Old Second National Bank v. Jafry

2016 IL App (2d) 150825, 57 N.E.3d 1251

• Court: Appellate Court of Illinois
• Decided: June 28, 2016
• Docket: 2-15-0825
• Status: Unpublished

Opinion

2016 IL App (2d) 150825 No. 2-15-0825 Opinion filed June 28, 2016 ______________________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT ______________________________________________________________________________

OLD SECOND NATIONAL BANK, ) Appeal from the Circuit Court ) of Du Page County. Plaintiff-Appellee, ) ) v. ) No. 12-CH-5000 ) SYED N. JAFRY and ASMAT Z. JAFRY, ) Honorable ) Robert G. Gibson, Defendants-Appellants. ) Judge, Presiding. ______________________________________________________________________________

JUSTICE BURKE delivered the judgment of the court, with opinion. Justice Hudson concurred in the judgment and opinion. Presiding Justice Schostok dissented, with opinion.

OPINION

¶1 Defendants, Syed and Asmat Jafry, were guarantors on a real estate loan extended by

plaintiff, Old Second National Bank (the Bank). After a loan default, the Bank obtained a

judgment of foreclosure on the property. At the sheriff’s sale, the Bank purchased the property

for $900,000. The trial court approved the sale and entered a deficiency judgment of $577,876.

Four months later, the Bank sold the property for $1,320,000. The Bank thereafter initiated

enforcement proceedings against defendants, seeking the full deficiency judgment of $577,876,

plus interest. Defendants responded with a petition for setoff, arguing that allowing the Bank to

obtain a substantial profit from the resale of the property as well as the full deficiency judgment

would constitute an improper double recovery. The trial court disagreed and dismissed 2016 IL App (2d) 150825

defendants’ petition. We hold that, when a mortgagee obtains a deficiency judgment against the

mortgagor in a foreclosure action, purchases the property at a judicial sale, and then resells it to a

third party for an amount that exceeds the price paid at the judicial sale, the mortgagor is not

entitled to a setoff in the mortgagee’s enforcement proceedings to recover the deficiency

judgment, because the foreclosure terminates the mortgagor-mortgagee relationship. If the

mortgagor fears that the mortgagee will obtain a windfall in purchasing the property at a judicial

sale, the mortgagor may attempt to sell the property himself before foreclosure or challenge the

confirmation of sale under the Mortgage Foreclosure Law (Foreclosure Law). See 735 ILCS

5/15-1508(b) (West 2014). Here, defendants neither attempted to sell the property nor appealed

their unsuccessful challenge to the confirmation of sale. We affirm.

¶2 I. BACKGROUND

¶3 On June 19, 2013, the trial court entered a judgment of foreclosure and sale with respect

to the property at 720 Crescent Street in Wheaton. The judgment reflected an outstanding loan

balance of $1,362,329. Defendants were the guarantors on the loan. On June 19, 2014, the

Du Page County sheriff’s office conducted a public sale of the property. The Bank was the only

bidder, purchasing the property for $900,000.

¶4 Defendants contested confirmation of the judicial sale, on the basis that the Bank’s bid

was unconscionably low. Defendants submitted an appraisal, dated July 11, 2014, which valued

the property at $1,280,000. The Bank submitted two appraisals that valued the property between

$1,000,000 and $1,060,000.

¶5 On August 26, 2014, the trial court entered an order approving the sale at $900,000 and

entering a deficiency judgment of $577,876 against defendants. Defendants did not appeal from

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that order. Four months later, on December 15, 2014, the Bank sold the property to a third party

for $1,320,000.

¶6 On February 17, 2015, the Bank initiated enforcement proceedings against defendants,

seeking the full deficiency judgment of $577,876, plus interest. On April 15, 2015, defendants

filed a petition for equitable setoff, requesting a $420,000 reduction in the deficiency judgment,

to reflect the difference between the Bank’s winning bid at the judicial sale in June 2014 and the

resale price in December 2014.

¶7 On May 19, 2015, the Bank moved to dismiss defendants’ petition pursuant to section 2-

615 of the Code of Civil Procedure (the Code) (725 ILCS 5/2-615 (West 2014)). On July 15,

2015, the trial court dismissed defendants’ petition, explaining that, in the foreclosure context, a

claim for setoff is unavailable, because (1) it could cause foreclosure proceedings to drag on

indefinitely and (2) in some cases it would be impossible for the trial court to determine the

setoff amount. Defendants thereafter filed a timely notice of appeal.

¶8 II. ANALYSIS

¶9 Defendants contend that the trial court erred in denying them a setoff following the

foreclosure. They argue that Illinois has a longstanding policy against double recoveries and that

this policy should apply equally to all enforcement actions, including those in the foreclosure

context. They insist that a judgment debtor should be allowed to seek a setoff when the

judgment creditor has recovered all or part of a loan deficiency before the creditor initiates

proceedings to enforce a deficiency judgment.

¶ 10 A motion to dismiss filed under section 2-615 attacks the legal sufficiency of a pleading.

Vernon v. Schuster, 179 Ill. 2d 338, 344 (1997). The section 2-615 motion cannot raise

affirmative factual defenses, but must allege only defects on the face of the pleading. Id. When

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considering a section 2-615 motion, the trial court accepts as true all well-pleaded facts and all

reasonable inferences that reasonably flow therefrom. Napleton v. Village of Hinsdale, 229 Ill.

2d 296, 320 (2008). A cause of action may not be dismissed on the pleadings unless it is clear

that no set of facts can be proved that will entitle the claimant to relief. Vernon, 179 Ill. 2d at

344. The standard of review on appeal from an order granting a motion to dismiss for failure to

state a cause of action is de novo. Marshall v. Burger King Corp., 222 Ill. 2d 422, 429-30

(2006).

¶ 11 Although the issue presented is one of first impression in this state, our analysis is guided

by long-recognized principles here and elsewhere. Those principles include that a purchaser at a

foreclosure sale takes under the decree and not under the mortgage or trust deed, and therefore

the purchaser’s rights are not dependent on any privity of contract between the purchaser and the

mortgagor. Powell v. Voight, 348 Ill. 605, 609 (1932). As such, where a mortgagee by purchase

at a foreclosure sale acquires a certificate of purchase, a new relationship is thereby created,

which is in no way dependent on, or influenced by, the prior contract between the mortgagee and

the mortgagor. Johnson v. Zahn, 380 Ill. 320, 325-26 (1942). In other words, the foreclosure

ends the mortgagor-mortgagee relationship and “vests in the purchaser at the foreclosure sale all

the rights, title, and interest of [both the mortgagor and] the mortgagee.” 59A C.J.S. Mortgages

§ 1208 (2016).

¶ 12 Defendants reject the long-held principle that the foreclosure exhausted all of their rights

in the property. They claim that, after the foreclosure, they retained a right of setoff or equitable

setoff. Neither concept applies.

¶ 13 Setoff refers to “a defendant’s request for a reduction of the damage award because a

third party has already compensated the plaintiff for the same injury.” (Emphasis omitted.)

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Thornton v. Garcini, 237 Ill. 2d 100, 113 (2010). The right to setoff is derived from either a

contractual right or equity. Brannen v. Seifert, 2013 IL App (1st) 122067, ¶ 95. Without a

contractual right, there is no inherent right to setoff in equity; rather, equitable setoff was

conceived as a limited remedy. Id. A right to setoff in equity arises only if the indebtedness is

certain and already reduced to a precise figure without a need for the intervention of a court or

jury to estimate it. Id.

¶ 14 Courts have approved an award of setoff where the defendant’s insurance company made

payments on his behalf (Klier v. Siegel, 200 Ill. App. 3d 121, 128 (1990)) or where a co-

defendant made payments for the same underlying injury (Thornton, 237 Ill. 2d at 113-14; Star

Charters v. Figueroa, 192 Ill. 2d 47, 48 (2000)). However, we are aware of no case, and

defendants cite none, where a defendant has been entitled to a setoff or equitable setoff because a

third party, who had no relationship with the defendant, made a payment to the plaintiff.

¶ 15 At oral argument, defendants acknowledged that this case does not fall precisely under

the traditional definitions of setoff or equitable setoff, but they asked us to create a new type of

setoff based on a court’s inherent equitable powers. What defendants propose is a broad and

flawed expansion of the setoff doctrine that is not equitable at all. For example, if a third party

had purchased the property at the sheriff’s sale, defendants would have no recourse against that

third party to reduce the deficiency judgment held by the Bank. See Johnson, 380 Ill. at 325-26.

Yet, defendants insist that, because it was the Bank holding their mortgage that also bought the

property, the Bank should be held to a different standard. The same argument was considered

and rejected as contrary to “logic, justice, and common sense” in Kentucky Joint Stock Land

Bank of Lexington v. Farmers Exchange Bank of Millersburg, 119 S.W.2d 873, 877 (Ky. Ct.

App. 1938).

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¶ 16 In Kentucky Joint Stock, the debtor borrowed $20,000 from a bank to purchase land. The

debtor failed to timely repay the loan, and the bank foreclosed on the property. At a court-

ordered sale, the bank purchased the property for $13,071, which was approximately 50% above

the appraised value. The bank sought a deficiency judgment, which was denied. Id. at 875-77.

¶ 17 The bank appealed, but the debtor sought to dismiss the appeal on the grounds that the

bank had since sold the property for an amount that exceeded its purchase price at the court-

ordered sale and was sufficient to extinguish the deficiency judgment. The debtor asserted that,

even after the property was sold at the court-ordered sale, the property continued as the primary

fund for payment of the debt. The debtor claimed that the property remained as a lien for the

debt until it was sold to a stranger for the debt. Id. at 877.

¶ 18 The reviewing court rejected this argument, holding that, upon completion of the court-

ordered sale, under the law as well as “logic, justice, and common sense,” the purchaser obtained

an unencumbered title to the property, regardless of whether that purchaser was the holder of the

secured debt or a stranger to the debt. The reviewing court found that, “without some agreement

or conduct on [the bank’s] part creating a different result,” it did not matter whether the

purchaser was the plaintiff in the enforcement proceedings or a stranger to such proceedings.

Accordingly, the reviewing court denied the debtor’s motion to dismiss. Id.

¶ 19 Kentucky Joint Stock was decided in a foreign jurisdiction nearly 80 years ago, but its

rationale remains compelling and consistent with the setoff doctrine in Illinois today. Other than

sympathy for the judgment debtor, there is no reason to treat a bank differently than a third party

who purchases the property at the court-ordered sale. To hold otherwise would contravene the

long-recognized principles that a purchaser at a foreclosure sale obtains all rights to the property

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(59A C.J.S Mortgages § 1208 (2016)) and that the foreclosure sale terminates the relationship

between the mortgagor and the mortgagee (Johnson, 380 Ill. at 325-26).

¶ 20 Defendants’ breach of contract was unrelated to the compensation the Bank received

from the third-party purchaser of the property. The foreclosure action terminated the mortgagor-

mortgagee relationship, and the Bank obtained an unencumbered right of ownership at the

judicial sale, which conferred the right to sell it to a third party. The Bank is not receiving an

improper double recovery for the same injury (see Klier, 200 Ill. App. 3d at 125-27 (Illinois has a

strong public policy against a plaintiff’s double recovery for the same injury)), and the

deficiency judgment represents a single satisfaction of defendants’ debt (see Partel Inc. v. Harris

Trust & Savings Bank, 106 Ill. App. 3d 962, 964-66 (1982)), regardless of how the value of the

property changed between the dates of the two sales.

¶ 21 Defendants frame the issue as one of equity, but their setoff claim is effectively a request

to reopen the judgment and modify the deficiency based on the resale price. Reopening the

judgment under the guise of awarding a setoff would undermine the finality of the judicial sale

and require a full evidentiary hearing on the amount and reasonableness of the mortgagee’s

expenses for maintaining and improving the property and the fluctuations in the real estate

market between the confirmation of the judicial sale and the sale of the property to a third party.

The need for such an estimation simply does not fit the parameters of an equitable setoff, as the

reduction in the indebtedness could not be ascertained without the intervention of a court. See

Brannen, 2013 IL App (1st) 122067, ¶ 95. Indeed, the dissent would remand this case for

additional proceedings to determine the costs incurred by the Bank in reselling the property.

¶ 22 Moreover, a truly equitable solution would run both ways. No one disputes that, when a

mortgagee resells a property for less than it paid at the judicial sale, it may not recover the

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difference in enforcement proceedings against the mortgagor. This is so because the mortgagor’s

interest in the property is extinguished by the judicial sale and because the mortgagee’s interest

following that sale confers the right to exclusive possession, which could result in improvement

or deterioration of the property. When the mortgagor-mortgagee relationship ends with the

judicial sale, the debtor loses any input over how the property will be maintained, and thus he

faces no liability for potential losses incurred by the lender. The debtor is neither liable for

future losses nor entitled to future gains. Certainly, defendants are not advocating a rule

whereby a judgment creditor could recover in enforcement proceedings an amount exceeding the

deficiency judgment.

¶ 23 Also, defendants’ proposed new rule might lead to problematic and unintended

consequences. First, they argue that, unlike a “stranger to a debt,” a lender is in a position to

manipulate a sheriff’s sale to its benefit, because the lender sets the opening bid and routinely is

the only bidder, resulting in maximization of the deficiency judgment. On the contrary, the

possibility of a setoff in enforcement proceedings might give the lender a perverse incentive to

not bid on the property at all, resulting in a lower purchase price and a greater deficiency.

¶ 24 Second, defendants’ proposed expansion of the setoff doctrine might cause the real estate

market to stagnate unnecessarily. A lender who chooses to purchase the mortgaged property by

judicial sale would be inclined to avoid a setoff by retaining ownership, to the extent that such

retention is lawful, until the deficiency-judgment enforcement proceedings concluded. Third,

defendants advocate a rule that could expand to cover all secured transactions besides mortgages.

¶ 25 The underlying sentiment of defendants’ argument is that the Bank should not be allowed

to abuse its power as an opportunistic lender. However, mortgagors in defendants’ position can

take steps to prevent this type of perceived profiteering by mortgagees.

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¶ 26 First, defendants could have attempted to sell the property themselves, reaping an

apparently steep appreciation in its value, before the foreclosure proceedings deprived them of

the opportunity to do so. Defendants did not take advantage of the changing market to limit their

exposure on the loan, and their failure to act allowed the Bank to obtain a $577,876 deficiency

judgment and a $420,000 gain on the resale. The Bank’s transactions were independent of one

another and, though favorable to the Bank, do not constitute a double recovery.

¶ 27 Defendants do not allege that the Bank interfered with their right to dispose of the

property, and they offer no explanation for declining to do so. Defendants contend that their type

of setoff claim following a foreclosure is “rare,” because their situation is rare. Such rarity can

be explained by the fact that a similarly-situated mortgagor would be expected to recognize and

act on his position by selling the property before the mortgagee foreclosed on the property,

bought it at the judicial sale, and resold it for more than it paid. The Bank exercised its

contractual rights when defendants did not.

¶ 28 Second, section 15-1508(b) of the Foreclosure Law safeguards debtors, stating that the

judicial sale shall be confirmed “[u]nless the court finds that (i) a notice required in accordance

with subsection (c) of section 15-1507 was not given, (ii) the terms of sale were unconscionable,

(iii) the sale was conducted fraudulently, or (iv) justice was otherwise not done.” 735 ILCS

5/15-1508(b) (West 2014). If a lender’s bid is unconscionably low, section 15-1508(b)

authorizes the trial court to invalidate the sale.

¶ 29 Even if we determined that it was appropriate to treat lenders and third parties differently

in the context of the judicial sale of real estate, defendants still would not be entitled to equitable

relief in this case. Defendants, in fact, availed themselves of the opportunity to challenge the

confirmation of sale by arguing that the Bank’s bid was unconscionable and that “ ‘justice was

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otherwise not done.’ ” Wells Fargo Bank, N.A. v. McCluskey, 2013 IL 115469, ¶ 18 (quoting

735 ILCS 5/15-1508(b) (West 2014)). Defendants contested the confirmation of sale by

presenting an appraisal that the property was worth $380,000 more than the Bank’s bid, but they

did not appeal the trial court’s order that confirmed the sale. Defendants’ failure to appeal

precludes us from granting them equitable relief. See In re Estate of Mondfrans, 2014 IL App

(2d) 130205, ¶ 26 (party not entitled to equitable relief where he was not diligent in preserving

his rights).

¶ 30 Perhaps the outcome would have been different if the Bank had bid on the property with

an agreement for its resale to a third party already in place or otherwise engaged in nefarious

activity to thwart defendants’ exercise of their rights. See Kentucky Joint Stock, 119 S.W.2d at

877. However, defendants do not allege any such misconduct by the Bank. Under the

undisputed circumstances of this case, we conclude that the trial court did not err in granting the

Bank’s motion to dismiss defendants’ petition for a setoff.

¶ 31 III. CONCLUSION

¶ 32 We hold that, when a mortgagee obtains a deficiency judgment against the mortgagor in a

foreclosure action, purchases the property at a judicial sale, and then resells it to a third party for

an amount that exceeds the price paid at the judicial sale, the mortgagor is not entitled to a setoff

in the mortgagee’s enforcement proceedings to recover the deficiency judgment. because the

foreclosure terminates the mortgagor-mortgagee relationship. Thus, the trial court did not err in

dismissing defendants’ petition for a setoff.

¶ 33 For the reasons stated, the judgment of the circuit court of Du Page County is affirmed.

¶ 34 Affirmed.

¶ 35 PRESIDING JUSTICE SCHOSTOK, dissenting:

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¶ 36 The paramount consideration of this court is always to ensure that justice is done.

Lambert v. Downers Grove Fire Department Pension Board, 2013 IL App (2d) 110824, ¶ 39;

see also McCloud v. Rodriguez, 304 Ill. App. 3d 652, 658 (1999) (court’s duty is to ensure that

justice is rendered to every party). Because I do not believe that the decision in this case is just, I

must respectfully dissent.

¶ 37 The majority’s reliance on Kentucky Joint Stock is misplaced, as there is indeed a reason

to treat a bank differently than a third party who purchases the property at the court-ordered sale.

Unlike a “stranger to the debt,” a bank is in a position to manipulate the sheriff’s sale to its

benefit. The bank is the one that sets the opening bid at the sheriff’s sale, is typically the only

one that bids at the sheriff’s sale, and is in a position to control the size of the deficiency

judgment. Although debtors can contest the confirmation of the sale, they have a very high

burden to overcome to actually have the sale set aside. That is because, once a foreclosed

property has been sold at a sheriff’s sale, the trial court must enter an order confirming the sale

unless it finds that: “ ‘(i) proper notice of the sale was not given; (ii) the terms of the sale were

unconscionable; (iii) the sale was conducted fraudulently; or (iv) justice was otherwise not

done.’ ” Wells Fargo Bank, N.A., 2013 IL 115469, ¶ 18 (quoting 735 ILCS 5/15-1508(b) (West

2014)). Indeed, the trial court confirmed the sale here even though the Bank’s purchase price

was $380,000 less than what the defendants’ appraiser said the property was worth and $100,000

to $160,000 less than what the Bank’s own appraisers said the property was worth.

¶ 38 Based on a bank’s ability to manipulate the sheriff’s sale to its benefit, there are several

reasons why a debtor should be entitled to an equitable setoff against a deficiency judgment

when his creditor is able to resell the property shortly after purchasing it at the sheriff’s sale.

First, Illinois has a strong public policy against a plaintiff’s double recovery for the same injury.

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Klier, 200 Ill. App. 3d at 125-27. The purpose of awarding compensatory damages is to make

the injured party whole and restore the party to the position it was in before the loss. Harris v.

Peters, 274 Ill. App. 3d 206, 207 (1995). The double-recovery rule is derived primarily from

principles of unjust enrichment. US Airways, Inc. v. McCutchen, 569 U.S. ___, ___, 133 S. Ct.

1537, 1545 (2013). Compensatory damages are not intended to bestow a windfall on the

plaintiff or to punish the defendant. Mulligan v. QVC, Inc., 382 Ill. App. 3d 620, 630 (1998).

¶ 39 Second, Illinois courts have found that a mortgagee is entitled to a single satisfaction of

his debt, and no more. See Partel, Inc. v. Harris Trust & Savings Bank, 106 Ill. App. 3d 962,

964-66 (1982) (affirming the trial court’s application of insurance proceeds to reduce the

deficiency judgment amount because the mortgagee is entitled to recover only his debt); Skach v.

Lyndon, 16 Ill. App. 3d 610, 614 (1973) (in dicta, court found that a creditor in foreclosure

action was limited to one satisfaction); In re Linane, 291 B.R. 457, 461 (N.D. Ill. Bankr. 2003)

(in dicta, court found that a creditor has “the right in any foreclosure proceedings to proceed

against the property and, in addition to secure a money judgment for any deficiency, provided

the creditor receives only one satisfaction” (internal quotation marks omitted)). Although some

of the above cases made the relevant findings in dicta, those findings may still be considered as

persuasive authority. Ko v. Eljer Industries, Inc., 287 Ill. App. 3d 35, 41 (1997).

¶ 40 Third, finding that a debtor is entitled to a setoff is consistent with the principle,

enunciated by our supreme court, that the duty to mitigate one’s damages applies to virtually all

cases in which a money judgment or award is sought. Kelly v. Chicago Park District, 409 Ill. 91,

98 (1951).

¶ 41 Fourth, finding that setoff relief is potentially available is consistent with recent rule

changes enacted by our supreme court that are “designed to force lenders to become more active

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in the loss-mitigation aspect of foreclosure litigation.” Adam W. Lasker, New Supreme Court

Rules Promote Foreclosure Mediation, 101 Ill. B.J. 170, 171 (2013). Although the new rules

pertain to actions mortgagees should take prior to initiating foreclosure proceedings, the

underlying policy considerations expressed therein by the supreme court are still relevant to this

case.

¶ 42 Based on the above principles, it is apparent that a debtor in a foreclosure action may

seek a setoff against his creditor in the enforcement proceedings of a deficiency judgment if the

creditor has been able to resell the property prior to the commencement of the enforcement

proceedings and has been able to recover some of its losses. This holding is consistent with the

principle that a mortgagee is entitled to only one satisfaction of his debt. To hold otherwise

would offend public policy, as it would allow the mortgagee, who has been able to mitigate some

of his losses, a double recovery against a debtor who has just lost his property to foreclosure. As

such, I would find that the trial court erred in dismissing the defendants’ petition for setoff relief.

¶ 43 In so finding, I would reject the Bank’s argument that the defendants’ pleadings were

insufficient because the injury incurred due to the defendants’ breach of contract was unrelated

to the compensation the Bank received from a third party. The defendants alleged that they were

indebted to the Bank due to a mortgage foreclosure. The defendants further alleged that the

Bank had already been partially compensated for its losses when it was able to resell the property

for a substantial profit. The fact that the Bank was able to recover some of its losses from a third

party without any assistance from the defendants is not a basis to deny a setoff. See Eberle v.

Brenner, 153 Ill. App. 3d 700, 702 (1987) (a plaintiff who has recovered for his damages should

have no basis to complain because a defendant benefitted from a setoff). Accordingly, the

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defendants’ allegations were sufficient to inform the Bank of the basis on which they were

seeking an equitable setoff.

¶ 44 Also without merit is the Bank’s contention that granting a debtor a setoff under the

circumstances of this case would be inappropriate because it would (1) diminish the finality of

judicial sales; (2) lengthen foreclosure litigation; (3) deprive the plaintiff of its property and grant

new property rights to the defendants; and (4) lead to an unmanageable increase in litigation.

¶ 45 This case has nothing to do with the finality of a judicial sale or depriving the Bank of

any of its ownership rights. Following the sheriff’s sale, the Bank had a 100% ownership

interest in the property and could do whatever it wanted with it. See 59A C.J.S. Mortgages

§ 1208 (2016). However, once the Bank sold the property for over $400,000 more than the

purchase price it paid at the sheriff’s sale, the issue became, could it still seek the full deficiency

judgment without any setoff? For the reasons discussed above, I believe that it could not.

¶ 46 The Bank’s argument that granting the defendants setoff relief against the deficiency

judgment will lengthen foreclosure litigation is contradicted by the facts of this case. Here, the

Bank had already resold the property by the time it initiated proceedings to enforce the

deficiency judgment. Thus, the trial court could address the defendants’ petition for setoff in a

timely fashion.

¶ 47 Moreover, the Bank’s concern that potentially allowing a debtor a setoff against a

deficiency judgment will lead to an “unmanageable increase in litigation” is unfounded. To give

rise to a right of setoff in equity, the indebtedness must be certain and already reduced to a

precise figure without a need for the intervention of a court to estimate it. Brannen, 2013 IL App

(1st) 122067, ¶ 95. Based on this high threshold to obtain setoff relief, few defendants in

foreclosure actions will actually be able to successfully petition for such relief. Indeed, the

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applicable case law suggests that it is a rare occurrence when a mortgagee is able to resell a

property for a substantial profit prior to initiating enforcement proceedings to collect a deficiency

judgment. As the facts of this case reflect a rare occurrence, it is unlikely that allowing a setoff

in this case will lead to an “unmanageable increase in litigation.”

¶ 48 Finally, also without merit is the Bank’s argument that the relief the defendants are

requesting is not really equitable, because if the situation were reversed and it had sold the

property for less than the price it had paid at the sheriff’s sale, it could not seek a higher

deficiency judgment against the defendants. Although the hypothetical situation the Bank posits

is correct, it does not mean that the defendants are not potentially entitled to equitable relief.

“Equity” denotes the spirit of fairness, justness, and right dealing that would regulate one’s

relationship with other members of society. Hedrick v. Bathon, 319 Ill. App. 3d 599, 608 (2001).

As noted earlier, at a judicial sale, the creditor is the one who gets to set the opening bid and is

typically the only one who makes a bid. If the creditor bids too high and cannot resell the

property for a higher price, it is not inequitable to hold its failure to make an appropriate bid

against it. Conversely, if the creditor is able to recoup a substantial portion of its losses before

seeking to enforce a deficiency judgment, for the reasons discussed above, it is equitable for the

debtor to receive a setoff against that deficiency judgment.

¶ 49 For the reasons stated, I would reverse the judgment of the circuit court of Du Page

County and remand for additional proceedings to determine the costs incurred by the Bank in

reselling the property.

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