REAL ESTATE LAW PRACTICE “KEYPOINTS”

(November, 1998)

 

By Steven B. Bashaw

Steven B.  Bashaw, P.C.

Suite 1012

1301West 22nd Street

Oak Brook, Illinois  60523

Tel.: (630) 472-9990

Fax.: (630) 472-9993

e-mail:  sbashaw@bashawlaw.com

(Copyright 1998 - All Rights Reserved)

 

1. LANDLORD’S DUTY TO MITIGATE DAMAGES; A SETOFF - NOT DEFENSE:

It should not be surprising that a case involving a landlord’s duty to mitigate damages would involve a law firm tenant. In St. George International v. George J. Murges & Associates, (1st Dist., 1998) 296 Ill.App.3d 285, 695 N.E.2d 503, 230 Ill.Dec. 1013, http://www.state.il.us/court/Opinions/AppellateCourt/1998/1stDistrict/May/HTML/1963417.txt, the break-up of a firm resulted in the termination of the lease for nonpayment, with the landlord reserving the right to sue for damages. A subsequent suit against the firm and the individual guarantors was met with several affirmative defenses; including an alleged failure to mitigate damages pursuant to a specific provision in the lease plead as a bar to recovery in total. The appellate court ruled that landlord had the burden to prove that it took reasonable measures to mitigate, but that its failure to mitigate would only reduce its recovery, not completely bar recovery since the duty to mitigate relates to the measure of damages, not the right to recovery.

 

2. A PRIVATE CAUSE OF ACTION FOR LEAD PAINT POISONING:

The trial court was reversed and the appellate court held that there is a private right of action for damages under the Chicago Municipal Code for injuries caused by lead poisoning in Abassi v. Paraskevoulakos, (1st Dist. 1998), 296 Ill.App.3d 278, 694 N.E.2d 1064, 230 Ill.Dec. 786, http://www.state.il.us/court/Opinions/AppellateCourt/1998/1stDistrict/May/HTML/1971965.txt. In this case the guardian of a minor filed an eight count complaint alleging the child ingested lead while living in an apartment rented by the defendants. On appeal of the dismissal by the trial court of the counts asserting a private right of action, the appellate court noted that where there are criminal penalties to compel landlords to maintain their property but those penalties fall short of addressing the injuries and impelling landlords to fulfill their obligations, a civil right of action will lie. Here the plaintiff was a member of the class for whose benefit the statute was enacted, it is consistent with the underlying purpose of the statute to grant a private cause of action, the injury is one the statute was designed to prevent, and it is necessary to provide an adequate remedy for the violation.

 

3. CONDOMINIUM AMENDMENTS:

In Huskey v. Board of Managers, (1st Dist. 1998), 297 Ill.App.3d 292, 696 N.E.2d 753, 231 Ill.Dec. 457, http://www.state.il.us/court/Opinions/AppellateCourt/1998/1stDistrict/June/HTML/1971930.txt, the developer had reserved the right to add additional condominium units to the development in the declaration by amendment. In a series of amendments, the Board of Directors increased the percentile ownership in the common elements of the owners of the larger units. The owners of those units brought suit claiming that a change in the percentage ownership of common elements required the consent of all unit owners. The board responded that the change was done to correct an error in the percentage calculation and as reserved in the declaration. The Appellate court held that 756 ILCS 605/4 mandates the unanimous consent of all unit owners and this statutory provision controlled over the general reservation of right incorporated into the declaration by the developer, thereby invalidating the last amendments.

 

4. LENDER’S LIABILITY FOR FORCED PLACED INSURANCE:

When the mortgagor default on the payment of the monthly installments of principal, interest, taxes and insurance, Citicorp filed a foreclosure against Fred Rucker. Mr. Rucker filed a counterclaim in the foreclosure case AFTER the judgment was entered alleging that Citicorp fraudulently overcharged him on replacement property insurance. Citicorp Savings of Illinois v. Rucker, (1st Dist., 1998) 295 Ill.App.3d 801, 692 N.E.2d 1319, 230 Ill.Dec. 153, http://www.state.il.us/court/Opinions/AppellateCourt/1998/1stDistrict/March/HTML/1953551.txt. The trial court dismissed Rucker’s third amended counterclaim stating the it was barred by the law-on-the-case doctrine inasmuch as the judgment had been entered. The appellate court reversed, holding the issue was specifically reserved and restating the law that every contract, (including mortgagor/mortgagee relationships) carry the duty of good faith and fair dealing as a matter of law. Where on party is given broad discretion in performance, (such as procuring insurance), that party is obligated to exercise that discretion reasonably and within the reasonable expectations of the parties. While the appellate court refused to rule that there was a fiduciary duty breached or facts sufficient to support an action for punative damages, it did remand with a finding that his counterclaim sufficiently stated a cause of action for breach of the implied duty of good faith and fair dealing.

 

5. SENIOR CITIZEN REAL ESTATE TAX "TIDBIT":

The Senior Citizen’s Real Estate Tax Deferral Act, 320 ILCS 30/2 et seq. provides a little respite for Senior Citizens in the arena of ever increasing taxes, under certain circumstances of which all real estate practitioners should be aware. An individual whose household income is less than $25,000.00 per year can, by application to the county collector filed before March 1 of each year, on homestead property, defer the payment of real estate taxes, special assessments and special service area taxes provided the taxpayer is 65 years of age, and occupied the property as their principal residence for the last 3 years. The deferral is limited to 80% of the equity in the property and the funds available in the Senior Citizens Real Estate Deferral Tax Revolving Fund, so it is important to review the value of the premises (see the statute for distinctions between assessed valuation and appraisal requirements) AND determine IF there are funds in the account before making application. Interest on the deferred taxes accrues at 6% per annum as a lien upon the premises payable at sale or death, except that the deferral can continue to the death of a qualifying surviving spouse.

 

6. THE STANDARD OF PLEADING IN RESIDENTIAL REAL PROPERTY DISCLOSURE CASES:

There can be little doubt that in the years to come litigation against sellers based on defects in residential real estate will include a standard count alleging a violation of the Illinois Residential Real Property Disclosure Act, (765 ILCS 77/20), to accompany the counts for breach of contract and fraud. An interesting dilemma, (or "defense" depending on your viewpoint of the case), is that the Act requires the seller had knowledge of the defect at the time of making the disclosure required under the act. Section 55 of the Act sets forth the elements of a cause of action as requiring actual knowledge of the defect and exonerates one who reasonably believes that an undisclosed problem has been repaired or corrected. Most sellers, of course, deny they knew of the defect and most buyers are going to only be able to plead circumstances that would imply the seller’s knowledge. In an appeal of a motion to dismiss pursuant to Section 2-615 for failure to plead seller’s knowledge in just such a case, (although the facts are interesting here because of the five chances given to the plaintiff to correctly plead), the First District reversed the trial court and held that the facts alleged in the fifth amended complaint were sufficient to state a cause of action under the Residential Real Property Disclosure Act, even thought the plaintiffs failed to plead the defendants knew that the report was false at the time it was made.

Hirsch v. Feuer, (1st Dist. 10/16/98), 1998 Ill.App.LEXIS 715, http://www.state.il.us/court/Opinions/AppellateCourt/1998/1stDistrict/October/HTML/1974480.htm.

 

7. EXTINGUISHING LIENS IN FORECLOSURE

Confirmation of foreclosure sale cases seem to abound of late, discussing trial court’s refusal to confirm sales as "unconscionable", issues about sales price, impact of bankruptcy filings, and surplus distribution. In BCGS, L.L.C. v. Jaster, (2nd Dist. 9/18/98), 1998 Ill.App. LEXIS 628, http://www.state.il.us/court/Opinions/AppellateCourt/1998/2ndDistrict/September/HTML/3970784.txt, the appellate court affirmed the confirmation of a sale to the mortgagor, despite his knowledge of an outstanding junior lien on the property, and held that the title acquired was free and clear of that lien. The Illinois Mortgage Foreclosure Law, the court’s opinion holds, expressly provides that foreclosure extinguishes all claims for lien upon the property held by parties over whom the court has jurisdiction in favor of the bidder at sale. Accordingly and regardless of his knowledge of the claims, a literal reading of the intent of the statute is that any bidder, even the mortgagor, can extinguish those liens foreclosed by being the successful bidder at sale. In her dissent, Justice Hutchinson states that Mr. Jaster’s actions were admittedly to extinguish the lien of his former wife’s divorce attorney at "flects a showing of fraudulent conduct that the majority fails to acknowledge." The dissent takes that position that a mortgagor "does not morph into a bona fide purchaser upon the expiration of the redemption period." and warns that "Future implication so fthis decision are horrific and likely contrary to legislative intent. The majority’s decision means that mortgagors, when faced with an unwanted lien on their property, should simply stop paying on their mortgage, allow the property to fall into foreclosure, allow the redemption period to pass, and then successfully bid on the property to retake title free and clear of all junior liens." (Does this all sound a great deal like the discusions back and forth following the tenancy by the entirety decision in the McKernan case, or what?)

 

8. "A REAL ESTATE LAWYER’S DIVORCE PRIMER (AND THE DIVORCE LAWYER’S GUIDE TO REAL ESTATE)":

This is the title of an article that appears tin the September, 1998 Illinois Bar Journal, Vol. 86, pg. 488, by noted family attorney and member of the real estate section council, Margaret A. Bennett. The article is short and to the point, reminding us all of the pitfalls of transferring real property incident to a divorce and some of the family law implications of property conveyances. From time to time, we need to be reminded of the "TOP TEN MISCONCEPTIONS" of family/property law...or at least the Top Five, which Maggie does very well:

No. 5: A spouse is not entitled to a "share" of property inherited by a spouse during the marriage;

No. 4: Property which is "marital" is divided in just proportions regardless of which spouse holds title at the time of the divorce;

No. 3: The value of the marital estate is measured on the date of trial not at the time of separation or the filing of the petition for dissolution;

No. 2: The IMDMA does NOT require an "equal" division of the property, but a "just division" depending on the circumstances;

AND.....THE No. 1 MISCONCEPTION OF FAMILY/PROPERTY LAW IS............................

No. 1: Marital property is divided without regard to "marital fault", so the house doesn’t necessarily get distributed to the ‘innocent’ spouse!

 

9. FAIR DEBT COLLECTION PRACTICES ACT REVISITED WITH A NEW DISTINCTION:

The Fair Debt Collection Practices Act, (15 U.C.S. 1692) has been a continuing source of litigation and concern for real estate lawyers who "collect debts" by mortgage foreclosure and other collection activities. An interesting swing the in pendulum which seemed to favor consumers and strike fear into all others occurred in Bailey v. Security National Servicing Corporation and Wendover Funding, Inc., (7th Cir., 1998), 154 F.3d 384, 1998 U.S. App. LEXIS 20239, a class action against a mortgage servicer who took over the loan from the Secretary of Housing and Urban Development. When the Defendants send a letter advising the Baileys that the servicing of their loan had been transferred and the next payment due date under their long running forbearance agreement, the Plaintiff filed a class action suit claiming that the letter did not comply with the FDCPA by informing the Baileys they could obtain verification of the debt, that the defendants were attempting to collect a debt, and any information obtained would be used for that purpose. In affirming the District Court’s grant of summary judgment in favor of the defendants, the Seventh Circuit opinion stated that the Defendants were NOT "debt collectors" because the loan was not "in default at the time it was obtained" because the Baileys had been placed on a forbearance agreement with SHUD and were in compliance with the terms of the repayment arrangement. Noting that "an individual is not a ‘debt collector’ subject to the Act if the debt he seeks to collect was not in default at the time he purchased (or otherwise obtained it." and that while the Baileys had defaulted on their original note, the forbearance agreement superseded the default with a renegotiated payment plan - which was current at the time of the letter. The most interesting portion of the decision may be the scolding given to the Plaintiff’s attorneys for bringing the class action: The law can be abused just as easily by attorneys who use debtors to alleged and test the most minute violations of a concededly intricate statutory scheme...The law would be best served by challenging clear violations rather than scanning for technical missteps that bring minimal relief to the individual debtor but a possible windfall for the attorney....the Baileys seem more interested in litigating than staying current on their mortgage. Their efforts now can turn to the latter."

 

10. OVERVIEW OF THE UNLAWFUL CLOUDING OF TITLE AND ATTORNEY’S PRIVILEGE:

In a prior "Flashpoints" issue, (April, 1998), we noted the case of Ringer America, Inc. v. Envior-Technics, Ltd., (1st Dist. 1996), 284 Ill.App.3d 1102, 673 N.E.2d 444, provides for an attorney’s privilege in judicial proceedings and the filing of a lis pendens. This case law, of course, stands in contrast to the provisions found in 720 ILCS 5/32-13 that imposes criminal sanctions in the form of a Class A misdemeanor upon anyone who files, or causes to be filed, a lien on property that is not grounded in a legitimate legal theory. In an article that attempts to reconcile these apparently conflicting mandates, Christopher Beck reviews the language of the statute, its legislative history, the impact of Illinois Supreme Court Rule 137 and offers case law from Wisconsin to support his conclusion that combining vigorous advocacy and compliance with the statute will be "challenging for attorneys."