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Probate-Foreclosure Knot Untangled?

This piece originally appeared in the November 2022 edition of DS News magazine, online now.

It’s not often that a modern-day court relies on case law from 1896, but it’s also not often that issues arising in 1896 are still uncertain modern-day.

In Estate of Topal, 2022 IL App (4th) 210613, the 4th District Appellate Court of Illinois confronted some longstanding friction between Illinois probate and Illinois foreclosure law. At issue was the impact on a mortgage lien of a probate statute barring “all claims” failing to be filed within two years of a decedent’s death.

In Topal, pursuant to this probate statute, the lower court found that the time for filing a claim against an estate begins at the decedent’s death, regardless of whether a lender is aware of that death. Consequently, a lender’s claim against the estate brought more than two years after the decedent’s death was time-barred. However, the probate court then went a step further and required the lender to record a release of the mortgage—effectively eliminating the lender’s ability to ever foreclose.

Interestingly, this same issue was resolved by the Illinois Supreme Court more than 125 years ago. In Waughop v. Bartlett, 165 Ill. 124, (1896), the Illinois Supreme Court ruled that although the failure to file a timely claim barred the claim against the estate, it did not terminate the debt itself. In other words, the “all claims” language arose in a probate statute and was therefore limited to all claims in a probate—not all claims in the universe of all possible claims. Normally, an on-point decision like this, especially one coming from the Illinois Supreme Court, would have ended future similar disputes.

The problem was that the Waughop court went on to classify foreclosure actions as “in rem”—a notion specifically rejected by a much later Illinois Supreme Court in ABN AMRO Mortg. Group, Inc. v. McGahan, 237 Ill. 2d 526.

And when the Illinois Supreme Court rejects an earlier ruling, even an earlier ruling from itself, that entire ruling tends to be forsaken.

However, recognizing this dichotomy, the 4th District Appellate Court in Topal clarified that “[a]t no point did the supreme court explicitly abandon” the first part of its holding in Waughop, and that the only impact of an untimely probate claim was “‘… to prevent any participation in the inventoried assets of the estate.’” Topal at P27.

Therefore, the Topal court concluded that: … [The lender’s] failure to timely file a claim against decedent or his estate prevents [the lender] from reaching estate assets to satisfy the debt owed to it. This conclusion does not mean, however, that [the lender] cannot still proceed with a future foreclosure action against the property covered by the mortgage … Should the foreclosure sale produce insufficient funds to satisfy the debt, [the lender] may not pursue a deficiency judgment against the Estate. This is fundamentally the purpose of section 18-12(b).Topal at P28.

Interestingly, the Topal court also seemed to invite Supreme Court review of its Waughop and McGahan analyses, stating that it would be “unwise” for them to “extrapolate” from McGahan a “conclusion which was not reached there,” and theorizing that “such a consequential decision, if it is to be made, should come from the supreme court.”

Therefore, although the analysis appears to be well-reasoned and serves to close some long-standing confusion, it remains to be seen whether the Illinois Supreme Court will even review the matter, much less agree.

About Author: Lauren Riddick

Lauren Riddick handles contested foreclosure matters as a member of the Codilis & Associates, P.C.’s Contested Litigation Unit and also assists with title matters. She joined the firm in August 2013. Prior to joining the firm, she was an Adjunct Professor of Law with several colleges and a Securities Attorney for a large broker-dealer in Florida. Riddick is a member of the Illinois and Florida Bar Associations. She received her Juris Doctor in 2001 from the University of Florida Levin College of Law, and her Bachelor of Science in 1998 from the University of Florida.
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