REAL ESTATE LAW PRACTICE KEY POINTS

(May 1998)

By Steven B. Bashaw

McBride Baker & Coles

10th Floor - One MidAmerica Plaza

Oakbrook Terrace, Illinois  60171-4710

Tel.: (630) 954-7588

Fax.: (630) 954-7590

e-mail:  SBashaw @MBC.COM

 

 

1. Moorman doctrine application in real estate explained:

 

Most real estate lawyers have a hard time with tort law to begin with, and if you, like most of us, are a little mesmerized by the entire concept of the interplay between economic losses occasioned by diminished commercial expectations in a tort context AND how that could POSSIBLY relate to real estate, see the explanation contained in Ruscitti v. Atchinson, Topeka & Santa Fe Railway Co., (N.D. Il. 1997), 987 F.Supp. 1039, where Judge Ann C. Williams granted the defendant’s motion to dismiss.  In applying the Moorman doctrine, Judge Williams found that the law does not provide a remedy where the plaintiff had an opportunity to protect his commercial expectation when he negotiated his lease agreements.  Essentially, if a party has the opportunity to negotiate a contract agreement to protect against a loss, that party cannot thereafter frame a cause of action as one sounding in negligence or tort to avoid the result of the failure to include a contract provision protecting his interest.  (Clear as mud, right?  This case may help!)

 

 

2. The Real Estate Broker’s duty to disclose continues to the closing:

 

It is said frequently in real estate circles that we practice in an ever-growing “arena of disclosure”. It is also growing more and more difficult to determine when a broker’s fiduciary duty begins and ends. The First District Appellate Court confirmed the larger view of both issues in Letsos v. Century 21-New West Realty, (1st Dist. 1996), 285 Ill.App .3d 1056, 221 Ill.Dec. 310, 675 N.E.2d 217, holding that a real estate broker representing the seller continues to have a duty of full disclosure and fair dealing past the execution of the contract and up to the date of closing.  The broker himself purchased property from his seller, and THEN, (post contract but prior to closing), entered into a separate contract with a third party to sell the same property at a substantial profit;  --without telling the seller.  In an opinion which stands for the proposition that the duty of full disclosure and fair dealing on the part of the broker did not cease with the contract and continued until closing, (and therefore the broker who deals with their own seller has a continuing duty to disclose the subsequent sale contract), the court’s opinion also dealt with implied-in-fact agency, brokerage liability, and extensive damage theories (including punitive damages). [See the article in the ISBA Real Estate Section Council Newsletter, Vol. 43, No. 4, May 1998, by Robert C. Bollinger.]

 

 

3. History and politics in the North Loop Redevelopment area:

 

An appreciation for the interplay of history and politics in the law is a great source of insight for a real estate attorney.  The case of City of Chicago v. Boulevard Bank. N.A., (1st Dist. 1997), 293 Ill.App.3d 767, 228 Ill.Dec. 146, 688 N.E.2d 844, provides an interesting glimpse into the interplay of condemnation by the quick-take statute and the establishment of a TIF district in the “Theater Row Development” of the near north Loop. (This is the area on Dearborn Street and bounded by Randolph and Lake streets.)  In perfect hind-sight, developers should have known that a 1979 Redevelopment Plan in conjunction with a 1984 TIF Plan would form an irresistible force to overcome their accusations of “unconstitutional special legislation” on appeal.  Good law??  Well, maybe not...but fascinating reading on the train ride to attend court in the adjacent Daley Center.  [See the article by Theodore Postel in the Chicago Daily Law Bulletin, May 4, 1998, to get you started and talk to your alderman over drinks afterwards...]

 

 

4.  Federal Tax Lien Priority:

 

For years, continuing legal education commentators have decried the commonly held misconception that the federal government and federal tax liens have some special priority rights.  The issues increase in complexity when probate is interjected. The United States Supreme Court, however, in United States v. Romani, (No. 96-1613, 1998), has ruled clearly that a federal tax lien’s priority is determined, (as are other liens), according to the time of perfection.  In rejecting the IRS theory that a 1797 federal law provides that any federal government claim against an insolvent estate shall be paid first, the Supreme Court relied upon the theory condemning “secret liens” and enunciated the “first in time, first in right” rule that a lien attaches at the time of perfection; i.e., recording of the notice of lien.  According, the federal tax claim was not given priority over a judgment creditor’s prior perfected lien on the real property.

 

 

5. Residential Real Estate Contracts; Merger by Deed and Damages:

 

While contract provisions relating to warranties of title may be “merged by deed” and closing, the Fifth District Appellate Court has ruled that warranty of a home’s heating and air conditioning system contained in the contract will survive the delivery of the deed.  In Lanterman v. Edwards, (5th Dist. 1998), ___ Ill.App.3d ____, 228 Ill.Dec. 800, 689 N.E.2d 1221, the buyer sued the seller post-closing when the heating and air-conditioning system was not working two days after closing.  The sellers contended that the warranty contained in the contract was merged into the deed at closing.  The Appellate Court’s opinion distinguished the merger theory by noting that while the warranties of title ARE merged, the warranty that the mechanical systems would be in good working order at closing was collateral to and independent of the deed of conveyance and therefore NOT merged.  The Court also ruled that the measure of damages was the cost of repairing rather than replacing the heating and air-conditioning system with a new unit.

 

 

6. Signatory on Pleadings must be attorney to be valid:

 

At one time or another an attorney who engages in any volume of real estate litigation may be tempted to have a member of the firm’s paralegal or secretarial staff sign his name on a pleading “to get it on file”.  A recent First District opinion found that Supreme Court Rule 137 prohibits a non-attorney, including secretaries, from signing pleadings.  Bachmann v. Kent, (1st Dist. 1997), 293 Ill.App.3d 1078, 228 Ill.Dec. 299, 689 N.E.2d 171, affirmed barring a rejection of an arbitration award signed by one of the firm’s secretaries.  While a prior case noted had held that an associate could sign a notice of rejection as an “attorney of record” for the firm even if the associate was not present at the arbitration hearing, the Court held the line and refused to interpret the Rule 137 requirement that the pleading have the signature of the “attorney of record” as satisfied where the secretary signed; even though the signature was thereafter “adopted” by the attorney. The result in this case was to bar rejection of the arbitration award, but the application of this same rule to mortgage foreclosure and similar cases routinely filed with “staff” signatures, (not to mention those signatures “rubber stamped” in violation of the cases under the Fair Debt Collection Practices Act), seems plain.

 

 

7. Real Estate Transfer Tax Exemption Constitutional:

 

In a decision released only May 14, 1998, the First District, by Warren D. Wolfson, has rejected a constitutional attack on an exemption from payment of local transfer tax on the sale of real estate where the property owners are purchasing another residence in the same village.  The Village of Hoffman Estates transfer tax ordinance waives the required payment of a transfer tax where a seller purchases another residence in the village.  Sellers who moved out of the village attacked the exemption as violations of their right to equal protection, due process, and constitutional right to travel. The decision reasoned that the exemption serves a legitimate purpose of promoting stability and continuity by “rewarding” people who stay in the village. The exemption was neither a “tax on people who leave the village” nor a burden on interstate commerce.  Stahl v. Village of Hoffman Estates, (1st Dist., May 14, 1998), No. 1-97-3145

 

 

8. Bankruptcy decision “forecasts” Illinois Supreme Court ruling on Confirmation of Foreclosure Sale and impact of resulting Bankruptcy Stay:

 

There are already conflicting decisions in the Northern District of Illinois on the issue of whether a bankruptcy filed after a foreclosure sale is held but before it is confirmed by the trial court has the effect of staying the foreclosure and allowing the debtor to cure the default by payments under the protection of the court. (See In Re Beatty, (N.D. Il. Bnkrptcy 1990) 116 B.R. 112, (J. Barliant), Federal National Mortgage Association v. McEwen,  (N.D. Il. 1996), 194 B.R. 594,  (J. Grady rev’g  Bnkrptcy J. Schmetterer), and Christian v. Citibank, F.S.B., (N.D. Il. 1997), 214 B.R. 352, (J. Bucklo), rev’g In Re: Dorsey Christian, (N.D. Il. Bnkrptcy 1997), 199 B.R. 382,  (J. Wedoff)     Now Bankruptcy Judge Erwin I. Katz has ruled in In Re: Nathaniel Jones and Ida Jones, (N.D. Il. April 24, 1998), No. 97 B 28408, rev’g  In Re: Jones, (N.D. Il. Bnkrptcy 1998), 215 B.R. 990 (J. Barliant), that a foreclosure sale is not “conducted” within the meaning of Section 362, applying Illinois law, until the sale is confirmed by the trial court.  Judge Katz noted that “Three of the judges of this District’s bankruptcy bench have recently held that the foreclosure sale under Illinois law occurs at the “drop of the gavel.” and he also noted, however, that “the law of this District recognizes that judges in a multi-judge districts cannot establish precedent binding upon bankruptcy judges within that District.” Judge Katz then adopted the interpretation of Illinois law espoused by Judge Grady and Judge Buklo that a sale is not “conducted” until confirmed by the trial court, noting that in a recent series of appellate decisions the appellate courts have confirmed trial court’s denial of confirmation. Stating that his decision was an attempt to “forecast the Illinois Supreme Court’s probable resolution of the issue. This court believes the Illinois Supreme Court would today hold that the Illinois mortgage foreclosure sale is incomplete until court confirmation...Until then, this Court is compelled to hold that the Joneses may still cure their default, and that cause does therefore not exist to modify the automatic stay on this ground.” 

 

 

9.  A Buyer cannot be compelled to buy a lawsuit...even if there is title insurance:

 

The purchaser refused to close a residential real estate transaction when it was determined that the existence residence was only 4.7 feet from the lot line in violation of a restrictive covenant requiring a 10 foot setback.  The Seller obtained a written assurance from the title company that it would also insure over the building line exception and a further assurance that it would insure over in the future for subsequent purchasers.  Finding that the violation of the setback rendered the title unmerchantable as a matter of law, the Fifth District also held that the availability of insurance, while it might reasonably persuade a buyer to tolerate the potential risks, could not be the basis for compelling a skeptical purchaser to close. “...buyers did not originally bargain for such a tumultuous scenario when they signed the real estate contract. The law has long recognized that a buyer cannot be compelled to buy a lawsuit.” Nelson v. Anderson, (5th Dist. 1997) 286 Ill.App.3d 706, 221 Ill.Dec. 932, 676 N.E.2d 735.

 

 

10.  Owner has duty to clear loose gravel from adjoining driveway:

 

Applying reasoning beginning with the “natural accumulation rule” relating to snow and ice, the Fifth District has also ruled that a landowner has a duty to exercise ordinary care to prevent a dangerous condition by cleaning the highway adjoining their driveway to remove loose gravel. When a motorcyclist encountered a patch of loose gravel, lost control and crashed, the court ruled in Whittaker v. Honegger, (5thDist. 1996), 284 Ill.App.3d 739, 221 Ill.Dec. 169, 674 N.E.2d 1274, that the gravel was an “unnatural hazard” due to the presence and design of the driveway. This therefore gave rise to a duty to prevent or remedy any dangerous condition. In its decision, the Court considered and dismissed the assertion of the landowner that imposing a duty on adjacent landowners would lead to an enormous burden with disastrous consequences.