Homeowner Wins Appeal – Avoids $120,000 in Mortgage Debt Due to Defective Notice of Default and Acceleration.

A recent ruling by the Illinois Appellate Court emphasizes the importance of sending proper notice of default to a borrower under a mortgage loan promissory note.  In  the case of Associates Asset Management, LLC v. Cruz, 2019 IL App (1st) 182678, the homeowner lost at trial, but then prevailed on appeal by arguing that he was not liable for over $120,000 in principal, interest and attorneys’ fees on a mortgage loan promissory note because the holder of the note failed to give proper notice of default or notice that the holder was accelerating the note.


In 2004, Cruz and Juan Calderon purchased a condominium in Chicago. The purchase was financed by a promissory note for $69,800 that Cruz and Calderon executed in favor of Olympus Mortgage Company (Olympus), AAM’s predecessor in interest.  The note was executed on October 22, 2004, and it was secured by a second mortgage on the condominium, executed on the same day.   Although the note’s maturity date is November 1, 2034, section 4 of the note provides for acceleration in the case of default, as follows:

“(B) Notice from Note Holder

If I do not pay the full amount of each monthly payment on time, the Note Holder may send me a written notice telling me that if I do not pay the overdue amount by a certain date, I will be in default. That date must be at least 10 days after the date on which the notice is mailed to me or, if it is not mailed, 10 days after the date on which it is delivered me.

(C) Default

If I do not pay the overdue amount stated in the notice described in Section 4(B) below [sic], I will be in default. If I am in default, the Note Holder may require me to immediately pay the full amount of principal which has not been paid and all the interest that I owe on that amount.”

Under the heading “Giving of Notices,” the note states:

“Any notice that must be given to me under this Note will be given by delivering it or mailing it by certified mail addressed to me at the Property Address above [i.e., the condominium]. A notice will be delivered to me at a different address if I give the Note Holder a written notice of my different address.”

The note expressly referenced the acceleration provision in Olympus’s mortgage on the condominium, as follows:  “In addition to the protections given to the Note Holder under this Note, a Mortgage, dated October 22, 2004, protects the Note Holder from possible losses which might result if I do not keep the promises which I make in this Note. That Mortgage describes how and under what conditions I may be required to make immediate payment in full of all amounts that I owe under this Note.”  The referenced text in the mortgage is a standard acceleration clause titled “Acceleration; Remedies” stating in bold print: “[U]pon Borrower’s breach of any covenant or agreement of Borrower in this Mortgage, including the covenants to pay when due any sums secured by this Mortgage, Lender prior to acceleration shall give notice to Borrower *** specifying: (1) the breach; (2) the action required to cure such breach; (3) a date, not less than 10 days from the date the notice is mailed to Borrower, by which such breach must be cured; and (4) that failure to cure such breach may result in acceleration of the sums secured by this Mortgage, foreclosure by judicial proceeding, and sale of the Property.”

Default in Payment

Cruz and Calderon ceased making payments on the note after July 5, 2005. In November 2005, the senior lender filed an action to foreclose on the condominium. Long Beach Mortgage Co. v. Ortiz, No. 05-CH-20399 (Cir. Ct. Cook County). A judgment of foreclosure and sale was entered, and the condominium was sold at a judicial sale in 2006. Olympus, as the junior lender, was named as a defendant in the foreclosure case but did not participate in the proceedings. After the condominium was sold, Olympus assigned the note to Ameriquest Mortgage Company, which assigned the note to AAM.

Demand Letters

Over the next several years, AAM sent four letters to Cruz demanding payment of the debt. None of the letters were sent by certified mail.

  • The first letter, dated February 21, 2008, was sent from AAM’s counsel to Cruz and Calderon at the condominium address. The letter explained that AAM recently acquired the loan file and that “your account is seriously past due” with an unpaid balance of $69,587.60 (e., the entire outstanding principal). The letter also offered a “repayment plan,” under which Cruz and Calderon could pay $487.11 per month for six months to be reevaluated for another repayment or settlement plan, and a “settlement plan,” under which Cruz and Calderon could pay 60% of the principal balance to be forgiven of any remaining obligations. It provided that these offers were good for 60 days, after which AAM would “exercise all of its legal rights” under the loan.
  • The second letter, dated May 5, 2008, was sent from an AAM loan counselor to Cruz at a California Avenue address in (Cruz claims he never resided there.) In the letter, the loan counselor recommended that Cruz call him to “work out a solution” with his debt. The letter did not state the overdue amount or provide a period for repayment.
  • The third letter, dated January 21, 2010, was sent from AAM’s legal review department to Cruz and Calderon at the California Avenue address. It stated that AAM “has reviewed your account and is currently in the process of forwarding it to our legal ” Again, the letter did not state the overdue amount or provide a period for repayment.
  • The fourth and final letter, dated April 23, 2013, was sent from AAM’s counsel to Cruz and Calderon at a Van Buren Street address in Chicago. It stated that Cruz and Calderon owed $69,587.60 in principal and $58,809.24 in accrued interest, for a total of $128,396.84. It further stated that Cruz and Calderon had 14 days in which to make payment in full if they wished to resolve the matter without a lawsuit.

The Lawsuit

In 2013, plaintiff, Associates Asset Management, LLC (AAM), brought a breach of contract action against Cruz, seeking payment on the promissory note with a maturity date of November 1, 2034. The complaint sought the full amount due plus interest, as if the note had been accelerated.

Cruz filed an answer in which he alleged, as an affirmative defense, that AAM failed to give him notice of its intent to declare a default and accelerate the note, which he claimed was a “condition precedent” (e.g., contingency) to filing a lawsuit against him. Cruz stated that under the plain language of the note, AAM was required to send him a pre-default notice, giving him a 10-day grace period in which he could cure the missing payments to avoid default.  He claimed that AAM could not sue him until this was done.

At trial, the court found that personal service of the complaint (lawsuit) on Cruz constituted sufficient notice of both default and acceleration, and  entered judgment for AAM in the amount of $120,402.86, representing the entire principal amount, interest accrued from the date of service until the date of judgment, and attorney fees.

Cruz appealed that ruling and the Illinois Appellate Court agreed, holding that AAM’s suit was premature, that it failed to give proper notice of default and acceleration under the note, and that the mere filing of the lawsuit was not sufficient notice under the terms of the promissory note.  An absolutely devastating outcome for AAM, and a terrific win for the homeowner.

The Winning Arguments on Appeal

On appeal, Cruz argued that AAM’s suit was premature because AAM did not fulfill the contractual conditions precedent to declaring default and accelerating the note. He further argued that the trial court erred when it found that service of process was sufficient to satisfy those requirements.

AAM argued that, because the note provided that “the Note Holder may send … a written notice”, it is permissive rather than mandatory and, therefore, sending such a notice was not required.  The Appellate Court held that while AAM was “technically” correct, concomitantly, the note holder is not required to try and collect any outstanding debt either. The note holder may forbear pursuing its rights in case of nonpayment. But considering the note as a whole, the court ruled that if the note holder wishes to declare default (as AAM clearly did), the only contractual mechanism for doing so was by following the procedure set forth in sections 4(B) and (C). Thus, the Appellate Court agreed with Cruz that, under the plain language of the note, notice is a contractual condition precedent to default.  The Court also ruled that the note required AAM to give a preacceleration notice as described in the “Acceleration; Remedies” clause of the mortgage.

Condition Precedent

The Court next turned to the central issue of this case, namely, whether the trial court erred in concluding that AAM satisfied the note’s predefault and preacceleration notice requirements. Cruz argued that AAM’s notices were inadequate and AAM’s suit was therefore premature. AAM did not dispute that it failed to strictly comply with the note’s notice requirements, but it argues that it gave Cruz the “essential information” to advise him that payment under the note was long overdue.

Under Illinois law, a “condition precedent” is an act that must be performed or an event that must occur before a contract becomes effective or before a party is required to perform.  Accetturo, 2016 IL App (1st) 152783, ¶ 32.  As discussed, the note in this case sets forth conditions precedent to both default and acceleration. Cf. Credit Union 1 v. Carrasco, 2018 IL App (1st) 172535, ¶ 15, 424 Ill. Dec. 302, 107 N.E.3d 1021 (satisfaction of mortgage’s preacceleration notice requirement was a condition precedent to suit); Accetturo, 2016 IL App (1st) 152783, ¶ 33 (same). Where a contract contains express conditions precedent, strict compliance with those conditions is required, and “[c]ourts will enforce express conditions precedent despite the potential for harsh results for the noncomplying party.” Midwest Builder Distributing, Inc. v. Lord & Essex, Inc., 383 Ill. App. 3d 645, 668, 891 N.E.2d 1, 322 Ill. Dec. 371 (2007) (citing Dodson v. Nink, 72 Ill. App. 3d 59, 64, 390 N.E.2d 546, 28 Ill. Dec. 379 (1979) (“It is well established that where a contract contains a condition precedent, the contract does not become enforceable or effective until the condition is performed or the contingency occurs.”)).

On this issue, the Appellate Court ruled that all four of AAM’s demand letters were severely deficient in substance. The first letter did not state the overdue amount, much less give Cruz a 10-day period to pay that amount to avoid default. Rather, it stated that Cruz owed the entire outstanding principal, as if the note had already been accelerated. The second and third letters were even more deficient: they referred generically to “this debt” and “your account” but made no reference to the amount of the debt and did not provide any grace period for repayment. The fourth letter, like the first, described the note as already having been accelerated since it asserted that the entire outstanding principal was “due and owing” and demanded that Cruz pay the entire sum (not just the overdue payments) within 14 days to avoid litigation. These are not mere technical deficiencies; rather, AAM failed to provide most of the information required under the contract. Thus, it ruled that AAM’s letters, whether viewed separately or together, were insufficient to meet the contractual conditions precedent to default and acceleration.

Similarly, it ruled that AAM’s complaint was deficient as a notice of default and acceleration since it neither advised Cruz of the overdue payment amount nor gave a grace period to pay that amount, but sought the full accelerated balance from him.  Thus, it held that the trial court’s finding that the complaint complied with the conditions precedent in the note was against the manifest weight of the evidence. Moreover, it held that AAM’s failure to provide Cruz with the contractually required notices prior to default and acceleration divested AAM of the right to file this breach of contract action, citing Midwest Builder Distributing, 383 Ill. App. 3d at 668 (“[c]ourts will enforce express conditions precedent despite the potential for harsh results for the noncomplying party”).

All in all, this was a tremendous victory for the homeowner who stuck to the plain language of the contract which required notice of default and notice of acceleration before he would be found in default.

DeBlasio & Gower LLC’s founding member, Attorney Antonio DeBlasio, has been selected by Super Lawyers® for Business Litigation in 2008 and in each year from 2014 through 2021. Only 5% of attorneys in Illinois receive this distinction.  Contact Mr. DeBlasio at (630) 560-1123 or via our website, www.dgllc.net.