Christopher W. Carmichael is a Partner and Darren H.
Goodson is an Associate in our
Since 2008, lenders in Illinois have faced heightened scrutiny
and a sharp rise in lender liability claims. Nevertheless, Illinois
appellate courts have recently favored lenders by upholding
existing statutory protections and enforcing the written terms
found in loan documents.
Among other things, Illinois courts are enforcing the strict
terms of guaranties and imposing sanctions for borrower delay
tactics, and have confirmed that settlement agreements must comply
with the state's Credit Agreements Act.
Court Confirms that Settlement Agreements Must Comply with
Credit Agreements Act
In Van Pelt Construction, Co. v. BMO Harris Bank, N.A.,
2014 IL App (1st) 121661 (March 27, 2014), that court confirmed the
Illinois Credit Agreements Act reaches any agreement involving a
loan. At issue in Van Pelt was a deed in lieu, but the
ruling should apply to any agreements to resolve a defaulted loan.
Van Pelt confirmed that any credit related agreement must:
(1) be in writing, and (2) be signed by both parties. Merely
exchanging emails, which was at issue in Van Pelt, is not
sufficient because there is no document signed by the parties.
Courts Are Enforcing the Strict Terms of Guaranties
Courts are adhering to and enforcing the strict language found
in guaranties. For example, in JP Morgan Chase Bank v.
East-West Logistics, L.L.C., 2014 IL App (1st) 121111 (March
31, 2014), the court held that a guarantor can be pursued for the
full amount due under the loan, without the bank first seeking
recourse from the borrower. The court found that the terms of the
guaranty, which included the "unconditional guaranty" of
payment of all liabilities of the borrower, served as an
"unlimited" guaranty, allowing the bank to seek payment
from the guarantor upon the borrower's default. The JP
Morgan court went on to enforce a waiver of rights and defense
provision found in the guaranty, stating that when the waiver is
clear and unambiguous, the guaranty agreement will be given full
effect even when it contains broad statements of guarantor
Predecessor Bank Records Admissible under Business Records
Exception to Hearsay Rule
When the bank that originated the loan is not the bank
foreclosing, commercial borrowers often contend that the successor
bank cannot use the predecessor bank's records without someone
from the prior bank actually testifying. The court in Bank of
America v. Land, 2013 IL App (5th) 120283 (July 31, 2013) was
the first in Illinois to directly reject that argument. The court
in Land held that a bank may establish a proper foundation
for admitting a prior bank's business records under the
business records exception to the hearsay rule. The court in
Land found that records from the predecessor bank are
admissible as long as a bank employee is able to attest that the
documents were kept and transferred in the ordinary course of
Courts Impose Sanctions for Borrower Delay Tactics
Too many borrowers raise frivolous defenses to foreclosures with
little repercussion. These defenses delay foreclosures, clog the
court system and increase costs. The appellate courts, which only
see a fraction of the foreclosure cases on appeal, issued a warning
in Parkway Bank & Trust Co. v. Korzen, 2013 IL App
(1st) 130380 (September 23, 2013) that borrowers who bring
non-meritorious defenses and use other tactics solely to delay the
ultimate resolution of the foreclosure will be sanctioned. The
court in Korzen specifically decided to publish its
opinion because most of the non-meritorious foreclosure appeals are
decided by unpublished orders. By issuing a published opinion, the
court put everyone on notice that borrowers pressing similar
appeals will be subject to sanctions.
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about your specific circumstances.
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