A recent Illinois Appellate Court decision from the first district settled the question of whether or not a party to a mortgage may sue under the promissory note and separately under a mortgage foreclosure action. The Court in Turczak v. First American Bank, 2013 IL App (1st) 121964 applied principles of res judicata to determine that a lender may separately sue to enforce the mortgage and the promissory note.
The Turczaks stopped paying both their first and second mortgage. The first mortgagee obtained a variable foreclosure judgment. The second mortgage obtained a money judgment for the full amount owed to it.
The Turczaks then sought to arrange a short sale. The second mortgagee conditioned their consent to the sale and release of the mortgage on plaintiffs paying $6,000. The Turczaks filed suit against the second mortgagee alleging that the second mortgagee violated the Fair Debt Collection Act and the Illinois Consumer Fraud Act because it should have pursued the mortgage and the promissory note as one action. They argued that res judicata prohibits the $6,000 conditional release on the mortgage because both documents were part of the same original transaction, and a default judgment on the note had already been entered. In the lower court, the action was dismissed. Plaintiffs appealed the decision, and the First District Appellate Court considered the issue de novo.
Applying the transactional test, the Court held that a foreclosure on the mortgage and a default judgment on the note can be pursued consecutively or concurrently because the purpose of each matter is unique. “A foreclosure judgment does not adjudicate the defendant’s rights and liabilities under a guaranty contract and, thus, the doctrine of res judicata is not implicated.”
Additionally, the Court considered the text of the Illinois Mortgage Foreclosure Law (735 ILCS 5/15-1101 et seq. (West (2008)). It determined that the language pertains to foreclosure on mortgages specifically, but it does not require foreclosure actions to be joined with promissory note actions. The statute “states a, ‘[foreclosure] complaint *** may be joined with other counts or may include in the same count additional matters or a request for any additional relief.’ (Emphases added)…It hardly needs to be said that ‘may’ is a permissive, not a mandatory, term”3
In conclusion, the Illinois Appellate Court in Turczak has determined that a default judgment on a promissory note does not preclude separate foreclosure action on the mortgage. The two actions may be pursued consecutively or concurrently.