MDK Solutions
Inside MDK
The Illinois Appellate Court, First Judicial District, issued two recent opinions regarding the applicable statute of limitations for mortgage foreclosure actions and the effect of the expiration of the statute of limitations on the validity of the mortgage.
On June 18, 2025, the Illinois Appellate Court, First Judicial District, issued a significant opinion regarding the applicable statute of limitations for mortgage foreclosure actions based on a home equity line of credit (HELOC). In BMO Bank N.A. v. Zbroszczyk, 2025 IL App (1st) 241333, the plaintiff, BMO Bank, N.A., appealed the circuit court’s dismissal of the plaintiff’s foreclosure action in which defendant argued that the statute of limitations had expired. The appellate court affirmed the dismissal and held that the cause of action accrued more than five years prior to the filing of the foreclosure complaint.
The appellate court stated that a foreclosure action is based on the note which gives the plaintiff the legal right to proceed with foreclosure against the property. The plaintiff characterized the instrument as a “note” and the ten-year statute of limitations of 735 ILCS 5/13-206 would be applicable. The defendants asserted the instrument was not a “note” under the Illinois UCC 810 ILCS 5/3-104 since it was not a negotiable instrument. The instrument at issue was an “Equity Line Credit Agreement and Disclosure” (“agreement”), secured by a home mortgage. The agreement provided for a revolving line of credit, up to a credit limit of $100,000, with the term of the agreement expiring on February 22, 2018. During the term of the agreement, defendant would be entitled to request “credit advances” up to the amount of the credit limit, which would generally be honored by plaintiff, and defendant would be permitted to “borrow against the Credit Line, repay any portion of the amount borrowed, and re-borrow up to the amount of the Credit Limit.” The appellate court determined that the instrument at issue was a “revolving credit loan” as defined by 815 ILCS 205/4.1, rather than a promissory note or written contract under 735 ILCS 5/13-206.
The appellate court determined the statute of limitations applicable to actions involving revolving credit loans and found that the agreement was not the type of agreement that is covered by 735 ILCS 5/13-206 and its ten-year statute of limitation but rather was subject to the five-year statute of limitations set forth in 735 ILCS 5/13-205. BMO Bank N.A. v. Zbroszczyk, 2025 IL App (1st) 241333, ¶ 34.The court found that the five-year statute of limitations applied because the essential terms, particularly the amount owed, could not be determined from the written agreement alone and required parol evidence. The court noted that the “essential elements” for a promise to pay are (1) the parties to the agreement, (2) the nature of the transaction, (3) the amount in question, and (4) at least a reasonable implication of an intention to repay the debt. Id.
The appellate court then held that the five-year statute of limitations applied to the foreclosure action and the plaintiff’s foreclosure action was time-barred. The appellate court stated that generally, the statute of limitations in a breach of contract action begins to run when facts exist which authorize the bringing of an action and that a money obligation is payable in installments, a separate cause of action arises on each installment and the statute of limitations begins to run against each installment as it becomes due. However, the appellate court found that the statute of limitations can begin to run immediately upon default where the contract contains an acceleration provision and such a provision provides that payment of the entire debt upon default is automatic, or where the acceleration provision is optional and the creditor unequivocally exercises the option. BMO Bank N.A. v. Zbroszczyk, 2025 IL App (1st) 241333, ¶ 43.
On August 20, 2025,the Illinois Appellate Court, First Judicial District, issued an opinion explaining the impact of the expiration of the statute of limitations for mortgage foreclosure action on the validity of the mortgage. In Chicago Title Land Trust Co. v. Watkin, 2025 IL App (1st) 241354, the appellate court affirmed the trial court’s dismissal of the mortgagor’s quiet title action asserting the mortgage lien was extinguished by operation of law since the statute of limitations period for both the debt and the mortgage had expired.
In 2011, the beneficial owners of the plaintiff land trust had executed a note evidencing a line of credit up to $150,000 and the note was secured by a mortgage on the property in favor of the defendant mortgage. The note had a maturity date of June 24, 2012. No payments were ever made on the note. On June 23, 2022, the defendant mortgagee filed a mortgage foreclosure action against the plaintiff land trust. The mortgage foreclosure case was ultimately dismissed without prejudice and was never refiled. Watkin, 2025 IL App (1st) 241354, ¶¶ 3-4. After one year had passed from the entry of the voluntary dismissal order, the plaintiff land trust filed a quiet title action against the defendant mortgagee and alleged that the statute of limitations on the note had expired and thus any foreclosure action on the mortgage was time-barred. The plaintiff further alleged that because the mortgage was unenforceable it was a cloud on title and requested an order finding that defendant had no estate, right, title, or interest in the subject property. Id. at ¶ 5. The trial court found that the mortgage lien was not extinguished and was valid and was superior to the plaintiff’s claim to unencumbered title and granted the defendant’s motion for summary judgment and dismissed the plaintiff’s quiet title action.
On appeal, the appellate court found that there was no dispute that the statute of limitations on the note and the mortgage had expired and the mortgagee could not enforce the terms of the note and mortgage through a mortgage foreclosure action. Despite this time bar, the appellate court held that the inability to enforce the mortgage lien did not operate to extinguish the lien. Thus, the mortgage lien remained a valid encumbrance on title and that the trial court correctly granted summary judgment in favor of the defendant on the plaintiff’s quiet title action. Watkin, 2025 IL App (1st) 241354, ¶ 22.
The appellate court cited the applicable Illinois precedent holding that “the expiration of a statute of limitations operates to bar the availability of a remedy but does not affect the substantive right at issue - while it bars the right to sue for recovery, it does not extinguish the underlying obligation.” It noted that “a promise to pay a time-barred debt may revive the initial obligation, removing the statutory bar to enforcement.” Id. at ¶ 23. The Watkin court also observed that the statute of limitations is an affirmative defense and “is intended to be a procedural bar, not a substantive discharge of an underlying property interest.” The appellate court could not “find that the expiration of the statute of limitations with respect to an action on a mortgage automatically results in the extinguishment of the underlying mortgage lien.” Id. at ¶ 24. In support of its holding and rationale, the appellate court cited the Illinois Supreme Court case of Livingston v. Meyers, 6 Ill. 2d 325 (1955) and analyzed 735 ILCS 5/13-116, which operates to extinguish a mortgage lien 20 years after the maturity of the debt instrument unless the mortgagee takes affirmative action to extend the lien. Id. at ¶ 31.
Based on the BMO Bank N.A. v. Zbroszczyk, 2025 IL App (1st) 241333 decision, a foreclosing mortgagee and its loan servicer need to be aware of whether their mortgage involves a HELOC/Revolving Credit Loan and if so, they need to determine the applicable five-year statute of limitations period to file a foreclosure action if the loan is in default and the terms for acceleration of the debt under the debt instrument and whether the loan has been accelerated.
The BMO Bank N.A. v. Zbroszczyk, 2025 IL App (1st) 241333 decision also suggests that the HELOC/Revolving Credit Loan was not a negotiable instrument since it was missing an essential term – it did not set forth a definite fixed sum that defendant was obligated to pay. Pursuant to 810 ILCS 5/104 of the Illinois UCC, a "negotiable instrument" requires the following: (1) an unconditional promise, (2) to pay a fixed amount of money, (3) to bearer or to order, (4) on demand or at a definite time, (5) without any other requirement of undertaking or instruction on the part of either party. “‘Negotiation’ means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder.” 810ILCS 3-201(a). Since the HELOC/Revolving Credit Loan is not a “promissory note” for purposes of section 13-206 and it is not a negotiable instrument, such a debt instrument cannot be transferred by possession or endorsement. Thus, the foreclosing mortgagee and its loan servicer need to ensure there are appropriate assignments of the debt instrument which evidence an intent to transfer the ownership of the debt (i.e., note and mortgage). Moreover, to address a standing defense, foreclosure counsel would need to plead and prove that the foreclosing mortgagee or loan servicer is not a “holder” but has the right to enforce the note and mortgage based on the evidence of the intent to transfer the note and mortgage and that it is entitled to enforce the note and mortgage and collect the debt which is owed.
If the statute of limitations has expired for filing a mortgage foreclosure action for a default of a mortgage, the mortgage lien is not automatically extinguished and it is still a valid obligation and remains of record pursuant to the holding of the Chicago Title Land Trust Co. v. Watkin, 2025 IL App (1st) 241354 decision. The practical implication of this holding is that the mortgage lien remains an obligation of title record for 20 years “from the time the last payment on such mortgage *** became or becomes due upon its face and according to its written term” per 735 ILCS 5/13-116. Thus, if the mortgagor or owner of the property wishes to sell or transfer the property within this time period free of the mortgage lien encumbrance they will have to negotiate with the mortgagee for a release of the mortgage lien. The Watkin decision is consistent with cases interpreting 12 C.F.R. § 1006.26(b) of the Fair Debt Collection Practices Act (FDCPA) in which a debt collector cannot bring or threaten to bring a legal action against a consumer to collect a time-barred debt but may still use non-litigation means, such as letters and telephone calls, to collect a time-barred debt as long as such debt collection efforts do not violate the FDCPA or other applicable laws. Likewise, it is consistent with the U.S. Supreme Court case of Midland Funding LLC v. Johnson, 581 U.S. 224, 137 S.Ct. 1407, (2017), which held that filing a bankruptcy claim for a time-barred debt is not a violation of the FDCPA and which recognized that the law in “many States, provides that a creditor has the right to payment of a debt even after the limitations period has expired.” 581 U.S. at 228.
In sum, lenders and their servicers should be aware of these two recent Illinois appellate court decisions and their significant implications on the applicable statute of limitations periods for the enforcement of their mortgage.
This publication is for informational purposes only and does not constitute an opinion of MDK.
Do not rely on this publication without seeking legal counsel.
.png){kind=icon}
.png){kind=logo}
