REAL ESTATE LAW PRACTICE KEY POINTS

(December 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

(Copyright 1998 - All Rights Reserved)

 

 

1.  PRIVATE MORTGAGE INSURANCE LITIGATION:  MORTGAGE LENDER NOT REQUIRED TO DISCLOSE TO BORROWERS CIRCUMSTANCES UNDER WHICH PRIVATE MORTGAGE INSURANCE CAN BE TERMINATED:

 

In a recent class action case, Perez v. Citicorp Mortgage, Inc., (1st Dist.  11/13/98) No. 1-98-0930, the First District has affirmed the trial court’s dismissal of a complaint brought by borrowers against Citicorp Mortgage, Inc. for failure to disclose to them the option of terminating their private mortgage insurance.  Finding that the mortgage was obtained prior to the effective date of the Mortgage Insurance Limitation and Notification Act, (765 ILCS 930/1 et seq.), the court dismissed complaints brought under that recent consumer legislation.  The court also noted that the terms of the mortgage provided for payment of private mortgage insurance for the life of the loan and found that this was neither a deceptive nor an unfair practice, and that the lender was not thereby unjustly enriched.

 

(Regular readers of this update will recall that in October we noted the passage of similar federal legislation, The Homeowners Protection Act of 1998 (Senate Bill 318) which becomes effective in July, 1999, and mandates private mortgage insurance be canceled when a 22% equity position in the residential real estate is achieved.  There undoubtedly will be more to come in the this arena!)

 

 

2. BEWARE OF THE BUSINESS BROKER’S LIEN ACT:

 

If your practice involves the sale of businesses incident to the transfer of real estate and you have not yet fathomed the depths of the Illinois Business Broker’s Act, (815 ILCS 307/10-1 et seq.), beware.  Both the Illinois State Bar Association’s Real Estate Section Council and Chicago Bar Association’s Real Property law Committee believe that there is grave danger to by virtue of the 1997 amendment to the Act that added new Section 10-115, “Business Broker’s Lien”.  Under that section, notice of business broker’s liens are to be filed not with the Office of the Recorder of Deeds in the County, but with the Securities Department of the Illinois Secretary of State.  Additionally, the lien is filed under the names of the business broker, purchaser, seller and business without any reference to the legal description of the real property.  The effect, of course, is that there is no practical way to search for business broker’s liens in order to protect a purchaser and the title insurance companies generally are taking the position that the lien is not “of public record” as defined and insured in their policies.  An article by Mark D. Yura, which appeared in the CBA’s Real Property Law Communicator, Winter, 1998,  “A Little-Known Problem For Real Estate Attorneys: The Illinois Business Brokers Lien” and “The Illinois Business Brokers Act: Pitfalls for the Unwary”, by Edwin Mason and Charles Haywood, Illinois State Bar Journal, November, 1997, vol. 85, No. 11, pg. 452, explore the unintended adverse effects of the amendment creating the lien.  Both the CBA and ISBA real estate committees are currently working on amendments to the act in order to resolve these issues.

 

 

3. REAL ESTATE BROKER’S COMMISSION POST-FORECLOSURE:

 

In Owen Wagener & Co. v. U.S. Bank, (1st Dist. 1998),  ____ Ill.App.3d ___, 697 N.E.2d 902, 232 Ill.Dec. 160, a real estate broker brought an action against the bank which obtained title to real estate in foreclosure and then sold the property to a buyer located by the broker for the foreclosed owner.  The broker was retained by the property owner after the foreclosure proceeding was instituted by the bank   Although a contract was entered into between the property owner and the buyer, the contract was specifically subject to the approval of the bank, and the bank refused to approve the sale because the proceeds of the sale would not be sufficient to satisfy the debt.   Approximately five months after obtaining title the bank sold the premises to the buyer  “procured” by the broker, and the broker sued under theories of express contract, implied contract and quantum meruit.  In a decision which admirably sets forth the basics of broker employment, oral and written agency agreement, and quantum meruit, Justice Wolfson found that there was no employment relationship, the bank never ratified the broker’s acts nor acted in a manner which evidenced it accepted the broker as its agent, and held that the broker had no expectation of receiving its commission from the bank and therefore could not recover under quantum meruit.

 

 

4.  IS NOTICE SENT DIRECTLY TO THE SELLER IN A REAL ESTATE TRANSACTION UNETHICAL?:

 

An article in the “Lawyers’ Law” column of the Chicago Daily Law Bulletin, November 6, 1998, by Cornelia Wallis Honchar and Lawrence M Templer entitled “When the other side comes calling, beware”, brings up a sticky, recurring problem in many real estate transactions.  Many form contracts currently in use specifically provide that the notices are to be given directly to the seller or the buyer.  Often, when an attorney seeks to send notice pursuant to the modification or inspection contingencies, the other party is represented by an attorney.  While courtesy (and perhaps expediency) suggests the notice be directed to the attorney rather than the party, the contract often provides otherwise, and the quandary begins to unravel when litigation erupts and the issue becomes the timing and form of the notice.   The authors noted that the Illinois State Bar Association Advisory Opinion No. 85-5 interprets language which is identical to the current Rule 4.2 as ALLOWING an attorney to communicate with a party to a transaction even though the party is represented by an attorney, PROVIDED, the communication is limited to that required by the notice provisions of the contract.  Accordingly, the “ethical defense” of forwarding notice to the attorney rather than the party does not support sending notice (except as a copy for courtesy sake) only to the attorney.  (The balance of this article also has some interesting discussion of attorney’s lien that is worthy of your reading.)

 

 

5.  A PRIMER IN EASEMENTS:

 

Remembering the distinctions between an easement by implication and necessity, prescription and appurtenant, can sometimes drive one to the basement to find law school textbooks.  The September, 1998  issue of  the ISBA Mineral Law Section Council newsletter, (“Mineral Law”),  however, is a much more current and comprehensive source as was noted in the Illinois Bar Journal’s “The Lawyer’s Journal” column in the November, 1998 issue, (vol. 86, pg. 592).  While the article  focuses on  oil and gas issues, it sets forth a primer on easements  and should save you a trip to the library.  The “Lawyer’s Journal” column also suggested as a supplement the case of Canali v. Satre, (2nd Dist. 1998) 688 N.E.2d. 351, to brush up on easements by necessity for driveways on landlocked property; certainly more common to most practices than those “migrating gases” issues.

 

 

6. LANDOWNER’ LIABILITY TO INVITEE FOR DANGEROUS CONDITION:

 

Sooner or later every real estate practitioner has to answer the question about a landowner’s liability for a dangerous condition on the land that results in injury to an invitee.  In the recent case of Reed v. Wal-Mart Stores, Inc., (4th Dist. 1998), ___ Ill.App.3d ____, 700 N.E.2d 212, 233 Ill.Dec. 111, the Court offers a nice review of the law beginning with the Illinois Supreme Court case of Genaust v. Illinois Power Co., (1976) 62 Ill.2d 456, 343 N.E.2d 465, adoption of the Second Restatement of Torts, (a possessor of land is liable for harm cause to his invitees if he knows or reasonably should discover the condition that involves an unreasonable risk and should expect that the invitee will not discover or realize the danger or will fail to protect themselves against it, and then fails to exercise reasonable care to protect them against the danger), and then draws a distinction where the object of the danger is related to the business and was placed there by the possessor or his agents.  This circumstance overcomes the burden on the plaintiff to prove the possessor had notice of the condition and is sufficient to get the case to a jury.  The discussion here should help you remember the theories to cover when you get this inevitable question from a client.

 

 

7.  THE NORTHERN DISTRICT OF ILLINOIS; A “HOTBED” OF  MORTGAGE ESCROW CLASS ACTION SUITS:

 

As any mortgage servicer or lender that actively does business in Illinois can tell you, there has been a continuing saga in class action suits attacking the accounting and methods employed by lenders in escrow impounds.  (This is the genesis of that “aggregate accounting” credit on most residential closing RESPA statements.)  As the Court noted in a very recent case, Cusack v. Bank United of Texas, F.S.B., (7th Cir. Oct. 28, 1998), No. 98-2021, appealing from the N.D. Il. Case No. 96 C 544,  “More than 100 class actions have been filed in the United States challenging the mortgage escrow impound accounting practices of most of the mortgage servicing industry.  Approximately 50 of those cases were filed in or transferred to the Northern District of Illinois and assigned to District Judge Zagel.”   In an attack upon the approved settlement by which Bank United agreed to provide credits of $250 to $175 to mortgagors relating to the escrow accounts it was servicing,  two members of the class  objected to the terms of the settlement by demanding public disclosure of the financial data collected and disputing the value of the certificates to be issued to class members.  The Court’s decision upheld Judge Zagel‘s approval of the settlement on appeal and noted that while there is a strong public interest in disclosure, the trial court’s assessment of the low public value of disclosure was over shadowed by the interest of protecting the bank against persons with “improper motives and from competing mortgage lenders.”  The settlement approval was affirmed and intervention by these members of the class was found to be unnecessary.

 

 

8. ADVERSE Possessions; A LAST GASP FROM THE TORRENS SYSTEM?

 

The legislation establishing the Torrens registration system (Torrens Act, 765 ILCS 35/1 et seq.) was repealed effective January 1, 1992, and the last few years have seen the steady stream of “de-registrations” as property is conveyed and is removed from the system. In an interesting, (although certainly limited in its application), recent case, the First District reviewed the effect of de-registration on the 20 year statute of limitations for recovery of lands when the land is titled under the Torrens System.  In Krohn v. Arthur, (1st Dist., November 20, 1998), No. 1-98-1507, Anne Krohn brought suit against her neighbors, James K. Arthur and Joan M. Arthur, for declaratory judgment, injunction and ejectment to remove their fence from a parcel of land 16 feet wide by 100 feet deep between their  property.  In 1902, the North Shore Country Club purchased the parcel and registered it in Torrens.  In 1958, Krohn had purchased her property adjacent to the club, and in 1972 the Arthurs purchased their residence, also adjacent, and erected a chain-link fence on the parcel in question with the approval of the president of the country club.  A few months later, the country club demanded that the Arthurs remove the fence but they refused.  Some nineteen years later, Krohn purchased the sixteen-foot parcel from the club and recorded her quit claim deed; thereby de-registering and removing the property from the Torrens system. After requesting the Arthurs remove the fence to no avail, Krohn filed suit more than 20 years after the Arthurs purchased their property and erected the fence.  The Arthurs defended with reliance upon 735 ILCS 5/13-101, which mandates that no action for recovery of lands can be brought unless suit is filed within 20 years; i.e., the time limitation for adverse possession.  Plaintiff relied upon Section 41 of the Torrens Act (765 ILCS 35/41) which provides (a) no title by adverse possession in derogation of the title of the registered owner shall be acquired while property is registered, and (b) in the event title is withdrawn from Torrens, any adverse possession shall be deemed to begin as of the date of the withdrawal and no earlier.”

 

The Appellate Court affirmed the trial’s court’s grant of summary judgment in favor of the Plaintiff, finding that the 20-year limitation period set forth in 735 ILCS 5/13-101 commences when property is removed from the Torrens system.  Makes you wonder which property is or was in Torrens, doesn’t it??

 

 

9. SANCTIONS IN MECHANIC’S LIEN CASES ONLY AVAILABLE TO THE OWNER:

 

In Hake Enterprises, Inc. v. Betke, (2nd Dist., November 13, 1998), a convoluted set of facts served to give the Court an opportunity to state that only owners can recover attorney’s fees and costs as sanctions under Supreme Court Rule 137 and Section 17(c) of the Mechanic’s Lien Act.  Betke entered into a contract to purchase undeveloped land and construct a residence thereon.  When he encountered financial difficulties in the midst of construction, he sold the property to Charlotte Birck, and her son, Jason Birck, took title.  Nonetheless, Betke continued to contract with the Plaintiff subcontractors to complete the house. The house was completed and Charlotte sold it to a third party with title being conveyed by Jason.   When they were not paid, the Plaintiffs brought a suit to foreclose their mechanic’s lien  claim against Betke, Charlotte Birck, Jason Birck and the third party purchasers. The trial court granted a directed finding dismissing the mechanic’s lien complaint against all defendants except Betke, finding that the mechanic’s liens were void because no agency relationship existed between the owner of the property, Jason Birck, and Betke, with whom the Plaintiff’s contracted.  This finding was affirmed on appeal, (with some nice language setting forth the law on review), but it was the trial court’s granting of sanctions in favor of Charlotte against the Plaintiffs that was reversed on appeal that is of note.  The Court specifically ruled that sanctions pursuant to Supreme Court Rule 137 were not supported by the facts in that Plaintiff’s reasonably could have believed that Betke was Birck’s agent and Charlotte knowingly permitted Betke to continue to hold himself out as having authority to contract for improvements on the parcel.  In a non-factual sensitive ruling, the Second District then clearly interpreted 770 ILCS 60/17(c) as limiting sanctions awards for actions brought without good cause or in bad faith as available to ONLY the property owners.  In as much as Jason was the owner of the property, the award of sanctions in favor of Charlotte was reversed because she was not the owner.

 

 

10.  TITLE COMPANY LIABILITY FOR ESCROW ACCOUNT SHORTAGE:

 

In a case replete with names well known to real estate practitioners in which the over arching concern was who should bear the loss of a wrong-doer’s misdeeds, the Seventh Circuit has ruled that when a title insurer takes over escrow accounts, they assume the risk of shortages by failing to properly audit the accounts.  In this case, title agent Ed Wells stole upwards of $3 million from closing escrow accounts he administered during the 1980’s.  The two title insurers he represented, Security Union Title and TRW Title, disputed which of them should “pick up the tab for Well’s misdeeds.”  In the end, the Court ruled that TRW was responsible because of their failure to diligently “investigate Liberty in order to conceal its courtship from Security.” during their take-over of Well’s Liberty Title Company.  The case is a great primer for what can go wrong when the “profession” of law becomes too much the “business of law”, and should be in the Top 10 Reasons to refuse to use ‘Bob’s Title’ next time you are asked.