One time too many: the Illinois Supreme Court provides guidance on the single-refiling rule in the mortgage loan context

One important consideration for banks and their attorneys in foreclosure litigation is whether to seek a personal deficiency judgment against the borrowers. Illinois courts have long held that plaintiffs may seek foreclosure of the mortgage and a deficiency judgment on the note consecutively or concurrently. When plaintiffs pursue these remedies consecutively, though, they risk running afoul of the single-refiling rule. Section 13-217 of the Illinois Code of Civil Procedure provides, in part, that a plaintiff may voluntarily dismiss a lawsuit and then refile its claims within one year or within the remaining limitations period, whichever is greater. In Flesner v. Younger Development Co., the Illinois Supreme Court interpreted this provision to allow only one refiling of the dismissed claims—hence, the “single-refiling rule.”

Applicability of the single-refiling rule

In a recent case, First Midwest Bank v. Cobo, the Illinois Supreme Court provided guidance on the application of the single-refiling rule to the mortgage loan context. There, the plaintiff bank’s predecessor-in-interest filed a mortgage foreclosure lawsuit against the borrowers; the prayer for relief requested, among other things, “a personal judgment for deficiency, if sought.” After acquiring the loan, the bank voluntarily dismissed the foreclosure. Shortly thereafter, the bank filed a new action against the borrowers for breach of the promissory note, which it ultimately dismissed on the eve of trial. The bank then filed a third lawsuit against the borrowers for breach of the note. The question before the court was whether the third lawsuit was the first or second refiling of the breach-of-note claim. In order words, the court had to determine whether the foreclosure and note actions asserted the same cause of action.

The Supreme Court held that “a lawsuit for breach of a promissory note asserts the same cause of action as a prior foreclosure complaint when that foreclosure complaint specifically requested a deficiency judgment based on the same default of the same note.” To reach that result the court applied the transactional test, which treats separate claims as the same cause of action “if they arise from a single group of operative facts.” Specifically, the court found that all three lawsuits relied on the same default date on the note, they sought the same principal balance and, most importantly, the foreclosure lawsuit requested a personal deficiency judgment. Thus, the deficiency claim in the foreclosure action and the breach of note lawsuits asserted the same cause of action. Consequently, the court held that the third lawsuit was the second refiling of the note claim and was barred by the single-refiling rule.

Foreclosure language is crucial

The third factor in the court’s analysis is particularly noteworthy for practitioners. The bank had argued that it relied on language in the form foreclosure complaint specified in Section 1504 of the Illinois Mortgage Foreclosure Law and should not be punished for doing so. The relevant language—requesting a “personal judgment for a deficiency, if sought”—is routinely included in foreclosure complaints, regardless of whether the plaintiff is actually seeking a deficiency judgment; that determination is often not made until after the judicial sale occurs. However, the court found that this language is not automatically required in every foreclosure complaint and can be tailored to the individual case at hand.

First Midwest Bank v. Cobo provides clear guidance to practitioners for avoiding single-refiling rule issues in the mortgage loan context. Plaintiffs should determine at the outset of foreclosure litigation whether they are seeking a personal deficiency judgment against the borrowers and specify accordingly in the complaint, rather than including the more generic language specified in the foreclosure statute. This removes any doubt whether subsequent litigation is permitted. 

Feel free to consult with a Chuhak & Tecson attorney who will be happy to answer questions regarding this topic.

Client alert authored by: Aaron D. White Jr., Associate

This alert originally appeared in the Winter 2019 Banking Focus newsletter.