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

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ILLINOIS INSTITUTE OF ILLINOIS INSTITUTE OF CONTINUING LEGAL CONTINUING LEGAL

EDUCATIONEDUCATION“A PRACTICAL APPROACH TO LIENS ON REAL ESTATE” Steven B. Bashaw Michael B. Demma Eric L. Singer Timothy J. Hammerschmith

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ILLINOIS INSTITUTE OF ILLINOIS INSTITUTE OF CONTINUING LEGAL CONTINUING LEGAL

EDUCATIONEDUCATION“A PRACTICAL APPROACH

TO MORTGAGEMORTGAGE LIENS ON REAL ESTATE”

STEVEN B. BASHAW, ModeratorMcBride Baker & Coles, Chicago & Oak Brook

Terrace, Illinois

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Types of Mortgages: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)

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Types of Mortgages: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.

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MORTGAGE LIEN PRIORITYMORTGAGE 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

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ENFORCEABILITY & ENFORCEABILITY & LIMITATIONSLIMITATIONS

An action to foreclose mortgage: 10yrs after right of action accrues

735 ILCS 5/13-115Lorocque v. Baker, (2nd Dist.

1938) 295 Ill.App.1, 14 N.E.2d 502.

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Statute of Limitations on mortgage: 20 years from date of last payment

735 ILCS 5/13-116Livingston v. Meyers, (1955) 6 Ill.2d

325, 129 N.E.2d 12

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No Maturity Date: 30 years from date of instrument

735 ILCS 5/13-116Zuls v. Bowen, (1st Dist. 1053) 351

Ill.App. 492, 115 N.E.2d 577.

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TITLE vs LIEN THEORYTITLE vs LIEN THEORY

ISSUE: Rights of possession: Title theory = immediate possession; Lien theory = adjudication Illinois = Intermediary estate by case

law

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TITLE vs LIEN THEORYTITLE 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

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TITLE vs LIEN THEORYTITLE 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 terminated735 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)

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ENFORCEMENT OF ENFORCEMENT OF PRIORITYPRIORITY

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.

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ENFORCEMENT OF ENFORCEMENT OF PRIORITYPRIORITY

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

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ENFORCEMENT OF ENFORCEMENT OF PRIORITYPRIORITY 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

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Mechanic’s Liens; A Mechanic’s Liens; A Priority ExercisePriority Exercise

Strict Compliance 770 ILCS 60/1Claim recorded within 4 mos. last work 770

ILCS 60.7Suit (by complaint or countercomplaint)

within 2 yearsPriority ONLY to extent of enhancementMutual Services, Inc.. v. Ballantrae Development, (1st

Dist. 1987) 159 Ill.App.3d 549, 510 N.E.2d 1219Lyons Savings v. Gash Associates, (1st Dist. 1996) 665

N.E.2d 326

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IRS LIENS AND IRS LIENS AND MORTGAGESMORTGAGES

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)

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Illinois Revenue Liens (& Illinois Revenue Liens (& Condominium Assessments)Condominium Assessments) 735 ILCS 5/15-1501(b)(6) & (g)No “immunity” in foreclosure cases;Service by certified mail to Atty. Gen.

765 ILCS 605/9Sale extinguishes assessments prior

to the 1st day of the month following the sale

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Ill Rev. Liens & Condo Ill Rev. Liens & Condo Assessments Collide: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!

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Unsigned and Forged Unsigned and Forged Mortgage DocumentsMortgage 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 direction

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WAIVER OF HOMESTEADWAIVER 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

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TENANTS BY THE TENANTS BY THE ENTIRETYENTIRETY

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

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ASSIGNMENTS OF ASSIGNMENTS OF MORTGAGES: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

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RELEASE AND RELEASE AND SATISFACTION OF SATISFACTION OF

MORTGAGESMORTGAGES 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

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EFFECT OF BANKRUPTCYEFFECT 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

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JUDICIAL vs NONJUDICIAL JUDICIAL vs NONJUDICIAL FORECLOSURESFORECLOSURES

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

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DEFICIENCIES, SURPLUS & DEFICIENCIES, SURPLUS & ENTITLEMENTENTITLEMENT

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

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DEFICIENCIES, SURPLUS & DEFICIENCIES, SURPLUS & ENTITLEMENTENTITLEMENT

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.

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Emerging Surplus & Lien Emerging Surplus & Lien LawLaw

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!

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ALTERNATIVE DISPUTE ALTERNATIVE DISPUTE RESOLUTION & RESOLUTION &

MORTGAGE LIENS: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.

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MORTGAGE LIENS: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,

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MORTGAGE LIENS: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

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MORTGAGE LIENS: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

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THE REDEMPTION THE REDEMPTION PROCESSPROCESS

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)

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The “Practical Side” to The “Practical Side” to Redemption: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

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That’s All!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.

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