THE HAROLD I. LEVINE MEMORIAL 1 CASE LAW UPDATE · presenter, and, to a few very fortunate lawyers, a mentor and role model who passed away in 2003. He was a long-time volunteer for

LAKE COUNTY BAR ASSOCIATION

THE HAROLD I. LEVINE MEMORIAL 1 CASE LAW UPDATE

REAL ESTATE CASE LAW UPDATE - 2015

April 7, 2016, 1:15-2:15pm Independence Grove

16400 East Buckley Rd. Libertyville, Illinois

Steven B. Bashaw Joseph R. Fortunato, Jr. Steven B. Bashaw, P.C. Momkus McCluskey, LLC Tel. (630) 322-9990 Tel. (630) 434-0400 e-mail: [email protected] e-mail: [email protected]

1. ADMINISTRATION OF ESTATES; SHORT SALES; INTERPLAY BETWEEN PROBATE ACT AND FORECLOSURE LAW; JUDICIAL DISCRETION:

In re Estate of LaPlume, 2014 IL App. 2nd 130945, (December 4, 2014), is a decision that has flown somewhat under the radar of both probate and real estate attorneys. A decedent’s estate was opened June 25, 2012. In December, 2012 Bank of America (“Bank”) filed a mortgage foreclosure

1 Harold I. Levine was a defender of owners and mortgagors, a prolific writer and continuing education presenter, and, to a few very fortunate lawyers, a mentor and role model who passed away in 2003. He was a long-time volunteer for the Legal Assistance Foundation, Chicago Volunteer Legal Services, the Center for Disability and Elder Law, as well as other legal service providers, and, most importantly, brought others to this important work. On more than one occasion, I had the honor of being on the opposite side of the counsel’s table from Harold. He was also formidable opponent, always an advocate for his client, and always a gentleman. On a number of occasions, I had the pleasure of being on the opposite side of a dinner table from Harold. He was always a source of new ideas, a proponent of justice and equity, and…always a gentle friend. His dedication to his clients, worthy causes, and great contribution to the continuing education of attorneys are sorely missed. He would be so very proud of our Supreme Court and Bar Associations if he had known we would have finally adopted mandatory CLE. In some small measure, the work of this man must be undertaken and carried on by those of us in our profession who shared his great caring and love for the law and lawyers. THIS MATERIAL COPYRIGHT @2016, STEVEN B. BASHAW, ALL RIGHTS RESERVED. LIMITED MATERIAL MAY BE QUOTED FOR REVIEW OR REFERENCE PURPOSES ONLY.

2016 Real Estate Seminar April 7, 2016

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action. In March 2013 the executor filed a petition for approval of a real estate contract that would not have generated sufficient proceeds after expenses of sale to satisfy the mortgage and other liens, and would have required a Short Sale. A second similar petition was filed after a second contract emerged for $5,000 more, but that still would have required a Short Sale. The executor relied on section 20-6 of the Probate Act that allegedly permitted the probate court, at its discretion, to order a Short Sale. The language of the section is: “In any proceeding to sell or mortgage real estate the court may: *** (b) direct the sale or mortgage of property free of all mortgage, judgment or other liens that are due, provide for the satisfaction of all those liens out of the proceeds of the sale or mortgage and settle and adjust all equities and all questions of priority among all interested persons; (c) with the assent of the owner of a mortgage lien that is not due, direct that the property be sold or mortgaged free of the lien and provide for the satisfaction of the lien out of the proceeds of the sale or mortgage…” The Bank asserted its right to foreclose and argued that there was no conflict between the cited section of the Probate Act and the Mortgage Foreclosure Law, and that because it had filed the foreclosure case prior to the filing of the executor’s petition to approve the sale, it should be allowed to proceed with the foreclosure under the “first in time, first in right” maxim. The appellate court, after an exhaustive (and somewhat exhausting) discussion of rules of statutory construction, mandatory vs. permissive statutes, use of disjunctive vs. conjunctive prepositions, discretion and possible abuse of discretion, legislative intent, determination as to whether the property must be “under water” for the section of the Probate Act to apply, which statute might “trump” the other, specific vs. general provisions, identity of parties and subject matter of disputes, whether the election to proceed under the Probate Act is to be made by the foreclosing lender or by the Probate Court, harmless error and remedies, the Court eventually concludes that the Probate Court erred in not exercising discretion to determine whether to proceed under the cited section of the Probate Act, even after determining that the use of the word “may” in the cited section of the Probate Act did not mandate the Court to act thereunder. The Court’s holdings include:


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The word “may” confers jurisdiction on the Probate Court to apply section 20-6; The Probate Court must consider whether such a sale is necessary for the proper administration of the decedent’ estate, even where the mortgage would not be satisfied in full (i.e., the Probate Court may force a Short Sale); Section 20-6 does not automatically apply when real estate is “under water” (insufficient funds would be generated from the sale to pay all expenses and satisfy all liens in full); The “first-in-time, first-in-right” maxim does not prevent the Probate Court from exercising discretion; The three components of Section 20-6 must be exercised together: (1) the court has the power to direct the sale of real estate free and clear of any existing encumbrances; (2) those encumbrances will be “satisfied” [Ed. Emphasis added] from sales proceeds and (3) it is up to the Court to adjust claims and priorities of claimants; It was error for the Probate Court, who appeared not to believe that the court possessed the power to “cram down” the sale on the Bank, to exercise its discretion granted under the cited section of the Probate Act to consider whether to grant the petition, approve the sale and determine the relative priorities. The Court does not consider the question of whether the legislature might have intended the cited section of the Probate Act to apply only in instances where there were sufficient proceeds to satisfy all secured claims, thus allowing the determination of priorities and adjustments only among unsecured creditors. The opinion assumes that section 20-6 applies to situations where the real estate is “under water”, but the statute could be read so as not to apply to such situations. (The author is unaware of any other case or other authority for the proposition that Short Sales can be mandated by Court Order. Clearly, however, that is the unavoidable conclusion that must be drawn from this decision.) JRF

2. ATTORNEY MALPRACTICE; STATUTE OF LIMITATIONS AND STATUTE OF REPOSE; WHEN THE “INJURY” OCCURS:

In Lamet vs. Levin (1st Dist., August 12, 2015), 2015 IL App 1st 143105, the appellate court once again took up the issue of the limitation period for the bringing of an action for attorney malpractice.


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In this case, for 17 years, the defendant attorney represented the plaintiff, another attorney, in an action brought by the plaintiff’s landlord seeking alleged unpaid rent and other charges. The case involved dismissals of the landlord’s suit for want of prosecution and for failure to exercise diligence in effecting service upon the tenant. However, the plaintiff ultimately learned that the defenses and counterclaims brought by the attorney in defending the action brought by the landlord were without merit, and he settled the claim brought by the landlord for $150,000. He then sued the attorney for malpractice, which the trial court dismissed the suit as time-barred. The appellate court affirmed. Section 13-214.3 of the Code of Civil procedure provides that an action for legal malpractice must be brought within two years of the time the person bringing the action knew or reasonably should have known of the injury for which damages are sought. Additionally, such action may not be commenced in any event more than six years after the date on which the act or omission occurred. The plaintiff argued on appeal that the statute of repose did not begin to run until the last date when the attorney performed the alleged acts of negligence, which was in 2011; in the alternative, he argued that the statute of limitations did not begin to run until he “discovered” the negligence of defendant when plaintiff hired new counsel who advised regarding the defendant attorney’s alleged negligence. He also argued that the defendant attorney fraudulently concealed his alleged negligent conduct, thereby tolling the periods of limitations and repose. The appellate court affirmed, the trial court's finding that the claims were filed “well beyond” the applicable periods of limitation and repose, agreeing that the alleged negligence took place in 1994, when the defendant attorney first began representing the plaintiff and failed to advise the plaintiff that he had no defenses, claims or remedies. The court held that a plaintiff may not be allowed to wait even during the progress of the representation for the defendant to “correct omissions” in his representation, citing authority that the “ongoing duty to correct does not delay the beginning of the period of repose.” Many readers may recall the June 2011 decision by the Illinois Supreme Court in Snyder vs. Heidelberger, 2010 Ill. Lexis 17458, 238 Ill. 2nd 675, 942 N.E. 2nd 462, 347 Ill. Dec. 259. While in that case the Supreme Court held that the “…period of repose in a legal malpractice case begins to run on the


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last date on which the attorney performs the work in the alleged negligence…” that decision involved the negligent drafting of a deed (a transactional matter), and the period of repose began to run when the attorney sent the alleged defective deed to the client and not on the date much later when the alleged error was discovered. The delivery of the deed was determined to be the “single overt act from which damages flow.” By contrast, in litigation, an attorney can perform negligently even before the litigation is final and the representation has ended. Therefore, the Snyder decision is consistent with the determination by the appellate court that the action was brought well beyond the period of repose. Regarding the statute of limitations argument, the court found that the plaintiff knew or should have known that the defendant’s theories were baseless when he received an architect’s report in 1994 describing the square footage of the space. And finally (and thankfully) the court disposed of the fraudulent concealment count, distinguishing between the concealment of facts regarding a cause of action and the concealment of an opinion or strategy, and stated that there was no authority for the proposition that an attorney was required to affirmatively advise his client of his negligence and the statute of limitations for suing him. The court refused to grant fees for the defendant as a sanction, preferring to leave the parties as they found them, given the long history of delay in the case.

3. CONDOMINIUM ASSESSMENTS; FORECLOSURE EXTINGUISHMENT OF LIEN FOR PRIOR OWNERS ASSESSMENTS, PAYMENT OF ASSESSMENTS POST-SALE:

In a case which has caused a good deal of comment and consternation among real estate lawyers, the Illinois Supreme Court set to rest the apparent conflict between the provisions of the Illinois Mortgage Foreclosure Law and the Illinois Condominium Property Act relating to the extinguishment of condominium assessments following a foreclosure in 1010 Lake Shore Drive Association v. Deutsch Bank, 2015 IL 118372. The case began when Deutsch Bank purchased a condominium unit at a foreclosure sale on June 17, 2010. The Association filed a forcible entry and detainer action two years later in May, 2012, alleging the Bank was


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unlawfully withholding possession and owed $62,000 in assessments, requested an order of possession and an award of all unpaid assessments and its attorney’s fees. Its position was based on Section 9(g)(3) of the Condominium Act. It asserted that when the Bank failed to pay assessments following the foreclosure sale, the neither the prior owner’s assessments nor those accruing post sale were extinguished by the foreclosure. The Bank’s position was that it did not owe the assessments incurred prior to the sale, (more than $43,000 of the $67,000 claimed, at a monthly rate of $1,041.86 per month plus late charge of $50), by virtue of extinguishment in the foreclosure. The trial court granted summary judgment in favor of the Association for the full amount of assessments accrued to the date of the judgment, and thereafter granted the Association an award for its attorney fees and costs. The First District affirmed the trial court’s ruling, with Justice Liu dissenting. The majority held that 765 ILCS 605/9(g)(3) provides that the purchaser of a condominium unit at a foreclosure is obligated to pay assessments from and after the first day of the month following the sale. The second sentence of that section also provides that “such payment confirms the extinguishment of any lien…by virtue of the failure or refusal of a prior unit owner to make payment of common expenses, where the judicial sale has been confirmed”. Accordingly, if the purchaser at sale fails to pay the assessment for the first and subsequent months following the sale, the prior owner’s assessment obligations are not extinguished as a lien on the unit regardless of the foreclosure. The Bank’s argument that the Illinois Mortgage Foreclosure Law, 735 ILCS 5/15-1509(c), extinguished the lien if the association was a party to the foreclosure and a deed issued was rejected. Finding the Condominium Act is a “specific statutory provision”, whereas the IMFL is a “general statutory provision”, the First District held the specific provision controls over the general. Therefore, in order to extinguish the prior unit owner’s lien, the purchaser at sale was required to pay the assessments post sale. Justice Liu’s dissent turned on the fact that the Association was a party to the foreclosure, its lien extinguished by express findings in the judgment, and thereafter was “reviving” its extinguished lien without regard to the Section 1509 provision that the liens of all parties were barred by the issuance of the deed in the foreclosure. (1010 Lake Shore Association v. Deutsch Bank, 2014 IL App (1st) 130962.)


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The Illinois Supreme Court decision, (1010 Lake Shore Association v. Deutsch Bank, 2015 IL 118372), published December 3, 2015, affirmed. It held that the second sentence in Section 9(g)(3) requires an additional step in the process of extinguishing the prior owner’s assessments in foreclosure; payment of post-foreclosure sale assessments. In addition to naming the association in the foreclosure, a lender, or purchaser at sale, must also pay the assessments as they accrue post-foreclosure sale in order to extinguish the prior lien. Noting that the post-sale payment provision provides “an incentive for prompt payment” of those post-foreclosure sale assessments to mortgagee purchasers, the Court also noted that non-mortgagee purchasers at foreclosure sales are required to pay six months of prior unpaid assessments to confirm extinguishment of the pre-sale lien under Section 9(g)(4). Apparently, this is in addition to the post-foreclosure sale assessments a mortgagee is required to pay. Together these sections of the Condominium Property Act create a consistent thrust of the law to “allow condominium associations to recover a portion of the prior owner’s unpaid assessments from the new owner.” SBB

4. CONDOMINIUM ASSOCIATIONS; RESTRICTIONS IN BY-LAWS MORE RESTRICTIVE THAN CONDOMINIUM PROPERTY ACT; VOID CONTRACTS; BREACH OF FIDUCIARY DUTIES; MUTUAL MISTAKE OF FACT; RATIFICATION:

In the case of Alliance Property Management vs. Forest Villa of Countryside Condominium Association, (2015 IL App (1st) 150169, December 24, 2015), the Appellate Court for the First District affirmed the decision of the trial court that the Association had no authority to enter into a three-year contract with a management company when the By-Laws of the Association provided that no management agreement could run for a period in excess of two years. The members of the Board did not realize that the By-laws contained the two-year restriction. The management company did not review the By-Laws prior to offering to manage the Association for three years. When the Association attempted to terminate the management agreement, the management company sued, alleging breach of contract. In response to affirmative defenses raised by the Association, the management company


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argued that the time limitation in the By-Laws rendered the agreement not void, as the trial court ultimately held, but voidable. The management company owed fiduciary duties to the Association by virtue of the terms of the management agreement. The company should therefore have been aware of the limitations contained in the By-Laws. The fact that there may have been a mutual mistake between the parties did not render the agreement voidable because the terms thereof exceeded the authority of the Board. Mutual mistake does not permit a party to a contract to ratify a contract where the party has no power to contract in the first place. The fact that the Condominium Property Act does not contain a similar limitation of the authority of the Association was of no consequence; the court cited to authority that, as long as the requirements of the Act are followed, an association may impose additional rules in its Declaration or By-Laws that are n more restrictive that the Act itself. The court also rejected the argument of the management company that the Board may deviate from the By-Laws when the action is in the best interests of the Association, finding no authority for such a proposition. The so-called “business judgment rule” has been held not to apply to situations where there is an overt violation to the By-Laws. Nor could the court find authority to support the argument of the management company that strict compliance with the By-Laws was excused in situations involving the authority of an association to enter into contracts with third parties. Because the association lacked authority to enter into a contract in excess of 24 months’’ duration, such contract is void ab initio. For that reason, the court declined to address the arguments by the management company regarding unjust enrichment and improper termination of the agreement. JRF

5. EMINENT DOMAIN; EASEMENTS; TIMING OF GRANT

OF ACCESS TO COMPLETE WORK ABSENT TRANSFER OF TITLE; PAYMENT OF JUST COMPENSATION; DEPOSIT OF ADEQUATE SECURITY:

Enbridge Pipelines LLC vs. Troyer, et al., 2015 IL App. 4th 150334 (August 24, 2015) The Plaintiff, known as Illinois Expansion Pipeline Company (“IEPC”) obtained eminent domain authority from the Illinois Commerce Commission to construct a liquid petroleum pipeline over a 170-mile area of real estate. Defendants were landowners who were unable to reach agreement with IEPC on just compensation, with jury trials scheduled in the future. The lands in question were essentially the last remaining over which IEPC needed access to complete the project in a timely and expeditious fashion. IEPC (which has no “quick-take” powers) obtained an injunction from the trial court


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granting easements over Defendants’ lands to commence construction of the pipeline on their lands. The appellate court agreed with the trial court that an injunction against the landowners was appropriate to prevent them from denying access to their lands prior to the jury’s determination of just compensation, in the following circumstances:

A. IEPC had a clear right in Defendants’ lands to construct a pipeline; B. Its right was in need of protection; C. Absent an injunction, IEPC would suffer immediate and irreparable harm; D. There was no adequate remedy at law; E. IEPC had succeeded on the merits, and only the issue of just compensation

remained; F. IEPC had obtained access to 650 of the total 680 parcels needed, and

Defendants’ lands were all that was left; G. The public interest required that IEPC gain access to Defendants’ lands; H. IEPC was prepared to deposit cash and surety sufficient to satisfy the total

jury award to which Defendants would be entitled after trial. Finding that the trial court had authority to enter the injunction, the Court, essentially sidestepping the issue of the lack of “quick-take” powers available to IEPC, noted that the condemnation proceeding “does not fit into the category of an ‘ordinary’ condemnation proceeding” as in the cases cited by the parties, in that Defendants will retain title and possession of their lands during the pendency of the proceedings and after the termination thereof [Ed. - Is that not the nature of the grant of an easement?]. The injunction simply prevents Defendants from impeding access to complete the pipeline. The opinion cites authority that the constitution “…does not require just compensation to be paid in advance of, or even contemporaneous with, the taking.” But the most significant element that appeared evident to the Court was that IEPC had deposited with the county treasurer more than enough money to compensate Defendants for any foreseeable jury award. While the opinion does not so state, the Court appeared to believe that Defendants were attempting to “leverage a better deal” by denying IEPC access to complete the pipeline on time. The Court mentions “balancing hardships and considering appropriate factors” and fails to address the lack of “quick take” powers available to IEPC in essentially allowing “quick-take” via the process of injunctive relief. JRF

6. IMPLIED WARRANTY OF HABITABILITY IN NEW

CONSTRUCTION WAIVED BY ORIGINAL RESIDENTIAL PURCHASER’S; “AS-IS” PROVISIONS IN CONTRACTS; “SUCCESSORS AND ASSIGNS” CLAUSES:

In Fattah vs. Bim (2015 IL App (1st) 140171), the First District Appellate Court reviewed a case of apparent first impression in Illinois. The decision


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may have been unanticipated, but it is one of the most significant decisions of 2015. A patio on Plaintiff's home, which he had bought "As-Is" for $1.05 million from original purchaser, collapsed 4 months after he moved in to home. Plaintiff bought the house “As-Is” from the original purchaser (Lubeck), who had waived the implied warranty of habitability when she purchased it new three years earlier. Six months after the house was completed, the builder hired a subcontractor to add a 1,000-square-foot patio to the house; the patio was more than 6 feet high built on a grade sloping downward from the rear of the house. The rear door opening to the patio was the only means of ingress and egress from the rear of the house. At the closing of the new construction, Lubeck (as all buyers of new construction must do) was required by the builder to accept a one-year express limited warranty in lieu of the implied warranty of habitability. The limited warranty stated it would be “…binding upon and inure to the benefit of Seller, Purchaser and their respective successors, assigns, heirs, executors, administrators, and legal and personal representatives.” Lubeck met with Bim, the builder, prior to selling the home to the Plaintiff. Bim’s affidavit stated that Lubeck and he observed the patio retaining wall collapsing, and he asked Lubeck whether she wanted him to repair the patio, but she allegedly replied that she was not going to request repairs because the Plaintiff was purchasing the house “As-Is”. Plaintiff sued the builder of the home, alleging breach of the implied warranty of habitability. The trial court held that the home had latent defects but that the “As-Is” provision barred Plaintiff from recovery against the builder. The trial court also held that the waiver of the implied warranty of habitability by the original purchaser was binding upon Plaintiff, citing public policy concerns that builders would be potentially liable to subsequent purchasers, thereby frustrating the policy of enforcing a knowing waiver of the implied warranty of habitability, and that subsequent purchasers could allegedly protect themselves by obtaining a representation in their purchase contract whether the implied warranty of habitability had been waived by the original purchaser from the builder. The First District thoroughly reviewed the development of the implied warranty of habitability, which is available to subsequent purchasers without the requirement of privity of contract with the builder. Despite the “strong public policy favoring the implied warranty, the Illinois Supreme Court has recognized that a “knowing waiver” of the warranty is not against public


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policy in Illinois as long as it is conspicuous, fully discloses its consequences and results from the agreement of the parties. Defendants failed to their meet burden to show that the Plaintiff knowingly waived the implied warranty of habitability. A "successors and assigns" provision in the waiver agreement between Defendants and original purchaser does not bind Plaintiff, and the "As-Is" rider agreement between the Defendants and the original purchaser does not bind Plaintiff to the original purchaser's waiver of the implied warranty of habitability. [Note – the Illinois Supreme Court has granted a Petition for Leave to Appeal in this case] - JRF

7. IMPLIED WARRANTY OF HABITABILITY; CONDOMINIUM PROPERTY; EXTENSION OF MINTON DOCTRINE INAPPLICABLE TO ARCHITECTS; CONSTRUCTION DEFECTS vs. DESIGN DEFECTS; DISCLAIMER LANGUAGE SUFFICIENTLY CONSPICUOUS; AGENCY:

Board of Managers of Park Point of Wheeling Condominium Association vs. Park Point at Wheeling, LLC, et al., (1st Dist. 2015) 2015 IL App (1st) 123452, decided after Fattah vs. Bim, supra, came before the Court after dismissal under sections 2-615 and 2-619 of the Code of Civil Procedure of claims brought by a condominium association that various parties breached the implied warranty of habitability by incorporating latent defects into units and common elements. The particular issue of note was the request by the association to extend the rationale of Minton vs. The Richards Group of Chicago, 116 Ill. App. 3rd 852, 452 N.E. 2nd 835 (1983) to the claim for design defects against the architect, Hirsch and Associates, LLC. In Minton, the court extended the implied warranty of habitability to a subcontractor because the builder/seller was judgment-proof and the solvent subcontractor was the cause of the latent defect. Hirsch was not alleged to have participated in the construction or sale of the units. The association sued Hirsch, the developer/seller and several subcontractors involved in the alleged improper construction, asserting latent defects allowed water intrusion and diversion. The alleged cost of remediation was $4 million. The association also alleged on information and belief that the original general contractor was insolvent and out of business


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and the successor general contractor either had no assets or insufficient assets to satisfy a $4 million award. The opinion contains a very thorough review of the development of the implied warranty of habitability (which the author commends to all readers), discussing public policy concerns, the doctrine of merger, caveat emptor, the expansion of the doctrine from the law of landlord and tenant to the sale of new homes and then to the sale of new condominium units. Then in VonHoldt vs. Barba & Barba Construction, Inc., 175 Ill. 2nd 426, the Illinois Supreme Court extended the doctrine to a contractor that created latent defects by disregarding an architect’s plans. However, the court in this case refused to expand the doctrine beyond the question of the quality of the construction work. Generally speaking “…only builders or builder-sellers warrant the habitability of construction work. Engineers and design professionals … provide a service and do not warrant the accuracy of their plans and specifications.” The opinion discussed the fact that the extension of the implied warranty of habitability against design professionals had already been rejected in Illinois as well as most other jurisdictions. While the court could easily have reasoned to the contrary, it noted that traditionally the implied warranty of habitability is applied to those who engage in construction, and because architects do not engage in construction but rather perform design services, courts have consistently declined to “heighten their express contractual obligations by implying a warranty of habitability of construction.” The association argued for the extension of the Minton doctrine, reasoning that fault in the efforts of either the designer or the contractor (and subcontractor) may create latent defects. But the court, citing public policy reasons, refused to accept the argument of the association, and refused to extend the Minton doctrine to architects, stating that the fact that the builders of the condominium complex are alleged to be insolvent does not justify expanding Minton to an “…entirely different category of defendant” and denied that “…architects and builders are similar…” and stated that “…it is not the architect’s work – it is the builder’s work – which creates the tangible structure.” The court then addressed the claims against subcontractors. In reviewing the disclaimer of the express warranty on behalf of the builder and it’s agents in the purchase contracts, the court found the disclaimer to be conspicuous because it was in block capital letters and therefore was designed to catch the eye of the reader. While a seller is not required to specifically point out


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the disclaimer, it must be conspicuous and spell out the consequences of waiver. The association was allowed to pursue its implied warranty of habitability claim against the original and successor general contractor (Smith) because Smith was not “the agent” of the developer/seller, was not authorized to act on behalf of the developer/seller and did not come within the terms of the disclaimer. Therefore, Smith was not entitled to the protection of the disclaimer. Finally, although the same reasoning regarding the ambit of the disclaimer could have been applied to the subcontractors (also not “agents” of the developer/seller), the cause of action against them fails because the association failed to plead facts indicating the original and successor general contractor (Smith) was insolvent. Minton extended liability against subcontractors where innocent purchasers has no recourse to the builder, but the allegation here was simply that, on information and belief, Smith could not satisfy a $4 million award, not that Smith had, for instance, filed for bankruptcy. Therefore, the court would not allow the association to create its own criteria for recourse against Smith, especially when making allegations on information and belief (“…the allegation of insolvency is legally unsubstantiated and is a matter de hors the record”). JRF

8. MORTGAGE FORECLOSURE; ACCELERATION NOTICE; TILA APPLICATION TO MODIFICATIONS:

In Citimortgage, Inc. v. Bukowski, (1st Dist., January 21, 2015), the First District considered the mortgagor defendant's appeal of the trial court's grant of summary judgment in favor of the lender. The borrowers were Anna and Katherine Bukowski, who both made the underlying mortgage. Prior to the instant default in October, 2011, Citimortgage extended a loan modification to Defendants that adjusted the interest rate and changed the loan's maturity date. Only Anna executed the modification, Katherine did not. When the sisters thereafter defaulted, Citimortgage filed the instant foreclosure proceeding. After a pro-se Answer was filed by Anna alone, newly retained counsel was granted leave to file an amended answer on behalf of the sisters. Katherine's Answer presented two "affirmative defenses"; first, that she did not receive the acceleration notice required by the mortgage documents, and second, that Citimortgage violated Truth in Lending when it modified the mortgage to


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require an escrow account but did not provide disclosure required by the Illinois Mortgage Escrow Act, violating the TILA disclosure mandates. The trial court dismissed the affirmative defenses based on Citimortgage's argument that the allegations did not constitute "allegations that give color to the lender's cause of action and then raises a new matter that defeats the claim" as "proper affirmative defenses". The Citimortgage response relating to the acceleration notice also provided a copy of a notice addressed to Anna dated November 7, 2011, and an affidavit attesting to the mailing of the notice on that date, and argued that only "mailing" and not proof of receipt was required. Relating to the TILA claim, Citimortgage argued that TILA does not apply to loan modifications. Summary Judgment was entered following the dismissal of the Affirmative Defenses based on the affidavits of the sums due and owing by Citimortgage and the Defendants failed to file counter-affidavits. A judicial sale was held and confirmed by the Court. Defendants did not object to the entry of the order confirming the sale, but timely filed a notice of appeal, which indicated that they were appealing the confirmation of sale order. Citimortgage's initial attempt to dismiss the appeal limited to the confirmation of sale by the language of the Notice of Appeal, rather than the ruling dismissing the affirmative defenses was denied, and then rejected in the Court's opinion. "The purpose of a notice of appeal is to inform the prevailing party in the trial court that his opponent seeks review by a higher court. Noting that "an appeal from a final judgment in a case entails review not only of the final judgment order, but of any interlocutory orders constituting " 'a step in the procedural progression leading' to that judgment", the Court found the dismissal of the Affirmative Defenses was such a "step in the procedural progression of the foreclosure action that ultimately lead to confirmation of the sale. Thus, defendants appeal from the final order entered in the case encompasses review of the trial court's orders dismissing the affirmative defenses and entering summary judgment for Citimortgage." This issue often arises out of the confusion among laypersons and attorneys as well as to whether the order they should appeal is the Judgment of Foreclosure or the Confirmation of Sale. Often an error in the Notice of Appeal of what order is or is not appeal is seized upon by the appellee to argue jurisdiction. A more recent case, Bayview Loan Servicing, LLC v. Szpara, 2015 IL App (2d) 140331, decided December 30, 2015, also discusses the ‘procedural progression leading to judgment’ as an appealable issue and found that “While an unspecified judgment is reviewable if it is a


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step in the procedural progression leading to the judgment specified in the notice of appeal, (citations), the striking of the second affirmative defense was not part of the procedural progression here…) The Defendant's argument that they did not receive the acceleration notice was supported only by their allegations that they regularly checked their mail, that they had received other communications from Citimortgage, but that they never received an acceleration letter. This did not raise a material issue of fact sufficiently to counter the Affidavit of mailing by Citimortgage, together with a copy of the notice letter. The Court weighed "Katherine's unsupported allegations against the sworn evidence provided by Citimortgage", and found them insufficient to create a genuine issue of material fact. The TILA allegations were likewise dispatched. "TILA applies only in connection with the original extension of credit to a consumer and that later events do not require new disclosures unless the original obligation is replaced with another, as in the case of refinancing. Specifically, courts have found that TILA does not apply in the context of loan modifications." SBB

9. MORTGAGE FORECLOSURE; AFFIDAVITS OF

AMOUNTS DUE, GRACE PERIOD NOTICE, PURCHASE AND ASSUMPTION AGREEMENT BAR:

Bayview Loan Servicing, LLC v. Szpara, 2015 IL App (2d) 140331, takes up a number of the “defense d’jour” in foreclosure cases that continue to appear over the last year. JPMorgan Case filed the foreclosure complaint against the residential property of Defendants. Szpara filed an answer, four affirmative defenses and counterclaimed. The first affirmative defense was that Plaintiff failed to send Defendants an acceleration letter as a condition precedent to bringing suit. The second affirmative defense was that Plaintiff failed to send Defendants the “Grace Period Notice” required by 735 ILCS 5/15-1502.5 prior to filing the complaint. The third affirmative defense alleged that the mortgage broker that facilitated the mortgage fraudulently inflated the value of the property, and the fourth affirmative defense was that the broker’s conducted estopped the Plaintiff, and supported the counter complaint to quiet title to remove the mortgage due to the conduct of the mortgage broker. The Plaintiff moved to strike the affirmative defenses, and


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these were stricken with leave to file amended pleadings, which lead to another round in the dance ending in the lender’s favor. Plaintiff also argued that the affirmative matters relating to the conduct of Washington Mutual Bank in the inception of the loan were barred by the provisions of the purchase and assumption agreement by which Plaintiff obtained the loans from the FDIC when it took over Washington Mutual’s loans as receiver. When the case progressed to the summary judgment stage, Defendant moved to strike the affidavit of amounts due filed by JPMorgan Chase, arguing that they lacked a business record foundation and were hearsay based on the prior servicer’s records under Supreme Court Rule 191. The trial court agreed and granted summary judgment based on the affidavit. On appeal, the Court agreed that the “Grace Period Notice” affirmative defense was inapplicable because Section 15-1502.5 specifically includes an exception that the notice need not be given where a mortgagor of residential real estate has filed for relief under the Bankruptcy Code. Defendants had filed a Chapter 7 bankruptcy petition after the filing of the foreclosure action, the Plaintiff obtained relief from the automatic stay, and then resumed the foreclosure taking the position that it was not required to issue the Grace Period Notice. Defendants attempted to argue that the timing of the bankruptcy filing was after the filing of the complaint making the exception inapplicable. There was a factual dispute about whether the complaint was filed before or after the bankruptcy, and the Court appears to have found that the complaint was five months after the bankruptcy filing, but the Appellate Court did not reach the substance of this issue. Instead, the Court ruled that the issue not properly before them because the order striking Defendant’s was not specified in the Notice of Appeal; “Moreover, the striking of the second affirmative defense and counterclaim was not a step in the procedural progress leading to the judgments specified in the notice of appeal.” The Court also affirmed the trial court’s ruling on the affirmative defenses and counterclaim relating to the alleged inflation of the value of the property by the mortgage broker. The trial court took judicial notice of the Purchase and Assumption Agreement between the FDIC and JPMorgan when it obtained the Washington Mutual loan. That PAA provided that any liability associated with borrower claims for liability arising in connection with the Failed Bank’s (Washington Mutual) lending or loan purchase activities are specifically not assumed by the Assuming Bank (JPMorgan). Accordingly, Szpara’s allegations of misconduct against the Washington


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Mutual broker in inflating the value of the property were barred as to JPMorgan. Ruling on the Defendant’s argument that the Affidavit of Amounts due and owing was insufficient based on Supreme Court Rule 191, the Court applies Illinois Supreme Court Rule 236 relating to the admission of business records. The Rule provides that if a business record is made in the regular course of business, of which it was the regular course of that business to make the record, at or about the time of the occurrence, it is admissible , and “All other circumstances of the making of the origin or record, including lack of personal knowledge by the entrant or maker, may be shown to affects its weight, but shall not affect its admissibility.” The holding is further supported by citations to a growing body of law on this issue: Bank of America v. Land, 2013 IL App (5th) 120283, and U.S. Bank v. Advic, 2014 IL App (1st) 121759, both of which affirmed trial courts in admitting affidavits of the current servicer as to amounts due relying on the business records of prior loan servicers despite the hearsay nature of the records testimony. Having admitted the affidavits under the business records exception, and not being confronted with a counter-affidavit, the consideration was an abuse of discretion as to the weight attributed to the affidavit, and the entry of summary judgment was appropriate. SBB

10. MORTGAGE FORECLOSURE; ADVANCES FOR TAXES

AND RECOVERY AT CONFIRMATION OF SALE; JUDGMENTS:

BMO Harris Bank, N.A. v. Wolverine Properties, LLC, (2nd Dist., August 20, 2015), 2015 IL App (2d) 140921, is a cautionary tale for counsel for plaintiffs in contested foreclosures and a checklist item for defendant's attorneys relating to advances for real estate taxes and other items. BMO Harris, as the successor for Amcore Bank following its failure, filed a foreclosure relating to three parcels of commercial real estate in Aurora, Illinois. The property consisted of a commercial building on two of the lots and 15 acres of vacant land on the third. There were three notes with principal balances totaling approximating $3.5 million, secured by multiple mortgages, and personal guarantees by the members of Wolverine Properties limited liability company. The Complaint sought foreclose of the mortgages, judgments on the notes, and judgments on the guaranties.


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In January, 2013, BMO Harris filed its motion for summary judgment, supported by an affidavit of a BMO officer setting forth the debt principal, interest, attorney’s fees and costs accrued through October 31, 2012. Defendants contested the motion for summary judgment, and while the resulting motions, briefing schedule, and arguments were pending, the entry of the judgment in the sum of $3,539,797 was delayed until August 9, 2013. During this interim, however, BMO Harris advanced $470,341 in real estate taxes on the three parcels. This sum was not reflected in the judgment entered on August 3, 2013, and no amended motion for summary judgment or affidavits of proof reflecting the tax payment were filed. "The tax payment and BMO's subsequent failure to timely document it would come to form the central controversy in this appeal." Post judgment and prior to the sale, BMO petitioned the trial court for an amendment to the judgment to permit the Sheriff to conduct the sale of the vacant and improved parcels separately, but it did not seek to amend the judgment to include the advance of real estate taxes. At the sale, BMO was the sole bidder in the sum of $3,651,097. It sought confirmation of the sale and a deficiency of $525,805.65. Defendant objected to the deficiency, arguing that based on the judgment of $3,539,797, and the bid of $3,651,097, even with the addition of accrued statutory interest and sale expenses, the deficiency should approximate $55,464.65, not the requested $525,805.65. It later became obvious that the difference was to be found in the unaccounted for real estate taxes of $470,341 plus additional attorneys’ fees of $81,408.61 incurred during the contested motions. At confirmation, BMO requested the trial court approve the advances for taxes and additional attorney’s fees, confirm the sale, issue an order of possession, a deficiency judgment of $525,805.65, pursuant to 735 ILCS 5/15-1508, as well as a judgment for that amount on the personal guarantees. Defendants objected to the approval of the real estate taxes and additional attorney’s fee, arguing that Section 1508 of IMFL permits court approval of advances pursuant to the terms of the mortgage and note, but only those incurred between the judgment and the sale. The real estate taxes sought to be approved were advanced before the judgment was entered. This sum was available and known, but not included in the affidavits of proofs filed by the bank. The expenses were advanced prior to, not between, the judgment and the sale. Defendants also argued to the trial court that they had relied upon the stated amount in the judgment to determine what they would do at the


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sale, and were prejudiced by the fact that BMO kept the additional advances to themselves, resulting in a credit bid that was both surprising and exceeded the apparent "credit" amount of the judgment. The trial court confirmed the sale pursuant to Section 1508, and ruled that BMO was not entitled to recover for the advance of taxes and attorney’s fees incurred prior to the judgment, resulting in there being no deficiency and nothing due and owing on the personal guarantees. The trial judge stated that "the deficiency has to be decided on the judgment amount that went to the foreclosure sale". Since the guarantors were only liable for the amount of a deficiency following a sale, and there was no deficiency by the court's calculation, there was no judgment against the guarantors. The Second District affirmed. First, the Court noted that neither BMO nor Wolverine sought to set aside the sale under the criteria set forth in 735 ILCS 5/15-1508. The issue was the deficiency judgment. The "stepping stone" to the deficiency was whether BMO could include the payment of real estate taxes and attorney’s fees in its calculation of the debt to arrive at the deficiency it sought. BMO argued that Section 15-1512 of IMFL provides that a mortgagee may recover for the payment of real estate taxes under the terms of the mortgage documents. Noting that there are four specific provisions of the IMFL that also provide for the mortgagee to recover for payment of real estate taxes and attorney’s fees pursuant to the mortgage documents in the foreclosure proceedings, (735 ILCS 5/151302(b)(5), 735 ILCS 5/15-1505, 735 ILCS 5/15-1504 and 735 ILCS 5/151508 ), the Court nonetheless emphasized the provisions in IMFL that upon the entry of the judgment, the parties rights in the real estate "shall be solely as provided for in the judgment" (735 ILCS 5/15-1506(i)(2), and the "real estate shall be sold at a sale on such terms and conditions as shall be specified in the judgment of foreclosure." 735 ILCS 5/15-1507(b). Here the "alleged error by omission" of not amending the judgment to include the advance of real estate taxes and attorney’s fees, resulted in the sale "pursuant to a judgment" that did not account for or include the taxes and fees in the sum of $551,749.61, ($470,341.00 taxes plus $81,408.61 attorney’s fees). This sum exceeds the amount of the deficiency sought, ($525,805.65), so applying the math would result in there being no deficiency if the calculation of the debt was limited to the judgment amount and did not include the taxes and attorney’s fees. (The Appellate Court specifically notes in its decision that "the figures presented by the parties do not "square up" mathematically.) After a thorough recitation of the statutory and precedent relied upon, the


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Court summarizes: "All of this authority, both statutory and common-law, comes together to establish that, generally, the amount set forth in the judgment of foreclosure influences the sale process, and thus the ultimate sale price...[which] leaves intact the causal link between the judgment and the sale price such that the trial court stood on firm ground when reasoning that one cannot be manipulated without impacting the other." Rejecting the alternative of not confirming the sale, the Second District reviewed the four considerations contained in Section 1508 (notice, fraud, unconscionability and unjust result), and determined relative to the unjust result element that "The injustice must be great enough to outweigh the need to establish stability in the sale process" and then states "However, BMO presents no reason, other than its own inadvertence or mistake, why it could not have sought to include the tax payment in the original judgment of foreclosure...[so that] we cannot say that the trial court abused its discretion in determining that justice did not warrant setting aside the sale." Completing the 'balance' of the arguments, the court states first that "A plaintiff must seek to include in the judgment of foreclosure all debts sought; that is a definitive purpose of the judgment of foreclosure." Then, turning to the Plaintiff's argument that Section 15-1512 applies to provide for collection of advances of real estate taxes without qualification as to timing or circumstances, the Court rejects the reasoning based on the fact that this section addresses "the order in which the proceeds of the sale will be applied", not the entitlement of the lender to absolute recovery as contended. Here, because the trial court found no deficiency when subtracting the judgment amount from the sale price (despite the somewhat 'fuzzy math'), there was no sum due on the debt to assert against the guarantors. (Ed. Note: In the spirit of full disclosure, Steve Bashaw was one of the attorneys for appellee in this cause, and may have had some prejudice in the interpretation of the Court's decision.) SBB

11. MORTGAGE FORECLOSURE; ISSUANCE OF A 1099-C DISCHARGE OF DEBT AS A BAR TO COLLECTION:

In a case of first impression, the Third District considered what impact the filing of a 1099-C (“Cancellation of Debt”) by a lender has on its ability to thereafter collect on the debt in In Re Estate of James E. Hofer, 2015 IL App (3d) 140542. The action to collect on James Hofer’s debt was defended by


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his estate after his death. The Bank brought a motion for summary judgment, and the estate argued in opposition, noting that the Bank had failed to file an action for 77 months and that the Bank was equitably estopped from collect by virtue of its issuance of a 1099-C form indicating that the debt had been “charged off”. The loan was made to Hofer by Reynolds State Bank as part of its farm loans program. Mr. Hofer paid other, different loans in full, but this loan was categorized as a “charged off” matter and a “Cancellation of Debt” (Form 1099-C) issued. Mr. Hofer included the cancelled amount of the debt ($131,944.03) on his income tax return, which resulted in an increase of his 2004 taxes by $31,461.00 before he passed away. When the Bank filed a claim against his estate, the debt had increased to $189,909.21, and its Affidavits in support of this sum did not mention the “charge off”. The estate’s response to the summary judgment motion, however, raised the issue of the “charge-off”, alleging that the Bank was estopped to collect the debt. The trial court granted summary judgment to the bank, and the estate appealed. The Appellate Court reversed with an analysis of the Code of Federal Regulations relating to the filing of a 1099-C. Section 1.605P-1(a) (1) states that when an indebtedness in the sum of $600 or more is “discharged” (as defined in the regulation) the creditor must file an information return on Form 1099-C. The “identifiable events” listed in the regulation include a number of “triggering” events, including cancellation or extinguishment by bankruptcy, by virtue of the statute of limitations, pursuant to an election of remedies, a probate or settlement agreement, and others. While the reporting is mandatory, which of the triggering events has occurred has irrelevant because the process is for reporting purposes only and “a discharge of indebtedness is deemed to have occurred upon the occurrence of an identifiable event whether or not there is an actual discharge of indebtedness.”; i.e., the 1099-C is a reporting form, not a process by which the debt is discharged, and the issuance of the form, without more, is not evidence of an intent to discharge the debt without more. As a result, there is a material issue of fact relating to the lender’s intent in issuing the 1099-C sufficient to make the grant of Summary Judgment inappropriate. While several of the “identifiable events” are the basis for discharge of the debt, not all are tantamount to an outright discharge of the debt. The Affidavits in support of the Summary Judgment were “silent” as to the circumstances surrounding the “charge off” leaving a dispute as to a material issue of fact. SBB


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12. MORTGAGE FORELCOSURE; HAMP MODIFICATION, CONFIRMATION OF SALE; SECT. 15-1508(D-5):

The issue in Citimortgage, Inc. v. Leonard Adams, (5th Dist., July 20, 2015), 2015 IL App (5th) 130470, was whether the trial court abused its discretion when it confirmed the foreclosure sale on residential real estate in the face of defendant's assertion that they had applied for assistance under HAMP, and the lender had not yet determined the outcome of the application. 735 ILCS 5/15-1508(d-5) provides that "The court that entered the judgment shall set aside a sale held pursuant to Section 15-1507, upon motion of the mortgagor at any time prior to the confirmation of the sale, if the mortgagor proves by a preponderance of the evidence that (I) the mortgage has applied for assistance under the Making Home Affordable Program...and (ii) the mortgage real estate was sold in material violation of the program's requirements for proceeding to a judicial sale." The burden is on the Defendant in this case to prove two things; (1) that they had made an application for assistance under HAMP, and (2) that the sale of the property was in material violation of HAMP's program requirements for proceeding to a judicial sale. Here it was not until the Defendants filed their motion to reconsider the Court's previously entered confirmation of sale that they first alleged they had applied for assistance under HAMP and were awaiting the lender's decision. Defendants alleged that they filed their application for assistance in May, 2012 and that the lender informed them that it would take approximately 30 days to review the application on July 7, 2012 and July 9, 2012. On August 29, 2012, the lender informed Defendants that their supporting documentation was stale and would have to be updated, requesting that Defendants file a new application. When the confirmation of sale occurred on October 4, 2012, the Defendants had not been advised of their lender's decision, and the decision still had not been communicated on November 2, 2012, when they filed their first motion to reconsider. On November 26, 2012, the trial court entered an order finding that "Plaintiff failed to properly and timely respond to Defendants['] request to participate in a foreclosure prevention program...Plaintiff to complete review of Defendants['] request to participate in foreclosure prevention program and properly notify Defendants of its determination." Four months later, on March 4, 2013, the Plaintiff filed a copy of a letter of denial of the application with the clerk of the court, which stated the denial was because it did not have authority to modify the loan from the investor,


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FNMA. The Court confirmed the sale on May 30, 2013, and Defendants filed their second motion for reconsideration on June 27, 2013. The Court denied Defendant's second motion to reconsider, and this appeal followed. The Fifth District held that at the time the Court confirmed the foreclosure sale it had not been informed that there was a loan modification request pending and of the lender's decision. Applying 735 ILCS 5/15-1508(d-5), the Appellate Court reasoned, the trial court should have been informed of the decision on the application before it confirmed the sale. While it was the Defendants’ burden to prove by a preponderance of evidence that they had filed their application for assistance (and that the sale was in violation of the HAMP regulations), the trial court was never even aware of the application at the time of the confirmation. Accordingly, the Appellate Court mandate "reversed and remand[ed] this case so that the trial court can be presented with all relevant information." The opinion nicely sets forth the FNMA HAMP Guidelines:

• The Servicer must acknowledge to borrower, either verbally or in writing, its receipt of a Borrower Response Package within 3 business days of receipt. The acknowledgment must include the following:

• the servicer's evaluation process and response time frame; • an explanation of the foreclosure process, including that the

foreclosure process may continue during evaluation; • for borrowers who submit a complete Borrower Response Package

less than 37 days prior to a scheduled foreclosure sale, an explanation of the servicer's plans for evaluating;

• the servicer must review and evaluation an application and then communicate a decision within 5 days after making the decision, but no later than 30 days after receipt of the application.

Noting that there was nothing in the record to indicate that the lender attempted to work with Defendants to bring the loan current or otherwise work-out the default, the Appellate Court held that trial court should consider whether this inaction was a material violation of HAMP. Recognizing that the Defendants have the burden of proving by a preponderance that they properly applied for assistance (i.e., that Defendant provided a full, current and complete application package - a "defense" often interposed by lenders to challenges brought under Section 1508(d-5)), the Fifth District stated that "Whether defendants can prove by a preponderance


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of the evidence that they applied for assistance under HAMP is a question for the trial court" on remand. SBB

13. MORTGAGE FORECLOSURE; MOTIONS TO VACATE JUDGMENT; 60 DAY TIME BAR ON MOTIONS TO DISMISS OR QUASH FOLLOWING PARTICIPATION:

In Wells Fargo Bank, N.A. v. Sanders, (1st Dist., May 22, 2015), 2015 IL. App (1st) 141272, the defendant appealed the trial court's denial of his Section 2-1401 motion to vacate the judgment of foreclosure. At the initial presentation of the motion for default judgment, the defendant appeared and was granted 28 days to answer or otherwise plead. Defendant did not plead within the time allowed and a judgment was entered at the next hearing. Defendant's motion to vacate alleged that his attorney was late to court the day the judgment was entered and filed Defendant's Answer on or about August 23, 2012. The record on appeal does not contain an order disposing of this motion to vacate. The case proceeded to sale, and at the confirmation hearing, the defendant appeared and contested the sale approval proceedings. The Court's opinion notes that "defendant filed numerous pro se motions; however, only defendant's section 2-1401 petition filed March 31, 2014 is pertinent to this appeal." One of the primary assertions of the Defendant's motion to vacate was that the trial court lacked personal jurisdiction. Service of process indicated that Defendant was served with process by delivery to one "John Sanders", a member of Phillip Sander's household, at 6629 South Bishop, Chicago, Illinois. Defendant asserted, however, that he did not live at 6629 South Bishop (this was his mother's address, not his), and that no one named John Sanders lived at his mother's address. In response, the Plaintiff argued that Defendant's attack was time barred by the provisions of 735 ILCS 5/151505.6. That section provides that "In any residential foreclosure action, the deadline for filing a motion to dismiss the entire proceeding or to quash service of process...unless extended by the court for good cause shown, is 60 days after the earlier of these events: (i) the date that the moving party filed an appearance, or (ii) the date that the moving party participated in a hearing without filing an appearance." Inasmuch as the Defendant had appeared and been granted time to answer or otherwise plead


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on May 8, 2012, the filing of his motion to vacate pursuant to Section 2-1401 two years later on March 31, 2014 was time barred by the specific provision of the Illinois Mortgage Foreclosure Law, Section 1505.6, requiring any such motions to be filed within 60 days. (This same reasoning and result also occurred recently in BAC Home Loans Servicing LP v. Pieczonka (2015 IL App (1st) 133128), and was cited by the Court in this decision.) Additionally, the Court found that even without applying the 60-day time bar imposed by Section 1505.6, Defendant nonetheless waived his jurisdictional objection because he filed a responsive pleading (the Answer on or about August 23, 2012), prior to the filing of a motion objecting to the court's jurisdiction. This, together with a critical review of whether Defendant's Motion properly set forth specific factual allegations relating to a meritorious defense and due diligence, resulted in the majority affirming the trial court. Justice Gordon, however, dissented. The dissent is based upon the fact that the trial court's dismissal of the Defendant's 2-1401 Motion by a four-page written memorandum on April 15, 2014, was within 15 days of the filing of the motion. Noting that People v. Laugharn, (2009), 223 Ill. 2d 318 provides that "a dismissal by the trial court of a Section 2-1401 before the expiration of the 30-day period to answer or otherwise plead is premature and requires vacatur", the dissent’s reasoning is based on the nature of a 21401 Petition as a "new action", requiring the opposing party be entitled to 30 days to answer or otherwise plead. Accordingly, Justice Gordon would hold, Defendant's petition here was not "ripe for adjudication because it was ruled on 15 days after it was filed, and we should decline to address the merits of the petition." The decision in BAC Home Loans Servicing LP v. Pieczonka (2015 IL App (1st) 133128), is to the same effect as the majority decision in Sanders, but in a much more succinct and clear decision. Pieconzka also appeared, then filed a motion to quash summons on a member of household, but withdrew that motion and later filed a motion to substitute a new attorney and amended motion to quash. The trial court granted the motion to substitute attorneys, was not presented with the statutorily possible request for an extension of time for good cause shown, and later denied the motion to quash. If calculated from the first appearance date, the motion was filed 82 days thereafter, and if calculated from the substituted appearance date, the


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amended motion was filed 61 days. There was some question of whether the motion that was withdrawn was timely filed, but the Court held that "Be that as it may, the fact remains that he voluntarily withdrew that motion...(and)...The trial court's order granting the defendant's motion to withdraw his motion to quash service of process did not include language indicating that defendant had made any such requests [for an extension of time to file a motion to quash for good cause shown], but rather merely stated that defendant's motion to withdraw his motion to quash service was granted." SBB

14. MORTGAGE FORECLOSURE; MOTIONS TO VACATE 21401; TIMING UNDER SECTION 1509; INTERVENING RIGHTS OF THIRD PARTIES UNDER SECTION 1401(e):

While unique in its personalities and problems, Harris Bank, N.A. v. Emma Harris, 2015 IL App (1st) 13307, presents post confirmation of sale and vacating foreclosure judgment issues that have become fairly common place and, apparently, often misunderstood or at least misinterpreted. Emma Harris was "eighty-something" years old, and owned two adjoining twelve-flat apartment buildings, in which she lived in one unit. She made a $350,000.00 re-financing mortgage with Harris Bank in November, 2006 to payoff two existing mortgages and pay accumulated property-related bills, she said, after her husband passed away and due to the negligence of her property manager in collecting rents, paying utility bills, and maintaining the property. She made her application with Harris through a bank employee, Allison Regina Bell. According to Emma's pleadings, however, when Bell filled out her loan application she included false information relating to the property (i.e., that it was fully rented when, in fact, the building was only occupied by three tenants and Emma, thereby producing rent on only three of twelve apartments). The loan was to be repaid over 36 months with monthly payments of $2,369.15, that could only have the building's rental income as a source (Emma was limited to social security and a pension), and a final 'balloon' payment of $341,465.74. Emma did not dispute the default and that she executed the mortgage documents, but she did raise issues about the predatory nature of the loan and the false statements on the loan application.


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When she defaulted in the payments, Emma was sued in foreclosure by Harris Bank. Jurisdiction was purportedly obtained by personal service on Emma at her daughter's home at 7337 South Shore Drive, Chicago; although Emma did not live at that address, but resided at all times at the property at 6705-6711 South Greenwood, Chicago. (This jurisdictional issue was a recurrent object of Emma's four different lawyer's pleadings.) Emma's first attorney filed an appearance about two months after the entry of a default judgment but did not file an answer or a motion to vacate. The case proceeded to foreclosure sale, but Emma filed a Chapter 13 Bankruptcy the day before the sale, staying the auction. A few months later, apparently having obtained relief from the automatic stay, Harris scheduled a second foreclosure sale. Emma's second Attorney filed an appearance, an emergency motion to stay the sale, and an emergency motion to vacate the judgment pursuant to 735 ILCS 5/2-1301(e), alleging that "this is an egregious case of predatory lending in which the bank knowingly exploited a vulnerable, 84-year-old woman by maker her a loan that - it knew at the time - she could not afford to repay and did so by inflating her income to get the loan through underwriting." The sale was stayed, and the parties briefed the motion to vacate the judgment. The Plaintiff argued that Emma did not meet the "diligence" criteria to vacate the judgment, and failed to raise any issues of fact by the pleadings filed by her first attorney leading up to the first scheduled sale. Emma acknowledged that she had filed two separate bankruptcy cases to delay the foreclosure, and the trial court denied the motion to vacate on the basis of a "lack of due diligence". A series of motions to reconsider followed, during which the court permitted the foreclosure sale to take place, and the Plaintiff lender purchased the property for $160,560.00, resulting in a $312,085.58 deficiency. Emma's second attorney withdrew and, at the motion for confirmation of sale, her third attorney filed a motion to vacate the sale, although that motion was later withdrawn. The Court confirmed the sale and granted the deficiency judgment against Emma. The Plaintiff assigned the title from the foreclosure sale to another entity, which then sold the property to a third party, EDC Fund 2. It was only then that Emma's fourth attorney filed a Section 2-1401 petition to vacate the confirmation of sale based on the allegations of the bank's "fraudulent conduct" in the origination of the loan by Regina Bell. This 2-1401 petition was amended and supported by Emma's affidavit that her failure to prosecute her motions was a result of the


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"lack of cooperation" between her prior attorneys, rather than her own diligence. The Plaintiff's response to this 2-1401 petition was multilayer; First, they argued, subsection (e) of Section 2-1401 specifically provides that relief under that provision of the Code of Civil Procedure could not affect the interest of EDC Fund 2 as a third party bidder for value, even if the petition was otherwise meritorious and asserted with due diligence. Second, the issuance of the deed triggered the "claims barred" protection in 735 ILCS 5/15-1509, which provides the vesting of title by deed in a foreclosure shall be an "entire bar" of any claims of the parties to the proceeding, and "any person seeking relief from any judgment or order entered in the foreclosure in accordance with subsection (f) of Secti0n 2-1301...may only claim an interest in the proceeds of sale". Relying extensively on the decision in U.S. Bank v. Prabhakaran, 2013 IL App (1st) 111224, the Appellate Court restated the rule that "a section 21401 petition cannot be asserted in an effort to vacate the circuit court's confirmation of a foreclosure sale" and especially where a deed had issued and been delivered by the Sheriff pursuant to 735 ILCS 5/15-1509, providing "an entire bar of...all claims of parties to the foreclosure." The Court also noted that Section 1401(e) provides a similar bar to affecting the interest of a third party after the entry of the judgment sought to be vacated; i.e. "the vacation or modification of an order of judgment pursuant to [section 2-1401] does not affect the right, title or interest in or to any real or personal property of any person, not a party to the original action, acquired for value after the entry of the order or judgment but "before the filing of the petition." Nonetheless, the First District continues, it would affirm the trial court's decision to dismiss the petition for lack of diligence. The categorization of three types of 2-1401 petitions is (1) "new facts" petitions, (2) "void judgment" petitions, and (3) "bill of review" or "errors of law" petitions. The standard of review is de novo for petitions addressed to legal issues, (i.e. "void judgment" and "bill of review"), but the "factual" petitions are reviewed to determine if the trial court abused its discretion. Moreover, errors of law attacks under section 1401 do not require proof of due diligence, but attacks based on newly discovered facts do. Here, of course, the determination that Emma failed the due diligence criteria, (i.e., diligent in presenting both the meritorious defense and the 2-1401 petition) was made based on a "highly fact-dependent petition", (the facts surrounding the


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loan application and false statements, predatory lending, fraud in the inducement, and bank misconduct), and therefore subject to a review for only an abuse of discretion by the trial court. While the trial court may have applied "equitable considerations to relax the applicable due diligence standards under the appropriate limited circumstances", a party is also bound by the negligence (or at least non-cooperation) of his legal counsel, and Emma failed to establish the due diligence required by her factual petition sufficient to convince the trial court; thus, the Appellate Court could not say the trial court abused its discretion. SBB

15. MORTGAGE FORECLOSURE; AFFIDAVITS OF AMOUNTS DUE; RIGHT TO RESCIND; DECEPTIVE PRACTICES;"INJURY"; WINTERIZATION; POSSESSION; DEFENDANT'S STANDING TO CHALLENGE MORTGAGE TRANSFER:

It seems each year during the real estate recession/mortgage foreclosure crisis, the Courts in Illinois have dealt with mortgagor defendants who raise issues that are "outside of the norm". Last year, for example, Justice Delort wrote an extensive opinion in Parkway Bank & Trust Co. v. Korzen, 2013 IL App (1st) 130380 (December 16, 2013), begins with the statement that this appeal is "so groundless that we would normally dispose of it with a brief summary order. However, it provides us an opportunity to review a number of tactics a small number of debtors use to both delay the ultimate resolution of cases against them and to use the legal system for improper purposes." This year, in Cocroft v. HSBC Bank USA, N.A., As Trustee, (7th Cir., July 31, 2015) ___ F3d ___, Case No. 14-1640, the Seventh Circuit Court of Appeals, Judge Kanne gives us a bit of insight to the Cocroft's appreciation for the judicial system in a footnote: "We note that the Cocrofts are no strangers to foreclosure actions: record evidence suggests that banks have sought to foreclose on four of the nine homes the Cocrofts have purchased since 1985." In response to this foreclosure, the Cocrofts claimed a right to rescind the mortgage because the lender's violations of state and federal regulations in the servicing of the loan. They contended, for instance, that HSBC violated the Illinois Consumer Fraud and Deceptive Business Practices Act when it stated it was unable to locate the Cocroft's account in response to their


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inquiry. The trial court rejected this, finding no evidence that this was "deceptive", and noting that HSBC Bank may have held the mortgage as trustee, but it was not servicing the loan. The Appellate Court affirmed this holding, further noting that the borrowers did not suffer any injury as a result; "Without establishing injury, the Cocrofts cannot fulfill the fourth ("injury") element of the ICFA claim. Cocroft also characterized the lender's action as "fraudulent possession" when it changed the locks and winterized the property, but the trial court noted the mortgage specifically included a provision for the lender to enter the property and secure it to protect its collateral, and "the Cocrofts consented to such an entry in signing the mortgage instrument." The Appellate Court further noted that the alleged entry occurred prior to the filing of the foreclosure, and therefore made the Cocrofts reliance on the possession provisions of Section 1701 of IMFL inappropriate to the facts and timing of the event. Finally, Cocroft included a "Quiet Title Claim" asserting the transfer of the mortgage into the Plaintiff's mortgage trust after the trust's "closing date" was a violation of the pooling and servicing agreement, making the transfer void and the Plaintiff's "standing" flawed. This was rejected based on a finding that Cocrofts lacked "standing" to make the "standing" argument because they were not beneficiaries of the trust in a position to challenge the actions of the trustee. If the transfer was after the trust had "closed" that would have made the transfer merely "voidable" at the option of the parties to the trust, but not "void", as necessary to give the Cocroft's "standing" to challenge the transfer. (Ed. Note: The Court cites Wells Fargo Bank, N.A. v. Erobobo, 9 N.Y.S.3d 312 (N.Y. App. Div. 2015, in support, but could have turned to the Second District ruling in Bank of America v. Bassman EBT, LLC, (2nd Dist, June 18, 2012), 2012 IL App (2d) 110729, holding that a defendant cannot attack the "sufficiency" of an assignment but limited to asserting that an assignment is void to succeed on the "standing" issue, and also cannot assert failure to comply with the terms of a pooling and servicing agreement to which it is neither a party nor a third-party beneficiary as a defense to foreclosure based on "standing".) The review of the grant of summary judgment in the trial court also includes a primer on what constitutes a sufficient mortgagee affidavit of the amounts due. The affidavit was based on business records of the Bank of America following a servicing transfer from Countrywide, and this was sufficient rather than hearsay because "the custodian need not be the individual who


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personally gather[ed]...a business record...need not be in control or have individual knowledge of the particular corporate records, but need only be familiar with the company's recordkeeping practices." Because Cocroft did not provide any specific evidence that the business records were inaccurate or somehow unreliable, the trial court's reliance on the affidavit based on those records "comports with the very rationale underlying the business record exception to the hearsay rule." The Cocrofts did not identify any specific, material facts that conflicted with the plaintiff's affidavit to support their objection, and "So the Cocrofts' argument fails." This is in accord with the holding in Bank of America v. George M. Land, 2013 IL App (5th) 120283, set forth in prior year’s Case Law Updates. SBB

16. MORTGAGE FORECLOSURE; SUBJECT MATTER JURISDICTION, “STANDING” AND GRACE PERIOD NOTICE RAISED AT CONFIRMATION OF SALE:

Another case dealing with Grace Period Notices and Section 15-1502.5 on a procedural level is Beal Bank v. Rosa Barrie, 2015 IL App (1st) 133898. Rosa appealed the denial by the trial court of her motion to vacate a default judgment based on the lender/servicer’s failure to send a Grace Period Notice prior to filing the Complaint, that the trial court lacked subject matter jurisdiction, and the Plaintiff lacked “standing” to file the suit. These arguments were all raised for the first time, however, in the trial court at the confirmation of sale. Although Rosa was granted leave to appear and answer or otherwise plead at the initial case management hearing, she failed to do so, and a default judgment was entered. The property was sold to Beal Bank, (which was the assignee of the original Plaintiff, LLP Mortgage), for a full debt bid. Rosa filed her response to the motion to confirm the sale together with a motion to vacate the default judgment, alleging that LLP failed to provide her with a Grace Period Notice and lacked “standing”. Rosa argued that while a Grace Period Notice was sent to her by MGC Mortgage, it did not contain the specific language required by Section 1502.5. She also argued that the chain of title relating to the mortgage indebtedness did not support that LLP had standing to file suit at the time the complaint was filed and raised the trial court’s subject matter jurisdiction for the first time on appeal.


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Turning first to the issue of subject matter jurisdiction, (which can be raised at any time, and need not be presented and preserved for appeal), the opinion by Justice Liu first provides a primer on the issue. Under the 1970 Constitution, Illinois Circuit Court’s subject matter jurisdiction extends to all claims that are “justiciable”, i.e., definite and concrete, as opposed to hypothetical or moot, and “does not depend upon the legal sufficiency of the pleadings.” Accordingly, subject matter jurisdiction was present where, “Here, there can be no dispute that the circuit court had the power to hear and entered dispositions on the foreclosure complaint brought by LLP” The Motion to Vacate was denied by the trial court procedurally based upon the reasoning in Wells Fargo Bank v. McCluskey, 2013 IL 115469. Limited by to the considerations provided in Section 15-1508, (i.e., notice, fraud, unjust result and unconscionability), once the motion for confirmation of the sale is filed, Rosa attempted to argue that “injustice is present here” to come under the four focal points of the section, because “the record reveals that Plaintiff unequivocally failed to give statutory grace period notice.” Citing the decision in Bank of America v. Adeyiga, 2014 IL App (1st) 131252, in which the Appellate Court remanded the case for evidentiary hearing to determine whether the grace period notice was in fact provided when the trial court ruled that the ‘deemed allegations’ of the complaint barred the defense, Rosa also lost on this issue procedurally. The court distinguished Adeyiga as presenting the grace period notice prior to the entry of the judgment of foreclosure rather than Rosa’s timing where the defense was filed not during the underlying proceedings, but after the motion to confirm the sale was filed, and therefore limited by the statutory considerations in Section 1508. Moreover, the absence of a grace period notice is a statutory rather than an equitable defense, such as fraud or misrepresentation that prevented her from protecting her property interests, and therefore not properly with in the “justice not otherwise done” arena of the confirmation elements of Section 1508. Rosa’s lack of standing argument was also barred by her timing. As an affirmative defense, “standing” is waived if not raised in a timely fashion in response to the complaint. Rosa was defaulted for failure to plead, missed the opportunity to raise “standing” at that time, and was untimely in bringing the issue forward until after the motion for confirmation was filed. SBB


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17. MORTGAGE FORECLOSURE; PERSONAL DEFICIENCY MANDATED BY IMFL WITHOUT BANKRUPTCY AND VALUATION DOCUMENTATION:

In U.S. Bank Trust, N.A. v. Atchley, 2015 IL App (3rd) 150144, the trial court denied the Plaintiff’s request for an in personam deficiency at the confirmation of the foreclosure sale. The sale bid amount was $35,644.62 on this Peoria County residential property. The amount of the debt at the time of the sale was $60,462.29, resulting in a $24,817.57 deficiency. The record indicated that the trial court entered an in rem deficiency, with a handwritten notation that “Plaintiff [sic] request for an in personam judgment is denied without further documentation.” (Although not explicitly stated in the case, it appears that the “further documentation” refers to whether the Plaintiff presented evidence that the borrower had not been discharged in bankruptcy and an appraisal or broker’s price opinion in support of its bid at sale – a distinction which ‘urban legend’ has it some trial courts make in granting deficiency requests in personam.) On appeal by the Plaintiff, the Third District Appellate court vacated the trial court’s order in part, (the deficiency), and remanded with instructions. The Plaintiff’s requests for relief in the complaint included a “personal judgment for deficiency, if applicable and sought, and only against the parties who have signed the Note.” The Note was attached to the complaint as an exhibit indicating who had signed. The defendants were served with summons, and a default judgment was entered when defendant did not appear or answer the Complaint. The Judgment provided that “if the proceeds of the sale are not sufficient to satisfy those sums due the Plaintiff, the Court shall entered a personal deficiency judgment pursuant to 735 ILCS 5/1508(e) providing that the Court finds it has personal jurisdiction over the parties personally liable on the note and that said liability has not been discharged in bankruptcy.” The Court on appeal noted that the Plaintiff had “fulfilled each of the criteria required to receive an in personam deficiency. The Illinois Mortgage Foreclosure Law provides that a personal deficiency “shall” be entered at the confirmation of the sale if (i) otherwise authorized and (ii) to the extent requested in the complaint and proven…and enforcement may be had for the collection…only in cases where personal service has been had upon the persons…unless they have entered their appearance. The use of the word “shall” is mandatory, not permissive, and imposes an imperative duty on the trial court. The notation on the confirmation order that the trial court required “further documentation” was held “ambiguous” in the face of the


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unequivocal and mandatory statutory provisions that the court “shall” enter a personal deficiency under the appropriate conditions. The “burden was on defendant to present prima facie proof that the debt had been discharged in bankruptcy.”, and requiring that the Plaintiff prove that there was no discharge “would constitute an improper shifting of the burden of proof.” Accordingly “the trial court’s insistence upon ‘further documentation’ was contrary to the statute.”, and the matter remanded to the trial court to enter an in personam judgment for the deficiency. The Defendant did not participate in the appeal, and the Court, clarifying that the mere failure of the appellee to file a brief does not mandate a pro forma reversal, also noted case law that “if the appellant’s brief demonstrates prima facie reversible error and the contentions of the brief find support in the record the judgment of the trial court may be reversed.” Here, the trial court’s refusal of a personal judgment, requiring evidence of non-discharge and valuation of the property, was “prima facie reversible error”. Similarly, in MB Financial Bank, N.A. v. Allen, (1st Dist., June 12, 2015), 2015 IL App. (1st) 143060, the issue was whether the Complaint filed by MB Financial sufficiently plead allegations to support a deficiency judgment. The trial court denied the Bank’s request for a deficiency at confirmation of sale. The First District reversed, finding that the allegations of the complaint, the exhibits attached, and evidence were sufficient, vacated the trial court’s modification of the judgment language and entered an Order for the deficiency. The mortgage provided for a deficiency as a remedy in the event of a default, the Complaint’s prayer for relief included a request for a deficiency, and the fact that the body of the complaint varied from the specific language of 735 ILCS 5/151504(M) in that it stated the “names of the persons who executed the Note” rather than specifying “the names of defendants claimed to be personally liable for deficiency” was not a significantly critical departure to form a basis to deny the deficiency. Section 2-604 of the Code of Civil Procedure does not limit the relief to that specifically requested in the pleading except in default judgments. Section 2-603(c) further provides for liberal construction of pleadings, including exhibits attached. Accordingly “We find that, when liberally construed to do justice, MBF’s prayers for relief and the allegations and attached exhibits support the entry of deficiency judgments against the Allens.” The Defendants were not prejudiced by surprise at the request, and the Complaint included a “prayer for general relief” which was sufficient taken in the context of the whole. SBB


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18. MORTGAGE FORECLOSURE; SEPARATE

PROCEEDINGS TO FORECLOSE AND SUIT ON THE NOTE; RES JUDICATA:

There were two separate proceedings considered in the decision in LSREF2 Nova Investments III, LLC v. Michelle Coleman (1st Dist., June 5, 2015), 2015 IL App (1st) 140184; a foreclosure and a subsequent action at law to collect the deficiency the note. In the foreclosure action, Citibank filed a single-count complaint to foreclose Coleman's mortgage on commercial property. The mortgage and note were attached to the complaint, and it alleged that Coleman was "personally liable for any deficiency". During the foreclosure, LSREF2 substituted as the Plaintiff for Citibank. The judgment was entered in favor of LSREF2 in that case, and it also provided that "[i]n case there is any deficiency in the amount [due] the plaintiff...the plaintiff shall be entitled to a deficiency judgment against the defendant, Michele L. Coleman...[and]...the Court expressly retains jurisdiction...[to] satisfy any deficiency which may be found due to plaintiff." When the sale was held LSREF2 was the successful bidder and the trial court confirmed the sale, granted the Plaintiff possession and specifically held that "[t]here shall be an IN REM deficiency judgment entered in the sum of $227,416.32 with interest thereon as by statute provided against the subject property." Three months later LSREF2 filed a separate proceeding to enforce the promissory note against Coleman, seeking a judgment for the deficiency remaining unpaid. Defendant countered with a motion to dismiss based on the theory of res judicata, alleging that the circuit court in the foreclosure case had ruled on her liability based on the promissory note, and entered the deficiency judgment IN REM only. The trial court initially denied the motion to dismiss, but then dismissed the promissory note action "with prejudice based upon res judicata" on a motion to reconsider. The elements necessary for res judicata are (1) a final judgment on the merits rendered by a court of competent jurisdiction, (2) identity of causes of action, and (3) identity of parties or their privies. Here, there was no dispute about the identity of the parties or that a final judgment on the merits had been properly rendered, but the element of the identity of causes of action was an issue. The Plaintiff asserted that it was seeking a different remedy in the action of the note and therefore there was no identity of causes of action


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with the foreclosure. Case law in Illinois applies the "transactional test" to consider the identity of causes of action. If the claim "arises from a single group of operative facts, regardless of whether they assert different theories of relief", res judicata will result. Here, the single group of operative facts was the underlying debt. Although the Plaintiff argued that it did not obtain a judgment on the note in personam, the Court reiterated cases that have held that res judicata bars not only what was actually decided in the first action, but, also, whatever could have been decided in that case. It distinguished the holdings in the cases of Farmer City State Bank v. Champaign National Bank (which held a mortgagee could pursue a foreclosure action and bring a lawsuit on the note consecutively or concurrently), and LP XXVI, LLC v. Goldstein (which held that a lender could pursue a separate action based on a personal guaranty). In neither case did the lender seek a personal deficiency in the foreclosure, as the Plaintiff had sought against Ms. Coleman. More appropriately precedential here, said the First District, was Skolnik v. Petella, where the Supreme Court applied res judicata, even though the pleadings did not claim personal deficiency, because the claim could have been brought in that case. SBB

19. MORTGAGE FORELCOSURE; "STANDING" AS AN AFFIRMATIVE DEFENSE; AFFIDAVITS OF AMOUNTS DUE SUPPORTING DOCUMENTS; DEPOSITION OF AFFIANT:

In U.S. Bank, N.A. v. Kosterman, (1st Dist., August 18, 2015), 2015 IL. App. (1st) 133627, the First District reversed the trial court's dismissal with prejudice of the defendant's affirmative defense attacking the plaintiff's standing: "The trial court erred in finding that lack of standing is not an affirmative defense". Setting forth that portion of the transcript in which the trial court explained that the proper procedure to attack a plaintiff's standing in foreclosure is by way of dismiss rather than pleading an affirmative defense ("what you're saying is this plaintiff doesn't have a right to sue. That's a basis for dismissal, not an assertion of a defense."), the First District notes the Supreme Court "has made clear that a challenger to standing in a civil case is an affirmative defense. Geer v. Illinois Housing Development Authority, (1988) 122 Ill.2d 462, 508", and almost chidingly states that "Within just the past two years, we have explained on at least six occasions


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that the assertion of lack of standing in a foreclosure action is an affirmative defense that not only can be raised in an answer, but must be, or else it is waived. (Citations)"

Turning to the trial court's decision on the motion for summary judgment, the First District notes that "The chain of ownership and the series of indorsements, in conjunction with the interactions of the different banking and servicing entities and trusts, is relatively convoluted - at least something defendants were entitled to explore." The trial court's denial of the defendant's request to conduct that exploratory discover as a result of its ruling on the "standing" affirmative defense compounded the error and rendered summary judgment in appropriate. Here, the note was endorsed in blank. The Court states "But everyone agrees that supplying a note endorsed in blank is only prima facie evidence of ownership that could potentially be rebutted...The more problematic issue with striking the affirmative defenses at the pleading stage was that the trial judge then prevented defendants from taking any discovery on the possible defenses, or getting a clear demonstration of plaintiff's right to enforce the instrument". Two weeks after the defendant's affirmative defenses were stricken, the plaintiff filed a motion for summary judgment supported by an affidavit by Carolyn Mobley, an officer of Wells Fargo Bank. The affidavit, however, did not attach any of the business records the affiant stated she had reviewed in preparing her statement of the amounts due and owing. The defendants responded to the motion for summary judgment with affidavits pursuant to Supreme Court Rule 191(b) and request for deposition, asserting they could not adequately respond without the ability to review the business records the affiant reviewed. The Plaintiff's attorneys then faxed a copy of an 11-page account transaction ledger to the Defendants. The Appellate Court rejected this entire process as "summary judgment by ambush". Noting that Supreme Court Rule 191(a) requires affidavits "shall have attached thereto sworn or certified copies of all documents upon which the affiant relies" which were not attached to the affidavit or filed of record, the Court held that "plaintiff failed to prove its damages. Because Mobley's affidavit and any records it purported to authenticate did not comply with the Rule, it should not have been considered by the trial court. The attempt by Plaintiff's attorney to provide Defendant's counsel with the 11-page account history faxed outside of the record was also dispatched: "It was plaintiff's burden to clearly and appropriately demonstrate its right to recovery -- to the


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court. Not to defendant’s counsel by fax. Technically, the "business record" was never even made to supplement the summary judgment motion. It was never taken into evidence and cannot support the entry of summary judgment." Ms. Mobley did not "certify" the transaction history and did not even state that this was the business record she relied upon in making her affidavit. Plaintiff's counsel at one point even stated to the trial court that the records were too numerous to make available. Summarizing, the Court stated: "At bottom, the cumulative effect of the affirmative defense being improperly stricken, the denial of defendants' requests for discovery, and plaintiff's failure to produce the evidentiary records, was that, despite being called defendants, they were denied the opportunity to defend. Justice Liu, who it should be noted was assigned to the Chancery Division, Mortgage Foreclosure Department, and heard foreclosure cases on a daily basis before arriving at the Appellate Court, dissented. Her opinion was that the trial court "allowed defendants every opportunity to raise and argue valid and well-pleaded defenses, engage in necessary discovery related to the alleged default and amounts due on their loan, and to rebut the evidence that plaintiff presented". Justice Liu notes that Defendants filed a Chapter 7 Bankruptcy after the judgment, stayed the foreclosure stay thereby, "avoided a default judgment despite failing to answer the complaint in a timely manner" early on in the case, filed an answer that asserted a lack of knowledge of the default facts, and had an opportunity to review the transaction history records. Most important to Justice Liu is the fact that defendants failed to file a counter-affidavit in opposition to Ms. Mobley, and that the request to take Ms. Mobley's deposition came after the trial court had granted plaintiff summary judgment. SBB

20. MORTGAGE FORECLOSURE; PUBLICATION JURISDICTION, THIRD PARTY PURCHASERS, AND DUE IN QUIRY NOTICE:

As the real estate recession continues and a volume of foreclosure properties are offered for sale, enticing investors, a word of caution is appropriate to real estate attorneys who are asked by their clients, “Should I buy at foreclosure sales or property that has gone to foreclosure and is now being marketed?” In Concord Air, Inc. v. Malarz, (2nd Dist., June 30, 2015) 2015


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IL App (2nd) 140639, the issue on appeal was whether as a purchaser following a Harris Bank foreclosure was protected as a bona fide purchaser from a post-judgment attack on the trial court’s jurisdiction by another lien holder. The operable provision in 735 ILCS 5/15-1401(e) is that a post-judgment motion to vacate, even for lack of jurisdiction, will not affect the rights of a non-party to the proceeding, (such as a third party purchaser after the foreclosure sale), acquired without notice of the jurisdictional defect of record. Here, a foreclosure was prosecuted by Harris Bank in which it named the holder of a junior mortgage, Concord Air, to extinguish its subordinate lien. Concord, however, was served by publication only, and this resulted in its filing a motion to quash the court’s publication jurisdiction and vacate the judgment as to its interest. This all occurred after the foreclosure sale had long since been confirmed and the property subsequently sold to another party who then sold it to Malarz. Concord prevailed on the motion to quash in the underlying foreclosure case and vacate the judgment as to its interest. It then filed this foreclosure case relating to its own lien, and made Malarz a party by virtue of the fact that he was then the owner of the property. The trial court dismissed the action by Concord to enforce its lien finding that after the foreclosure sale, confirmation, issuance of sheriff’s deed and subsequent conveyance to Malarz, Concord Air could no longer affect its interest as a third party bona fide purchaser for value under section 2-1401(e). On appeal, the trial court’s ruling as to the impact of the vacatur on Malarz was reversed. The purchaser at the foreclosure sale was not a bona fide purchaser because the affidavits of service by publication provided due inquiry notice that the publication service was improper as a matter apparent on the record. The affidavit for service by publication did not show strict compliance with the Code of Civil Procedure to obtain jurisdiction by publication notice. There were discrepancies in the returns of service, and due diligence affidavit supporting publication jurisdiction. These discrepancies required further inquiry into these facts and pleadings supporting the trial court’s jurisdiction, leaving the purchaser at sale not a bona fide purchaser. Accordingly, its subsequent grantees, Chicago Title and Trustee and ultimately Malarz obtain title subject to the Concord Air lien. The trial court’s finding that the purchasers were bona fide because they had no notice of Concord’s position that it had not been properly served in the Harris foreclosure was in error. While the public policy in Illinois favors the permanency and stability of foreclosure sales, here the service by publication in the Harris foreclosure was a jurisdictional defect apparent on the face of the record when looking at the discrepancies in the service


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returns and affidavit of due diligence. That policy is overcome where the record of the foreclosure shows a lack of personal jurisdiction. “Even where the rights of innocent third parties have attached, a judgment can be collaterally attacked for an alleged jurisdictional defect that affirmatively appears in the record….[where] the record affirmatively shows that service on the foreclosure defendant was not had in the manner provided by statute, a subsequent purchaser may not rely on the foreclosure judgment to establish his status as a bona fide purchaser.” Following the publication of this decision an article appeared in the ISBA Real Property Section Newsletter, December 15, 2015, Vol. 61, No. 6, by Adam M. Ansari entitled “Purchasers of properties that have gone through judicial sale should be cautious.” After summary of the case, Ansari notes: “Regardless of the number of years or the number of times a piece of property has exchanged hands, purchasers and their attorneys are considered to be on constructive notice of potential jurisdiction defects in a foreclosure record…Now, beyond a review of the title commitment, transactional attorneys are expected to obtain and review the foreclosure record before blessing the purchase of the affected property. This is especially onerous in light of the time, money, and effort needed to acquire a foreclosure record, not to mention the expertise needed to actually identify the potential jurisdictional defect once the record is obtained… With the minimal fees, the time constraints placed on attorney review, and the prospect of more junior lienholders filing similar actions as Concord , some attorneys may begin thinking twice about their willingness to be retained on residential transactions with a prior foreclosure.” SBB

21. MORTGAGE FORECLOSURE; TITLE AND HEIRS; SUPREME COURT RULE 114 LOSS MITIGATION; OUT-OFCHAIN DEEDS:

Justice Delort describes this case, (Wells Fargo Bank, N.A. v. Bernadette Dillard Simpson, (2015 IL App (1st) 140925), in his opinion as presenting "two questions regarding property law...first...the rights of heirs of deceased mortgagors...under our supreme court's ruling in ABN AMRO Mortgage Group, Inc. v. McGahan, (and, second)...the lien priority of a mortgagee when it’s mortgagor executes successive deeds to different grantees, but then records them out of chronological order.'" Paula Dillard owned the home


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which is the subject of this case for 19 years between 1991 and 2008 before her death. In that time, she made "no less than 10 successive mortgages with various lenders." The Court found the fact that each mortgage, except the last one involved in this case, was released at or about the time the next mortgage was made, indicating "a continuous series of refinances". Between the seventh and eighth mortgage, Paula deeded the property into a trust, apparently as part of an estate plan. When she applied for the eighth mortgage refinance her lender required that she temporarily deed the property out of the trust to herself so the title would be in her name when she executed the mortgage. (This is a fact scenario that is common in Illinois where land trusts are employed and mortgages refinanced.) She signed the deed taking the property out of the trust and back into her name, but did not record it, and it "sat in a drawer". She then signed a deed placing the property back into the trust, which was recorded first, making the conveyance "out of the chain" (because the deed to herself as grantee was not recorded), and most importantly, title was not in her name when she made the eighth mortgage. Because of the proximity of these events, the inconsistency was not noted and the mortgage refinancing transaction closed, as did the ninth and tenth mortgage refinancing to follow, with Paula Dillard signing as the title-holder-mortgagor personally, while the record title was in the name of her trust. In 2011, Paula Dillard died, the tenth mortgage went into default, and Wells Fargo sued to foreclose. A special representative was appointed in the foreclosure at Wells Fargo's request to assure the trial court had jurisdiction. The Representative reported that Paula Dillard's heirs were her children, Bernadette Simpson and Alan Dillard. An Amended Complaint naming Bernadette Simpson (as an occupant of the property and heir of the mortgagor, but inexplicably, did not name her brother, Alan Dillard) was filed, and Bernadette filed a pro-se answer. There were no allegations relating to the "out-of-order deed" and mortgage and no affirmative defenses pled. It was only in motions to vacate the judgment filed by counsel Ms. Simpson obtained after the fact, that the first allegations came before the trial court that the deed was void as out of the chain of title. The issue had not been raised in the Answer or prior pleadings. The decision contains some interesting pronouncements of law. That the presumption is that a deed is executed and delivered by the grantor on the day it is dated (Berigan v. Berrigan, (1952), 413 Ill. 204, is one. A discussion of the inclusion of Supreme Court Rule 304 language in the


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foreclosure judgment (which is otherwise not a final order and not appealable), is another area explored. The provision of the Illinois Probate Act that "Within 30 days after a person who acquires knowledge that he is named as an executor of the will of deceased person, he shall either institute a proceeding to have the will admitted to probate...or declare his refusal to act as executor...", and the failure to do so may serve as a basis for disqualification to serve as executor, is discussed in the context of Ms. Simpson's allegations that she is or was an "executor" simply because it was so stated in the will. The general rule in Illinois that real estate devised under a will passes directly to the devisee on the death of the testator, and not at the probate of the will, is asserted relating to Simpson's position, is considered, but rejected because no copy of the will was presented to the trial court and no probate estate opened. Judge Delort's opinion begins with an analysis of the interplay between the McGahan Rule and Supreme Court Rule 113 on the issue of jurisdiction where there is deceased mortgagor, and notes that had Ms. Simpson opened a probate estate for her mother, and been appointed the representative, the appointment of special representative would not have been necessary in this case, and she would have been a proper party as the decedent's representative as well as an occupant and potential heir. Here, however, Ms. Simpson filed the will, the will named her as her mother's executor, but no probate estate was opened, and Ms. Simpson was not appointed as the estate's representative. The next issue is the applicability of Supreme Court Rule 114 to Ms. Simpson. Rule 114 requires a foreclosing lender file an affidavit at or prior to the time judgment is requested which states (1) what type of loss mitigation applies to the subject mortgage, (2) what steps were taken to offer that mitigation and (3) the status of loss mitigation. Ms. Simpson argued that as a person "claiming through a mortgagor (her grandmother) as successor", Wells Fargo was required to work with her on loss mitigation and submit a loss mitigation affidavit as to efforts it made with her to mitigate the loss. Ruling that the language of Rule 114 makes it "directory rather than mandatory", leaving it in the trial court's discretion to stay the proceedings or deny entry of a judgment of foreclosure based on compliance, Justice Delort's opinion dismisses Ms. Simpson as not a likely candidate under the loss mitigation programs. She was not a mortgagor and did not perfect her title/ownership of the property in probate. "The loss mitigation affidavit rule was never intended to assist persons like


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Simpson...We are aware of no legally mandated loss mitigation program intended for heirs, legatees or trust beneficiaries such as Simpson who had no involvement with the original transaction between the lender and the mortgagor..." The trial court did not, accordingly, abuse its discretion by refusing to vacate the judgment pursuant to Supreme Court Rule 114. Simpson's argument relating to the "out-of-order deed" was that because Paula Dillard's trust, not Paula Dillard, was in title to the property at the time the tenth mortgage was executed, Paula's individual signature on the mortgage did not create a mortgage lien on the property. The Court, however, notes first that Simpson's pro-se Answer failed to deny the "presumed allegations" contained in the Complaint pursuant to 735 ILCS 5/15-1504, and therefore admitted, for instance, the allegation that "the mortgagor was at the date indicated an owner of the real estate" (735 ILCS 5/15-1504(c)(3), and that "the mortgage constitutes a valid, prior and paramount lien" (735 ILCS 5/15-1507(c)(7). Moreover, the Court rejects the application of the recent case of Bank of America v. Adeyiga, 2014 IL App (1st) 131252, holding "We instead hold that the failure to deny a deemed allegation in an answer to a mortgage foreclosure complaint must be given its normal and usual significance, resulting in the allegation being admitted." Noting that "Even if, however, we were to take the admitted deemed allegations out of our analysis, the result would be the same", the Court relies further on the Conveyances Act (735 ILCS 5/30) to hold that the unrecorded deed had no effect on Wells Fargo's lien. Simpson attempted to argue that a search of the Recorder's records using the parcel number for the property would have revealed the "out-of-chain" deed at the origination of the loan. The Court, however, held that the issue would not be discoverable employing the standard review of the grantor/grantee index, and refused Simpson's argument that because "one more click of the mouse" would have revealed the problem, the grantor-grantee index should no longer be the last resort for a constructive notice analysis. Wells Fargo, the opinion holds, "is not chargeable with notice of that which appears in other records which may be kept as a convenience, such as tract index." The long history of case law holding the grantor-grantee index as the basis for investigation of the chain of title and constructive notice is based on "established equitable principals - principals which the invention of the Internet has neither undermined nor weakened." SBB


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22. MORTGAGE FORELCOSURE; TORTIOUS INTERFERENCE WITH TENANTS AS AN AFFIRMATIVE MATTER:

In Bank Financial, FSB v. Brandwein, (1st Dist., June 26, 2015) 2015 IL App (1st) 143956, the Defendant filed a counterclaim for tortious interference and a related affirmative defense to the action on the promissory note, alleging that the Bank had attempted to collect rents directly from defendant's auto shop tenant of the subject commercial property and thereby made it difficult for defendant to collect the rents and avoid a default. The case began in the trial court as a complaint with a foreclosure in Count I and an action on the Promissory Note in Count II against the LLC and individual member that signed the Note. Defendants did not either a file an Answer to Count I or a response to the petition to appoint a receiver in the foreclosure. A receiver was appointed, and later a judgment of foreclosure was entered. At the confirmation of sale, a deficiency of $73,459.61 was found due and an order was entered granting Plaintiff's motion to transfer the case to the law division for recovery of a money judgment for the deficiency. Brandwein filed an answer and affirmative defense to Count II alleging that immediately following the filing of the complaint (and prior to the appointment of the receiver), an officer of the Plaintiff bank appeared on the property and instructed the tenants not to pay their rent to Defendant, but to direct the rent to the lender. Accordingly, Defendant argued, "by its demand for payment of rent [the lender] effectively prevented Defendants from paying the delinquent amounts due under the Note...That as a result of its wrongful demand for rent from Defendant's tenant...the property was foreclosed and sold at the judicial sale to Plaintiff. The Plaintiff Bank argued that the mortgage documents provided "Lender shall have the right, without notice to the Borrower or Grantor, to take possession of the Property and collect the Rents...In furtherance of this right, Lender may require any tenant or other user of the Property to make payments of rent or use fees directly to Lender...Lender may exercise its rights under this subparagraph either in person, by agent, or through a receiver." The trial court granted summary judgment in favor of the Bank based on its argument that there was no genuine issue of fact created by the allegations of the answer and affirmative defense, because plaintiff was entitled to collect rents by the language of the mortgage, and while it made demand upon the tenant for the rents, there was no evidence that the rent was actually paid to


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the lender. Defendant appealed, arguing a material issue of fact existed relating to the Plaintiff's conduct and its impact. Turning first to the elements for tortious interference with a contractual relationship [(1) the existence of a valid and enforceable contract between the plaintiff and a third party, (2) that defendant was aware of the contract, (3) that defendant intentionally and unjustifiably induced a breach of the contract, (4) that the defendant's intentional and unjustifiably wrongful conduct caused a subsequent breach and (5) that the plaintiff suffered resulting damage], the Appellate Court notes that the lease was between the tenants and the LLC, and that Brandwein was not a party to that contract, the lease. Then, reviewing the seminal case in this area, Comerica Bank-Illinois v. Harris Bank Hinsdale, (1996), 284 Ill. app. 3d 1030, the Court found the law that even with an assignment of rents, a mortgagee must have actual or constructive possession of a property in order to collect rents (which could be obtained by the appointment of a receiver in foreclosure) not applicable here because the only allegation of the borrower was that after the Bank Officer spoke with the tenants it became "difficult" to collect rents, and there was no evidence that the tenants actually paid rent to the lender. Without evidence of that payment, there was "no cognizable harm, and thus no tortious interference." The opinion also noted that at the time the tenants were approached, defendant's time period to reinstate the defaulted monthly payments had expired so that the receipt of the monthly rental payments would not have actually given the defendant the ability to cure his default in any event. SBB

23. MORTGAGE RELEASE; JOINT AND SEVERAL

OBLIGATIONS; LANGUAGE AND CIRCUMSTANCES OF THE RELEASE;

The Private Bank and Trust Company vs. EMS Investors, LLC, (1st Dist., 5/27/2015) 2015 IL App (1st) 141689, deals with the sometimes thorny situation that occurs when a lender releases a co-borrower on a mortgage, and whether that serves to release the other co-borrowers as well. Emmerman and Bancroft formed EMS Investors to purchase and convert an apartment building in downtown Chicago into condominiums. To finance the conversion, they obtained a mortgage from the Private Bank. Bancroft and her husband had several mortgages on different residential real estate


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projects with the Bank, and she and Emmerman agreed to be jointly and severally liable on the debt and personally guaranteed the loan. Before the loan matured, Bancroft filed a Chapter 11 Bankruptcy and entered into a settlement with the Bank, releasing the Bancrofts "from any and all claims...". Emmerman was not a party to this settlement agreement or even aware that it was negotiated at the time. When the loan matured, Emmerman requested, but the Private Bank refused to refinance, and the Bank filed a breach of contract on the loan and guarantees. Emmerman argued that the release of the Bancrofts released the other co-borrowers. The trial court granted summary judgment in favor of the Bank and against Emmerman. Emmerman appealed. On appeal the First District affirmed, finding that the language of the release and the circumstances relating to the release did not support the necessary contention that the Bank intended to release Emmerman from liability. Pivotal to that ruling, the Court noted that the agreement expressly released only Bancroft, did not mention Emmerman, and then specifically stated that "Nothing herein shall be construed to be to the benefit of any third party..." Although Emmerman's pleadings contended that the release of the Bancrofts without a specific reservation of rights to proceed against Emmerman, served to release him as well, the trial court held that "an obligor is not released when it is apparent from the circumstances that the settling parties did not intend the release of one to act as a release of all." Here the circumstances indicated that the Private Bank always intended to enforce its rights against Emmerman regardless of the release of Bankcroft. When parties are jointly and severally liable under a debt agreement, the agreement of each is "equivalent to independent contracts...(which)...may be pursued until satisfaction is fully obtained....Despite the general rule holding joint and several co-obligors separately liable, a release of one co-obligor may also release the other co-obligor" unless the surrounding circumstances indicate that it was not the intention of the parties to effectuate a release of all”. In this later case, the agreement shall be construed as a covenant not to sue as opposed to a release, because a "release, like every other written instrument, must be so construed as to carry out the intention of the parties. This intention is to be sought in the language of the instrument itself when read in light of the circumstance which surrounded the transaction." The "circumstances" of the release were presented by the Affidavit of Kimberly Kourelis of the Private Bank and the deposition testimony of Herbert Emmerman. Ms. Kourelis' affidavit recounted that the Bancrofts had several


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other mortgages on several other properties, all of which were specified in the release agreement, whereas the subject property was not mentioned. Emmerman testified in his deposition that he was unaware of the release at the time of those negotiations, did not participate in them, and only learned of the release three months afterwards. Under these circumstances, the Court held "Illinois case law holds that it is the intent of the parties to the release and the language of the release that controls", and here it was clear that the Private Bank did not intend to release Emmerman and Emmerman did not participate in a manner that would indicate he was released. SBB

24. NATURAL vs. UNNATURAL ACCUMULATION OF ICE AND SNOW; STATUTORY IMMUNITY; NEGLIGENT DESIGN OR MAINTENANCE:

In Murphy-Hylton vs. Lieberman Management Services, Inc. and Klein Creek Condominium (2015 IL App (1st) 142804, December 21, 2015), the Appellate Court reversed the grant by the trial court of Summary Judgment in favor of the Defendants that was based upon the immunity provisions of the Snow and Ice Removal Act (“Act”) (745 ILCS 75/1 et seq.). The issue on appeal was “…whether the immunity provided by the Act only applies to those who create a danger by negligent efforts to remove natural accumulations of ice and snow or instead applies to anyone whose defective property, whether because of factors such as negligent landscape design or maintenance, creates an unnatural accumulation of ice or snow which causes injury”. Plaintiff slipped and fell on ice that had accumulated outside her condominium unit. She argued that the ice causing her fall was an unnatural accumulation unrelated to any effort to remove ice or snow. She asserted that the ice resulted from negligent maintenance or construction of the premises, and that as a result the Defendants were not immune under the Act. Under common law, the general rule was that there was no duty for a landowner to remove natural accumulations of ice and snow, and that therefore the landowner could not be held liable for injuries resulting from natural accumulation. There existed, however, an exception where “the accumulation of ice or snow becomes unnatural due to the design and construction of the premises.”


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The Act is based upon the public policy that would encourage landowners to clean sidewalks and driveways abutting their residences of snow and ice, and to absolve such landowners of liability for all but wrongful acts and willful and wanton conduct in such regard. The Appellate Court reviewed in detail the reasoning of the trial court in granting Summary Judgment based upon the Act, as well as two cases cited by the trial court – Greene vs. Wood River Trust (2013 IL App 4th 130036) and Ryan vs. Glen Ellyn Raintree Condominium Association (2014 IL App 2nd 130682). The trial court opined that the decision in Greene (which held that the Act did not apply to negligence actions for injuries caused by defective construction or improper or insufficient maintenance of a premises) was wrongly decided, and stated that “…immunities do not focus on causation…(but) focus on providing an incentive…to do something beneficial for society…” The Appellate Court was unconvinced that the Act applied to the allegations in the Complaint, which failed to make any allegation of negligence regarding snow and ice removal efforts. The Appellate Court also took issue with the reasoning of the Second District in Ryan, finding questionable its use of the term “immediate negligence”, for which it found no basis in Illinois law. The Ryan Court “…parsed the defendant’s negligence into two parts, one based on negligent design of the premises and the other, which it called ‘immediate negligence’, based upon its failure to clear the unnatural accumulation upon which the plaintiff fell.” The Court described the Ryan Court’s proposition that an owner whose defective property design caused an unnatural accumulation could avoid liability as long as the owner cleared the accumulation before an injury occurred “…not to be sound logic or consistent with the legislature’s intent.” The Court further stated “The Act makes no mention of protecting any type of negligence outside of the ordinary negligence that results in an unnatural accumulation after snow removal efforts. We find it contrary to the spirit of the Act to assume it was intended to protect property owners who negligently maintain, construct or design their premises. JRF

25. RESIDENTIAL REAL PROPERTY DISCLOSURE ACT;

EXEMPTIONS; INTER VIVOS TRUSTS; IDENTITY OF TRUSTEE AND BENEFICIARY; FIDUCIARY DUTIES:

In Hawkins vs. Voss, (5th Dist., April 9, 2015) 2015 IL App 5th 140001, Kathleen Hawkins held title to a home in Monroe County not individually but as Trustee of the Kathleen Hawkins Trust; she was the sole primary


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beneficiary, subject to contingent interests in favor of her children. She hired Voss Brothers Action Auction (Defendants) to assist her in the sale of her home, to advertise it for sale and to provide all necessary documentation. Defendants found a buyer who entered into a contract but prior to closing reneged on the deal for the stated reason that they had not received the required notice under the Residential Real Property Disclosure Act (the “Act”). Hawkins as trustee (Plaintiff) sued Defendants for breach of contract and breach of fiduciary duties, and Defendants argued to the trial court that no disclosure was required by Plaintiff pursuant to section 15 (3) thereof, which exempts from disclosure “transfers by a fiduciary in the course of the administration of a decedent’s estate, guardianship, conservatorship or trust” (emphasis supplied by author). Defendants argued that they had no duty to provide a disclosure form to Plaintiff because Plaintiff had no duty to disclose under the Act. Oddly, the Plaintiff argued to the trial court and to the Fifth District that she was obligated to make a disclosure and had not done so. The trial court granted the motion by Defendants for Judgment on the Pleadings and dismissed the case. Plaintiff appealed, arguing that the trial court erred when deciding that the Act did not require disclosure by her because she could not be deemed a fiduciary under these circumstances. Fiduciary duties are provided “for another” and therefore she could not act as a fiduciary for herself. The court noted that the Act provides 9 exemptions from the requirement of disclosure, and one, the carve-out for trustees acting as fiduciaries in the course of administration of a trust, applies here. Finding Plaintiff as a “seller” under section 20 does not preclude a finding that she is exempt under section 15. Trustees have long been held to be fiduciaries, and here Plaintiff is not acting solely for herself; she is also acting in a fiduciary capacity for her children, the contingent remaindermen. (Ed. This opinion is rather unconvincing in its reasoning and this result was probably was not intended by the drafters of the statute. The court strained to distinguish the law of construction of testamentary trusts to the reasoning adopted in this decision. We are left with this rather anachronistic result, and we can now advise all of our clients who hold title in their own Inter Vivos trusts to refrain from complying with the Residential Real Property


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Disclosure Act, and advising those who do not avail themselves of such trusts that they now should do so in order to avoid the effect of the Act. This is an example of a court following the plain language of a statute but not seeing the forest for the trees. JRF

26. TENANCY BY THE ENTIRETY; SPOUSE’S EXECUTION OF LAND TRUST DIRECTION TO EXECUTE MORTGAGE SUFFICIENT TO ENFORCE THE DEBT:

Marquette Bank v. Heartland Bank and Trust, (September 29, 2015, 1st Dist.) 2015 IL App (1st) 142627, further refines the interplay of mortgage foreclosure and tenancy by the entirety in a land trust context. The Gesiakowski’s marital residence was held in a land trust, with Lawrence and Gail as the beneficiaries with power of direction. Lawrence took out a business loan from Marquette Bank. His wife, Gail was not a borrower and did not sign the note. The land trustee executed the mortgage based on the written direction signed by both the husband wife. When the loan matured and defaulted, the Bank sought to foreclose the home, and the Gesiakowskis argued that the case ought be dismissed based on the fact that it was an attempt to enforce the debt of only one spouse against the marital residence held as tenants by the entirety without the other spouse being responsible on the debt. (735 ILCS 5/12-112.) Finding that both Lawrence and Gail expressly directed the trustee to execute the mortgage, however, the trial court held that they were estopped from asserting the mortgage was unenforceable against their marital property. Where both spouses are obligated on the indebtedness, their tenancy by the entirety real estate is not protected from enforcement of the debt under the Act. Here the mortgage specifically provided that the lender could foreclose, and the Gesiakowski’s mortgage was executed by their trustee at their joint direction, rendering the protection of the tenancy by the entirety inapplicable. SBB

27. TITLE INSURANCE; ATTORNEY AGENTS; RESPA VIOLATIONS; CORE TITLE SERVICES; CLASS ACTION:

In the consolidated class action case of Chultem, et al. vs. Ticor Title Insurance Company and Colella, et al. vs. Chicago Title Insurance Company (2015 IL App 1st 140808, December 9, 2015) the Appellate Court affirmed in a 2-1 decision the ruling of Judge Mary Mikva in the Circuity Court of


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Cook County that the defendant title companies did not make illegal kickback payments to attorney agents for the referral of title business in violation of the Illinois Title Insurance Act and the Illinois Consumer Fraud Act. Plaintiffs had alleged that the attorney agents failed to provide “core title services” due to the fact that the title companies, between 2000 – 2005, had provided attorney agents with what Plaintiffs described as pro forma commitments instead of raw title data for the agents to examine, thereby allowing the agents to receive compensation that was unearned, in violation of the Real Estate Settlement Procedures Act (“RESPA”). RESPA provides, in applicable part: “No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or part of a real estate settlement service involving s federally related mortgage loan shall be referred to any person (12 U.S.C. 2607 (a))”. RESPA further provides: “No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed (12 U.S.C. 2607 (b))”. The first subsection prohibits kickbacks in exchange for referrals; the second prohibits unearned fees. But RESPA contains two “safe harbor” provisions. 12 U.S.C. 2607(c)(1)(B) allows for payments by a title company that might otherwise be deemed kickbacks – fees are lawful if paid “to a duly appointed agent for services actually performed in the issuance of a policy of title insurance”. Section 2607 (c)(2) likewise exempts payment “to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed”. The Plaintiffs argued that the product provided to title agents during the period in question by the two title companies was pre-examined and essentially constituted a commitment for title insurance that did not involve examination or determination of insurability by the attorney agents. The Department of Housing and Urban Development (HUD) has promulgated regulations addressing these issues. Most prominent is 24 C.F.R 3500.14. For an attorney who provides multiple services (for a client and a title company) and who can refer settlement services to receive payment for providing additional services as part of a real estate transaction, such payment “…must be for services that are actual, necessary and distinct


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from the primary services provided by such person…the attorney must perform core title agent services (for which liability arises) separate from attorney services, including the evaluation of the title search to determine the insurability of title, the clearance of underwriting exceptions, the actual issuance of the policy or policies on behalf of the title insurance company, and, where customary, the issuance of the title commitment, and the conducting of the title search and the closing.” 24 C.F.R. 3500.14(g)(3) (2001). In 1996 HUD issued a policy statement referred to as the “Florida Policy Statement” (citation omitted) upon which the Plaintiffs relied heavily. That statement would deny safe harbor protection to a lawyer “…if the title company performs any of the core title services itself”, including the preparation of a preliminary or pro forma commitment. However, an attorney who did not perform core title services could receive compensation, but the payment had to be “reasonably related to the value of the services performed” and less than the payment made to an attorney who performed core title services. The issues were whether the defendants were sending pro forma commitments to their title agents and whether the defendants lawfully could pay their attorney agents full contract compensation after sending them pro forma commitments. After certifying the class, the trial court granted the Plaintiffs’ motion regarding the second issue, finding the title companies would be precluded from paying attorney agents in full if they sent pro forma commitments to their agents. But the trial court, after an evidentiary hearing, rejected the opinions of Plaintiffs'' experts, finding that “actual, necessary and distinct services” remained to be done after the title companies provided their products, which were determined not to constitute pro forma commitments, and that the testimony and evidence demonstrated that the attorney agents provided such services independent of those services they would provide to their seller clients. Therefore, the trial court held that Plaintiffs could not demonstrate a RESPA violation. The Appellate Court relied heavily on the Supreme Court’s decision in Freeman vs. Quicken Loans, Inc., considering its holding dispositive of the cases. In Freeman, the U.S. Supreme Court stated that a “settlement service provider who gives a portion of a charge to another person who has not render any services in return would violate #2607(b)…a service provider could avoid [RESPA] liability by providing just a dollar’s worth of services in exchange for [a] $1,000 fee” because RESPA is not a price control statute and not concerned with the “value, amount or quality of services” rendered. Plaintiffs' experts had admitted that the attorney agents in question


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performed some services, and quantified such services as being worth 20-50% of the fees paid (not sufficient, in their opinion). But the Appellate Court, citing Freeman, held that the amount of value did not matter. Nor was the Court persuaded by the Plaintiffs'' invocation of the Florida Policy Statement, for which the Court did not provide any deference in light of Freeman, holding that any such regulations that turned on the value of services resulted in price regulation, a “palpable overreach going beyond the meaning the statute could bear.” The regulations could only provide HUD with authority to investigate whether settlement fees were the product of a kickback or an unearned fee split, but did not vest HUD with authority to regulate the reasonableness of the fee charged. A dissent by Justice Pucinski is to follow, but was not available at the time this summary was prepared. JRF

28. TITLE INSURANCE; ILLINOIS LAND TRUSTS;

STANDING TO FILE TITLE CLAIMS; TAX SALES: Warczak v. Attorneys Title Guaranty Fund, 2015 IL App (2d) 140677-U (unpublished). In 2005 Plaintiff bought vacant land in Kane County for $130,000. Warczak took title in an Illinois land trust with Cardunal Savings Bank FSB. Warczak was the trust’s sole beneficiary. The seller did not pay the 2003 taxes. ATGF issued the policy, but it missed the tax sale, and so the policy did not raise an exception for the unpaid 2003 taxes. The land trustee received the Tax Code 22-15 and the 22-25 notices, but never notified Plaintiff. A tax deed was eventually issued and was recorded on July 21, 2008. Plaintiff did not know about it until he called the county on or about May 22, 2009, to ask why he did not get a 2008 tax bill. He filed a claim with ATGF the same day. ATGF denied the claim in a letter dated July 27, 2009. The Plaintiff settled with the land trustee, and sued ATGF, arguing that ATGF was liable for coverage under its owner’s title insurance policy. On June 11, 2014, the trial court granted ATGF’s motion for summary judgment. The trial court held that “the intent here was to insure the trust and to transfer the property into the trust at closing, which was done to insulate Plaintiff and keep him personally out of the transaction. He had a beneficial and equitable interest in the trust but not a legal interest. The trust was therefore the party to the transaction, and only parties could enforce a contract. There was no genuine issue of material fact . . . that Plaintiff even


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had standing to bring the suit or had privity of contract. Plaintiff appealed, and the appellate court affirmed in part and reversed in part, and remanded the case. On appeal Plaintiff claimed that a land trust beneficiary has the right to maintain litigation regarding the land trust. ATGF argued that only the trustee was the named insured on the title policy. However, the appellate court stated that an action does not always have to be prosecuted in the name of the insured. The appellate court cited basic land trust law: “In Illinois, a land trust is an arrangement in which a trustee holds legal and equitable title to real property, and the beneficiary’s interest is personal property, not a direct interest in the real estate res of the trust.” But then the court stated: “Every attribute of real property ownership is retained by the beneficiary, except title. As such, even though [sic] a beneficiary’s interest may be labeled as personalty, courts have recognized that the beneficiary is the owner of and has an interest in the real estate res.” In the opinion of expert title examiners, the italicized words are totally contrary to well-established law. See, for example, the Illinois Supreme Court case, Chicago Federal Savings and Loan Association v. Cacciatore, 25 Ill.2d 535, 185 N.E. 2d 670 (1962).

Both the trust agreement and the deed to the trustee contain clauses used for many years in the creation of an Illinois land trust. We have recognized the validity of such a procedure to place in the trustee the full, complete and exclusive title to the real estate, both legal and equitable. The trust here is an active trust, and Cacciatore’s beneficial interest is personal property as distinguished from real estate by the terms of the recorded trust deed, the trust agreement itself, and by settled Illinois law.

The appellate court continued: “Our supreme court has described a land trust as a legal fiction that is a useful instrument for handling real estate transactions, with true ownership of the property lying with the beneficiary.” The court stated this, citing People v. Chicago Title & Trust Co., 75 Ill. 2d 479 (1979). However, this alleged description of a land trust does not appear in this case. The court then cited a 7th Circuit case, Redfield v. Continental Casualty Corp., 818 F.2d 596 (7th Cir. 1987):


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Unlike the conventional real estate trust where the trustee exercises dominion and control over the trust property, however, a land trustee is a mere titleholder. The beneficiary is the party who contracts with the insurer, pays the premiums, and ultimately receives any insurance proceeds paid to the trustee on his behalf. Just as the beneficiary is deemed to be the true owner of the property held in trust, so is he the true ‘insured’ under the policy even though he is not expressly named. Thus if the insurance policy is otherwise valid and in effect at the time of the loss, the beneficiary should not be left helpless merely because the land trustee, the proper party to seek recovery under the policy, either will not or cannot do so. In such a situation, the beneficiary under the land trust should be able to proceed directly against the insurer.

However, Redfield dealt with the right to receive proceeds of a fire insurance policy, and the trustee in Redfield had disclaimed any right to these insurance proceeds. The court in Warczak concluded by stating that “it was clear to all parties that [the plaintiff] was the true property owner. . . . [T]he plaintiff should be allowed to seek coverage under the title insurance policy.” Title searchers learned early on that if your tax search indicated that the taxes were paid in late November or early December, that meant that the taxes were paid, but probably they were paid by the tax buyer. The examiner had to show the tax sale as an exception to title; the examiner could not show that the taxes were paid. This court case merely states that the “unpaid taxes [were] not disclosed in the title commitment.” However, ATGF issued its policy in September of 2005. 2003 Kane County taxes were due in June and September of 2004 and were probably sold in November or December of 2004. It is quite possible that the ATGF searcher or examiner saw the notation in the Kane County tax computer that the taxes were “paid” in late 2004 but did not realize that the taxes were paid at the tax sale. This case is a reminder that the title searcher and examiner has to be aware of when taxes are sold at tax sale. JRF


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29. TRUST DECLARATION AND CREATION OF TRUSTS (CONVEYANCE NOT REQUIRED); “DRESSER-DRAWER” DEEDS; CREDIBILITY OF WITNESSES:

Estate of Diane Mendelson vs. Michael Mendelson, (2nd Dist., 2015) 2015 IL App (2nd) 150084, was a dispute between siblings, primarily regarding ownership of the home of their deceased mother. The facts unfolded thusly:

• In 2005, Mother signed a deed placing the home in joint tenancy with her son Michael (the defendant); that deed was not recorded until after Mother died;

• In 2006 Mother prepared a trust that divided her estate, including the home, among her four children;

• In 2011, three months before Mother died, Mother revoked the 2006 trust with a new trust that awarded the home solely to Michael on her death;

• Mother died on October 1, 2011; on October 5, 2011, Michael recorded the 2005 deed, and on November 14, 2011, Michael recorded the 2011 trust and a deed identical to the 2005 deed.

The trial court determined (correctly, in the view of the author), that the estate should be divided equally between the siblings according to intestate distribution; that the 2005 deed failed for lack of proof of intent to deliver a current interest (notwithstanding any presumption in its favor); that the 2006 trust was valid; there was insufficient evidence of undue influence re the 2011 trust, which was valid and revoked the 2006 trust; there was no valid deed to transfer title to the house into the 2011 trust, so the home was not an asset of the 2011 trust; the 2006 deed funded a revoked trust, so it should be ignored and the home reverted to the intestate estate of Mother, to be distributed under the laws of intestacy. The Appellate Court reversed and awarded the house to Michael. The opinion draws distinctions between intent when dealing with conveyances of real estate by deeds between family members and intent when considering how and when real estate becomes part of an Inter Vivos Trust wherein the former owner is Settlor, Beneficiary and Trustee. Their reasoning included:


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• Although a deed need not be recorded to be valid, the mere placing of a deed in the grantee’s hands does not in and of itself constitute delivery (this still does not answer the threshold question);

• Recording a deed affects the deed’s validity only against bona fide third parties for value and without notice;

• The presumption in favor of a family member receiving a deed is overcome by the failure of Michael and Mother to record the deed prior to her death;

• Mother made representations to others that she was the sole owner of the home;

• The trial court found that Michael did not exercise dominion over the home in the manner of an owner;

• Michael was found not to be a credible witness. However, the takeaway from this decision is that the law does not require the formal transfer of assets (e.g., the transfer into the trust by deed) when a settlor names himself/herself as trustee of a revocable living trust. The court cited with approval the Restatement (Second) of Trusts, and, finding no case law in Illinois on point, a Kentucky decision, holding that formal transfer of ownership of assets is not required for the effective creation of a trust, and “…such additional statutory formalities as would be applicable to transfers of land requiring that a document be sealed, attested, acknowledged or recorded ordinarily are not essential to a transfer as between transferor and transferee.” (Emphasis supplied) The court held that the 2011 trust where Mother declared the house to be a part of it was valid; it did not require a formal transfer of title of the real estate to the trust; the trust revoked the prior trust, and therefore Michael became the 100% owner of the home, per the trust’s terms, after Mother’s death. On rehearing (2nd Dist., 2016) 2016 IL App (2nd) 150084, the court once again determined that while the decedent may have intended to convey to Michael an interest in her home only via the 2005 joint tenancy deed, that deed was held not valid for failure of delivery. In so doing, the court ignored the following statement from section 3.4 of the trust agreement: “Real Property. On July 14, 2005 I had quit-claimed the property located at 1509 Arbor Avenue, Highland Park, Illinois, to my son, Michael Mendelson, in Joint Tenancy with Right of Survivorship as such it was my intent at the time as it is my intent today (i.e. the execution of this instant Living Trust) that the real property, located at 1509 Arbor Avenue, Highland Park, Illinois,


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upon by (sic) death shall become the sole property of my son, Michael Mendelson.” It is reasonable to question why the court refused to determine that the trial court’s finding that the deed should not be deemed effective due to lack of delivery was against the manifest weight of the evidence, in light of this affirmation in 2011 that it was the intent of the decedent in 2005, as well as in 2011, that Michael take title to the subject real estate by way of the deed. The court took pains to repeat the findings set forth above that led to the conclusion that the decedent did not deliver the deed, nor was it her intent to do so, while ignoring the clear declaration in the trust that she believed she conveyed title to Michael by means of the deed. We are left with the finding that, notwithstanding what the decedent said about the deed, what she did with it did not amount to delivery. The court also found that the trust did not constitute an effective means to convey ownership of the real estate to Michael. The court examined the terms of the trust agreement and found that the terms of the trust contained sections allowing for the payment of specific gifts, the payment of the “balance” of her trust estate and of the “residue” of the trust estate, but in none of these sections was the subject real estate described. Therefore, the trust terms did not make any disposition of the Highland Park home. Indeed, the statement set forth after the dispositive provisions of the trust contained the only reference to the Highland Park home, and the decedent in that section of the trust stated that she had previously conveyed the real estate to Michael by means of the deed. Therefore, reasoned the court, the trust terms made no provision for the disposition of the subject real estate. The court could have, at this point, “reversed field” on the finding that the deed was invalid, but instead the court affirmed the trial court’s holding that real estate should be distributed to all of the brothers according to the law of intestate distribution. The problem that persists in the mind of the real estate practitioner is that the court left undisturbed the dictum that, in the case of a living trust, a “formal transfer of ownership of assets is not required for the effective creation of a trust, and ‘…such additional statutory formalities as would be applicable to transfers of land requiring that a document be sealed, attested, acknowledged


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or recorded ordinarily are not essential to a transfer as between transferor and transferee.’ ” What is particularly distressing is that the decision stands as authority for the proposition that, on the one hand, a grantor can execute a deed, have it notarized, give it to the grantee, state in her subsequently drafted trust that she intended the deed to convey title to the named grantee at the time of the execution of the deed as well as the execution of the trust, but the deed nevertheless is invalid. On the other hand, the court did nothing in the second opinion to dispel the notion that title to real estate can be transferred by self-declaration of trust without a deed of conveyance. In the case of the deed, grantor’s conduct did not include sufficient formalities, while in the case of a trust, no formalities are required at all other than a declaration that need not be recorded. The court ignores (because the question was not in issue) the effect of such reasoning on third-party purchasers without notice, who have no way of determining, despite a diligent search of the public records, whether title to real estate has been conveyed by self-declaration. For those who believe that such concern is overblown because the facts of the case do not involved transfers at arm’s length to third parties, I would respond that another court could easily overlook the limited breadth of the holding and improperly apply the reasoning of the dictum set forth above to cases involving the transfer of title by a trustee of a trust to a third-party purchaser. Ed. Note: Senate Bill 2842, sponsored by Sen. Ira Silverstein, proposes to change the Trust and Trustees Act to provide that a transfer of real property to a trust requires a transfer of title evidenced a written instrument of conveyance accepted by the trustee and also recorded in appropriate real property records. JRF POST SCRIPT: AND ON A LIGHTER NOTE:

“UTTERLY FRIVOLOUS” vs. “FRIVOLOUS” LITIGATION; FEDERAL JURISDICTION; SYNONYMS FOR CASES WITHOUT MERIT


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In Carter vs. Homeward Residential, Inc., at al (7th Circuit U.S. Court of Appeals), July 23, 2015, No. 15-1156, a homeowner who lost his house in foreclosure brought a "meritless" action against a “foreclosing entity” that he failed to identify, alleging violations of the federal Constitution and seeking to quiet title to his home. Circuit Judge Posner, in his characteristically breezy manner, agreed with the District Court that the case brought by a homeowner was frivolous and should be dismissed. However, he took issue with other decisions that discussed cases without merit, some of which were meritless because they did not invoke the jurisdiction of the federal courts and others because while federal jurisdiction might otherwise be available, it was clear from a review of the pleadings that such cases were, in his words, “going nowhere”. He referred to opinions that characterize suits as “frivolous” because the case is so weak there could be no basis for relief, as well as other opinions that state that “a suit as that is utterly frivolous does not engage the jurisdiction of the federal courts.” Tongue planted firmly in cheek, Judge Posner questioned how one would differentiate between cases that are “frivolous” and others “utterly frivolous”, or “insubstantial”, “wholly insubstantial”, “plainly insubstantial”, “not substantial enough” and “obviously without merit”. He took issue with such redundant verbiage that was enlarged and endorsed in Hagans vs. Lavine, 415 U.S. 537, which contained even more synonyms than there is room in this summary to include. He would rely on the bare word “frivolous” and avoid a “sliding scale of substantiality” in such matters. Finally, he suggests purging from further discussion the word “frivolous” from the standards associated with meritless litigation, as well as (having consulted the Oxford Thesaurus of English), such words as “skittish”, “flighty”, “giddy”, “silly”, "foolish”, “superficial”, “shallow”, “irresponsible”, “thoughtless”, “featherbrained”, “emptyheaded”, “pea-brained”, “bird-brained”, “vacuous” and “vapid”. Finally, his proposed resolution of the whole affair is to refer to a case that fails to invoke federal jurisdiction as “non-justiciable” and one that does invoke federal jurisdiction but “pleads itself out of court” as “groundless”. JRF AND, SO MANY CASES, SO LITTLE TIME: United Central Bank v. KMWC 845, LLC, (7th Cir., August 28, 2015), No. 14-1491. In a federal proceeding seeking to foreclose three mortgages covering multiple properties in Wisconsin made to the Mutual Bank of Harvey, Illinois, the holder of the notes obtain through the FDIC when the Mutual Bank was closed, UCB saw its action barred in a summary judgment motion by the borrower pursuant to 735 ILCS 5/13-217. That provision of the Illinois Code of Civil Procedure, bars refiling more than one year after voluntarily dismissing a cause of action or within the remaining period of limitation, whichever is greater. Here two previous actions for breach of the promissory note had been voluntarily dismissed by UCB. The Bank attempted to argue that the previous cases did not serve as a bar because they were actions on the note, whereas the current action was to foreclose the mortgage. This was rejected, noting that “the mortgage is a mere incident of the debt, and is barred when the debt is barred. (The opinion contains a good discussion of the application of Illinois rather than Wisconsin law.) SBB


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THE HAROLD I. LEVINE MEMORIAL 1 CASE LAW UPDATE · presenter, and, to a few very fortunate lawyers, a mentor and role model who passed away in 2003. He was a long-time volunteer for