Government Purchases Private Mortgage From Bank and Then Promptly Forecloses, Sidestepping Eminent Domain Protections of Property Owners

12 Replies

Has anyone heard of a state or local government agency purchasing a private note and mortgage from a bank and then foreclosing on it (instead of following the laws of eminent domain)? That is exactly what happened to us, and what MAY SET A DANGEROUS PRECEDENT for governments THROUGHOUT THE COUNTY to skirt our eminent domain procedures and protections - to just "take" private properties through judicial foreclosure (with the government agency being the "credit bidder" at the foreclosure auction - - with that advantage over all other bidders being such that they don't even try to bid and the sale goes through at a reduced price, leaving the original landowners stuck with a huge deficiency judgment).

We are appealing the local (Cook County elected) judge's rulings finding in favor of the Cook County agency's "underhanded" (the judge's word) tactics being allegedly legal - on the basis that the ruling permits the government to effect a "taking" of the owner's land without FMV compensation (in violation of eminent domain).

Likely going to have to appeal to the Illinois (and perhaps U.S.) Supreme Courts, as the local (Cook County elected) appellate judges denied our appeal at that level - - and instances of ANYTHING similar being done elsewhere in the U.S. will be EXTREMELY helpful in our gaining access to the U.S. Supreme Court (showing potential widespread problem justifying a grant of our petition for certiorari - a difficult task without similar problems occurring elsewhere as opposed to just our one individual circumstance). 

PLEASE HELP US PROTECT OUR CONSTITUTIONAL RIGHTS?? Let us know if anything similar has been, or is being done, elsewhere in the U.S.

Originally posted by @Richard Cannon :

Has anyone heard of a state or local government agency purchasing a private note and mortgage from a bank and then foreclosing on it (instead of following the laws of eminent domain)? That is exactly what happened to us, and what MAY SET A DANGEROUS PRECEDENT for governments THROUGHOUT THE COUNTY to skirt our eminent domain procedures and protections - to just "take" private properties through judicial foreclosure (with the government agency being the "credit bidder" at the foreclosure auction - - with that advantage over all other bidders being such that they don't even try to bid and the sale goes through at a reduced price, leaving the original landowners stuck with a huge deficiency judgment).

We are appealing the local (Cook County elected) judge's rulings finding in favor of the Cook County agency's "underhanded" (the judge's word) tactics being allegedly legal - on the basis that the ruling permits the government to effect a "taking" of the owner's land without FMV compensation (in violation of eminent domain).

Likely going to have to appeal to the Illinois (and perhaps U.S.) Supreme Courts, as the local (Cook County elected) appellate judges denied our appeal at that level - - and instances of ANYTHING similar being done elsewhere in the U.S. will be EXTREMELY helpful in our gaining access to the U.S. Supreme Court (showing potential widespread problem justifying a grant of our petition for certiorari - a difficult task without similar problems occurring elsewhere as opposed to just our one individual circumstance). 

PLEASE HELP US PROTECT OUR CONSTITUTIONAL RIGHTS?? Let us know if anything similar has been, or is being done, elsewhere in the U.S.

Odd but was the property condemn?

Here's an interesting article that may fit your situation: http://realestate.findlaw.com/land-use-laws/can-th...

Kudos,

Mary

The mortgage was delinquent right?  This was a traditional foreclosure auction?  If so, you're saying other bidders were afraid to bid because the plaintiff was a local municipality?  Do I have that right?

@Richard Cannon I did a little research on your case and I'd be surprised if there was another case in the entire country exactly like yours.  (By the way, it looks like your case already was appealed at the state level and the appellate judges recently unanimously affirmed the Cook County court's ruling.) 

From a quick reading of their decision, it looks like the justices found that the "government agency" (Forest Preserve in this case) could acquire property by eminent domain, but it is not required to use that method exclusively.  Apparently they also have the authority to acquire property by "gift, grant, purchase, or condemnation"; and the way by which they acquired it in this case was essentially a purchase (which they're authorized to do under the law in your state).

Just out of curiosity, I'm sure it's a complicated issue but do you think this whole situation could have been avoided if the principal and interest on your loan were paid when they became due so that foreclosure proceedings would never have been initiated in the first place?

Case was much more complex than "failed to pay". Original bank (Amcore) failed, and by the time FDIC sold its assets to Harris Bank for 70% (along with an 80% guarantee on any assets not collected), our note was lost in the shuffle and defaulted. Bank was negotiated, but government (Forest Preserve) bought the Note and then didn't want to settle for repayment of the principle - they only wanted the LAND.)

In any event, the government did NOT purchase the LAND from us at FMV. It bought the NOTE from the Bank and then foreclosed without the guaranteed FMV payment that is required by eminent domain. Careful review of the appellate briefs would show just how wrong the court's decision was - and how dangerous as a precedent.

If I, Citi bank, OR Forest Preserve buys your note, you don't pay it off when it's in default.....any of us could foreclose.  Eminent Domain does not come into play because it was not the route chosen.....so eminent domain procedures are irrelevant to this case. I'm sure there is more to the  story, which led Foret Preserve to go this route.

Some of the above posters seem to miss the point. 1 The govt didn't purchase the property, it purchased the Note and Mortgage from the Bank 2 When you borrow from a Bank, you expect its motivations will be to collect its money and will negotiate accordingly 3 The govt motivations were to keep the land not the money and thus refused to negotiate a repayment 4 Because the govt refused to negotiate it was able to foreclose just because a few payments were late Due to the FDIC and Harris acquisition 5 Because the govt has such deep pockets and is NOT financially constrained NO ONE ELSE WILL BID AGAINST the govt Especially when the govt owned the Note and thus has the ability to credit bid against the full judgment amount with interest and penalties and attorney fees without putting up any more funds 6 Eminent domain was included in our Constitution specifically for situations just like this To keep the govt from using its unlimited financial powers to unfairly take land without compensating THE OWNERS at FMV as opposed to ANY other tactics

This is very interesting.  If there are any attorneys, I'd like to hear their opinions.

@Richard Cannon correct me if I'm wrong.  You stated the govt wouldn't "negotiate".  As in, they wouldn't negotiate for less than what is owed?  What happened if you just paid the complete amount that was owed...I'd imagine they could no longer foreclose? 

I may not be understanding the situation correctly.  But I don't think this sets any precedence.  If I am current on my loan, then the government cannot just buy my loan and foreclose on it.  They can only do so if I'm not current on my loan.  I have to agree with 

@Wayne Brooks in this case. If the government wanted the land, they acted in a smart, "investor like" fashion. Why go through eminent domain and pay FMV when they could get it for less? Let's be honest, if the government in this case was a BP investor, the investor might have posted this under the "success stories" forum.

Ok, so there it is, the loan was in default. Sorry but blaming FDIC for late payments is far fetched and apparently the judge thought so too.

Often times low / non-performing notes get sold off and all that takes place is the borrower has to send there payments to the new note holder. However, in this particular case, you (the borrower) were in default FOR WHATEVER REASON and your NPN was likely discounted then sold (to the government, who unless its a HUD house generally don't take the role of landlord) and since it was a NPN they had every right to foreclose prior to the maturity date.

You may be misinterpretting the situation altogether. Its not a case of Eminent Domain if you were in default on your mortgage at the time the notes was sold just because the buyer of the note was the government. The bank has every right to sell at anytime (default or not)and of course FDIC will liquidate assets of failed banks. Basically, the only leverage you have is hard core evidence of timely mortgage payment(s) during said timeframe. Again sorry for your misfortune but default is lack of payment anyway you slice it. Doesn't matter what was going on with the bank or who purchased the note, its whether or not you made timely payments... My coin.

Kudos,

Mary

It is a shame that the OP wasn't able to even begin any type of loan modification process under the circumstances before they could blink its fast forwarded passed short-sale and straight into foreclosed. This thread is a good one and we have learned that this type of thing albeit odd and highly unfortunate can happen....

Kudos,

Mary 

Originally posted by @Richard Cannon :

Some of the above posters seem to miss the point. 1 The govt didn't purchase the property, it purchased the Note and Mortgage from the Bank 2 When you borrow from a Bank, you expect its motivations will be to collect its money and will negotiate accordingly - yes,  but you were not current on the mortgage, meaning they have no requirements by law to attempt to modify your loan and have the right (because of the documents you signed - the note and mortgage), to foreclose. 

3 The govt motivations were to keep the land not the money and thus refused to negotiate a repayment - as much as that stinks, you're correct that was their motivations and they had the right once the purchased the defaulted note and mortgage. 

4 Because the govt refused to negotiate it was able to foreclose just because a few payments were late Due to the FDIC and Harris acquisition 5 Because the govt has such deep pockets and is NOT financially constrained NO ONE ELSE WILL BID AGAINST the govt Especially when the govt owned the Note and thus has the ability to credit bid against the full judgment amount with interest and penalties and attorney fees without putting up any more funds - yes, and unfortunately that's the name of the game. I don't think people didn't bid because it's the government who foreclosed but because the opening bid amount to the final judgement amount which was probably much higher than your property was worth, thus no one wanted to bid on it.

I'm sorry to hear about your story, but everything they did was legal on their end and you signed the documents allowing them to take that action. 

I'd say your attorney needs to get to federal court. IL is a lien state, a note holder is entitled to amounts owing and judicial foreclosure is usually required, since it was the state, I'd say there was prejudice as any other note holder would be required to sell the collateral. That's buying the note, if they went to public sale and bought the property, you're out of luck. 

I don't think that any government agency would intimidate others from bidding, my thinking would be, how bad does the agency want it, as long as my bid price was good for me, I don't care who bids against me. 

As to the tactics, doesn't surprise me, any county that lets dead people vote could come up with this, but, it was being sold, they can purchase just as anyone else can. The real issue seems that it was an agency who had other means, there is nothing requiring the agency to take that course of action that is best for an owner, that seems to be the gripe. Other buyers don't have those alternatives, had I bought it there wouldn't be an issue it seems. Again, it should never have gotten to the point of default. Sorry, seems like they played by the rules. :)  

The post lacks details but we can fill the gaps in with customary practices and procedures. Original bank failed. If the loan was in servicing at that bank then servicing would have transferred under FDIC guidelines. Then FDIC would have found a buyer for the asset. All the while a servicer was still present. Borrowers are required to maintain payments throughout the life of the loan regardless of the status of the loan investor. Any which way that issue is only applicable to the judicial foreclosure.

Foreclosure in IL, as stated, is judicial.  Not quick by any means.  So the Borrower would have received service of process of the foreclosure complaint and had the legal chance to answer that complaint.  It is not clear if the OP/Borrower answered the compliant.  That is where you would have brought up the issue with changing servicer, if that added to the event of default.  If you didn't respond, well then the process takes place and you didn't defend yourself even though you had a right to.

Next the foreclosure process in every state affords the Borrower a right or equity of redemption.  That is, even though you have a judgement of foreclosure you still have one last chance to redeem the property from the debt by paying the total due.  The mortgagee has no obligation to take less than what is totally due.  In IL the redemption runs 7 months in step with notice of foreclosure or 3 months post judgement of foreclosure (the last part of the judicial foreclosure cycle - excluding auction).  So that was your second line of defense and you did not seem to act on it.   

So to be clear there is zero issue with the foreclosure.  You had two chances and it doesn't seem you acted on them.  All legal and fair.

As far as the DOF goes.  The question would be does the DOF have authority to make a loan purchase?  I can see how the answer to that question is actually "NO".  

To pause there for other readers and explain what that part of the post is about. The DOF purchased the loan not property and as such became the mortgagee and exercised their rights of the mortgagee to foreclose. At any time a full payment of all amounts due could have been tendered by the Borrower - through refinance, cash, sale or alike - and the loan would be paid off and the foreclosure vacated.

Purchasing a loan and foreclosing is not an "underhanded" way of getting a property. It may seem or feel like that but that is the system we have. The mortgagee is not entitled to the property but if the auction bid does not exceed the reserve set by the mortgagee the property will revert to the mortgagee. The mortgagee, no matter who they are, is under no obligation to accept less than the total due on the loan including all principal, interest, fess and advances.

So now, back to the authentic possible issue. Does the DOF have authority to purchase a loan? Purchasing a loan is not purchasing a property and can not necessarily be described as such since a mortgagee is not entitled to the property. In the event the loan is paid off the DOF looks like an investor. Certainly not their role. In the event the loan gets reinstated they become a Mortgagee or Mortgage Investor. Again outside of their specific charter and role within the government.

This is why you would likely have to elevate this to federal court. That is where the issue would be litigated. Not state level. You are questioning the role and practice of the agency. That is a federal matter. The state will only look to the foreclosure being just and legal which it was and is.

So in the event you can get a federal court to rule in your favor, that is, a federal judge says that the DOF can not invest in loans for this or any other reasons because it is outside of their charter and order then the next question we have is what does it mean to you?

Probably a big huge mess. If the fed says they could only be a real property purchaser then their purchase price is subject to fair market value. I am guessing your loan is upside down. So the previous mortgagee would have the option to take a short or not. So that means, I guess, the fed would have to reverse all the way back to the loan purchase. I suppose the fed could fine them somehow and remove their capacity to seek deficiency from you as a cleaner alternative but that sort of let's them do what they were not suppose to. Not sure how a judge would see all of that.

What we probably can bank on is that no where here does the Borrower/OP come out with cash in hand. I don't see that because the fact still stands as a borrower with a mortgage you defaulted and were foreclosed on. That is separate from the DOF trying to do something they are not supposed/allowed to do. So in that, the OP/Borrower was not really ever alienated or hurt as the same outcome would have happened with any other mortgagee.

So then, any outlay of capital to pursue this case federally may not be recovered. I would think the best you can hope for is that any right to deficiency by the mortgagee is void. With that in mind, the DOF certainly should not be out seeking a deficiency. They are not in that business. Could they sell the rights? Yes. However again not the business they are in.  So to that, I am not sure I would fear being pursued and if they did you probably have a case to fight the deficiency (which is a whole other legal process).

So sorry to hear about all of this. However let's not imply that constitutional rights are being trampled or this is some government conspiracy to skirt eminent domain. An eminent domain payment probably would not have satisfied your mortgage anyway. Could a government agency attempted to pursue an asset in manner which is perfectly accepted in the market place but not allowed by the order of this department? Yes. That is why we have things like federal court to keep them in line when they do mess up. Also, you had your rights upheld in state court with the foreclosure process. So the constitution and systems in place are all working properly. Just not in your favor. Good luck. 

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