Seventh Circuit Adopts a Federal Standard of Finality for Foreclosure Judgments

October 19, 2016 5:30 PM | Anonymous member (Administrator)

By Louis J. Manetti

Attorney, Codilis and Associates, PC

The Seventh Circuit recently broadened a prior holding and stated that, under a federal standard of finality, foreclosure judgments are not final and appealable orders. In Bank of America, N.A. v. Martinson, 2016 U.S. App. LEXIS 12402, *1, the bank filed a foreclosure action in Wisconsin, and the borrowers removed the case to federal court. The federal district court entered judgment in the bank’s favor, and the order provided for a sheriff’s sale after the borrowers’ time to redeem the property expired. Id. The borrowers appealed the judgment order to the Seventh Circuit. Id.

The Seventh Circuit began the opinion by considering its jurisdiction. It noted that, in HSBC Bank USA, N.A. v. Townsend, 793 F. 3d 771, 777-78 (7th Cir. 2015), it held that Illinois foreclosure judgments were not final orders. The Townsendmajority reasoned that Illinois foreclosure judgments were not final because the order did not resolve all the issues in the lawsuit. Specifically: (1) the owner retained statutory rights to redeem the property before the sale; (2) a judicial sale would still need to be confirmed in a further court proceeding; and (3) the court would still need to decide the amount of deficiency, if any. Id. at 775-77. The Seventh Circuit held that Townsend controlled the issue of appellate jurisdiction, and it was not material that the bank in this case was not seeking a deficiency. Martinson, 2016 U.S. App. LEXIS 12402 at *5.

The Seventh Circuit then had to resolve another difference between the present case and Townsend. The outcome in Townsend, 793 F. 3d at 777, resulted from the court’s holding that, under Illinois law, foreclosure judgments are not final and generally cannot be appealed until the sale is confirmed. But this case was different—it involved an appeal regarding a Wisconsin foreclosure judgment, and the court acknowledged that Wisconsin courts invariably treat foreclosure judgments as final and appealable orders. Martinson, 2016 U.S. App. LEXIS 12402 at *5-6; see also Anchor Sav. & Loan v. Coyle, 148 Wis. 2d 94, 100-01 (“[T]he judgment of foreclosure and sale disposes of the entire matter in litigation and is a final judgment as a matter of right . . . . [t]he proceedings after the judgment . . . are analogous to the execution of a judgment and simply enforce the parties’ rights which have been adjudicated[.]”).

Despite Wisconsin law, the Seventh Circuit held that Townsend controlled in this case because Townsend applied a federal standard of finality—“a procedural issue governed by federal law.” Martinson, 2016 U.S. LEXIS 12402 at *6 (citing Budinich v. Becton Dickinson & Co., 486 U.S. 196, 202 (1988)). Congress’s use of “final decisions” in section 1291 did not mean to incorporate state law, and a “final decision” in federal court is one “which ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” Budinich, 486 U.S. at 199.

The Seventh Circuit acknowledged that it would create a significant “and potentially treacherous” difference between state and federal forums if it held that a Wisconsin state court foreclosure judgment was an appealable order but a Wisconsin federal district court judgment was not. However, it reasoned that, if it did not follow Townsend and apply a federal standard of finality, it would create an in-circuit conflict about federal procedural law, and the more palatable option was to be consistent in applying federal procedure “and to accept the inevitable potential for confusion based on the difference between federal and state procedure in such cases.” Martinson, 2016 U.S. LEXIS 12402 at *6.

As a result, the court held that Townsend’s application of a federal standard of finality is binding in the Seventh Circuit, decided that the foreclosure judgment in this case was not a final order, and dismissed the appeal for lack of jurisdiction.

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