REAL ESTATE LAW PRACTICE KEY POINTS

(February 1999)

 

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 1999 - All Rights Reserved)

 

 

1.  Real Estate Brokers fiduciary duty and self-dealing:

 

In a recent case, the Fourth District affirmed the black letter law that a Realtor’s fiduciary duty to his principal prohibits the agent from profiting to the principal’s prejudice and without full disclosure.

 

In Kirkruff v. Wisegarver, (4th Dist., 1998), Ill.App.3d, 697 N.E.2d 406, 231 Ill.Dec. 852, the principal was a trust seeking to subdivide vacant land for development and sale. The Realtor held himself out as an expert in the area of land development and subdivision. The Realtor worked with the owners to develop the property of the trust over a number of months, but never obtained a written employment agreement or had the owner sign a listing.  When the Realtor advised the owners that the project was economically unfeasible, they asked him to list and sell the property for the trust and orally agreed to pay a broker’s commission.  Without ever listing the property and without disclosure to the client, the Broker platted the property as “Wisegarver’s subdivision”, and purchased the land himself from the trust.  Wisegarver later developed the property for a profit of more than $90,000.00, and this litigation followed.

 

The jury granted verdict in favor of the trust for $58,200.00, but the trial court increased damages to $90,235.00; a sum equivalent to the Broker’s profit from developing and selling the land.  Both parties appealed. The Realtor claimed that the trial court erred in finding a breach of duty because there was no agency agreement in writing creating a relationship. The owners appealed the trial court’s refusal to award attorney’s fees and damages based on the consumer fraud allegations in their complaint.

 

On appeal, the Court found the broker’s actions to be a violation of the Consumer Fraud and Deceptive Practices Act, as well as a breach of the common law duties every broker owes to the principal of care, obedience, accounting, loyalty and disclosure. The appellate opinion states that the agency relationship arose from the conduct of the parties regardless of the fact that there was no contract to employ the broker in writing. The court further found that while a broker can purchase property from a principal, there must be complete and full disclosure of all facts and circumstances. Finally, the Court reversed the trial court’s ruling on the issue of fraud, finding that the failure to advise the owners that the property was outside the city’s zoning area, he had not listed or advertising the property, and did not disclose that he was planning to develop the property himself, all constituted fraud and deceptive practices under the Act.

 

In today’s environment of “buyer’s broker’s” and “disclosed dual agency” and shifting agency relationships, it is important to note that the underlying fiduciary duties of the agency relationship are still in place;  (it’s just hard sometimes to know who is who’s agent).

 

 

2. Further Developments on Attorney Approval Clauses:

 

Most of us who keep abreast of this rapidly developing area of the law recognize the importance of distinguishing between an attorney’s approval and attorney’s modification clause in the contracts with which we work; (and can cite the Olympia Restaurant case, (2nd Dist., 1993), 252 Ill.App.3d 594, 622 N.E.2d 904, 190 Ill.Dec. 874, in casual conversation for the proposition that the exercise of the attorney’s right to disapprove must be clear, in good faith, unambiguous, and with proper notice).  Exercising a disapproval clause is clearly distinct from proposing modification of a contract, although both have become matters which must be undertake with a great deal of thought and care.

 

In the recent First District case of McKenna v. Smith, (1st Dist., 12/7/98 No. 1-98-1049), 1998 WL 83907, the Seller’s attorney disapproved the contract within the time period allowed. In the negotiations, the purchaser’s third offer made to seller within a three hour period mandated acceptance within a half hour.  Seller had indicated her desire the to consult with her attorney prior to signing the contract during the previous offers, but accepted this offer when advised by the agent that the purchaser would “walk” if the offer was not accepted within the short time limitation.  The Seller quickly received another, better offer to purchase that same day, and her attorney disapproved the contract by written notice the next day directed to the purchaser’s agent, who faxed the disapproval to Purchaser’s attorney, who informed the purchaser.

 

Affirming the trial court’s dismissal of the Purchaser’s declaratory judgment action seeking to enforce the contract, Justice Tully’s opinion reiterates the position that an acceptance of an offer to purchase containing an attorney’s approval provision is a qualified or conditional acceptance while the approval time period is pending.  While the invocation of the right to disapprove of the contract must be in good faith, the court ruled: (1) the attorney need not state a reason for disapproval because this is within the proper exercise of the attorney’s judgment based on all the facts and circumstances, (2) placing a very short time period to accept the offer is a good faith basis upon which disapproval can be exercised simply because of the time pressures placed on the Seller,  (Seller’s attorney testified that the second, better offer was not a relevant factor to disapproval of the first contract),  and (3) notice of the disapproval given to the agent is sufficient where the agent immediately notified the party through the attorney and there was actual notice of the rejection regardless of the contract’s provision for notice directly to the parties at the address following their signatures.

 

 

3.”Unknown Occupants” and Forcible Entry and Detainer Actions:

 

Foreclosure attorneys have long grappled with the problem of obtaining possession at the end of the foreclosure action from persons in possession over whom the foreclosure court does not have jurisdiction.  It is common for this to occur where either the plaintiff in the foreclosure was not diligent in inspecting the premises and advising their counsel of the names of occupants during the foreclosure, or the persons in possession come into possession during the pending proceeding and are truly “unknown occupants” or interlopers.  In Rembert v. Sheahan, (N.D. Il., 1994) No. 92 C 67,  Judge Holdermans entered an order often cited by the Sheriff of Cook County in support of his position that he can not evict “unknown occupants” (or anyone that is not fully and completely named in an order for possession at the end of a foreclosure case).  In response, many foreclosure attorneys have resorted to proceeding separately in forcible entry to obtain jurisdiction over those “unknown occupants” for eviction following foreclosure.  In the recent case of Norwest Mortgage Inc. v. Ozuna, (1st Dist., 12/28/98),  No. 1-98-1481, the Court ruled that the Rembert v. Sheahan injunction applied only to orders for possession entered in mortgage foreclosure actions, and not to forcible entry and detainer actions.  The Court ruled that the Plaintiffs failure to comply with the provisions of the Code of Civil Procedure relating to publication against unknown owners, (735 ILCS 5/2-413), rendered the order of possession against the generically named defendants “void ab inito ”, but found that while the Sheriff was not justified in refusing to execute the orders for possession based on the distinction between a foreclosure and a forcible proceeding. The Court also found that the refusal to evict was not contemptible because the Sheriff acted in good faith to obtain review of the order and application of the Rembert injunction. 

 

 

4. Real Estate Titles and Decedents Issues:

 

“Passing Title to Real Estate When the Title Holder Dies” is the title of an article that appeared in the Chicago Daily Law Bulletin on December 16, 1998, authored by Paul Peterson, Assistant General Counsel of Chicago Title Insurance Company, that tackles the considerations of clearing title exceptions created by the death of an owner of real estate.  Beginning with an analysis of whether title is held in joint tenancy, tenancy by the entirety, tenants in common, severalty or in trust, the article sets forth the federal estate tax threshold figures, and concludes with a discussion of whether probate is necessary or can be avoided through the use of title insurance based upon affidavits to assure a purchaser of marketable title. The article is a good summary/refresher before your next call to the title company to request a joint tenancy and heirship affidavit.

 

 

5. Real Estate Transaction Information Sheet:

 

The December, 1998 ISBA Bar Journal, (Vol. 86, p. 658), notes that the October, 1998 ISBA General Practice Section Newsletter contains a form contributed by John J. Horeled of Crystal Lake which serves as a “file insert” for real estate transactions. The form summarizes the details and essential information of a transaction on a single page for quick reference and review at a glance.

 

 

6.  Construction Arbitration and Award Under the Consumer Fraud and Deceptive Practices:

 

Father & Sons, Inc. entered into a contract with the Taylors to add a four-room addition to their residence for $42,000.00.  The contract contained an arbitration provision in the event of a dispute. The Taylors made partial payment to the contractor and then counterclaimed when sued by Father and Sons for the balance. The counterclaim alleged the contractor’s failure to complete the work, and prayed for damages to correct and complete the contractor’s defective work on their home.  The contractor moved to compel arbitration pursuant to the terms of the contract, and the trial court transferred the case to the American Arbitration Association for that purpose.  The Arbitrator found the contractor engaged in deceptive practices in violation of the Consumer Fraud and Deceptive Practices Act and awarded the Taylors $66,006 in damages and an additional $75,000 in attorney’s fees.  The contractors appealed the trial court’s denial of its petition to vacate the arbitration award. On appeal the First District affirmed, finding that the arbitrator did not exceed his authority by finding the contractor violated the Consumer Fraud Act.  Even though the Act anticipated proceedings before a court, the act does not bar resolution by arbitration, and therefore the arbitrator’s award of damages and fees based on a finding pursuant to the Consumer Fraud and Deceptive Practices Act was appropriate. Father & Sons, Inc. v. Taylor, (1st Dist. 1998), No. 1-97-0297.

 

 

7. Release of Lands (Liens) Concepts Discussed:

 

Another article that commends itself to the real estate attorney confronted with issues of liens and titles is found in the Chicago Title Insurance Company newsletter “Title Issues”, September/October, 1998, Vol. 7, No. 5.  Howard Samson, Office Counsel, Chicago Title Insurance Company, Vernon Hills, Il., offers some sound background and discussion on “The ‘Release of Lands’ Concept” in this article.  After first discussing title indemnity procedures, (and noting the “problem” is usually the funding the deposit with the title company to indemnify), this article moves on to some creative suggestions relating to bankruptcy, (a sale free and clear under Section 363(f) and employing Section 506 and In Re Penrod, 50 F 3d 459, to extinguish a lien where the secured party participates in the reorganization), suggests employing homestead exemptions to limit recovery on small liens,(see Cocharn v. Cutler, (1976), 350 N.E.2d 59), before moving to the concept of negotiating a release of lands with the creditor.  The form offered at the end of the article releases the lien against the property without releasing personal liability for the balance. Mr. Sampson references the UCC and case law provisions for survival of the rights reserved and completes the article with a discussion of the use of the Certificate of Discharge process to release Internal Revenue Liens and exhibits the IRS Instructions publication on that process.  The article would make a good addition to your library as a road map to resolutions of lien-laden property.