REAL ESTATE LAW PRACTICE “KEYPOINTS”
By Steven B. Bashaw
Steven B. Bashaw, P.C.
1301West 22nd Street
Oak Brook, Illinois 60523
Tel.: (630) 472-9990
Fax.: (630) 472-9993
(Copyright 1999 - All Rights Reserved)
1. Editor's comments:
This month's Real Estate "Flashpoints" includes references to a few more articles than usual. This is NOT by design, but simply because there are more interesting articles than cases in the folder I accumulated over the month in preparation of this article. It is worthy of note, however, that the articles mentioned are specifically selected based on three criterion: (1) a practical emphasis that appears to be suited to practicing attorneys attempting to keep their skills updated, (2) citations to case and statutory law that can be used in day-to-day practice, (3) timely and current topics that real estate practitioners are likely to encounter, (although with a view to expand one's horizons within the hemisphere of real estate law), and (3) short, clear, and to-the-point writing that fits into a busy schedule and a briefcase that can only hold so much. You may note that many of these articles are "industry-authored" as a result. It simply seems that more articles published in title company and bar association section newsletters seem to fit into this profile than the usual law review articles. Knowing that many times these articles are not easy to come by, wherever possible I have included a name and point of contact (telephone or website) for you to obtain a copy of the article. The "Flashpoint" note is designed to give you insight to the content of the article before you attempt to obtain it.
To this same end, you will note that beginning this month you will find an internet address for cases that are highlighted but not yet published in paper form. (For example, at the end of the note discussing the prescriptive easement case of Independence Tube Corp. v. Radke, you will find the notation of the location on the internet that a copy of the full text of the opinion resides: " http://www.state.il.us/court/Opinions/AppellateCourt/1998/3rdDistrict/November/HTML/3970987.htm". This particular site does not charge a fee. Some of the sources of my case law updates, (such as Counsel Connect), are "for fee" sites which DO require an identification and password obtained by paying a monthly fee. Where possible, I will provide the "for free" site address.) The purpose of this "Flashpoint is, of course, to keep you abreast of current law as it develops. Many of the cases cited have not yet been published in the advance sheets or paper reports. I will attempt to give you the internet addresses on a consistent basis for those newly reported decisions, and attempt to provide the most convenient, least expensive source. (Any suggestions or "coaching" to that end would be appreciated, of course.)
2. Article: Understanding Title Insurance:
Albert Rust of First American Title Insurance Company begins his article entitled "Does Your Client Really Understand His Title Policy" with the statement that "Most attorneys...have encountered... the client who finds title insurance suspect..." and then goes on to provide a good overview of the uses and purposes of title insurance for both the lawyer and client. The article discusses the host of risks title insurance protects against, including forgeries in the chain of title, lack of capacity of a grantor, erroneous payoffs, intervening liens, and the mis-indexing of documents in the public records. The author provides some sound advice on how to avoid denial of a claim and the options available to the insurer relating to defense, settlement, or reimbursement for damages. The article closes with an invitation to visit First American's website (firstam.com) for more information and archived articles such as "70 Ways to Lose Your Property" and "Claims Chronicles-True Stories from First American Claims Files". The article appeared in the Chicago Daily Law Bulletin on February 24, 1999 in Section Two, Page 23. Reprints can be requested from Mr. Rust at First American's Santa Ana, California, office by calling (800) 854-3643.
3. Wills, Divorce and Land Titles:
Most real estate practitioners are aware of the fact that the dissolution of a marriage creates a number of sometime confusing issues relating to real estate and land titles. (A tenancy by the entirety, for example, becomes a tenancy in common upon dissolution whereas a failure to comply with the technicalities of the act, or if the property ceases to be the family homestead, will result in a title held in joint tenancy. (See 756 ILCS 1005-1/c) In a recent case, Estate of Donald Charles Forrest v. Catherine Dagenais, http://www.state.il.us/court/Opinions/AppellateCourt/1999/3rdDistrict/January/HTML/3980454.htm, the Third District held that the doctrine of "revocation by divorce" (755 ILCS 5/4-7(b)) applied to invalidate a provision in a will executed before the marriage leaving everything to the soon-to-be-wife. Donald Forrest and Catherine Dagenais lived together before they were married, when Donald executed his will leaving everything to her. They were later married, and then divorced; all the while remaining "close friends". Upon Donald's death with the will not revoked, Catherine and Donald's sister Roseann disputed the validity of the will's legacy to Catherine given the intervening divorce. The Court affirmed the trial court's ruling that the doctrine of "revocation by divorce" applied to revoke the legacy to Catherine under the will, even though the will was executed before the marriage, (rather than being a byproduct of the marriage), and despite the evidence that the parties remained "friendly" after the divorce. The decision sets forth the legislative history of Illinois probate law relating to "revocation by marriage" as well as "revocation by divorce", and is well recommended to anyone who confronts an issue in this area. Estate of Donald Charles Forrest v. Catherine Dagenais, (3rd Dist. January 22, 1999), No. 3-98-0454, http://www.state.il.us/court/Opinions/AppellateCourt/1999/3rdDistrict/January/HTML/3980454.htm.
4. Article: SIU's Survey of Law:
The Southern Illinois University Law Journal, in conjunction with the Illinois State Bar Association, publishes the Hiram H. Lesar Survey of Illinois Law on an annual basis. The Summer, 1998 Volume of the Journal includes articles presenting a survey of current topics and case law in Illinois Administrative, Employment, Environmental, Evidence, Health Case and Medical Malpractice, in addition to Real Property Law. The Real Property portion of the survey was authored by Harold Levine, Sam Levine, Allan Goldberg, Robert D. Butters and Jon Glickstein. The highlighted cases would be recognized by anyone who has read these "Flashpoints" over the last year, but we highly recommend the article for another viewpoint of the developments in the mortgage foreclosure arena, (Citicorp Savings v. First Chicago Trust, Commercial Credit v. Espinoza, Fleet Mortgage v. Deale, Members Equity Credit Union v. Duefel and Merchants Bank v. Roberts), condominium law, (Huskey v. Board of Managers and Szymanski v. Glen of South Barrington Property Owners Association), mechanic's lien law, (Krzyminski v. Dziadkowiec and Dunteman Company v. Enterprises), broker's commissions, (Rodolsky & Associates v. Discipio and Owen Wagener v. United States Bank), and the cases dealing with miscellaneous real estate issues.
5. Truth in Lending: Substance over Form:
Federal Truth in Lending can sometimes be confusing. This is especially so because of the efforts of so many to comply with the procedures required for disclosing finance charges in real estate transactions without actual disclosure of some of the substance upon which the law focuses. An example in a non-real estate scenario that might be of good use to real estate practitioners is found in Christine Adams v. Plaza Finance Company, (7th Cir. January 27, 1999), No. 98-1190. In that case the "amount financed" was disclosed by the lender in a small, short-term, unsecured loan, but the calculation did not included a $7.00 "nonfiling insurance" premium that the lender paid to a related entity in lieu of attempting to file a UCC Financing Statement. In the majority opinion written by Judge Posner, the Court determined that the insurance premium as actually "default insurance", which must be included in the finance charge, and reversed the summary judgment order of the trial court in favor of the finance company. The decision advocated penetrating form to reveal substance as the right approach in a Truth in Lending Act case, and held that "it is the actual character of a policy of insurance---what it really insures---rather than the name, that controls its classification for purposes of the Act." Judge Esterbrook's dissenting opinion stated that "the substance-over-form approach is fundamentally incompatible with TIL's penalty provisions, which exalt form over substance. It just won't do to have a system in which the propriety of classification can be known only after the fact." This is an interesting case for anyone who has to deal with a Truth in Lending issue, (and there are any number of class action suits spawned in this area as noted in the decision), OR, equally interesting to anyone who wants to witness the impact of the larger economic theories for which Judge Posner is noted in the working of a recent court decision.
6. Article: Title Issues re: Preferences, Fraudulent Transfers and Solvency:
Fraudulent Conveyances and Bankruptcy Preferences seem to be a topic of growing interest in transactional law. A recent article published by Chicago Title Insurance Company gives a title company's perspective that is recommended reading for real estate practitioners who may have an opportunity to come across these issues. In "Creditors Rights and Illinois Real Estate", Paul Peterson, Asst. Gen. Counsel, Chicago Title Insurance Company, gives an overview of preferences, fraudulent transfers, suspect transfers, and how title companies analyze a transaction relative to solvency, adequate capitalization, and issues that might serve to later invalidate a conveyance. The Article includes brief overviews of the Preferential Transfers, (Section 547), Fraudulent Transfers, (Section 548), and the Strong-arm Section, (Section 544), of the Bankruptcy Code, as well as citations to the Uniform Fraudulent Transfer Act (740 ILCS 160/5(a), 5(b) and 160/6) provisions of Illinois Law. Paul Peterson concludes the article by noting that in order to delete the creditor's rights exclusion from its policy as required by a lender, the title company has to review the adequacy of consideration, credit position, and solvency of the grantor. This takes some time and can be complex and confusing if attempted at the last moment. Copies of the article can be requested from Aletha Galloway at (312) 223-3508 or from the Chicago Title website, http://www.ctic.com/.
7. Article: Post Closing Defects Overview:
"Responsibilities to the Buyer: What Brokers and Sellers Must Reveal", by Tania Snyder and John Sperino, Law Clerks for Attorney's Title Guaranty Fund, Inc., appears in the April, 1998 issue of The ATG Concept. This article reviews the several theories buyers may use against brokers and sellers responsible for defects in a "used home", including causes of actions under the Residential Real Estate Disclosure Act, (765 ILCS 77/1), common law fraudulent misrepresentation, (Posner v. Davis, (1st Dist. 1979), 395 N.E.2d 133, and a fairly complete compliment of case law are listed in the article), and the statutory duty of Brokers to buyers under the Real Estate License Act, (225 ILCS 455/18(h), for information they know or should know are false, (225 ILCS 455/38.20, 455/38.25). The article also notes that while case law, (Zimmerman v. Northfield Real Estate, Inc., (1st Dist. 1986), 410 N.E.2d 409, and Anderson v. Stowell, (3rd Dist. 1989), 539 N.E.2d 852), holds that the Consumer Fraud and Deceptive Practices Act does not apply to private sellers of residential real estate, there are also some cases that hold the Act DOES apply to private sellers who use real estate brokers, (Annamarie v. Cambridge Homes, Inc., (2nd Dist. 1997), WL 154629, and Randels v. Best Real Estate, Inc., (2nd Dist. 1993), 612 N.E.2d 984). (Copies can be obtained by contacting Mary Beth McCarthy or the Order Department at ATGF, (800) 252-0402, x114)
8. "Buying A Home" and Other Useful On-Line Public Information on the Internet at the ISBA Website:
The Illinois State Bar Association website on the internet is an amazing collection of data, information of use to lawyers, and hyperlinks to other sites. Much like the Illinois Institute of Continuing Legal Education "Flashpoint" you are currently reading, the ISBA has a good deal of valuable information that is "free for the reading". One example is the "Buying A Home" brochure that is on-line and can be downloaded by real estate lawyers or their clients. Found at http://www.illinoisbar.org/publicinfo/buyinghome.html, this brochure can be used to orient your clients in residential real estate transactions to topics including the importance of an attorney in the transaction,(of course, this is the ISBA's brochure!), the Real Estate Agent, Home Inspector, Lender, Title Insurance, Pre-Closing Considerations, the Closing process, and special concerns relating to condominiums, new construction, seller financing, and land trusts. Directing your clients to this on-line information may make your job a little easier. Going there yourself may acquaint you with a world of information the ISBA has on-line that you didn't even know exists.
9. Easements and Adverse Possession:
Where the property buyers purchased property subject to an easement to maintain railroad tracks and they were aware that the drainage ditches alongside of the tracks encroached beyond the actual easement, the encroachment ripened into a prescriptive easement over time. The case lists the elements for a prescriptive easement, (i.e., open, adverse, continuous and uninterrupted, and under a claim of right for a period of twenty years), and concludes with a finding that since the encroachment was as old as the easement itself it had ripened into a property interest. Independence Tube Corp. v. Radke, (3rd Dist., 11/19/98), No. 3-97-0987, http://www.state.il.us/court/Opinions/AppellateCourt/1998/3rdDistrict/November/HTML/3970987.htm.
10. Reasonable Attorney's Fees in Ch. 13 Bankruptcy Reviewed:
Real estate litigators necessarily have a good deal of contact with Bankruptcy matters and attorneys who practice in this area. We can all be heartened by the fact that the Seventh Circuit has recently remanded a case to the Central District Bankruptcy Court with language that clearly states it is time for an increase in the presumptively reasonable fee level. (Does this mean someone will champion the case of transactional lawyers to increase standard closing fees?) In Re: Kindhard, (7th Cir. 11/24/98), No. 98-2184, was a consolidated appeal by a debtor's attorney seeking to review the denial by the Central District Bankruptcy Court of additional fee requests in five cases. The decision "concerns bankruptcy attorneys' fees allowed under the existing practice in the bankruptcy courts in the Central District of Illinois. It is an important matter not only to attorney, but to the courts and the public." The court noted that the current $800 presumptively reasonable fee level had been in place for over ten years, and noted that in that time the salary of bankruptcy judges had risen from $82,000 to $125,000, items of expenses for practitioners had drastically risen, and most attorney's fees in other areas had increased to keep in pace with the economy. The decision distinguished the criticism leveled at another attorney relating to Chapter 7 attorney's fees, (In the Matter of Peter Francis Geraci, (7th Cir. 1998), 138 F.3d 314), noting that Chapter 13 cased require a good deal more attention, effort and planning. While finding that there was "an abuse of discretion even though well-intentioned", the Court remanded the case to the judges in the Central District to "consider and resolve in their meetings under the guidance of the district judges...The views of the bar and the Trustee may also be helpful...", and noting that "Bankruptcy courts must not be so unreasonably frugal as to risk driving the bankruptcy bar into bankruptcy. No additional bankruptcy bases are needed, but bankruptcy practitioners are." (The Court also indicated in a footnote that "Appellant informed us at oral argument that her secretary deserves an increase too, but that was difficult without some bankruptcy fee help.)