Wells Fargo Bank v. Nguyen

1

2024 IL App (3d) 230253

WELLS FARGO BANK, N.A., Plaintiff, v. SANDY S. NGUYEN; PAUL P. NGUYEN; STATE FARM BANK, FSB; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., as Nominee for Corinthian Mortgage Corp., d/b/a Southbanc Mortgage; FIA CARD SERVICES, N.A., f/k/a Bank of America, N.A. (USA); CHASE BANK USA, N.A., f/k/a Chase Manhattan Bank USA, N.A., f/k/a Bank One Delaware, N.A.; UNKNOWN HEIRS AND LEGATEES OF SANDY S. NGUYEN, IF ANY; UNKNOWN HEIRS AND LEGATEES OF PAUL P. NGUYEN, IF ANY; and UNKNOWN OWNERS AND NONRECORD CLAIMANTS, Defendants.

(Samuel Sweet, in His Official Capacity as Chapter 7 Trustee of the Bankruptcy Estate of Sandy S. Nguyen and Paul P. Nguyen, Petitioner-Appellant; Wells Fargo Bank, N.A., Respondent-Appellee).

No. 3-23-0253

Court of Appeals of Illinois, Third District

April 10, 2024

Appeal from the Circuit Court of the 18th Judicial Circuit, Du Page County, Illinois, Circuit No. 09-CH-2569 Honorable Bryan S Chapman, Judge, Presiding.

Adam Goodman, of Goodman Tovrov Hardy & Johnson, LLC, of Chicago, for appellant.

Lucia Nale, Michael H. Bornhorst, and Clare E. Myers, of Mayer Brown LLP, of Chicago, for appellee.

JUSTICE BRENNAN delivered the judgment of the court, with opinion. Justices Hettel and Albrecht concurred in the judgment and opinion.

OPINION

BRENNAN, JUSTICE

¶ 1 Sandy and Paul Nguyen (debtors) were the mortgagors on a residential mortgage for the property located at 52 Jacobsen Avenue, Glendale Heights, Illinois. Wells Fargo Bank (Wells Fargo) was the mortgagee. In 2009, after the debtors failed to make timely payments, Wells Fargo filed a foreclosure complaint, alleging that the debtors defaulted on their loan. After several unsuccessful attempts at personal service, the debtors were served via publication. The debtors did not participate in the proceedings, and the property was sold to Wells Fargo in a judicial sale. The debtors were assessed a $50,000 deficiency balance. In 2010, Wells Fargo sold the property to Ross and Ryan Tinson.

¶ 2 One day after the deed was conveyed to the Tinsons, the debtors filed for Chapter 7 bankruptcy, and Samuel Sweet was appointed as the trustee of the bankruptcy estate. Their filing indicated that they did not own any interest in any real estate, and they disclosed the deficiency balance associated with the property as a liability. They obtained a discharge in bankruptcy shortly thereafter.

¶ 3 In 2017, the debtors filed a petition to quash service of process of the foreclosure complaint and summons pursuant to section 2-1401(f) of the Code of Civil Procedure (Code) (735 ILCS 5/2-1401(f) (West 2016)), arguing that Wells Fargo's service by publication was improper and, therefore, the court lacked personal jurisdiction over them (sufficiency of service claim). The court dismissed the debtors' petition and denied their motion for leave to amend, and the debtors appealed. The Second District reversed the court's ruling and remanded the case (see Wells Fargo Bank, N.A. v Nguyen, 2019 IL App (2d) 180965-U, ¶ 29), and the debtors filed an amended petition. In the meantime, the property was sold to the current owners, Patrice and Billy Frias. In response to the amended petition, Wells Fargo filed a motion to dismiss, arguing, in part, that the claim was barred by laches and judicial estoppel and that all necessary parties were not named as respondents in the petition.

¶ 4 Thereafter, debtors reopened their bankruptcy case to amend their schedules to reflect their claimed interest in the property. Sweet was reappointed as trustee of the bankruptcy estate and was substituted into the debtors' place in the prosecution of their sufficiency of service claim. The court again dismissed the petition, in relevant part, based on laches. Sweet appealed, and the Second District reversed and remanded, holding that the Friases were necessary parties to the action but had not been named as respondents. Therefore, the court's dismissal order was vacated and the case remanded. See Wells Fargo Bank, N.A. v. Nguyen, No. 2-21-0034 (2022) (unpublished summary order under Illinois Supreme Court Rule 23(c)).

¶ 5 Sweet filed another amended petition to quash service, adding the Friases as respondents. Wells Fargo filed a motion to dismiss, again arguing in relevant part that the claim was barred by laches. The court granted Wells Fargo's motion to dismiss on this basis, and this appeal followed. For the reasons set forth below, we affirm the trial court's judgment.

¶ 6 I. BACKGROUND

¶ 7 This is the third appeal in this case. In February 2004 the debtors obtained a mortgage loan from Washington National Bank to purchase the property and executed a promissory note to repay the loan in the amount of $192,000 plus interest. The note set forth monthly payments due on the first of each month and indicated that the failure to submit timely payments would result in default. The mortgage and note were later transferred to Wells Fargo. On July 7, 2009, Wells Fargo filed a foreclosure complaint against the debtors, alleging that they had not submitted mortgage payments since January 2009 and were in default.

¶ 8 A special process server attempted to serve the debtors at the property for the first time on July 9, 2009, but was unsuccessful, noting that the property was vacant, the utilities were off, garbage was strewn throughout the house, and there was a violation notice from the Village of Glendale Heights regarding the lawn posted on the door. Further investigation into the debtors' whereabouts revealed various potential addresses in both Illinois and Michigan. After 22 attempts, personal service was ultimately unsuccessful, and the debtors were served via publication. The debtors did not file a response to the complaint or otherwise participate in the foreclosure proceedings. The parties disagree as to whether the service by publication was proper, although this is not the dispositive issue on appeal.

¶ 9 On November 3, 2009, the court entered a default order and judgment for foreclosure and sale against the debtors. On January 12, 2010, the property was sold to Wells Fargo in a judicial sale. On February 9, 2010, the court entered an order approving the foreclosure report of sale and distribution and an order for possession and deed. The debtors were assessed a $50,000 deficiency balance in connection with the mortgage.

¶ 10 The property was conveyed via special warranty deed to the Tinsons on May 5, 2010. The deed was recorded on June 23, 2010. The Tinsons obtained a mortgage on the property.

¶ 11 On May 6, 2010, the debtors filed for Chapter 7 bankruptcy in the United States Bankruptcy Court for the Eastern District of Michigan. Sweet was appointed as the trustee of the bankruptcy estate. As part of their filing, the debtors completed various schedules disclosing their assets and liabilities. On "Schedule A - Real Property," they did not disclose or otherwise claim any interest in the property (or any other real estate). On "Schedule F - Creditors Holding Unsecured Nonpriority Claims," they disclosed a deficiency balance of $50,000 for the property and listed "Wells Fargo Home Mortgage" as the creditor, along with the property address. The debtors obtained a discharge in bankruptcy on August 18, 2010.

¶ 12 On May 4, 2017, debtors filed a petition to quash service in the foreclosure action, arguing that there were certain deficiencies in the service by publication process, including that the affidavit for service by publication failed to show that their place of residence could not be ascertained, the file lacked any evidence that the clerk mailed the publication to the debtors, and Wells Fargo was required to strictly comply with the statute for service by publication. 735 ILCS 5/2-206(a) (West 2008). Debtors argued that the court lacked personal jurisdiction and, thus, all orders should be vacated. The debtors named Wells Fargo, PennyMac Loan Services (PennyMac) (the Tinsons' mortgage lender), and the Tinsons as respondents.

¶ 13 In response, PennyMac filed a motion to dismiss the debtors' petition, arguing that service by publication was proper, the bona fide purchasers and lenders were protected from the claim pursuant to section 2-1401(f) of the Code (735 ILCS 5/2-1401(f) (West 2016)), the debtors' petition was moot, and the claim was barred by laches.

¶ 14 On December 8, 2017, the debtors filed an amended petition to quash service, revised to name only Wells Fargo as the respondent and narrow the scope of relief sought to solely quashing service of process. PennyMac then filed a petition to intervene, which was granted. On January 16, 2018, PennyMac filed another motion to dismiss the debtors' amended petition, arguing that the service by publication was proper and that the debtors could not divest PennyMac of its interest in the property. On April 2, 2018, Wells Fargo joined in PennyMac's motion to dismiss as it pertained to the effectiveness of the service by publication.

¶ 15 On June 27, 2018, the court dismissed the debtors' amended petition, finding that the service by publication was proper. On July 20, 2018, the debtors filed a motion for leave to file a second amended petition, which the court denied. The debtors appealed the court's decision, and the Second District reversed and remanded, holding that the voidness claim that the debtors sought to raise in their second amended petition could be raised any time. Nguyen, 2019 IL App (2d) 180965-U, ¶ 26.

¶ 16 On April 30, 2019, the property was sold in an unrelated judicial sale to the Friases. An order approving the sale was entered on May 20, 2019. PennyMac was subsequently dismissed from the instant case due to lack of interest, as it was outbid at the judicial sale and paid in full.

¶ 17 On...