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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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Presentation on theme: "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."— Presentation transcript:

1 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 J. Hammerschmith

2 2 ILLINOIS INSTITUTE OF CONTINUING LEGAL EDUCATION “A PRACTICAL APPROACH MORTGAGE TO MORTGAGE LIENS ON REAL ESTATE” STEVEN B. BASHAW, Moderator McBride Baker & Coles, Chicago & Oak Brook Terrace, Illinois

3 3 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)

4 4 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.

5 5 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

6 6 ENFORCEABILITY & LIMITATIONS An action to foreclose mortgage: 10yrs after right of action accrues 735 ILCS 5/ Lorocque v. Baker, (2nd Dist. 1938) 295 Ill.App.1, 14 N.E.2d 502.

7 7 ENFORCEABILITY & LIMITATIONS Statute of Limitations on mortgage: 20 years from date of last payment 735 ILCS 5/ Livingston v. Meyers, (1955) 6 Ill.2d 325, 129 N.E.2d 12

8 8 ENFORCEABILITY & LIMITATIONS No Maturity Date: 30 years from date of instrument 735 ILCS 5/ Zuls v. Bowen, (1st Dist. 1053) 351 Ill.App. 492, 115 N.E.2d 577.

9 9 TITLE vs LIEN THEORY ISSUE: Rights of possession: Title theory = immediate possession; Lien theory = adjudication Illinois = Intermediary estate by case law

10 10 TITLE vs LIEN THEORY ILLINOIS MORTGAGE FORECLOSURE LAW; 735 ILCS 5/ –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

11 11 TITLE vs LIEN THEORY –Post Redemption 735 ILCS 5/ (c)(2): lesser of interest under the mortgage or fmv rental –A Lease subordinate to mortgage shall not be automatically terminated 735 ILCS 5/ (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 prepaid rent –Mortgagee is entitled to designate Receiver: 735 ILCS 5/ (b) –Priority Mortgagee is entitled to priority in all matters relating to possession: 735 ILCS 5/15/1702(c)

12 12 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.

13 13 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

14 14 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/ Joliet Federal v. Bloomington Loan Co., (3rd Dist. 1970) 131 Ill.App.2d 619, 265 N.E.2d ILCS 5/ (B)(3) & 1506(h); Reservation of issue of priorities to confirmation of sale

15 15 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

16 16 IRS LIENS AND MORTGAGES 28 USC 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)

17 17 Illinois Revenue Liens (& Condominium Assessments) 735 ILCS 5/ (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

18 18 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!

19 19 Unsigned and Forged Mortgage Documents Consensual Lien is void if forgery - EXCEPT to the extent ratified Resolution Trust Corp. v. Hardisty, (3rd Dist 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

20 20 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

21 21 TENANTS BY THE ENTIRETY 735 ILCS 5/ –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

22 22 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

23 23 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

24 24 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

25 25 JUDICIAL vs NONJUDICIAL FORECLOSURES 735 ILCS 5/ ; Prohibition of exercise of “Power of Sale” See also (deed in lieu) (consent judgment) and for applicability of IMFL to assignments of beneficial interest and articles of agreement for deed HUD’s Single Family Mortgage Foreclosure Act of 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

26 26 DEFICIENCIES, SURPLUS & ENTITLEMENT Created at Confirmation of Report of Sale; 735 ILCS 5/ 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

27 27 DEFICIENCIES, SURPLUS & ENTITLEMENT DEFICIENCIES, SURPLUS & ENTITLEMENT Surplus: –Application: 735 ILCS 5/ 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.

28 28 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!

29 29 ALTERNATIVE DISPUTE RESOLUTION & MORTGAGE LIENS: DEED IN LIEU OF FORECLOSURE –735 ILCS 5/ –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.

30 30 ALTERNATIVE DISPUTE RESOLUTION & MORTGAGE LIENS: CONSENT JUDGMENT –735 ILCS 5/ –Voluntary –Presumed quid pro quo: waiver of redemption and conveyance by judgment for release of liability –735 ILCS 5/ ; subordinate liens foreclosed, EXCEPT U.S.A,

31 31 ALTERNATIVE DISPUTE RESOLUTION & MORTGAGE LIENS: Shortening Redemption periods –735 ILCS 5/ ;Special Right to Redeem Residential real estate occupied by owner Plaintiff bids deficiency Revival of redemption for 30 days (b) payment of bid only

32 32 ALTERNATIVE DISPUTE RESOLUTION & MORTGAGE LIENS: –735 ILCS 5/ (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/ (b)(4); Abandonment Finding of “abandonment” Redemption expires 30 days after judgment

33 33 THE REDEMPTION PROCESS 735 ILCS 5/ –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/ (f) and (g)

34 34 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

35 35 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


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