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Examining Third-Party Purchasers’ Role in Foreclosure Proceedings

The First Appellate District of Illinois recently held that Illinois Supreme Court Rule 305(k) applies to appeals involving residential mortgage foreclosures. See Deutsche Bank National Trust Co. v. Roman, 2019 IL App (1st) 171296. Rule 305(k) provides that if the appellant fails to perfect a stay of judgment within the time for filing the notice of appeal, “the reversal or modification of the judgment does not affect the right, title, or interest of any person who is not a party to the action in or to any real or personal property that is acquired after the judgment becomes final and before the judgment is stayed […].” Ill. S. Ct. R. 305(k). As such, absent a stay, the appeal is moot.

An Illinois Supreme Court case, Steinbrecher v. Steinbrecher, 197 Ill. 2d 514, 523-24 (2001), established the elements for a court when considering whether a third party’s acquisition renders an appeal moot: (1) the property passed pursuant to a final judgment, (2) the right, title, and interest of the property passed to an individual or entity who is not a party to the action, and (3) the appellant failed to perfect a stay of judgment within the time allowed for filing a notice of appeal.

In Roman, the Appellate Court found that all three elements were satisfied. At the judicial sale, a third party purchaser was the successful bidder. The mortgagors timely appealed after the circuit court confirmed the judicial sale. However, the mortgagors unsuccessfully sought a stay in the trial court and failed to request a stay from the Appellate Court. The Appellate Court found that the property passed pursuant to a final judgment when the circuit court confirmed the judicial sale.

The main point of contention in Roman was whether the third party purchaser was considered a party to the foreclosure proceedings. The Appellate Court pointed out our Supreme Court clearly set forth in Steinbrecher that when a third party acquires title pursuant to the judgment and sale, that third party was not “one by or against whom a lawsuit is brought,” nor did it have a stake or standing in the lawsuit. The Appellate Court noted the public policy undergirding Rule 305(k): to safeguard the integrity and finality of judicial sales, and without a policy of finality and permanence, “no person would purchase real property involved in a judicial proceeding, if afterwards he incurred the hazard of losing the property due to facts unknown to him at the time of the sale.” Accordingly, the Appellate Court found in Roman that the third party purchaser was merely a purchaser who had no interest in the litigation other than to protect its future possessory interest in the subject property, and dismissed the appeal as moot pursuant to Rule 305(k).