First District of Illinois Appellate Court confirms no six-month service requirement in mortgage foreclosure lis pendens statute

Real property disputes are as old as Rome. As such, it is appropriate that the Illinois Code of Civil Procedure (the Code) provides for a lis pendens, Latin for “pending suit,” to be recorded against title to real estate. The Code has two different statutes on lis pendens: 735 ILCS 5/15-1503, which is relative to mortgage foreclosure actions and 735 ILCS 5/2-1901, which is relative to all other real estate actions seeking equitable relief. The two statutes were at issue in the First District’s recent decision in LLC 1 05333303020 v. Pawel Gil, 2020 IL App (1st) 191225. 

First, what is a lis pendens? A lis pendens is an instrument recorded against title to a parcel of real estate in the grantor-grantee index maintained by the local recorder or clerk’s office where the property lies. Once recorded, the lis pendens gives constructive notice to third parties of a lawsuit over rights to a piece of real estate. Constructive notice, as opposed to actual notice, is a legal construct based on the fact that the grantor-grantee index is publicly available for the world to search title to a parcel of real estate. A lis pendens serves several purposes, including the protection of a plaintiff from a third party that may have an unrecorded interest in the property at the time of filing suit, or who obtains an interest after the filing, which would otherwise preclude the plaintiff from obtaining the relief sought. 

The facts in Gil were as follows. LLC 1 was quit-claimed a deed to property owned by Leszek Pacholek (Pacholek) and LLC 1 did not promptly record the deed. Months later, the lender filed suit to foreclose its first mortgage against Pacholek and recorded a lis pendens on Jan. 21, 2010. On Jan. 28, 2010, seven days later, LLC 1 finally recorded its quit claim deed. The lender then completed the foreclosure, without having actual or constructive notice of LLC 1’s interest, and conveyed the property to Gil by a deed recorded on Dec. 28, 2011. Pacholek later filed a petition to vacate the judgment under 735 ILCS 5/2-1401, alleging lack of service, but the lender and the mortgagor reached a settlement in the collateral proceeding.

On Feb. 8, 2018, more than six years after Gil’s deed was recorded, LLC 1 filed an eviction against Gil. Gil, in turn, filed a counterclaim to quiet title. In cross-motions for summary judgment, LLC 1 argued that service on Pacholek on Jan. 22, 2010 was improper and because LLC 1 had an interest in the property, it had the right to contest service. If successful, then the sale to Gil would be unwound. Gil argued that, under section 15-1503 of the Code, LLC 1 had constructive notice of the foreclosure by virtue of the lis pendens and was thereby bound by the proceedings that resulted in the lender acquiring title to the property sold to Gil. The trial court granted Gil’s motion for summary judgment and denied LLC 1’s motion for summary judgment, which was affirmed on appeal.

Section 2-1901 of the Code applicable to general real estate actions states, in pertinent part, that a recorded lis pendens “[e]xcept as otherwise provided in Section 15-1503…[shall] be constructive notice to every person subsequently acquiring an interest in or a lien on the property affected thereby, and every such person and every person acquiring an interest or lien as above stated, not in possession of the property and whose interest or lien is not shown of record at the time of filing such notice, shall for the purpose of this action, be deemed a subsequent purchaser and shall be bound by the proceedings to the same extent and in the same manner as if he or she were a party thereto.” 

Section 15-1503 of the Code applicable to mortgage foreclosure actions requires that certain information, like an identification of the mortgage being foreclosed, be included in the lis pendens.  Further, the statute provides that the lis pendens “shall have the same effect” as a lis pendens filed under 2-1901. However, Section 15-1503 omits the following requirement expressly contained in section 2-1901:

“If any such action plaintiff or petitioner neglects or fails for the period of 6 months after the filing of the complaint or petition to cause notice to be given the defendant or defendants, either by service of summons or publication as required by law, then such notice shall cease to be such constructive notice until service of summons or publication as required by law is had.”

The First District applied time honored rules of statutory construction in rejecting LLC 1’s argument that the six-month service requirement in section 2-1901 be read into section 15-1503. The appellate court observed that specific statutory provisions have control over general statutory provisions on the same subject. The appellate court further noted that it must give effect to the legislature’s intent and the best way to do that is by considering the words of the statute. 

Because section 15-1503 specifically governs lis pendens in mortgage foreclosures and does not contain the six-month service requirement, the First District found that the legislature intentionally omitted the requirement from the statute. Therefore, it was irrelevant whether or not Pacholek was served within six months of the filing of the foreclosure complaint. LLC 1 had an unrecorded interest in the property at the time the lis pendens was recorded and so it was bound by the proceedings as if a party thereto. LLC 1’s interest in the property was accordingly extinguished in the foreclosure action. 

Gil is important for lenders because it clarifies that there is no requirement in Section 15-1503 that service be completed within six months of filing suit for the lis pendens to provide constructive notice of the action to third parties. An evasive borrower, or to the contrary, extensive workout discussions with a borrower, might delay the lender from completing service on all defendants. In the meantime, another creditor may record a lien against the real estate or a party similar to LLC 1 may record a deed and neither would have been identified in the lender’s minutes of foreclosure. Gil provides lenders and their purchasers of real estate owned properties with the comfort of knowing that such interests would be extinguished in the foreclosure even if the named defendants were not served within six months. While the First District has clarified the mortgage foreclosure lis pendens statute as it relates to service of a lawsuit, there is no doubt the court will continue to decide scores of real property disputes in the future.

The attorneys at Chuhak & Tecson are here to assist in enforcing the rights and remedies of lenders under loan documents and in navigating complex procedural issues that may arise during the proceedings.