2014 IL App (2d) 130567

No. 2-13-0567

Opinion filed March 31, 2014

Modified upon denial of rehearing May 22, 2014

______________________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT

______________________________________________________________________________

FIRST MORTGAGE COMPANY, LLC, ) Appeal from the Circuit Court

) of Lake County.

Plaintiff-Appellee, )

)

v. ) No. 10-CH-2877

)

DANIEL DINA and GRATZIELA DINA, )

)

Defendants-Appellants )

) Honorable

(Unknown Owners and Nonrecord ) Luis A. Berrones,

Claimants, Defendants). ) Judge, Presiding.

______________________________________________________________________________

PRESIDING JUSTICE BURKE delivered the judgment of the court, with opinion.

Justices Zenoff and Schostok concurred in the judgment and opinion.

OPINION

¶ 1 Defendants, Daniel and Gratziela Dina, appeal after the confirmation of the judicial sale 

of their property. They argue that the court improperly granted summary judgment for 

foreclosure in favor of plaintiff, First Mortgage Company, LLC; they assert, among other things, 

that they properly raised the defense that the mortgage lender, First Mortgage Company of Idaho, 

LLC (FMCI), was not a licensed lender under the Residential Mortgage License Act of 1987 

(License Act) (205 ILCS 635/1-1 et seq. (West 2006)). We conclude that a material issue of 

fact existed concerning FMCI’s status under the License Act and that this precluded a proper 
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grant of summary judgment. We further conclude that the way defendants raised the defense, 

by a response in opposition to summary judgment, did not cause them to forfeit the defense; their 

defense amounted to a claim that the mortgage contract was contrary to public policy, and such a 

defense is not forfeited by a technical error in raising it. We therefore vacate the grant of 

summary judgment and the confirmation of the judicial sale and remand the cause.

¶ 2 I. BACKGROUND

¶ 3 Plaintiff filed a foreclosure complaint relating to the property at 580 Christopher Drive, 

North Barrington, on May 21, 2010. It made Daniel Dina a defendant as the property owner and 

borrower. It also made Gratziela Dina, who had signed the mortgage, a defendant. The 

mortgage showed that the lender was FMCI; this was also the mortgagee according to the 

complaint. The original amount of the loan was $985,000. The note required a balloon payment 

of $991,566.67 on March 15, 2008. Defendants did not make this payment.

¶ 4 Defendants appeared through counsel and filed an answer and affirmative defenses. They 

denied that plaintiff was either the mortgagee or the successor in interest to the mortgagee. They 

also asserted that this same lack of demonstrated interest resulted in plaintiff’s lacking standing. 

They further asserted that plaintiff had failed to mitigate its damages and to comply with federal 

obligations to consider whether defendants were eligible under modification programs. Finally, 

they asserted that plaintiff would receive greater benefits by modifying the loan than through 

foreclosure.

¶ 5 Plaintiff moved for summary judgment. As to the lack-of-standing defense, it asserted 

that, because lack of standing is an affirmative defense, defendants bore the burden of showing that 

plaintiff was not the mortgagee. However, plaintiff also provided a “Statement of Merger” filed 

with the Idaho Secretary of State that stated that, effective April 30, 2011, FMCI, a wholly owned 
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subsidiary of plaintiff, was merged into plaintiff. Plaintiff also filed a “Reply to Defendant’s 

Affirmative Defenses.” Defendants, having missed the deadline to respond to the motion for 

summary judgment, sought additional time to respond. They filed a proposed response, 

supported by an exhibit, asserting that neither “First Mortgage Company of Idaho, LLC,” nor 

“First Mortgage Company, LLC,” was registered to do business in Illinois or was licensed under 

the License Act. Further, they asserted that plaintiff was attempting to collect insurance 

premiums despite defendants’ having a paid casualty insurance policy. They asserted that 

plaintiff “has been prosecuting a wrongful foreclosure which should be dismissed with prejudice.” 

The court allowed the filing.

¶ 6 Plaintiff replied. It first asserted that defendants could not raise new defenses in a 

response to a motion, so that the defenses were forfeited. It further argued that defendants were 

wrong on the merits. It argued that, under the Limited Liability Company Act (LLC Act) (805 

ILCS 180/1-1 et seq. (West 2010)), an LLC’s failure to register does not impair its contracts. 

Moreover, pursuing a legal proceeding does not constitute engaging in business within Illinois. 

Next, concerning defendants’ assertions about its lack of a required license, it asserted that, as a 

“registered domestic entity with the National Information Center under the laws of Oklahoma,” 

plaintiff (not FMCI) was a bank and thus was exempt from the licensing requirements of the 

License Act. The exhibit it attached in support of this states that plaintiff “was established as a 

Domestic Entity Other” on or as of January 1, 2007. Finally, it purchased insurance on the 

property because it received notice that defendants’ coverage was going to lapse and it did not 

receive evidence of coverage from defendants.
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¶ 7 The court granted the motion for summary judgment on August 14, 2012, and entered the 

judgment for foreclosure and sale the same day. On November 1, 2012, plaintiff filed a notice 

that the sale would take place on November 20, 2012.

¶ 8 Defendants, responding to a motion to confirm the sale that does not appear in the record, 

reasserted their claims that plaintiff was not properly registered and licensed. The court approved

the report of sale on February 19, 2013. Defendants moved for reconsideration, reasserting the 

arguments they made in their objection to confirmation. The court denied the motion, and 

defendants timely appealed.

¶ 9 II. ANALYSIS

¶ 10 On appeal, defendants assert that neither plaintiff nor FMCI was a licensed mortgage 

lender or an exempt entity. They argue that, under the holding in Carter-Shields v. Alton 

Health Institute, 201 Ill. 2d 441 (2002), a contract made by an entity that lacked the proper 

license is void. They further assert that, as an unregistered LLC, plaintiff was barred by section 

45-45 of the LLC Act (805 ILCS 180/45-45 (West 2010)) from bringing any civil action in 

Illinois. Alternatively, they argue that confirmation of the sale worked an injustice because an 

agreement to modify the loan would have been beneficial to both parties.

¶ 11 Plaintiff responds first that the claims based on the License and LLC Acts are 

procedurally barred. With regard to the Licensing Act, plaintiff, as detailed below, argues in 

the alternative that it is exempt from the Act’s requirements. Finally, it argues that defendants’ 

claims about the sale’s unreasonableness are insufficient to establish an abuse of discretion by 

the court in confirming the sale.

¶ 12 Defendants reply that their claims relating to the License and LLC Acts were timely in 

that plaintiff had an adequate opportunity to respond to them before the court entered judgment. 
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They further argue that the public policy implications of a Licensing Act violation allow review 

even if their raising of the issue was procedurally flawed.

¶ 13 A court should grant summary judgment only “when the pleadings, depositions and 

affidavits on file demonstrate that no genuine issue of material fact exists, and that the moving 

party is entitled to judgment as a matter of law.” Forest Preserve District of Du Page County v. 

First National Bank of Franklin Park, 2011 IL 110759, ¶ 62. Review of an order granting 

summary judgment is de novo. Forest Preserve District of Du Page County, 2011 IL 110759, 

¶ 62. Here, defendants are correct in their License Act claim; that conclusion is determinative, 

so we need not consider defendants’ other claims. A question of fact exists as to the mortgage 

lender’s License Act status. Further, that fact is material. Although the issue of enforceability 

of a mortgage made by an entity lacking a needed license has not arisen in Illinois, Illinois law 

relating to other licenses and sister-state law concerning statutes analogous to the License Act 

make clear that a License Act violation results in an unenforceable contract. Finally, because 

the contract would be void as a matter of public policy, any technical flaw in the way defendants 

raised the defense did not result in forfeiture of the defense.

¶ 14 As below, plaintiff attempts to show that publicly available information establishes that it 

is exempt from the licensing requirements of the Licensing Act. Its full argument is as follows:

“Pursuant to 205 ILCS [6]35/1-4(d) certain entities are exempt from the Licensing Act, 

including ‘...any bank, savings and loan association, savings bank, or credit union 

organized under the laws of this or any other state....’ [205 ILCS 635/1-4(d)(1)(iv) 

(West 2006).] Plaintiff is a domestic entity [other] as defined by the National 

Information Center (‘NIC’) under the laws of Oklahoma. The NIC goes on to define a 

domestic entity as an ‘institution[] that engages in banking activities [usually] in 
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connection with [the] business of banking [in the United States].’ [Citation.] Pursuant 

to the NIC, the Plaintiff qualifies as a bank, and is exempt from the Licensing Act, as set 

forth in 205 ILCS 635/1-4[(d)(1)(iv)].”

¶ 15 This response is both irrelevant and unsupported by plaintiff’s own sources. It is 

irrelevant because plaintiff is not the entity at issue. It is unsupported because, contrary to what 

plaintiff argues, the category of “domestic entity other,” as used by the NIC,1 does not establish 

that plaintiff is a bank.

¶ 16 Concerning the irrelevance of plaintiff’s response, we note that the copy of the mortgage 

incorporated in the complaint shows that plaintiff did not make the loan; FMCI did. Under the 

License Act, “[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)].” 205 ILCS 635/1-3(a) (West 2006). 

Thus, it is FMCI’s status that is relevant here, not plaintiff’s.

¶ 17 Concerning the incorrectness of plaintiff’s response, we note that the NIC recognizes and 

lists 38 types of entities, including “Member Banks”—all banks that are members of the Federal 

Reserve System, which includes all nationally chartered banks—and “Non-Member 

 1 According to the NIC’s website:

“The National Information Center (NIC) provides comprehensive information on 

banks and other institutions for which the Federal Reserve has a supervisory, regulatory, or 

research interest including both domestic and foreign banking organizations operating in 

the U.S. The NIC Public Web Site is an interface to the NIC data ***.” 

http://www.ffiec.gov/nicpubweb/Content/HELP/HelpAboutNIC.htm (last visited Jan. 16,

2014).
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Banks”—“all Commercial Banks that are state-chartered and are NOT members of the Federal 

Reserve System.” http://www.ffiec.gov/nicpubweb/Content/HELP/Institution%20Type%20

Description.htm (last visited Jan. 17, 2014). These definitions do not support plaintiff’s 

contention that a “domestic entity other” is a bank.

¶ 18 Given that FMCI’s status as an exempt entity is not established, we consider the 

consequences of a violation of the License Act. We agree with defendants that the violation 

results in a void mortgage. No Illinois decision directly addresses unlicensed mortgage lending. 

Defendants cite an apposite decision, Carter-Shields, which concerns unlicensed corporate 

practice of medicine. A similar decision with a rationale stated in terms that are more directly 

applicable is Chatham Foot Specialists, P.C. v. Health Care Service Corp., 216 Ill. 2d 366

(2005). In Chatham, the supreme court stated:

“It is well settled that ‘courts will not aid a plaintiff who bases his cause of action 

on an illegal act.’ [Citation.] More specifically, ‘courts will not enforce a contract 

involving a party who does not have a license called for by legislation that expressly 

prohibits the carrying on of the particular activity without a license where the legislation 

was enacted for the protection of the public, not as a revenue measure.’ [Citations.] 

Accordingly, a ‘contract made by an unlicensed individual calling for his personal 

services *** is unenforceable.’ [Citations.]

On numerous occasions, Illinois courts have held that where a licensing 

requirement has been enacted not to generate revenue, but rather to safeguard the public 

by assuring them of adequately trained practitioners, the unlicensed party may not 

recover fees for services or otherwise enforce a contract. [Citations.]” Chatham, 216 

Ill. 2d at 380-81.
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¶ 19 The License Act was enacted to protect the public, and not to generate revenue. Section 

1-2(b) (205 ILCS 635/1-2(b) (West 2006)) states that “[t]he purpose of this Act is to protect 

Illinois consumers seeking residential mortgage loans and to ensure that the residential mortgage 

lending industry is operating fairly, honestly and efficiently, free from deceptive and 

anti-competitive practices.”

¶ 20 The majority of states that have addressed the enforceability of mortgages made by 

unlicensed mortgage lenders have concluded that they are void as against public policy and so 

unenforceable. In Solomon v. Gilmore, 731 A.2d 280 (Conn. 1999), the Connecticut Supreme 

Court considered that issue while addressing a statute that, like ours, did not explicitly address 

enforceability. In language notably similar to that in Chatham, it held that a court could not 

assist in the enforcement of a contract the purpose of which is to violate the law. Solomon, 731 

A.2d at 289. Moreover, it reviewed the decisions of other states and held that that was the 

majority view. Solomon, 731 A.2d at 292-93. We note that the Supreme Court of Kentucky 

reached the opposite conclusion, holding that, had its legislature intended to make such contracts 

unenforceable, it could have said so. Bennett v. Bourne, 5 S.W.3d 124, 125-26 (Ky. 1999).

¶ 21 We follow Chatham and accept the reasoning in Solomon. We therefore conclude that a 

mortgage made by an entity that lacked authorization under the License Act to conduct such 

business is void as against public policy. As to the rationale of Bennett, we agree that a 

legislature has the ability to provide for the unenforceability of a contract made in violation of a 

licensing law. Nevertheless, we deem that, given the well-established common-law rule 

concerning licensing laws intended to protect the public, the legislature’s explicit statement that a 

law has such a protective purpose says as much as an explicit unenforceability provision.
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¶ 22 On rehearing, plaintiff argues that in Dixon v. Mercury Finance Co. of Wisconsin, 296 Ill. 

App. 3d 353 (1998), this court previously held that financing contracts are not void where the 

lender violated a licensing statute. In Dixon, the plaintiffs argued that certain motor vehicle 

financing contracts they entered into with the defendant were void because the defendant was not 

licensed in Illinois under the Sales Finance Agency Act (205 ILCS 660/1 et seq. (West 1994)) 

when the contracts were executed. This court held that the contracts were not void. We 

distinguished the Sales Finance Agency Act from those that were enacted to protect public health 

and safety, and we indicated that the specific remedy provisions in the Sales Finance Agency Act 

struck a balance between the competing policies of protecting the public and promoting the free 

flow of commence.

¶ 23 While the License Act also provides a private right of action for violations of lending 

procedures (205 ILCS 635/4-16 (West 2010)), the License Act is distinguished by the strong 

public-policy statement in section 1-2(b). There is no similar statement of purpose and policy 

in the Sales Finance Agency Act. To enforce mortgage contracts entered into by unlicensed 

and, therefore, unregulated lenders would abrogate the stated purpose of the License Act.

¶ 24 We must also address whether defendants forfeited the defense; as we noted, plaintiff 

asserts that the lack of a needed license is an affirmative defense that a defendant forfeits by 

failing to raise it in an answer.

¶ 25 Although defendants did improperly raise FMCI’s lack of a required license, as a matter 

of public policy defendants did not forfeit the defense under the circumstances here. An 

affirmative defense should be raised in an answer, and, although a court may consider an 

affirmative defense raised by other means if the plaintiff does not object, the usual rule is that a 

defense so raised is forfeited. Hanley v. City of Chicago, 343 Ill. App. 3d 49, 54 (2003). 
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However, courts should consider whether agreements are unenforceable as against public policy 

even if no party raises the issue. First Trust & Savings Bank of Kankakee v. Powers, 393 Ill. 

97, 103 (1946) (a court of equity should refuse to enforce a provision that is against public policy 

even if no party has raised the point); In re Marriage of Best, 387 Ill. App. 3d 948, 951 (2009) 

(“A court may, and indeed should, consider sua sponte whether a contract provision violates 

public policy.” (Emphasis in original.)). In this case, the defense is unlike an ordinary 

affirmative defense, such as one based on a statute of limitations; the difference is due to the 

public interest in the outcome. If the court should consider a matter sua sponte, a fortiori it 

should consider the matter when a party raises it in response to a motion. Of course, however 

the matter is raised, the plaintiff must have a fair opportunity to respond, but plaintiff did have 

that here.

¶ 26 III. CONCLUSION

¶ 27 For the reasons stated, we conclude that the court erred in granting summary judgment for 

foreclosure. We therefore must vacate the foreclosure judgment. Of course, the order 

confirming the sale was a direct consequence of the foreclosure judgment and must be vacated as 

well. We remand the matter for further proceedings.

¶ 28 Vacated and remanded.