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The Illinois Single Refiling Rule and the Pending Appeal in U.S. Bank Trust National Association v. Yoshimoto Naka, et al., No. 1-22-0555, Circuit Court Case No. 2020 CH 05680
By: Blake A. Strautins, Partner, and Pooja Dosi, Associate
The Illinois single refiling rule came back into vogue in 2018 with the ruling in First Midwest Bank v. Cobo, 2018 IL 1230038, where the Illinois Supreme Court held that where two prior actions involving the same note and mortgage are dismissed and the default date has not changed, it results in the secured lender’s eventual loss of the benefit of its security if a third attempt to foreclose on those documents is made. The Cobo decision highlights an important consideration for entities involved in consumer lending and mortgage servicing: the fact that the single refiling rule only provides “two bites at the apple.”
Since the Cobo ruling in 2018, several courts have issued opinions narrowing and/or interpreting Cobo. Most servicers now attempt to avoid the impact of Cobo by adding additional defaults to a complaint based on failures to pay taxes or insurance or advancing and forgiving sums due under the note and mortgage to bring the loan current such that any future default is a new default under the loan. Now, there is a pending appeal before the First District Appellate Court in U.S. Bank Trust National Association v. Naka that we believe will provide additional clarification as to how lenders and servicers can avoid borrowers walking off with essentially a free house based on the Illinois single refiling rule.
The Cobo Decision and Its Progeny
In 2018, the Illinois Supreme Court issued an opinion focused on the single refiling rule set forth in Section 13-217 of the Illinois Code of Civil Procedure—First Midwest Bank v. Cobo, 2018 IL 1230038—and found that the operative facts in the first mortgage foreclosure lawsuit in which the Bank exercised its lien rights against the subject property were sufficiently similar to constitute the same cause of action as the two later lawsuits seeking recovery under the note. In Cobo, the court applied the “transactional test” to determine whether the claims were identical. The transactional test looks to whether a single group of operative facts exist, regardless of whether different theories of relief are asserted. Ultimately, the transactional test barred the third lawsuit in Cobo because it was deemed to be the Bank’s third attempt at recovery under the same promissory note asserting the same July 1, 2011, default.
In line with Cobo, in 2020, the First District Appellate Court held in Deutsche Bank Trust Company America v. Sigler, 2020 IL App (1st) 191006, that a plaintiff cannot circumvent the single refiling rule simply by changing the date from which it sought accrued interest. The court found that the fourth action arose from the same set of operative facts as the second and third actions because the plaintiff accelerated the note no later than the date it filed the second action and it was undisputed that the defendants never made any payments following their March 1, 2008, default, that the underlying note and mortgage never changed, that the note was never reinstated, and that the plaintiff sought the same principal amount in all three actions. Finally, the court held that absent an adjudication on the merits, once a default on the note occurs and a plaintiff invokes the acceleration clause and files a foreclosure action, the contract becomes indivisible, and the obligation to pay each installment merges into one obligation to pay the entire balance on the note. But the Sigler court also stated that “[w]hen a mortgagor prevails in a foreclosure action… by a dismissal with prejudice, the result is to place the mortgagor and mortgagee back in the same contractual relationship with the same continuing obligations.” Sigler, 2020 IL App (1st) at ¶ 54.
In 2021, the Second and Third District Appellate Courts issued opinions narrowing and clarifying Cobo’s interpretation of the single refiling rule. In Wells Fargo Bank, N.A. v. Coghlan, 2021 IL App (3d) 190701, the Third District held that the second action did not arise from the same operative fats as the first action because the borrowers defaulted on the loan after summary judgment was entered. Specifically, the court found that where an installment contact requires monthly payments, a case based on one missed payment is not the same cause of action as a second case based on a different missed payment. Similarly, in McHenry Savings Bank v. Moy, 2021 IL App (2d) 200099, the Second District held that “[g]enerally, … where a money obligation is payable in installments, a separate cause of action arises on each installment.” McHenry Savings Bank v. Moy, 2021 IL App (2d) 200099, ¶ 30. Thus, the court reasoned that a plaintiff may bring a separate action on each installment as it becomes due and owing or wait until several installments are due and owing and then sue for all such installments in one cause of action. The Second District then took it one step further in issuing its opinion in Bank of New York Mellon v. Dubrovay, 2021 IL App (2d) 190540. There, the court held that the fourth foreclosure complaint arose from a different set of operative facts than the prior three foreclosure complaints and that the mortgagee’s voluntary dismissals of the prior actions each constituted affirmative acts revoking and nullifying prior accelerations of the debt, which returns the parties to the status quo and requires monthly payments on an installment loan to proceed as if acceleration had never occurred.
U.S. Bank Trust National Association v. Naka
In 2011, the plaintiff’s predecessor-in-interest, Wells Fargo, filed a complaint to foreclose the mortgage alleging a February 2010 default and an unpaid principal balance of $298,324.95. Wells Fargo voluntarily dismissed the first foreclosure. Wells Fargo then filed a second foreclosure lawsuit alleging the same default date and same unpaid principal balance, which was again voluntarily dismissed. The plaintiff filed a third foreclosure lawsuit alleging the same default and same unpaid principal balance, which was dismissed with prejudice. To avoid the single refiling rule, the servicer forgave a portion of the unpaid principal balance and brought the loan current, and then reaccelerated the loan. Thus, in 2020, the plaintiff filed the fourth (and current) foreclosure lawsuit alleging a November 2019 default, an unpaid principal balance of $243,234.06, and an additional default by the borrower for failing to pay property taxes and insurance and failing to reimburse the plaintiff for advances that the plaintiff made for property taxes and insurance.
The circuit court ultimately dismissed the fourth foreclosure with prejudice, finding that, notwithstanding the language of Moy and Coghlan, this matter was barred under both the single- refiling rule and res judicata, and Sigler was controlling. The circuit court also denied the plaintiff’s motion to reconsider, finding that Sigler is controlling and paragraph 53 of Sigler (“[o]nce the Siglers defaulted on the note and Deutsche Bank both invoked the acceleration clause and filed a foreclosure action, the contract became indivisible, and the obligations to pay each installment merged into one obligation to pay the entire balance on the note”) trumps paragraph 54 (“When a mortgagor prevails in a foreclosure action… by a dismissal with prejudice, the result is to place the mortgagor and mortgagee back in the same contractual relationship with the same continuing obligations”).
The plaintiff has now filed an appeal in the Fist District Appellate Court requesting reversal of the orders dismissing the fourth foreclosure with prejudice and denying the motion to reconsider and we continue to monitor the progress of the appeal.