1,320,000, the defendants petitioned to offset the amount the bank had already received from the $577,876 that the bank claimed the defendants owed. The trial court did not agree and dismissed the petition.
On appeal, the appellate court agreed with the trial court. The court stated that the mortgagor-mortgagee relationship terminated when the foreclosure was completed. If the defendants felt the property could have sold, they should have tried to sell it instead of letting it get foreclosed. Even though it meant a windfall for the bank and probably took the defendants by surprise, the bank was allowed to pursue collection of the full deficiency judgment.
What does this mean for you? Well, always try to sell the property first – don’t just let foreclosure happen to you. And second, if you do get foreclosed and the bank is able to get back some of its money through a subsequent sale, that doesn’t mean they can’t go after you again for that money too!