On March 31, 2015, the Appellate Court of Illinois, First District, issued an opinion in the case of BAC Home Loans Servicing, LP, f/k/a, Countrywide Home Loans Servicing, LP v. Michael E. Popa. This significant case clarifies the interest rate that creditors can and should use in foreclosure cases.
In Popa, the defendants appealed the foreclosure for various reasons, including the amount of interest that the plaintiff used in calculating the amount noted in the sheriff’s report of sale and distribution. In a foreclosure case, a court enters a judgment of foreclosure and sale, but the plaintiff still needs to take the property to sale and then have the court confirm the sale. The order confirming the sale is the final order in a foreclosure case, not the judgment, which often causes confusion. After the judgment of foreclosure, but before the sale and confirmation, interest still accrues on the amount owed, but the question often arises as to whether the post-judgment interest rate should be the interest rate noted in the contract or Illinois’ statutory post-judgment interest rate of 9%.
The defendants in the Popa case objected to the confirmation of the sheriff’s sale, and claimed that the interest rate calculation was incorrect because the plaintiff had used the statutory interest rate of 9% rather than the contract interest rate (which was less than 9%). The defendants’ argument was that there should have been money left-over from the sale – a surplus – rather than no money whatsoever because the interest rate calculation was incorrect. The trial court overruled this along with other objections, and confirmed the sale.
On appeal, the defendants made the same arguments. The appellate court reviewed the Illinois Mortgage Foreclosure Law and held that this statute clearly calls for post-judgment interest to be at the statutory interest rate of 9%, rather than the contract interest rate. In this finding, the appellate court affirmed the decision of the trial court.
This case clarifies that lenders can and should be using the interest rate of 9% after a judgment of foreclosure is entered instead of the lower contract rate. This allows lender the ability to bid a higher amount at the sheriff’s sale when it is credit-bidding on the property. Even a few points difference in the interest rate could have a significant impact on the amount owed to the plaintiff once the sale is finally confirmed. This also helps ease the burden of having to wait for the statutory redemption period to expire before selling the property as the plaintiff will receive a higher interest rate than called for in the contract (assuming that the contract’s interest rate is less than 9%).
With interest rates on real estate still quite low, this decision is a good one for lenders. If, however, interest rates ever go above the level of 9% again, this decision will no longer be favored by lenders.