IICLE Real Estate Liens Presentation - Bashawlaw.com

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 mechanics liens EXCEPTIONS:

Statutory: Recording laws & mechanics 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. nonresidential 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. OBrien, (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 liens 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 Mechanics 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 beneficiarys execution of letter of direction

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 attorneys 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 HUDs 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 Mortgagees 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 Thats All!

Thanks for attending! We hope you have enjoyed this presentation. If you have questions, please feel free to ask. Were happy to help. For a detailed listing of the upcoming CLE schedule visit our web site at http://www/illinoiscle.com 35

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