The Seventh Circuit Court of Appeals has sent a mortgage dispute back to the district court, ruling that the lower court improperly dismissed a homeowner’s lawsuit against her loan servicer based on an unproven assertion that the servicer was an “assignee” of the original lender.
The case centers on Ramona Milam, an Illinois homeowner whose mortgage payments are collected by Selene Finance, LP. When Milam fell behind on her payments in 2023, Selene sent her a standard default letter threatening acceleration of the loan and foreclosure if she didn’t pay up within 35 days. Milam complied, but then sued Selene, arguing the threat was misleading and violated both the federal Fair Debt Collection Practices Act (FDCPA) and Illinois consumer protection laws.
Milam’s central argument was that Selene could not—and would not—actually foreclose within the 35-day window Selene cited in its letter. She contended that due to federal regulations and Selene’s own internal policies, foreclosure wouldn’t happen until the loan was at least 120 days delinquent. Therefore, the letter was an artificial scare tactic designed to panic her into paying prematurely.
Standing Issues Resolved Through Amendment
When the case first reached the Seventh Circuit, the judges had concerns about whether Milam had suffered a concrete injury sufficient to establish Article III standing to sue in federal court. Selene argued that Milam simply paid a debt she already owed.
Milam initially cited the “time-value of money” to explain her harm, which the court found too vague. However, the Seventh Circuit gave Milam a path forward, allowing her to seek an amendment under 28 U.S.C. § 1653, which permits correcting defective allegations of jurisdiction.
In her supplemental filings, Milam clarified the harm: she explained that because her payment was already overdue, she wasn’t avoiding any additional interest by paying early. Crucially, she detailed how being forced to pay sooner caused concrete monetary harm—she had to borrow money to cover health insurance premiums and incurred overdraft fees on her bank account by withdrawing funds needed for necessities like food and utilities. The Seventh Circuit accepted these new allegations, confirming that Milam now had standing to pursue her claims.
The Crux of the Reversal: Assignment Under Illinois Law
The district court had dismissed Milam’s entire case because Selene successfully argued it was entitled to enforce a clause in the mortgage agreement requiring both the borrower and lender to give each other notice and a “reasonable period… to take corrective action” before filing a lawsuit. The lower court concluded that Selene, as the loan servicer, qualified as an “assignee” of the lender under Illinois law, and since Milam hadn’t provided this required notice before suing, her claims were barred.
The Seventh Circuit disagreed with this conclusion, finding the district court jumped to a legal finding that wasn’t supported by the facts currently on the record.
The mortgage document itself was silent on the definition of “assign,” forcing the appellate court to look to Illinois state law. Under Illinois precedent, an assignment is a “transfer of some identifiable interest,” meaning the assignee steps into the shoes of the assignor, transferring all “right, title or interest.”
However, Illinois law also recognizes a distinction between an assignment and a delegation. A delegation, the court noted, involves appointing someone to perform duties without permanently transferring ownership rights. The court cited an example from the Illinois Supreme Court involving a property owner delegating management duties—including collecting rent—to a property manager. This arrangement doesn’t alienate the owner’s rights; the owner can still step in and make decisions.
The Seventh Circuit determined that Selene’s role as a loan servicer—contractually collecting payments on behalf of the lender—sounds much more like a delegation of duties than a full assignment of ownership interest.
“We cannot rule out the possibility that the lender… has merely delegated the performance of certain contractual duties to Selene,” the opinion stated. Because Selene’s specific servicing contract was not part of the record, the court could not definitively say Selene was an assignee entitled to the protection of the notice-and-cure provision.
The court found support in prior Illinois appellate cases where loan servicers were found *not* to be assignees because there was no evidence they obtained any legal interest in the property itself—at most, they were relied upon to service the payments.
Because the prerequisite for dismissing Milam’s claims—Selene being an assignee—was not established, the Seventh Circuit reversed the dismissal and sent the case back. The district court will now need to conduct further analysis, likely examining the actual servicing agreement, to determine Selene’s exact legal status under Illinois law before determining if Milam’s claims can proceed. The court also noted that Milam’s state law claims, which had been dismissed for lack of pleaded pecuniary loss, will also need to be revisited in light of her newly established standing.