IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF ILLINOIS 

EASTERN DIVISION 

FEDERAL DEPOSIT INSURANCE 

CORPORATION, as Receiver for Founders 

Bank, 

 Plaintiff, 

 v. 

CHICAGO TITLE INSURANCE 

COMPANY, CHICAGO TITLE AND TRUST 

COMPANY, and PROPERTY VALUATION 

SERVICES, LLC, 

 Defendants. 

 

) 

) 

) 

) 

) 

) 

) 

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) 

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) 

 

No. 12-cv-05198 

 Judge Andrea R. Wood 

MEMORANDUM OPINION 

 Plaintiff Federal Deposit Insurance Corporation (“FDIC”), acting as receiver for 

Founders Bank (“Founders”), has sued Defendants Chicago Title Insurance Company, Chicago 

Title and Trust Company (together with Chicago Title Insurance Company, the “Chicago 

Entities”), and Jo Jo Real Estate Enterprises, LLC d/b/a Property Valuation Services (“PVS,” and 

together with the Chicago Entities, “Defendants”) in connection with four real estate transactions 

that the FDIC characterizes as fraudulent “flip transactions.” The Chicago Entities have filed a 

motion for summary judgment (“Motion”) seeking to limit the FDIC’s damages to the amount of 

the deficiency judgments that Founders obtained at the foreclosure sales of the properties at 

issue, and not the losses that the FDIC claims in its initial disclosures. 

 The Motion is granted in part and denied in part. If the FDIC establishes liability, the 

FDIC’s recovery from the Chicago Entities will be limited to the sum of the deficiency 

judgments that Founders obtained at the foreclosure sales of the subject properties. Because the 

issue has not been briefed, the Court expresses no opinion on whether the FDIC will be limited 

in this manner as to any recovery against PVS. The Court also finds that the FDIC may not 
2 

recover attorneys’ fees or court costs expended in this action, although it may recover such fees 

and costs incurred by Founders as a direct result of malfeasance by the Chicago Entities. 

BACKGROUND 

 This case arises out of real estate transactions (“Subject Transactions”) involving four 

properties (“Subject Properties”) located in Chicago, Illinois: 2218-24 North Bissell (“Bissell 

Property”), 851 North LaSalle Street (“LaSalle Property”), 5408-10 North Campbell (“5408 

Campbell Property”), and 5412-14 North Campbell (“5412 Campbell Property”). Founders acted 

as the lender/mortgagee for each of the Subject Transactions. In the present action, the FDIC 

alleges that the Chicago Entities acted negligently and breached contractual and fiduciary duties 

in their role as closing agent. The FDIC also seeks to establish the Chicago Entities’ liability for 

negligent or fraudulent activities by their agents. In addition, the FDIC asserts causes of action 

for negligence and breach of contract against PVS, which acted as the appraiser in each of the 

Subject Transactions. For purposes of the Motion, the Court only considers the transactions 

involving the LaSalle Property, the 5408 Campbell Property, and the 5412 Campbell Property.1

The following facts concerning those transactions are undisputed.2

 In 2006, Founders extended loans for the purchase of the LaSalle Property, the 5408 

Campbell Property, and the 5412 Campbell Property. (FDIC Stmt. of Add’l Facts (“SAF”) ¶¶ 1, 

12, 23, Dkt. No. 106.) The purchasers were three different limited liability corporations, all of 

which, the FDIC alleges, were formed by third-party defendant Douglas Shreffler. The Chicago 

Entities submitted the purported purchase price for each property to Founders, while PVS 

 

1

 The FDIC does not appear to dispute the Motion with respect to the Bissell Property. (See FDIC Resp. at 

2 n.2, Dkt. No. 104.) 

2

 The FDIC did not dispute any of the Chicago Entities’ undisputed facts (see FDIC’s Resp. to Chicago 

Entities’ Stmt. of Undisputed Mat. Facts ¶¶ 1-22, Dkt. No. 106), and the Chicago Entities failed to 

respond to any of the FDIC’s additional material facts submitted pursuant to Local Rule 56.1(b)(3)(C), 

and thus each of those statements is deemed admitted. See N.D. Ill. L.R. 56.1(a). 
3 

appraised each of the properties on both an “as-is” and an “as-complete” basis. (Id. ¶¶ 2-3, 13-

14, 24-25.) The appraisals, loan amounts, and stated purchase prices for the three properties are 

shown in Table 1. 

Table 1: Initial Transaction Values3

Subject 

Property 

PVS Loan 

Appraisal 

(As-Is) 

PVS Loan 

Appraisal 

(Completed) 

Purchase Price, 

as Stated by 

Chicago Entities 

Founders Loan 

Amount 

LaSalle Property $3,000,000 $4,265,000 $3,100,000 $3,347,500 

5408 Campbell 

Property 

$1,165,000 $1,885,000 $1,165,000 $1,459,373 

5412 Campbell 

Property 

$1,335,000 $1,885,000 $1,335,000 $1,508,000 

 Each loan was secured by a mortgage on the respective property and, after the borrowers 

defaulted, Founders instituted legal actions seeking foreclosure. (Id. ¶¶ 4, 15, 26.) Founders 

obtained a Judgement of Foreclosure and Sale (“JOF”) in state court for each of the properties. 

(Chicago Entities’ Stmt. of Undisputed Mat. Facts (“SUF”) ¶¶ 8-9, 14-15, 20-21, Dkt. No. 98.) 

The JOFs provided that the Subject Properties would be sold at a public sale upon the continued 

failure to satisfy all amounts due. (Id. ¶¶ 9, 15, 21.) Before the judicial sales went forward, 

Founders again engaged PVS to provide an appraisal of each property. (SAF ¶¶ 5, 16, 27, Dkt. 

No. 106.) Founders relied upon these appraisals when it bid and acquired each of the Subject 

Properties as the highest bidder at public auction via “credit bids.” (Id. ¶¶ 6-7, 18-19, 28-29.) The 

sale of each Subject Property to Founders was approved by the state foreclosure court. (SUF 

 

3 The values in Table 1 are taken from the FDIC’s Statement of Additional Facts. (SAF ¶¶ 1-3, 12-14, 23-

25, Dkt. No. 106.). 
4 

¶¶ 12, 18, 22, Dkt. No. 98.) The foreclosure court also awarded deficiency judgments against the 

buyers. (Id. ¶¶ 12, 18, 22.) The values involved in the foreclosure sales are set forth in Table 2. 

Table 2: Foreclosure Sale Values4

Subject 

Property 

Amount Due 

to Founders 

at Date of 

Sale 

PVS 

Foreclosure 

Appraisal 

(As-Is) 

PVS 

Foreclosure 

Appraisal 

(Completed) 

Founders 

Credit Bid 

Amount of 

Deficiency 

Judgment 

LaSalle 

Property 

$3,349,447.84 $2,175,000 Not specified $1,990,000 $1,359,447.84

5408 

Campbell 

Property 

$1,532,965.80 $1,150,000 $1,465,000 $1,355,499.18 $177,466.62 

5412 

Campbell 

Property 

$1,532,965.80 $1,150,000 $1,465,000 $1,437,399.22 $188,176.94 

 On December 12, 2008, Founders Vice President Garry Corrie had a chance encounter 

with Ned Dikmen, a prior owner of the LaSalle Property. (SAF ¶ 8, Dkt. No. 106.) Over the 

course of the conversation, Corrie learned that Dikmen had sold the LaSalle Property for 

$2,400,000 on February 13, 2006. (Id.) The record does not reflect Corrie’s reaction, but it seems 

certain Corrie was dismayed—after all, the Chicago Entities had led Founders to believe that the 

purchase price for the LaSalle Property was $3,100,000 and Founders loaned the buyer 

$3,347,500 to finance the purchase and construction. (Id. ¶¶ 1-2.) After this unwelcome 

discovery, Founders investigated the circumstances surrounding the LaSalle Property transaction 

and discovered that the Chicago Entities had performed two closings on February 13, 2006 for 

the LaSalle Property: one at the “true” sale price of $2,400,000 and another for the amount of 

 

4 The values in Table 2 are taken from the FDIC’s Statement of Additional Facts and the Chicago 

Entities’ Statement of Undisputed Material Facts. (SAF ¶¶ 5-6, 16-18, 27-28, Dkt. No. 106; SUF ¶¶ 11-

12, 17-18, 21-22, Dkt. No. 98.)
5 

$3,100,000 submitted to Founders by the Chicago Entities. (Id. ¶ 3.) Upon further investigation, 

Founders discovered that there had been two closings for each of the Subject Properties, with 

similar discrepancies between the actual purchase prices and the purchase prices submitted by 

the Chicago Entities. Furthermore, Founders discovered that the PVS “as-is” appraisals were 

significantly in excess of the purchase prices at the “true” closings. (Id. ¶¶ 20, 30.) The actual 

purchase prices, along with the stated purchase prices, the amounts Founders actually loaned, 

and PVS’s “as-is” loan appraisals, are summarized in Table 3. 

Table 3: Sale Price Discrepancies5

Subject 

Property 

PVS Loan 

Appraisal, As-Is

Loan Amount Stated Purchase 

Price 

Actual Purchase 

Price 

LaSalle Property $3,000,000 $3,347,500 $3,100,000 $2,400,000 

5408 Campbell 

Property 

$1,165,000 $1,459,373 $1,165,000 $845,000 

5412 Campbell 

Property 

$1,335,000 $1,508,000 $1,335,000 $895,000 

 After learning about the double closings and having spent money on construction on the 

Subject Properties, Founders sold each of the properties at a loss. The FDIC, acting as receiver 

for Founders, then instituted the current lawsuit against the Chicago Entities and PVS. The total 

damages claimed by the FDIC—including the deficiency judgments Founders obtained during 

foreclosure proceedings, the losses sustained on the sale of the Subject Properties, and 

construction costs—are summarized in Table 4. 

 

5 The values in Table 3 are from the FDIC’s Statement of Additional Material Facts. (SAF ¶¶ 1-3, 9, 12-

14, 20, 23-25, 30, Dkt. No. 106.) 
6 

Table 4: Losses Claimed by Founders6

Subject 

Property 

Founders’s 

Final Sale 

Price 

Loss on Final 

Sale of 

Property 

Deficiency 

Judgment 

Construction 

Costs Post 

Sheriff’s Sale 

Founders’s 

Total 

Claimed 

Damages 

LaSalle 

Property 

$1,350,000 $640,000.00 $1,359,447.84 N/A $1,999,447.84

5408 

Campbell 

Property 

$1,459,373 $505,499.18 $177,466.62 $313,200.00 $996,165.80 

5412 

Campbell 

Property 

$1,508,000 $587,399.22 $188,176.94 $313,200.00 $1,088,776.16

LEGAL STANDARD 

Summary judgment is appropriate when the record, viewed in the light most favorable to 

the nonmoving party, reveals that there is no genuine issue as to any material fact and the 

moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). In seeking 

summary judgment, the moving party must identify “those portions of the pleadings, depositions, 

answers to interrogatories, and admissions on file, together with the affidavits, if any, which it 

believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 

477 U.S. 317, 323 (1986) (internal quotation marks omitted). A genuine issue of material fact 

exists when “the evidence is such that a reasonable jury could return a verdict for the nonmoving 

party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Insolia v. Philip Morris, Inc., 

216 F.3d 596, 599 (7th Cir. 2000). The Court must consider the record as a whole and draw all 

reasonable inferences that favor the nonmoving party. Anderson, 477 U.S. at 255; Bay v. Cassens 

 

6 The values in Table 4 are taken from the FDIC’s Statement of Additional Material Facts and the 

Chicago Entities’ Statement of Undisputed Material Facts. (SAF ¶¶ 11, 21-22, 31-32, Dkt. No. 106; SUF 

¶¶ 12, 18, 22, Dkt. No. 98; and Def.’s Aff. Ex. V at 16, Dkt. No. 100-4.) 
7 

Transp. Co., 212 F.3d 969, 972 (7th Cir. 2000). A court may enter partial summary judgment 

with respect to a particular aspect of potential damages in a case, as the Chicago Entities seek 

here. See, e.g., Pratt Cent. Park Ltd. P’ship v. Dames & Moore, Inc., 60 F.3d 350, 353 (7th Cir. 

1995); Edward E. Gillen Co. v. City of Lake Forest, 3 F.3d 192, 193 (7th Cir. 1993). 

DISCUSSION 

 The Chicago Entities seek to limit the damages recoverable by the FDIC in this action to 

the sum of the deficiency judgments that Founders obtained at the foreclosure sales of the 

Subject Properties, and to dismiss the FDIC’s demands for attorneys’ fees and costs. 

I. Limitation of the FDIC’s Damages 

 In its initial disclosures pursuant to Federal Rule of Civil Procedure 26(a), the FDIC 

states that Founders’s total aggregate loss on the Subject Properties was $6,149,995.31. (Mot. 

Ex. V at 16, Dkt. No. 100-4.) These damages include deficiency judgments and purported losses 

on the final sales of the Subject Properties, as well as added construction costs for two of the four 

Subject Properties. The Chicago Entities argue that because Founders placed credit bids on the 

Subject Properties, the FDIC’s damages should be limited to $3,880,696.91, i.e., the sum of the 

deficiency judgments obtained by Founders at the foreclosure sales. 

A. Illinois’s Credit Bid Rule and Freedom I

 The practice of “credit bidding” allows a foreclosing lender to bid on the property at 

auction. Freedom Mortg. Corp. v. Burnham Mortg., Inc., No. 03 C 6508, 2006 WL 695467, at *6 

(N.D. Ill. Mar. 13, 2006) (“Freedom I”). As explained in Freedom I, 

[u]nlike any other bidder, the lender is not required to pay cash, but instead is 

entitled to make a credit bid up to the amount of its mortgage debt including 

allowable expenses. The foreclosing lender is allowed to credit bid in order to 

avoid the inefficiency of requiring the lender to tender cash which would only be 

immediately returned to it. A “full credit bid” is a bid in an amount equal to 

unpaid principal and interest of the mortgage debt. Most states, including Illinois, 
8 

hold that a lender is deemed to have received repayment of a loan in full if, at a 

foreclosure, it successfully bids the full amount of the loan (the “Full Credit Bid 

Rule”). 

Id. (internal quotations and citations omitted). 

 After a foreclosing lender’s credit bid is approved by the court, a judgment can be entered 

for any remaining deficiency in repayment of the loan. “The deficiency judgment is based on an 

amount equal to the difference between the foreclosure sale price and the debt owed.” Id. at *7. 

Under the Full Credit Bid Rule, where the property is obtained for a full credit bid, the 

underlying debt is deemed satisfied and the foreclosing lender is not entitled to either a 

deficiency judgment or related damages. Id. at *11 (citing Partel, Inc. v. Harris Trust and Sav. 

Bank, 437 N.E.2d 1225, 1227 (Ill. App. Ct. 1982)). Where the property is obtained by the 

foreclosing lender for a partial credit bid (i.e., the credit bid is for an amount less than the full 

value of the loan) and there is no fraud or irregularity in the foreclosure proceeding, the amount 

of the lender’s successful credit bid “is deemed to be the conclusive measure of the property’s 

value for purposes of determining the value of any deficiency.” See Freedom I, 2006 WL 

695467, at *7 (quoting Illini Fed. Sav. & Loan Assocs. v. Doering, 516 N.E.2d 609, 612 (Ill. 

App. Ct. 1987)). In that circumstance, the lender is limited to recovering the sum of the 

deficiency judgment and collaterally estopped from claiming greater losses. Id. at *13-14. 

 Much of the parties’ briefing of the Motion focuses on the import of Freedom I. That 

case addressed an issue of first impression under Illinois law: whether following a final order of 

foreclosure a lender can obtain damages for fraud in the inducement against borrowers and third 

parties in excess of the deficiency judgment set forth in the final order. See id. at *8. The plaintiff 

mortgage lender in Freedom I alleged that the buyer, broker, borrowers, and appraiser (“Freedom 

Defendants”) engaged in fraud in connection with the purchase of nine real estate loans. Id. at 
9 

*2. After the borrower defaulted, the lender (via nominee) foreclosed upon the subject 

mortgages. Id. at *3. The properties were then sold at judicial auctions and the lender’s nominee 

purchased all nine of the properties with credit bids. Id. The foreclosure court entered orders 

confirming the sale of the properties and also entered deficiency judgments for six of the nine; 

the other three had been purchased through full credit bids. Id. The lender then sued the Freedom 

Defendants for sums including the amounts of the deficiency judgments and the actual losses 

suffered by the lender when it sold the properties. 

 The Freedom Defendants moved for partial summary judgment, seeking to limit the 

plaintiff’s damages to the amount of the deficiency judgments entered in state court. Id. at *5. 

The district court granted their motion. Relying heavily on the Second Circuit’s decision in 

Chrysler Capital Realty, Inc. v. Grella, 942 F.2d 160 (2d Cir. 1991), as well as several California 

state appellate court decisions,7

 the Freedom I court found that “absent proof that a lender’s 

credit bid was the proximate result of fraud, the [credit] bid stands” as a conclusive measure of 

the property’s value “as against third parties (not, as Plaintiff contends, only against borrowers or 

junior creditors).” Id. at *11. The Freedom I court further found that this result comported with 

the intent of Illinois law with respect to credit bids, which is to ensure the finality of foreclosure 

sales and successful credit bids. Id. (collecting Illinois cases). It cited with approval the 

observation by the Second Circuit in Chrysler Capital that lenders could protect themselves from 

fraud by tendering an appropriate credit bid at the foreclosure sale. Id. at *9. Thus, the Freedom I

court found that under the facts of that case, the lender was limited to recovering the sums of the 

deficiency judgments entered by the foreclosure court. Id. at *13. The court noted that, although 

the plaintiff-lender alleged that the defendant-appraiser had committed fraud in its appraisals, the 

 

7

 Those cases include Alliance Mortgage Co. v. Rothwell, 900 P.2d 601 (Cal. 1995), and Track Mortgage 

Group, Inc. v. Crusader Insurance Co., 120 Cal. Rptr. 2d 228 (Cal. Ct. App. 2002). 
10 

plaintiff had received new appraisals after the initial loan but before the lender placed its credit 

bids on the subject properties. Id. at *11. Accordingly, “[t]here simply ha[d] not been, nor could 

there be on the record before the Court, any allegations that the credit bids were proximately 

caused by any of the Defendants’ fraudulent misrepresentations. In other words, Freedom knew 

the actual values of the Properties, and had the power to bid the way it wanted to protect its 

interests.” Id. 

 The Seventh Circuit endorsed the Freedom I ruling in deciding a later appeal in the same 

case. On a subsequent summary judgment motion, the district court had held that the entire suit 

was barred by the claim preclusion and Rooker-Feldman doctrines. See Freedom Mortg. Corp. v. 

Burnham Mortg., Inc., No. 03 C 6508, 2008 WL 4866324 (N.D. Ill. July 11, 2008) (“Freedom 

II”). The Seventh Circuit reversed this decision. See Freedom Mortg. Corp. v. Burnham Mortg., 

Inc., 569 F.3d 667 (7th Cir. 2009) (“Freedom III”). In reversing Freedom II, the Seventh Circuit 

briefly commented on Freedom I’s conclusion that a lender “cannot recover damages from any 

third party by contending that the property was worth less than the amount of the credit bid.” Id.

at 670. The Seventh Circuit explained that “[a] lender’s credit bid conclusively resolves the 

property’s market value. Thus [a lender] could not lend $250,000, make a credit bid of $200,000, 

and still collect more than $50,000 on [a third party’s] guaranty. [The] comprehensive opinion 

[in Freedom I ] covers that ground; we need not repeat its explanation.” Id. at 671. 

 The Chicago Entities urge this Court to apply the rule articulated in Freedom I in the 

instant case. The Court agrees with that approach and finds that a credit bid generally stands as a 

conclusive measure of the property’s value, even with respect to third parties. It is significant—if 

not dispositive—that the Seventh Circuit endorsed the relevant portion of Freedom I. Although 

the issue of the applicability of the credit bid rule to third parties was not squarely before the 
11 

Seventh Circuit, this Court is mindful of the “general rule” that “district courts should be guided 

by the views of the court of appeals . . . , even when those views are expressed in dicta.” See 

Reich v. Cont’l Cas. Co., 33 F.3d 754, 757 (7th Cir. 1994). The Court sees no reason to deviate 

from that general rule and will apply the rule articulated in Freedom I and endorsed by the 

Seventh Circuit in Freedom III. 

 The FDIC makes a number of arguments in an attempt to discredit the Freedom I

opinion. None are persuasive. The FDIC first contends that Freedom I “plainly misconstrued” 

the Second Circuit’s Chrysler Capital opinion, as that case only dealt with claims against the 

mortgagor and its owners, not third parties. (FDIC Resp. at 9-10, Dkt. No. 104.) While the FDIC 

accurately describes the actual holding of Chrysler Capital, it is not accurate to say that Freedom 

I “plainly misconstrued” that case. Rather, the Freedom I court cited Chrysler Capital as support 

for the principle that a lender-plaintiff’s credit bid conclusively establishes the market value of 

the property notwithstanding allegations of fraud as to the underlying transaction. Freedom I, 

2006 WL 695467, at *11. 

 The FDIC next argues that the Freedom I court’s reliance on California state appellate 

court cases to support its decision “only show[ed] one side of the law on this issue, as other 

states have refused to extend the protection of the full credit bid rule to parties beyond 

borrowers.” (FDIC Resp. at 9, Dkt. No. 104.) While that may be the case, all of the cases the 

FDIC cites in support of its position rely on the particular wording of the applicable state 

statutes.8

 There is no similar wording in the Illinois law that would limit the application of the 

Illinois credit bid rule only to recoveries against borrowers. 

 

8 See Nat’l City Bank v. Lundgren, 435 N.W.2d 588, 592 (Minn. Ct. App. 1989) (finding that guarantor 

was not protected by Minnesota’s anti-deficiency statute based on the particular wording and legislative 

history of that statute); Bank of Kirkwood Plaza v. Mueller, 294 N.W.2d 640, 642-43 (N.D. 1980) (noting 

that plain language of North Dakota’s anti-deficiency statute does not indicate that it protects guarantor); 
12 

 The FDIC also contends that yet another decision in the Freedom Mortgage action 

establishes that the Freedom I rule does not apply to the tort damages being asserted in the 

instant case. On remand, after the Seventh Circuit’s decision in Freedom III, the district court 

held that “[Freedom I] and the Seventh Circuit opinion make clear that [plaintiff lender] is 

limited by its partial credit bids with respect to contract damages but not tort damages, which 

may be pursued by [plaintiff lender] in connection with the six partial credit bid properties.” 

Freedom Mortg. Corp. v. Burnham Mortg., Inc., 720 F. Supp. 2d 978, 1007-08 (N.D. Ill. 2010) 

(“Freedom IV”). The FDIC urges this Court to interpret this statement as authority that Freedom 

I’s interpretation of the partial credit bid rule does not limit damages in tort cases. (FDIC Resp. 

at 11, Dkt. No. 104.) The Court disagrees. 

 Reading the relevant passage in context makes clear that the district court was discussing 

the Seventh Circuit’s ruling as to issue preclusion. The Freedom IV opinion established only that 

the plaintiff’s successful mortgage foreclosure action barred further contractual claims under the 

Illinois transactional test of issue preclusion, but did not bar tort claims. See Freedom IV, 720 F. 

Supp. 2d at 1007-08. Indeed, Freedom IV ultimately reaffirmed the limitation of damages 

discussed in Freedom I and Freedom III, noting that “the value of the credit bids does not 

eliminate damages; there are deficiency judgments . . . , and the Defendants may ultimately be 

liable for those deficiency judgments and damages for related claims.” Id. at 1007. 

 Finally, contrary to the FDIC’s arguments, the Freedom I opinion is consonant with 

Illinois law. Specifically, Illinois law holds that “absent any fraud or irregularity in the 

foreclosure proceeding, the price at which the property is sold is deemed to be the conclusive 

 

First Sec. Bank of Idaho, N.A. v. Gaige, 765 P.2d 683, 686 (Id. 1988) (Idaho anti-deficiency law does not 

apply to guarantor under plain language of statute). 
13 

measure of its value for purposes of setting a deficiency judgment.” Illini Fed. Sav. & Loan 

Ass’n., 516 N.E.2d at 611. The policy rationale for this rule is “to give stability and permanency 

to judicial sales” and “mere inadequacy of price is no reason for upsetting a judicial sale unless 

there are other irregularities.” Id. Applying this rule to limit recovery against third parties fosters 

the underlying goals of the credit bid rule. 

 Moreover, applying the credit bid rule to limit recovery against third parties makes sound 

policy sense: absent proof of fraud or negligence that caused the lender to submit a credit bid that 

was too high, “[t]o allow the [lender], after effectively cutting off or discouraging lower bidders, 

to take the property—and then establish that it was worth less than the bid—encourages fraud, 

creates uncertainty as to the [borrower]’s rights, and most unfairly deprives the sale of whatever 

leaven comes from other bidders.” Freedom I, 2006 WL 695467, at *9 (quoting Chrysler 

Capital, 942 F.2d at 163.) Absent malfeasance in relation to the credit bid transaction, this rule 

does not cause any undue prejudice to a lender, who can avoid all of these consequences by 

bidding what it believes the property is actually worth. See id. at *11. The FDIC raises no sound 

policy argument why application of the credit bid rule to recoveries against third parties is unfair, 

especially given the acknowledged exception when a credit bid is the product of a defendant’s 

malfeasance. 

 Accordingly, the Court finds that the rule set out in Freedom I applies, absent some 

reason to believe that Founders was misled by Defendants in deciding how much to tender as a 

credit bid during the judicial sale. 

B. Applicability of Freedom I to the FDIC’s Claims

 The FDIC next argues that, even if Freedom I does accurately state the law, its recovery 

here still should not be limited to the sum of the relevant deficiency judgments given the facts of 
14 

this case. For this argument, the FDIC primarily relies upon SMFC Funding Corp. v. United 

Financial Mortgage Corp., 24 F. Supp. 2d 858, 862 (N.D. Ill. 1998). In that case, the plaintiff, a 

company engaged in the purchase and securitization of investment quality mortgage loans, 

purchased a mortgage loan from the defendant, a mortgage loan company. Id. at 859. Shortly 

thereafter, the loan went into default. Id. at 860. After foreclosing upon the property, the plaintiff 

purchased the property with a credit bid of $89,500, which was calculated based upon an 

untrustworthy appraisal value that defendant had provided. Id. at 862. Upon re-selling the 

property, however, the plaintiff received only $17,000. Id. The plaintiff eventually learned that 

the loan had been fraudulent from its inception and sued the defendant. Id. at 859. The district 

court granted summary judgment in favor of the plaintiff and found that the plaintiff’s damages 

were not limited by the credit bid rule—in other words, the plaintiff could recover the $72,500 

shortfall between the sale price of the foreclosed property and the amount of the plaintiff’s credit 

bid. Id. at 863. The court reasoned that in submitting its credit bid, the plaintiff had relied upon 

the defendant’s unreliable appraisal value; thus limiting damages to the amount of the deficiency 

would represent a “windfall” to the defendant. Id. at 862. This ruling is consistent with Freedom 

I, which recognized that a plaintiff can recover in excess of a deficiency judgment where its 

credit bid was proximately caused by a defendant’s wrongdoing. See Freedom I, 2006 WL 

695467, at *11. 

 The FDIC contends that the case currently before the Court is similar to SMFC Funding

in that Founders was misled in its credit bids by faulty appraisals. According to the FDIC, 

“PVS’s original appraisals were artificially inflated in order to support the larger purchase prices 

represented to Founders.” (FDIC Resp. at 13-14, Dkt. No. 104.) The FDIC claims that these 

faulty appraisals were the basis for the second set of appraisals performed by PVS, which 
15 

Founders relied upon to calculate the amount of its credit bids in the judicial auction. The FDIC 

further attempts to implicate the Chicago Entities in PVS’s allegedly infirm appraisals, arguing 

that “Founders had no reason to suspect wrongdoing by PVS (because the fraud had been 

concealed from Founders by the Chicago Entities and others) . . . .” (Id.) Thus, according to the 

FDIC, the Chicago Entities can be held accountable for losses that Founders suffered upon sale 

of the Subject Properties. 

 There are several problems with this argument, however. First, there are no allegations in 

the complaint to support the theory that the Chicago Entities somehow concealed wrongdoing by 

PVS, which in turn led to damages. The operative complaint alleges that the Chicago Entities 

breached their duties in a variety of ways, including by disbursing funds in violation of escrow 

instructions, by failing to provide accurate closing statements, by preparing and distributing 

closing statements that misrepresented the sales transactions, and by failing to supervise and train 

their employees and agents. But it does not contain a single factual allegation that the Chicago 

Entities had anything to do with either set of appraisals undertaken by PVS. 

 Perhaps more importantly for summary judgment purposes, the FDIC fails to adduce 

evidence that the Chicago Entities were in any way responsible for the losses that the FDIC 

claims were caused by PVS’s second set of flawed appraisals. After briefing on this issue 

concluded, the FDIC submitted a supplemental brief and associated materials to support the 

argument that PVS used inaccurate property descriptions in completing both sets of appraisals, 

Founders relied upon the flawed appraisals in their post-default credit bids, and thus the partial 

credit rule should not limit the FDIC’s recovery.(FDIC Sur-Reply at 7-8, Dkt. No. 143-1.) 

However, the FDIC does not cite any facts indicating that the Chicago Entities had any role in 
16 

the appraisal process, whether with respect to the original “flip” transaction or in the post-default 

appraisals. 

 Furthermore, the FDIC does not point to any facts indicating that the Chicago Entities 

helped to cover up the faulty nature of the appraisals. Because the FDIC has failed to produce 

any evidence from which a reasonable jury could find that the Chicago Entities were responsible 

for losses attributable to PVS’s allegedly deficient post-default appraisals and Founders’s 

subsequent credit bids, the Court grants partial summary judgment in favor of the Chicago 

Entities.9 See Freedom I, 2006 WL 695467, at *11 (absent proof that a lender’s credit bid was 

the proximate result of a defendant’s fraud, the bid stands as against third parties). See also 

Alliance Mortg. Co., 900 P.2d at 614 (Cal.1995) (credit bids limit damages against third parties 

unless plaintiff can show that its credit bids “were a proximate result of defendants’ fraud, and 

that in the absence of such fraud it would not, in all reasonable probability, have made the 

[credit] bids”); Track Mortg. Grp., Inc., 120 Cal. Rptr. 2d 228 (Cal. Ct. App. 2002), (“the 

lender’s tort damages are . . . limited by the credit bid rule absent a showing that [defendant]’s 

conduct caused the lender to make the credit bid.”). 

 PVS did not move for partial summary judgment seeking to limit damages recoverable 

against it; nor did it move to adopt the Chicago Entities’ Motion. Accordingly, the Court 

expresses no opinion regarding whether the full credit bid rule bars recovery in excess of the 

deficiency judgments from PVS, as that issue is not before the Court. 

C. Post-Sale Construction Costs 

 

9

 The FDIC contends that whether the Chicago Entities proximately caused damages in excess of the 

deficiency judgment is a matter for the jury to decide. However, one of the purposes of summary 

judgment is to dispose of factually unsupported claims. See Celotex Corp., 477 U.S. at 323-24. The FDIC 

simply has not cited any evidence upon which a reasonable jury could rely to find that the Chicago 

Entities were complicit in PVS’s second set of allegedly faulty appraisals. See Anderson, 477 U.S. at 248. 
17 

Notwithstanding the applicability of Freedom I, the FDIC seeks to recover costs incurred 

after the foreclosure bids, including $626,400 in construction costs incurred by Founders for the 

5408 Campbell and 5412 Campbell Properties. Such a result would fly in the face of the rule 

articulated in Freedom I and endorsed in Freedom III. As discussed above, the FDIC did not 

plead that the Chicago Entities had any role in the provision of PVS’s allegedly flawed 

appraisals and it has adduced no evidence that this was the case. Furthermore, it defies logic to 

argue that the Chicago Entities can be responsible for post-default construction costs when 

Freedom I essentially precludes liability in excess of deficiency judgments when there is no 

showing that the defendant wrongfully induced a credit bid. The FDIC conclusorily cites 

Freedom III, 569 F.3d at 672, on this point but does not elaborate how that case supports its 

position. Accordingly, the FDIC’s argument is waived. See Hess v. Kanoski & Assocs., 668 F.3d 

446, 455 (7th Cir. 2012) (“[P]erfunctory and undeveloped arguments, and arguments that are 

unsupported by pertinent authority, are waived.”) (internal quotation marks and citation omitted). 

 Accordingly, the Court grants the Motion to the extent it covers post-credit bid 

construction costs. Again, the Court expresses no opinion regarding whether the FDIC may 

recover these costs against PVS. 

II. The FDIC’s Demands for Attorney’s Fees and Litigation Expenses 

 The Chicago Entities ask the Court to strike the FDIC’s demands for attorney’s fees and 

litigation expenses. “The law in Illinois clearly is that absent a statute or a contractual 

agreement[,] attorney fees and the ordinary expenses and burdens of litigation are not allowable 

to the successful party.” Freedom IV, 720 F. Supp. 2d at 989 (quoting Kerns v. Engelke, 390 

N.E.2d 859, 865 (Ill. 1979)). The FDIC fails to point to any statute or contractual provision that 

would allow it to recover attorney’s fees or litigation expenses that it expended in this action. 
18 

Accordingly, it is appropriate to strike such claims at the summary judgment stage. See, e.g., 

Glessner v. Rybaski, No. 09-CV-07917, 2013 WL 389006, at *5 n.13 (N.D. Ill. Jan. 31, 2013). 

 Under Illinois law, however, even though a plaintiff cannot recover attorney’s fees 

expended in the action against the defendant, the plaintiff may recover attorney’s fees expended 

in an effort to cure the damage caused by the defendant. Duignan v. Lincoln Towers Ins. Agency, 

Inc., 667 N.E.2d 608, 613 (Ill. App. Ct. 1996). Accordingly, although the FDIC may not recover 

the attorney’s fees it has expended in litigating this action, it may pursue attorney’s fees and 

costs, if any, expended by Founders as a direct result of its attempts to cure any of the misdeeds 

the Chicago Entities are alleged in the complaint to have perpetrated.10

 CONCLUSION 

 For the foregoing reasons, the Chicago Entities’ Motion (Dkt. No. 95) is granted in part. 

In seeking damages from the Chicago Entities, the FDIC will be limited to the amounts of the 

deficiency judgments that Founders obtained at the foreclosure sales of the Subject Properties. 

The Court further grants the Motion to the extent it seeks to strike the FDIC’s claim for 

attorney’s fees and costs expended in litigating the instant action; the FDIC may pursue damages 

in the form of attorney’s fees and costs expended by Founders as a direct result of its attempts to 

cure any of the Chicago Entities’ alleged misdeeds, however. 

 ENTERED: 

Dated: September 9, 2015 ___________________________ 

 Andrea R. Wood 

 United States District Judge 

 

10 The Chicago Entities contend that the latter form of attorney’s fees are considered “special damages” 

and must be pleaded with specificity pursuant to Federal Rule of Civil Procedure 9. (Chicago Entities 

Reply Br. at 14, Dkt. No. 113.) However, all of the cases cited by the Chicago Entities for that proposition 

pertain to the former sort of attorneys’ fees—that is, those incurred litigating the instant action.