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67 » VISIT US ONLINE @ DSNEWS.COM ILLINOIS CAVEAT EMPTOR – ORIGINATING LENDER NOT LICENSED IN ILLINOIS? THE MORTGAGE MAY BE VOID By: Jason D. Altman, Kluever & Platt, LLC In Illinois, buyers beware. In 2014, in a matter of first impression, the Illinois Appellate Court held that a mortgage made by an entity that lacked authorization under the Residential Mortgage License Act (RMLA) of 1987 was void as against public policy. In ,,the plaintiff filed a mortgage foreclosure action concerning a $985,000 loan. e plaintiff was not the originating lender. First Mortgage Company of Idaho, LLC (FMCI) originated the loan. In response to plaintiff's motion for sum- mary judgment on its complaint, the borrowers argued that FMCI was not licensed under the RMLA. e trial court rejected the borrowers' argument and granted the plaintiff's summary judgment motion. e borrowers appealed. e Illinois Appellate Court reversed. On appeal, the borrowers asserted that neither the plaintiff nor FMCI was a licensed mortgage lender or an exempt entity. As such, a contract made by an entity that lacked the proper license was void. Under the RMLA, "[n]o [nonexempt person or entity] shall engage in the business of brokering, funding, originating, servicing or purchasing of residential mortgage loans without first obtaining a license from the Commissioner (now Secretary)". 1 e RMLA was enacted to protect the public and not to generate revenue: "[t] he purpose of this RMLA is to protect Illinois consumers seeking residential mortgage loans and to ensure that the residential mortgage lending industry is operating fairly, honestly and ef- ficiently, free from deceptive and anti-competitive practices." 2 Where a licensing requirement has been enacted not to generate revenue but to safe- guard the public by assuring them of adequately trained practitioners, the unlicensed party may not enforce a contract. 3 e Dina court concluded that a mortgage made by an entity that lacked authorization under the Act to conduct such business was void as against public policy. e court found that a legis- lature has the ability to provide for the unenforce- ability of a contract made in violation of a licens- ing law. e court further reasoned that while the RMLA provided a private right of action for violations of lending procedures (205 ILCS 635/4- 16), the RMLA was distinguished from another Illinois act (the Sales Finance Agency Act) by the strong public-policy statement in section 1-2(b) of the RMLA. "To enforce mortgage contracts en- tered into by unlicensed and, therefore, unregu- lated lenders would abrogate the stated purpose of the License Act." e court concluded that the trial court erred in granting summary judgment for foreclosure, vacated the judgment and the court order confirming the sale of the property. e Illinois Supreme Court denied a petition for leave to appeal. e Dina decision is significant for those who are considering acquiring or who have acquired mortgage loans that were originated by unlicensed lenders. For those who are evaluating purchasing loans; caveat emptor. Do your due diligence. Review the RMLA. Determine if the originating lender was required to be licensed under the RMLA. e RMLA does not apply to everyone. For example, banking organizations or foreign banking corporations licensed by the Illinois Commissioner of Banks and Real Estate or the United States Comptroller of the Currency to transact business in Illinois are exempt. So are national banks, federally chartered savings and loan associations, federal savings banks and federal credit unions, to name a few. 4 For those who originated loans without a license (if required) or for those who purchased loans where the originating lender was unlicensed (where such a license was required), think damage control when the borrower is in default. Traditional foreclosure will be unavailable. If the mortgage is unenforceable under the RMLA, the promissory note is likely also void and unenforceable. Consider alternative remedies such as unjust enrichment, should a trip to the courthouse be your only avenue. 1 205 ILCS 635/1-3(a).2 205 ILCS 635/1-2(b).3 Chatham Foot Specialists, P.C. v. Health Care Service Corp., 837 N.E.2d 48 (Ill.2005).4 See 205 ILCS 635/1-4(d)(1)(i).

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