Order Form (01/2005)

United States District Court, Northern District of Illinois

Name of Assigned Judge

or Magistrate Judge

Robert W. Gettleman Sitting Judge if Other

than Assigned Judge

Susan E. Cox

CASE NUMBER 03 C 6508 DATE 11/12/2010

CASE

TITLE

Freedom Mtge Corp vs. Burnham Mtge, Inc., et al

DOCKET ENTRY TEXT

The remaining issue from plaintiff’s motion for a protective order regarding whether defendants may inquire

about the post-foreclosure sales on the nine properties [485] is denied. 

O[ For further details see text below.] Docketing to mail notices.

*Copy to judge/magistrate judge.

STATEMENT

Before the Court is one remaining issue from plaintiff’s motion for a protective order limiting the scope

of certain areas of examination. The Court granted in part and denied in part that motion in open court on

November 9, 2010, but took one final issue under advisement. That issue is whether defendants may inquire

about the post-foreclosure sales on the nine properties at issue. For the reasons stated below, that portion of the

motion is denied [dkt. 485].

Plaintiff alleges in this lawsuit that the various defendants engaged in a conspiracy that defrauded

plaintiff. Essentially, plaintiff alleges that it issued mortgage loans to certain defendants for nine properties based

on fraudulently inflated appraisals. Shortly after these loans were issued, the defendant-mortgagees defaulted.

Plaintiff then foreclosed on the properties and discovered that the properties were worth substantially less than

it was led to believe. Following foreclosure, the properties proceeded to auction. At auction, plaintiff, or its

affiliates, purchased certain properties through what is known as a “credit bid.” This is where a foreclosing

lender is entitled to make a bid on the property in question up to the amount of the outstanding debt.1

 In this case,

plaintiff made full credit bids on three of the nine properties (essentially wiping out the loans) and partial credit

bids with respect to six of the remaining properties.2

 On the six partial credit bid properties, plaintiff received

deficiency judgments for the difference between the outstanding loan and the credit bid. Subsequently, plaintiff

resold all nine properties to third parties. 

In March 2006, District Judge Filip, the District Court judge assigned to this case at that time, issued an

opinion granting partial summary judgment in favor of the defendants. That opinion held that, under Illinois law,

plaintiff’s damages were limited based on the credit bids: plaintiff could not seek additional damages if it

ultimately sold the property to a third party for less than the credit bid. Essentially, Judge Filip determined that

plaintiff was stuck with the deficiency judgments, totalling approximately $600,000. Judge Filip’s opinion stated,

however, that plaintiff was still entitled to seek punitive damages under Illinois state law or triple damages under

the Racketeer Influenced and Corrupt Organizations Act (RICO). A later appeal to the Seventh Circuit left this

portion of Judge Filip’s decision intact.3

03C6508 Freedom Mtge Corp vs. Burnham Mtge, Inc., et al Page 1 of 2
STATEMENT

1.Freedom Mortg. Corp. v. Burnham Mortg., Inc., No. 03 C 6508, 2010 WL 2403031 at *19 (N.D. Ill. Jun. 14,

2010).

2.Id.

3.See Freedom Mortg. Corp. v. Burnham Mortg., Inc., 569 F.3d 667 (7th Cir. 2009).

4.Saket v. American Airlines, Inc., No. 02 C 3453, 2003 WL 685385, at *2 (N.D. Ill. Feb. 28, 2003).

5.Id.

6.Fed. R. Civ P. 26(b).

7.See Freedom Mortg. Corp, 569 F. 3d at 671, 672; see also Chrysler Capital Realty, Inc. v. Grella, 942 F.2d 160

(2d Cir. 1991) (interpreting Michigan law); Gaskin v. Smith, 30 N.E.2d 624 (Ill. 1940).

Now defendants wish to inquire about the subsequent third party sales. Presumably, defendants wish to

“set-off” the deficiency amounts if discovery reveals that plaintiff was able to resell the properties for a value

higher than the credit bids. Plaintiff argues that the credit bid is used to determine the deficiency and any

subsequent sale is irrelevant. Defendants, however, maintain that for purposes of discovery, we need not decide

whether a subsequent sale can be used to set-off any deficiencies.

Federal Rule of Civil Procedure 26 encourages liberal discovery.4

 Furthermore, the word “relevant” is

defined broadly under Rule 26.5

 Specifically, “[r]elevant information need not be admissible at the trial if the

discovery appears reasonably calculated to lead to the discovery of admissible evidence.”6

 Here, we know that

Illinois law is fairly settled that plaintiff is stuck with the deficiency judgments calculated with the credit bid.7

But it is not clear that subsequent sale prices would be completely irrelevant to calculating ultimate damages.

Because discovery is to be conducted liberally, we think defendants should be permitted to at least inquire about

the post-foreclosure sales. Therefore, plaintiff’s motion, in this respect, is denied [dkt. 485].

03C6508 Freedom Mtge Corp vs. Burnham Mtge, Inc., et al Page 2 of 2