REAL ESTATE LAW PRACTICE “KEYPOINTS”

(October, 1999)

 

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 1999 - All Rights Reserved)

 

1. TITLE INSURANCE WAIVERS AND AGENCY CLOSINGS:

At closings, lawyers all too frequently rely upon the "closer" to "wave-over" exclusions from coverage by initialing the various exceptions to title raised in Schedule B of the committment. C.A.M Affiliates, Inc. v. First American Title Company, (1st Dist. Aug. 6, 1999)n No. 1-98-2039, http://www.state.il.us/court/Opinions/AppellateCourt/1999/1stDistrict/August/HTML/1982039.htm, is a case in which the closer's assurances were relied upon at closing and then summary judgment in favor of the insured affirmed on appeal when the title closer "in error" didn't waive all of the exceptions and the agent was unable to redeem real estate taxes post-closing.

Exception No.1 on the commitment indicated the policy would be subject to taxes for 1989, 1990, 1992, 1993 and subsequent years. Exception No. 2 indicated the 1989 taxes have been sold and the tax buyer had added the 1990 taxes to the sale. At closing the closer (a Republic Title employee) initialed exception No.2 indicating it had been waived at closing, but did not initial Exception No. 1 on the policy issued by First American Title. (Republic was acting as First American's Agent at closing pursuant to an agency agreement.) Funds were disbursed at the closing to Republic to redeem the taxes post closing, but by the time the money was presented to the County to redeem, additional interest and costs accrued and the funds were insufficient and rejected. The classic nightmare ensued, and the Republic employee who handled tax redemptions and seller's attorneys were unable to communicate and gather the balance of funds to redeem before the tax deed issued. This suit resulted.

The First District found as a matter of law, based on affidavits in support of summary judgment, (no contradicting affidavits were filed and therefore the "error" in not initialing were "undisputed facts"), that the closer had intended to waive both Exception No. 1 and No. 2 and simply erred in not initialing Exception No. 1. The other issue in this case was the relationship between the closing agent (Republic Title) and the title insurer (First American Title), and whether First American was bound by the agent's actions at closing and post-closing failure to redeem taxes. The Court interpreted the agency relationship as clearly giving the closer authority to waive exceptions on the title commitment, and rejected the argument that the loss for failure to redeem the taxes was solely related to the escrow responsibilities at closing.

In an increasingly complex transactional industry of subagencies and bifurcated responsibilities at closing, this case may take on greater importance as time passes.

 

2. MECHANIC'S LIENS ATTORNEY'S FEES RECOVERY

The contract for the construction of a single family residence provided that in the event of litigation to enforce the agreement, the successful party was entitled to recover its attorney's fees. After construction was complete, the contractors filed a multi-count complaint to foreclose its mechanic's lien, breach of contract and quantum merit. The owners counterclaimed for breach of contract, breach of warranty and breach of warranty of habitability. The trial court entered judgment in favor of the contractor on its lien claim but denied the request for attorney's fees concluding that the Illinois Mechanic's Lien Act has no basis for awarding attorney's fees. Both parties appealed.

The Third District in Mirar Development, Inc. v. Kroner, (3rd Dist, August 13, 1999), No. 3-98-0761, http://www.state.il.us/court/Opinions/AppellateCourt/1999/3rdDistrict/August/HTML/3980761.htm, noted that by amended effective August 8, 1995, the Illinois Mechanic's Lien Act provides that if the court specifically finds the owner who contracted for improves made fails to pay a lien claimant the full contract price without just cause, the court may tax that owner for the lien claimant's reasonable attorney's fees. (770 ILCS 60/17) The Court then affirmed the trial court, however, finding that the contractor was NOT able to recover its attorney's fees under the Act in this case because the its lien rights were perfected by recording prior to the effective date of the amendment. Turning to the contract provisions, however, the case was remanded to the trial court to award fees pursuant to the provision in the contract for prevailing party recovery noting that while "We agree with the circuit court that the Act does not provide for attorneys fees in this instance. However, the contract does so provide and the Act does not prohibit such a provision...Accordingly we conclude the circuit court erred when it denied attorney fees without considering the contract's fee-shifting provision...(and)...the circuit court must give effect to the entent of the construction contract."

 

3. JURISDICTION AND VOID VS VOIDABLE JUDGMENTS

In JoJan Corporation v. Brent, (1st Dist., August 25, 1999), No. 1-98-0849, http://www.state.il.us/court/Opinions/AppellateCourt/1999/1stDistrict/October/HTML/1980849.htm, defendant Brent brought a declatory judgment action to set aside a judicial sale to JoJan Corporation, (and the title of its grantees in conveyances following the sale confirmation), alleging that the judgment entered by the court was void. The underlying case was a complaint to foreclose two mortgage notes and a mechanic's lien claim JoJan had acquired from New World Construction, Inc. and R.M.C., Inc. on Brent's property. A default judgment based upon service by publication on Brent was entered in favor of JoJan, and the property was sold to JoJan at the sale. After confirmation and issuance of a sheriff's deed, Brent filed a special and limited appearance-contesting jurisdiction by publication. The trial court ruled in favor of JoJan on the jurisdictional issue and denied Brent's motion to reconsider. JoJan then conveyed the property to a third party, Jay Shavin. Thereafter, Bren "instituted a collateral attack" on the underlying judgment on the basis that it was void for want of jurisdiction due to the fact that the suit to foreclose the mechanic's lien was not brought within two years of the completion of work as required by the Illinois Mechanic's Lien Act according to the date of last work set forth on the mechanic's lien claim notice. There are a confusing number of appeals and collateral attacks in the procedural history of this case, but at one point the trial court on remand ruled that the complaint to foreclose mechanic's lien was filed more than two years after the last date of work, and accordingly set aside the judgment on jurisdictional grounds. (While all of this is going on, Jay Shavin conveys the property to a third party land trust, expanding the cast of characters!)

Justice Cerda's decision first notes that Brent's action is NOT a Section 1401 petition to vacate the judgment and sale, but an attack on a "void judgment" for lack of subject matter jurisdiction; which can occur "at any time in any court, in either a direct or collateral proceeding". To support a collateral attack based on subject matter jurisdiction, however, the jurisdictional defect must be apparent on the face of the record at the time the rights of innocent third parties intervene in order to support a finding affecting the title acquired for value and without notice of a defect. In this case, the fact that the mechanic's lien foreclosure complaint was filed more than two years after the work was completed was NOT apparent from the record. (In fact, one of the remands in the appeals process was to the mechanic's lien section of the circuit court to determine the true completion date of the work for the purpose of ascertaining if the court had subject matter jurisdiction by filing within the two year limitation period.) Accordingly, despite the fact that the court lacked jurisdiction to enter the original judgment resulting in the sale and chain of conveyances, the rights of a third party bona fide purchaser could not be affected because the jurisdictional defect was not apparent on the face of the record.

 

4. SUBLEASEE'S RIGHT TO NOTICE OF EARLY TERMINATION OF LEASE:

It is commonly noted by real estate practitioners that law firms make the worst tenants and the most interesting landlord-tenant case law. The recent case of Coleman v. Madison Two Associates, (1st Dist, Sept. 10, 1999), No. 1-98-1064, http://www.state.il.us/court/Opinions/AppellateCourt/1999/1stDistrict/September/HTML/1981064.htm, is an excellent example. Plaintiff's law firm sublet space on the 56th floor of the Three First National Plaza Building from NCNB Bank. The underlying lease between NCNB Bank and Madison Two Associates provided for a right by either the landlord or the tenant to elect "early termination by giving not less than twelve months prior written notice to the other. The sublease between Coleman and NCNB specifically incorporated the terms of the underlying lease and was consented to by the landlord. The sublease also provided that the subleassor was to give the subleasee a copy of each notice and demand received from the landlord in the underlying lease. NCNB notified Madison Two Associates of its intention to exercise its right to early termination, reminded Madison Two that it was currently subleasing to the Plaintiff, and stated that a copy of the notice of early termination was sent to Plaintiff. Plaintiff did not receive a copy of the notice of early termination and only learned of NCNB's intent to end the underlying lease at a point when it was too late to meaningfully negotiate with the landlord and the space was leased to another party.

The subleasee law firm, of course, sued everyone in sight; (1) for declaratory judgment that NCNB breached its lease by failing to give him notice of its election for early termination and (2) for that Madison Two beached by not demanding attornment from the firm as a condition precedent to termination of its sublease because of its consent to the sublease. NCNB defended by stating that the sublease only required it to tender notices that it received from the landlord, not that which it sent to the landlord as here. Since it did not receive a notice of early termination from Madison Two Associates, but sent the notice to them, it argued it had not obligation to tender the notice to Plaintiff. Madison Two Associates responded to the attornment argument by noticing that it, as the landlord, had the option to elect and demand attornment, and since it did not choose to exercise that option, the law firm had no opportunity to agree to attorne. The trial court agreed with both the landlord and subleassor and dismissed the law firm's complaint under Section 2-615 for failure to state a cause of action.

On appeal, the law firm argued that incorporation of the terms of the underlying lease in the sublease by reference, (including the early termination provisions), in conjunction with the undertaking by NCNB to "use its best efforts...to assist in relations with the Underlying Landlord" in the sublease created a duty that NCNB violated by not giving it notice of its election at the time it was given to the landlord. The Court agreed and held that the duty of good faith and fair dealing implied in all contracts was bolstered here by the incorporation by reference of the notice periods and "best efforts" language to mandate that it give the sublessee timely notice of its election of early termination so it would have time to negotiate directly with Madison Two prior to the time the landlord would have needed to seek other parties to take over the subject space. The law firm was not as successful with its attornment argument against the landlord, however, and the Court held that the sublease did not require the landlord either demand or afford the plaintiff the opportunity to attorn as a condition precedent to early termination of the sublease when the attornment provision was clearly the landlord’s created as an option to be elected by the landlord. Good faith and fair dealing require one vested with contractual discretion to exercise it reasonably and not arbitrarily or capriciously, but the implied covenant of good faith cannot override or modify the clearly expressed terms of the contract giving the election of that discretion solely to one party.

5. PARTITION, MINERAL RIGHTS AND TENANCY IN COMMON:

In order to obtain the relief of partition, a party must own real estate as a tenant in common with the party from whom partition is sought. While mineral rights are "real estate", and therefore subject to partition, the Fifth District has ruled that the plaintiff could not obtain a partition because he was not a tenant in common under the statutory definition of that estate in law in Dunn v. Patton, (5th Dist., August 27, 1999) No. 5-98-0493, http://www.state.il.us/court/Opinions/AppellateCourt/1999/5thDistrict/August/HTML/5980493.htm. Dunn owned one-half of the mineral rights under the real estate owned by Patton, and brought this partition suit. Patton owned the other half of the mineral rights, but owned the surface estate in it's entirety. The Court ruled that there is no estate for the mineral rights separate from the surface estate until severance and without severance Dunn had no right to partition. Turning to the definition of tenants in common, the Court found that since the parties in this case did not have "unity of possession" (i.e., Dunn had no right to possession or occupancy of any portion of the surface estate to which the mineral rights are tied), he was not a tenant in common with Patton and therefore his partition action was barred as a matter of law. There is some colorful language used to "spice-up" this estates in land decision take from the Black's Law Dictionary definition of tenancy in common, ("Where property is held by several and distinct titles by unity of possession, neither knowing his own severalty {hmmmm...} and therefore they all occupy promiscuously" {I LIKE that}), and a good discussion for appellate practitioners of when the appeal time begins to run when the final order is not docketed or filed or communicated to the appellate, which make this case worth reading.

6. PENALTIES FOR RACIAL DISCRIMINATION BY REALTORS:

In a case that makes you wonder if the defendant Realtor was angry, foolish or simply not very bright, the Court of Appeals for the Seventh Circuit has ruled that a Realtor may be punished for discriminatory housing practices, civil rights violations, or illegally discriminating by the sanction of ordering the license suspension or surrender by the Realtor....but they didn't do it! Suburban Housing Center v. Berry, (7th Cir. August 2, 1999), No. 98-1764.

The Housing Center alleged that Anne Berry, a Realtor, engaged in racial steering, and the parties settled the case by a consent decree. In the decree, Ms. Berry promised to refrain from racial steering, to document her contacts buyers in the future, pay the Housing Center damages in the amount of 10% of her commissions in excess of $25,000 per year, and provide an accounting of her earnings quarterly to the Center. (Perhaps a little overbearing, but Berry agreed and signed the decree.) The agreement further provided that if she violated any fair housing ordinance thereafter, she would voluntarily surrender her real estate license for five years.

Berry failed to comply with any of her reporting or payment obligations under the decree and the Center brought a civil contempt proceeding requesting that they be awarded attorney's fees and the surrender of Berry's license. The District Court found that Berry had willfully violated the consent decree by clear and convincing evidence, and entered judgment for $4,280.40 representing 10% of her commissions in excess of $25,000. Berry paid the judgment (although late) but pleaded poverty in response to the request for fees and argued that the surrender of her license was inappropriate penalty for the technical violation of the reporting provisions of the decree since she had not engaged in further racial steering. The district court refused to order the surrender of her real estate license as "draconian", and declined to "impoverish" Ms. Berry, characterizing the Housing Center's requests as motivated by "vengeance" and "vindictiveness".

On appeal the Seventh Circuit specifically noted that surrender or suspension of a real estate license for violation of civil rights or discriminatory conduct is contemplated by the Fair Housing Act, (42 U.S.C. 3612(g)(5), the Illinois Human Rights Act, (975 ILCS 5/8-109(B), and the Illinois Real Estate Licensing Act, 225 ILCS 455/18.3, and therefore not an "unenforceable penalty" as Ms. Berry argued. On review, they agreed, however, that for minor violations, license surrender is inappropriate and affirmed the district court's decision denying the Center's request for surrender of Berry's license because she had not engaged in continued racial steering.

 

7. MECHANIC'S LIENS AND REQUIRING RELEASE OF LIEN AS ELEMENT OF FULL PERFORMANCE OF CONTRACT

In the recent case of R.W. Dunteman Co. v. C./G. Enterprises, Inc., (1998), 181 Ill.2nd 153, the Illinois Supreme Court upheld the provisions of the Mechanic's Lien Act (770 ILCS 60/1.1) that prohibits agreements to waive any right to enforce or claim a lien as against public policy and unenforceable. The same case made a distinction between agreements in anticipation of and consideration for obtaining construction contracts, and those agreements waive a lien claim AFTER work has been completed. A further distinction and development of this law is set forth in Brown and Kerr, Inc. v. American Stores Properties, Inc., (1st Dist., August 6, 1999), No. 1-98-3749, http://www.state.il.us/court/Opinions/AppellateCourt/1999/1stDistrict/August/HTML/1983749.htm.

In this case, a subcontractor brought an action against the owner and general contractor for the balance due on a construction contract. The complaint alleged that the Plaintiff performed all of its contractual and statutory duties, but the Defendants denied this allegation, asserting by counterclaim that since the subcontractor had failed to provide guarantees, sworn statements and (most importantly) a final lien waiver and release as required by the contract, it had not fully performed and therefore was not entitled to payment. The trial court granted summary judgment in favor of the subcontractor, and the owner and general contractor appealed.

The First District affirmed the trial court's judgment in favor of the subcontractor, noting that while the contract language did provide that final payment would not be due until the subcontractor provided final lien waivers, that provision would require that the subcontractor forfeit its lien rights notwithstanding the owner's failure to pay, and such a provision is unenforceable under Section 1.1 of the Mechanic's Lien Act and the Dunteman decision as a condition precedent to payment or element of full performance. Noting that "While the contract does not affirmatively state that B&K has waived its lien rights, under defendant's interpretation (of full performance according to its terms), the contract contains an implied (prohibited) waiver because B&K must waive its lien rights in order to establish it's full performance on the contract...that term is void and B&K is not required to show its fullfillment. "

This case also contains a discussion of whether either party could be said to have been "the prevailing party" to obtain an award of attorney's fees, whether a motion for reconsideration must be actually signed by an attorney of record under Rule 137 to be valid and extend the time period to file a notice of appeal, and a whether an order is final and appealable or not when issues of attorney's fees remain.

 

8. INTEREST ON SECURITY DEPOSITS APPLIES TO "PET DEPOSIT" AND ORDINANCE DOES NOT REQUIRE WILLFULNESS FOR PENALTY:

The tenant in Lawrence v. Regent Realty Group, (1st Dist., August 11, 1999), No. 1-97-1217, http://www.state.il.us/court/Opinions/AppellateCourt/1999/1stDistrict/August/HTML/1971217.htm, sued the landlord for failure to pay interest on the "pet deposit", as well as the security deposit, in her lease under the Chicago Residential Landlord and Tenant Ordinance. Chicago Municipal Code, 5-12-080(c)(f).

The trial court first determined that the "pet deposit" required by a lease was a "security deposit" as defined by the ordinance, and the landlord was obligated to pay interest on the entire sum. The landlord testified that he calculated interest only on the security deposit because he thought that the pet deposit was a "fee or charge, not a security deposit". The trial court educated the landlord by its ruling, but then refused to award damages equal to two times the security deposit, plus interest, plus reasonable fees under the ordinance based upon a finding that the landlord's failure was not willful.

On appeal the Court stated that whether the tenant was entitled to the full award as requested turns upon whether the ordinance was "remedial" or "penal"; (i.e., if penal, the violation would have to be willful, whereas a remedial purpose would not require a willful showing to support the award). Despite the fact that the Court in its prior decision of Szpila v. Burke, (1st Dist. 1996) 279 Ill.app.3d 964, 665 N.E.2d 357, 216 Ill.Dec. 297, had ruled that the ordinance required a showing of willfulness, (and therefore must be penal), the decision in this case notes that "We deviate from the Szpila holding...(based upon) a peculiar set of facts not present here...(because)...When the precise reading of a statute yields an absurd result, the reading must be abandoned...(and)...We adhere to what we believe is the clear intent of the ordinance to protect tenants and hold landlords to a high standard of conduct when entrusted with a tenant's money."

So....the tenant is entitled to interest on her "pet deposit" and an award on remand for two times the total security deposit plus interest and reasonable attorney's fees.

 

9. LANDLORD/TENANT: CANCELLATION OF LEASE AND DSCRIMINATION TESTS:

In Wirtz Realty Corp v. Freund, (1st Dist. June 23, 1999), No. 1-97-3573, http://www.state.il.us/court/Opinions/AppellateCourt/1999/1stDistrict/June/HTML/1973573.htm, the Defendant-Tenants appealed the trial court's judgment in favor of the landlord awarding past due rents notwithstanding the defendant's counterclaim that the Wirtz Realty violated the Illinois Human Rights Act, (775 ILCS 5/3--101 et seq.), which prohibits discrimination against mentally handicapped individuals in rental of residential property. The landlord evicted the defendants from their apartment on Lake Shore Drive after terminating their lease based upon a 30 day "mutual cancellation rider" inserted into the renewal agreement based upon earlier complaints by other tenants that the Freund's mentally handicapped adult son was interacting in an inappropriate way with building employees and other tenants. The Freunds counterclaimed alleging violation of the Human Rights Act, and Wirtz raised an affirmative defense based on an exemption in the Act where a handicapped person poses a "direct threat to the health and safety" of the building occupants.

On appeal the issues was whether the trial court's ruling based upon eight specific incidents was supported by (a) objective evidence, (b) of overt acts or current conduct rather than subjective fears or speculation, (c) which are sufficiently recent as to be credible, and (d) relevant to a determination of behavior that constitutes a "direct threat". The Court reviewed the specific details and time periods of each of the eight incidents and found that "Placing the incidents on a timeline, it becomes clear that over time (the) behavior began to escalate in intensity." It was not necessary that the conduct actually escalate to a violent incident; only that the evidence be objective, overt, recent and relevant. The trial court's decision in this case was the son posed a direct threat to the health and safety of the building was not against the manifest weight of the evidence and supported a safe harbor under the Act's exemption for the landlord. The opinion is quite lengthy and offers analysis of issues relating to AIDS discrimination under the Americans With Disabilities Act.

 

10. ETCETERA

No Implied Private Right of Action Under Lead Poisoning Prevention Act.

Special Appearance Change:

Most of the time it seems that the practice of law gets more complex as every day goes by, but a recent enactment may actually make things a little simpler for some attorneys confounded by the issues relating to special and limited appearances and jurisdictional issues. Public Act 91-145, effective on January 1, 2000, converts a "special appearance" motion under §2-301 of the Code of Civil Procedure to a "personal jurisdiction objection" motion. It is intended to make it less likely that defense counsel will inadvertently waive a personal jurisdiction objection.

The new procedure permits a defendant to present a personal jurisdiction objection together with other matters in a combined §2-619.1 motion. Therefore, the new §2-301 will allow a party to object to the court's jurisdiction over the party's person on the grounds that (1) the party is not amendable to process of a court of this State, or (2) insufficiency of process or insufficiency of service of process.

The defendant may file (1) a motion to dismiss the entire proceeding or any cause of action involved in the proceeding or (2) a motion to quash service of process. If the objecting party files a responsive pleading or a motion (other than a motion for an extension of time to answer or otherwise appear) before filing a motion objecting to the court's jurisdiction over the party's person, however, the party still waives all objections to that jurisdiction. Effective January 1, 2000.

Home Repair Fraud:

Public Act 91-230, also effective January 1, 2000, creates the Home Repair and Remodeling Act. It requires that a person engaged in the business of home repair or remodeling to furnish to the customer a written contract or work order with a copy of the "Home Repair: Know Your Consumer Rights" pamphlet before initiating home repair or remodeling work for over $1,000. It also requires that these contractors obtain insurance in specified amounts. It allows the Attorney General or the State's Attorney of any county to enforce the Act. It also amends the Consumer Fraud and Deceptive Business Practices Act to include a violation of this Act as a cause of action. Effective January 1, 2000.