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IICLE Real Estate Liens Presentation

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									    ILLINOIS INSTITUTE OF CONTINUING
             LEGAL EDUCATION
“A PRACTICAL APPROACH
TO LIENS ON REAL ESTATE”
 Steven B. Bashaw
 Michael B. Demma
 Eric L. Singer
 Timothy J. Hammerschmith

                                       1
ILLINOIS INSTITUTE OF CONTINUING
         LEGAL EDUCATION
“A PRACTICAL APPROACH
TO MORTGAGE LIENS ON
     REAL ESTATE”
   STEVEN B. BASHAW, Moderator
McBride Baker & Coles, Chicago & Oak Brook
               Terrace, Illinois             2
        Types of Mortgages:
   Specific, consensual liens
   Practical Approach: Lien priority
    distinction
   Two vs. Three party instruments
   Equitable Mortgages: When a deed is a
    mortgage and other problems
     – Harney v. Colwell, (1st Dist. 1942) 324
       Ill,App. 173, 41 N.E. 2d 123)


                                                 3
         Types of Mortgages:
   Purchase Money Mortgage
Priority over prior liens against grantee to
  extent of purchase debt
Application of Busse, (1st Dist. 1984) 124
  Ill.App.3d 433, 464 N.E.2d 561.
Bank of Homewood, (1st Dist. 1964) 48
  Ill.App.2d 316, 199 N.E.2d 293.

                                               4
       MORTGAGE LIEN PRIORITY
 “Prior in time (perfection) is prior in right”
 Firstmark Standard Life Insurance v.
  Superior Bank, FSB, (1st Dist. 1995) 271
  Ill.App.2d 435, 649 N.E.2d 465
 Subject to real estate taxes, special
  assessments and mechanic’s liens
 EXCEPTIONS:
 Statutory: Recording laws & mechanic’s liens
 Case Law: Purchase money mortgage rules
 Contract: Subordination clauses
                                              5
ENFORCEABILITY & LIMITATIONS
     An action to foreclose
   mortgage: 10yrs after right of
          action accrues
        735 ILCS 5/13-115
   Lorocque v. Baker, (2nd Dist.
   1938) 295 Ill.App.1, 14 N.E.2d
                 502.


                                    6
  ENFORCEABILITY & LIMITATIONS
Statute of Limitations on mortgage: 20
  years from date of last payment
735 ILCS 5/13-116
Livingston v. Meyers, (1955) 6 Ill.2d 325,
  129 N.E.2d 12




                                             7
 ENFORCEABILITY & LIMITATIONS
No Maturity Date: 30 years from date of
  instrument
735 ILCS 5/13-116
Zuls v. Bowen, (1st Dist. 1053) 351
  Ill.App. 492, 115 N.E.2d 577.




                                          8
              TITLE vs LIEN THEORY
   ISSUE: Rights of possession:
   Title theory = immediate possession;
   Lien theory = adjudication
   Illinois = Intermediary estate by case law




                                                 9
              TITLE vs LIEN THEORY
   ILLINOIS MORTGAGE FORECLOSURE LAW;
    735 ILCS 5/15-1701
     – Distinction between residential vs. non-
       residential up to expiration of redemption
        Residential presumption mortgagor will continue in
         possession until at least judgment
        Non-Residential presumption mortgagee will obtain
         possession IF the mortgage documents provide and a
         reasonable probability of ultimately prevailing


                                                          10
           TITLE vs LIEN THEORY
– Post Redemption
   735 ILCS 5/15-1701(c)(2): “rent” @ lesser of interest
    under the mortgage or fmv rental
– A Lease subordinate to mortgage shall not be
  automatically terminated
   735 ILCS 5/15-1504(3)(T); 735 ILCS 5/1508(g)
   Kell/Lehr & Associates v. O’Brien, (2nd Dist. 1990), 194
    Ill.App.3d 380, 551 N.E.2d 419 - prepaid rent
– Mortgagee is entitled to designate Receiver: 735
  ILCS 5/15-1702(b)
– Priority Mortgagee is entitled to priority in all
  matters relating to possession: 735 ILCS
  5/15/1702(c)                                      11
          ENFORCEMENT OF PRIORITY

   The Practical approach ALWAYS considers priority
    of lien:
 Foreclosure of priority lien extinguishes
  subordinate liens;
 Baldi v. Chicago Title, (1st Dist. 1983), 113
  Ill.App.3d 29, 446 N.E.2d 1205 and Orloff v.
  Petak, (3rd Dist. 1992), 224 Ill.App.3d 638,
  587 N.E.2d 37.

                                                   12
     ENFORCEMENT OF PRIORITY
A lien’s priority CAN be affected (i.e..,
  altered) in litigation
Mid-America Federal Savings v. Liberty
  Bank, (2nd Dist. 1990) 562 N.E.2d
  1188; priority position prejudiced by
  failure to participate in judgment



                                            13
        ENFORCEMENT OF PRIORITY
 Rights to surplus
Kankakee Federal v. Mueller, (3rd Dist. 1985),
  134 Ill.App.3d 943, 482 N.E.2d 332
St. Charles Savings & Loan v. Estate of
  Sundberg, (2nd Dist. 1986) 150 Ill.App.3d 100,
  501 N.E.2d 322.
 Rights of subordinate lien holders; 735 ILCS
  5/15-1505
Joliet Federal v. Bloomington Loan Co., (3rd Dist. 1970)
  131 Ill.App.2d 619, 265 N.E.2d 400
735 ILCS 5/15-1508(B)(3) & 1506(h); Reservation of issue
  of priorities to confirmation of sale
                                                           14
       Mechanic’s Liens; A Priority
               Exercise
 Strict Compliance 770 ILCS 60/1
Claim recorded within 4 mos. last work 770
  ILCS 60.7
Suit (by complaint or countercomplaint) within
  2 years
Priority ONLY to extent of enhancement
Mutual Services, Inc.. v. Ballantrae Development, (1st Dist.
  1987) 159 Ill.App.3d 549, 510 N.E.2d 1219
Lyons Savings v. Gash Associates, (1st Dist. 1996) 665
  N.E.2d 326
                                                               15
        IRS LIENS AND MORTGAGES

 28 USC 2410 - no special priority status -
  first in time, first in right
 Requires Judicial proceeding to terminate
 USA special service requirements and
  redemption
Longer of state law redemption or 120 days from sale for Fed.
  Tax Liens
Non-Tax Liens: ONE YEAR from sale
   Administrative Release: 28 USC 2410(e)
                                                           16
      Illinois Revenue Liens (&
    Condominium Assessments)
735 ILCS 5/15-1501(b)(6) & (g)
No “immunity” in foreclosure cases;
Service by certified mail to Atty. Gen.

765 ILCS 605/9
Sale extinguishes assessments prior to
 the 1st day of the month following the
 sale

                                          17
        Ill Rev. Liens & Condo
        Assessments Collide:

Lake Hinsdale Village Condominium v.
  Dept. of Public Aid (2nd Dist. 1998), 698
  N.E.2d 214
 Assessment lien “relates back” to date
  of first perfection by filing notice of claim
  for lien as each month accrues!

                                                  18
    Unsigned and Forged Mortgage
             Documents
Consensual Lien is void if forgery -
 EXCEPT to the extent ratified
Resolution Trust Corp. v. Hardisty, (3rd
 Dist. 1995 646 N.E.2d 628; primer on
 forged mortgages.
Grundy County National Bank v.
 Cavanaugh, (3rd Dist. 1982), 105 Ill.
 App.3d 718, 434 N.E.2d 803; failure of
 land trustee to execute overcome by
 beneficiary’s execution of letter of
                                           19
          WAIVER OF HOMESTEAD
   735 ILCS 5/12-901; Statutory “lien” for $7,500/each
    owner
     – Only available as to third parties, NOT among co-
       tenants
     – Each resident/owner, but not to exceed $15,000
       total; First National Bank of Moline v. Mohr, (3rd
       Dist. 1987), 162 Ill.App.3d 584, 515 N.E.2d 1356
     – May be claimed by surviving spouse; 735 ILCS
       5/12-901, 901
   “Practical Approach”: Every mortgage should contain
    a waiver of homestead and be signed by spouse



                                                            20
       TENANTS BY THE ENTIRETY
   735 ILCS 5/12-112

    – Property held in the entirety can NOT be sold
      to satisfy the debt of one spouse
    – E.J. McKernan Co. v. Gregory, (2nd Dist.
      1994), 268 Ill.App. 383, 643 N.E.2d 1370
    – In re Marriage of Del Giudice, (1st Dist. 1997),
      287 Ill.App.3d 222, 678 N.E.2d 47
    – Amendment to 735 5/12-112; exception for
      “fraudulent conveyance”
    – Harris Bank v. Weber, (2nd Dist. 1998) 1998
      Ill.App. Lexis 601                                 21
    ASSIGNMENTS OF MORTGAGES:
   Assignments recorded in addition to
    endorsement of note
    – Klehm v. Grecia Chalet, Ltd., (1st Dist.
      1987) 164 Ill.App.3d 610, 518 N.E.2d 187
    – 205 ILCS 635/3-7; borrower must be
      informed of transfer and granted
      forbearance if necessary
   MERS: Mortgage Electronic Recording
    System
                                                 22
     RELEASE AND SATISFACTION OF
             MORTGAGES
   Statutory Penalty: Illinois Mortgage Act
    765 ILCS 905/0 et seq..
    – Release in recordable form within 30 days;
      765 ILCS 905/2
    – Not applicable to foreclosure proceedings;
      Liberty Loan Corp. v. FNMA, (2nd Dist.
      1986) 142 Ill.App.3d 383, 492 N.E.2d 237
    – Penalty: $200 plus reasonable attorney’s
      fees in civil action; 765 ILCS 905/4

                                                   23
          EFFECT OF BANKRUPTCY
   Stay of enforcement of lien; 11 USC 362
   Discharge of personal liability on NOTE; In Re
    Bouchelle, (M.D. Fl. 1989) 98 BR 81
   Does NOT release the lien of the mortgage or enjoin
    foreclosure post modification of stay; Farmers State
    Bank of Sherard v. Hansen, (3rd Dist. 1990), 196
    Ill.App.3d 295, 553 N.E.2d 751
   Last moment to file to stop foreclosure:
     – FNMA v. McEWEN, N.D. Il. 1996) 194 B.R. 594;
        sale “conducted” only at confirmation
     – In Re Beatty (Bankr. N.D. Il 1990), 116 B.R. 112
        and In Re Christian, (Bankr. N.D. Il. 1996) 199
        B.R. 382
                                                           24
         JUDICIAL vs NONJUDICIAL
             FORECLOSURES
   735 ILCS 5/15-1405; Prohibition of exercise of
    “Power of Sale”
   See also 15-1401 (deed in lieu) 15-1402 (consent
    judgment) and 15-1106 for applicability of IMFL to
    assignments of beneficial interest and articles of
    agreement for deed
   HUD’s Single Family Mortgage Foreclosure Act of
    1994
         12 USC 3751; Balanced Budget Reconciliation
          Act of 995
         Only HUD held mortgages

         Notice and sale by “power of sale” resulting in
          possible 21 day notice to sale period
                                                            25
       DEFICIENCIES, SURPLUS &
             ENTITLEMENT
 Created at Confirmation of Report of
  Sale; 735 ILCS 5/15-1508
 Deficiency:
    – Heritage Standard Bank v. Heritage
      Standard Bank, (2nd Dist. 1986) 149
      Ill.App.3d 563, 500 N.E.2d 60
    – State Bank of Antioch v. Nelson, (2nd Dist.
      1985) 132 Ill.App.3d 120, 477 N.E.2d 77



                                                    26
           DEFICIENCIES, SURPLUS &
                ENTITLEMENT
   Surplus:
    – Application: 735 ILCS 5/15-1512
        Reasonable expense of sale
        Expenses of maintaining the premises

        satisfaction of claims in order of priority as
         adjudicated
        Surplus to be held until further order of court
            – Hart v. Wingart, (1876) 83 Ill. 282
            – Kankakee Federal v. Mueller, (3rd Dist. 1985), 134
              Ill.App.3d 943, 482 N.E.2d 332
            – St. Charles Savings & Loan v. Estate of Sundberg,
              (2nd Dist. 1986) 150 Ill.App.3d 100, 501 N.E.2d 322.
                                                                     27
    Emerging Surplus & Lien Law
 Members Equity Credit Union v. Duefel,
  (3rd Dist. 1998) 692 N.E,2d 865; Buyers
  take subject to outstanding debts vs.
  “marshalling asset” theory
 BCGS, LLC v. Jaster, (2nd Dist. 1998)
  700 N.E.2d 1075; foreclosure
  extinguishes all liens over which court
  had jurisdiction in favor of bidder; even
  husband of owner!

                                              28
ALTERNATIVE DISPUTE RESOLUTION
      & MORTGAGE LIENS:
   DEED IN LIEU OF FORECLOSURE
    – 735 ILCS 5/15-1401
    – Voluntary
    – Presumed quid pro quo: conveyance for
      release of liability
    – Olney Trust Bank v. Pitts, (5th Dist. 1990),
      200 Ill.App.3d 917, 528 N.E.2d 398.


                                                     29
ALTERNATIVE DISPUTE RESOLUTION
      & MORTGAGE LIENS:
   CONSENT JUDGMENT
    – 735 ILCS 5/15-1402
    – Voluntary
    – Presumed quid pro quo: waiver of
      redemption and conveyance by judgment
      for release of liability
    – 735 ILCS 5/15-1402; subordinate liens
      foreclosed, EXCEPT U.S.A,

                                              30
ALTERNATIVE DISPUTE RESOLUTION
      & MORTGAGE LIENS:
   Shortening Redemption periods
    – 735 ILCS 5/15-1604;Special Right to
      Redeem
       Residential real estate occupied by owner
       Plaintiff bids deficiency

       Revival of redemption for 30 days

       15-1604(b) payment of bid only




                                                    31
ALTERNATIVE DISPUTE RESOLUTION
      & MORTGAGE LIENS:
 – 735 ILCS 5/15-1603(b)(3); Value of
   Premises
    If value of property is less than 90% of total
     debt
    AND, mortgagee waives right to deficiency

    Redemption expires 60 days after judgment

 – 735 ILCS 5/15-1603(b)(4); Abandonment
    Finding of “abandonment”
    Redemption expires 30 days after judgment


                                                      32
       THE REDEMPTION PROCESS
   735 ILCS 5/15-1603
    – Notice of Intent to Redeem
        Not less than 15 days prior to exercise of right
         to redeem
        Certificate filed with the Clerk of the Court

    – Mortgagee’s Estimate of Redemption
        Filed with Clerk of the Court

        Paid Receipts or affidavits attached

    – Contested hearing; 735 ILCS 5/15-1604(f) and (g)



                                                            33
         The “Practical Side” to
              Redemption:
   Fleet Mortgage v. Deal, (1st Dist. 1997), 287
    Ill.App.3d 385, 678 N.E.2d 35
   Commercial Credit v. Espinosa, (1st
    Dist. 1997), ___ Ill.App.3d __, 689
    N.E.2d 282




                                                    34
                   That’s All!
       Thanks for attending! We hope
    you have enjoyed this presentation.
    If you have questions, please feel
    free to ask. We’re happy to help.

   For a detailed listing of the upcoming CLE
    schedule visit our web site at
    http://www/illinoiscle.com


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