REAL ESTATE LAW PRACTICE KEY POINTS

(February, 2000)

 

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 2000 - All Rights Reserved)

 

 

1. TITLE INSURANCE: ZONING DISCLOSURE, CONTRACT EXCLUSION AND NEGLIGENCE: 

 

Notaro Homes, Inc. filed a four count complaint against Chicago Title Insurance Company based on the issuance of a title insurance policy that failed to disclose a recorded amendment to the City of McHenry's zoning ordinance that was specifically recorded against the parcel purchased prohibiting the construction an intended apartment building.  The Trial Court dismissed the Complaint pursuant to Sections 2-615 and 2-619 based upon a reading of the exclusion language in the policy and application of the Moorman Doctrine.   The Second District affirmed in part and reversed in part in a decision that is certain to send title companies back to the library and drafting tables for a while. Notaro Homes, Inc. v. Chicago Title Insurance Co., (2nd Dist., December 15, 1999).

 

Count I sought declaratory judgment that the policy language did not exclude coverage for failing to disclose the zoning amendment, and Count II alleged a breach of contract using the same theory. (Count I had been voluntarily dismissed in the Trial Court and the appeal proceeded on the dismissal of Count II through IV.)

 

The policy provided that the company would not pay the insured for loss or damage which arise by virtue of "any law, ordinance or governmental regulation (including but not limited to building and zoning law...) restricting...occupancy, use, or enjoyment of the land...except to the extent that a notice of enforcement thereof or a notice of a defect...has been recorded in the public record."  The City of McHenry recorded the amendment, including the legal description of the property affected, twenty-five years prior to the issuance of the Plaintiff's policy, but neither the commitment nor the policy made any mention of the zoning.

 

The majority, reviewing the policy definitions of "defect", "lien" and "encumbrance", found that the zoning ordinance was none of these, that it did not constitute a "defect" that would cloud the title to the property, and rejected the claim that the recording of the amendment was a "notice of enforcement" to bring it within the exception to the exclusion of coverage. Holding that the title company is entitled to exclude coverage of zoning ordinances from the title policy as a matter of contract, the Trial Court's dismissal of Count II was affirmed based on the language of the contract.

 

Count III alleged a negligent misrepresentation action for failure to disclose the ordinance, and the majority decision reversed the Trial Court's dismissal, finding that neither the language of the policy nor the Moorman Doctrine barred the Plaintiff's Action.  The decision holds that Moorman does not apply to title companies to deny the recovery in tort for purely economic loss where there is a contract between the parties based on the exception for those in the business of supplying information for the guidance of others in their business transactions.  The title company here was clearly in the business of supplying information to the Plaintiff in its business of land development, and therefore owed a duty not to be negligent in providing the information.  And, while holding that the commitment for title insurance was merged into the final title policy, (this was important because the title commitment did not contain the same exculpatory language as the final policy), the majority decision held that the exclusive remedy provisions contained in the policy would not bar the plaintiff's suit based on negligence in issuing the commitment rather than a contract action based on the policy.

 

The majority opinion also affirmed the dismissal of Count IV, alleging a violation of the Consumer Fraud and Deceptive Practices Act for failure to disclose the ordinance.  The matter disclosed was held to be an "omission of law readily discoverable by plaintiff and, accordingly, was not a violation of the Act, as it was not an omission of material fact." within the purview of the Act.

 

Judge Inglis' dissent reads the policy exclusion to create an exception for notice of enforcement or notice of the defect by recording, and therefore disagreed with the dismissal of the contract action based on his interpretation of the exclusion as not applicable due to the recording of the ordinance as a notice of defect.  More importantly, the dissent reasoned, "once the matter was recorded, defendant had a duty to accurately report all defects of record that adversely affect title.  The prospective purchaser relies on the title insurer's search to research the applicable law and records before issuing the commitment and to provide warnings about areas in which the purchaser might find title surprises...Defendant had a duty to inform plaintiff of the recorded amendment and breached its duty by negligently failing to transcribe the recorded amendment on to the commitment.”

 

This case has been remanded and will eventually be tried based on the negligence theory that survived the Moorman defense. It should be of interest and instructive to most of us.

 

 

2. AWARDING TITLE ON VACATED STREETS OR ALLEYS; A CONSTITUTIONAL CHALLENGE:

 

In Chavda v. Wolak, (Il. S.Ct., December 2, 1999),  the Justice Rathje wrote the Illinois Supreme Court's decision reversing a trial court's finding that  a 1997 amendment to the Illinois Municipal Code relating to the vacating of streets and alleys was unconstitutional, and found that it was not.

 

The facts of the case deal with the Village of Lombard Ordinance that vacated a portion of Edson Street. The parcel was abutted to the west by Chavda's property and to the east by Wolak's property.  Ordinance No. 4482 provided that the public interest would be served by vacating the portion of the street, that the fair market value of the parcel vacated was $30,000, and that Chavda alone should pay the Village for fair market value of the parcel. The 1997 amendment to the Illinois Municipal Code at issue provides that if an ordinance as passed requires that only one owner pay the value of the vacated parcel, then that owner shall be entitled to acquire ownership to the entire parcel as vacated.  The Wolaks, as owners of the property that abutted the vacated parcel to the east argued that the amended section, (65 ILCS 5/11-91-1), conflicted with the following section, (65 ILCS 5/11/91-2), which states that upon the vacating of a street or alley, title to the parcel vacated vests proportionately in all abutting property owners.  The apparent conflict, they argued, rendered the amendment unconstitutionally vague. They also argued that the amendment denied due process to them because it authorizes a municipality to arbitrarily award title to only one of several abutting owners, and thereby violates the equal protection clause and constitutes special legislation.  The trial court agreed that the amendment was unconstitutional.  Justice Rathje reversed.  Noting first that the municipality has an obligation to act in the public's best interest when vacating a street or alley, and the ordinance is presumed to be valid, the decision then found that the Wolaks failed to show by clear and affirmative evidence that Lombard did not act in the public's best interest and therefore must be presumed to have acted reasonably in awarding title to Chavda as an abutting owner.  The Court also found that Section 11-91-2, rather than conflicting with 11-91-2's general presumption that the title will vest proportionately among the abutting owners, was intended to be an "limited exception to that categorical rule" (of proportionate vesting) when compensation is required to be paid by one owner rather than all abutting owners. The argument that the ordinance was "special legislation" that discriminated in favor of a select group without a sound, reasonable basis was also denied based on the previously discussed presumption that the Village acted reasonably in the best interest of the public.  Justice Rathje drew a distinction between this amendment and clearly objectionable legislation, by example, that "dictated that title always be awarded to the owner of the property that abuts the vacated street or alley on the east, or that title always be awarded to the abutting property owner who last name contains the fewest letters".

 

(I still didn't "get it", though...how did the Village of Lombard determine that Chavda rather than Wolaks got to pay the $30,000 and obtain title???)

 

The statute is constitutional, however, and the case was remanded to the trial court to hear "material issues of fact"...presumably about HOW the Village of Lombard proceeded under Ordinance No. 4482, now that we know the empowering legislation is constitutional.

 

 

3.  CONDOMINIUM DECLARATIONS, ASSESSMENTS,  AND LIMITED COMMON ELEMENTS:

 

It seems that vacating streets and alleys is not the only area of legislative interpretation concern in real estate these days.  The Second District was confronted with a challenge that an amendment to a condominium declaration was violative of the Condominium Property Act as creating an impermissible class of limited common elements in Hofmeyer v. Willow Shores Condominium Association, (2nd Dist., December 23, 1999).  In this case, the original declaration was recorded in September 1980, creating 15 buildings each containing common hallways, heating units, and shared utilities in an apartment building setting with a total of 60 units.  An amendment to the declaration was recorded in 1982 expanding the development parcel to include the plaintiff's four, townhomes-style structures that did not have common hallways, utilities or heating.  The amendment further divided the development into two "neighborhoods", one consisting of the original 15 buildings and the other consisting solely of the plaintiff's building, and creating separate assessments against units within each neighborhood for the maintenance of limited common elements in that neighborhood.  Everything appeared to proceed without a problem until 1997, when the Association's Board of Directors decided to assess all units equally without any distinction between the neighborhoods, and thereby increased the plaintiff's assessments from $77 to $225 per unit.

 

In response to the action, the plaintiff unit owners filed a declaratory action seeking a ruling that the amendment was valid and binding on the board.  The Association responded that the amendment was invalid as creating an impermissible class of limited common elements. The trial court granted summary judgment and awarded attorney's fees in favor of the unit owners, and the Association appealed.

 

In upholding the Trial Court, the decision notes that the purpose of permitting the designation of limited common elements is to avoid forcing unit owners to pay maintenance expenses for amenities from which they derive no benefit; such as patios, balconies and parking spaces.  Accordingly, the Condominium Property Act expressly allows the designation of limited common elements that serve more than one unit but does not require the exclusion of all other unit owners from those limited common elements. To hold that such a designation of limited common elements creates an impermissible class of members consisting solely of owners of units served by that element would be illogical, and require that one section of the Act be construed to prohibit what another section expressly permits.

 

The Court, however, reversed the award of attorney's fees to the unit owners on appeal. The Plaintiff's attempt to rely upon a section of the declaration which gives the Association the right to recover its attorney's fees in an action against a unit owner was not persuasive to overcome the "American Rule" that prevailing the party must pay its own fees absent a statutory or contractual provision; even though the plaintiff's artfully argued that "fairness" and "mutuality of obligation" required the declaration be read as creating reciprocal rights to recover attorney fees.

 

 

4.  MECHANIC'S LIEN AND QUANTUM MERUIT

 

In a case that has almost everything that could possibly happen "wrong" in a residential construction scenario, the First District opinion in Fieldcrest Builders, Inc. v. Antonucci, (1st Dist. December 30, 1999), sets forth some good black letter law for those of who would consider a sojourn into this arena.  The Antonuccis entered into a contract with Fieldcrest to extensively renovate their single-family residence in Glenview, Illinois for $846,978.00.  Fieldcrest had no employees and provided no supervision or oversight of the project, (i.e., they were a general contractor that subcontracted out all of the work.... and THIS should have been the "first warning" to the Antonuccis and us all).  There were a number of problems from the beginning of work in May 1994, and by August 20, 1994, the Antonuccis gave notice to terminate based on Fieldcrest's alleged breach.  On August 22, 1994, Fieldcrest ceased work.  (The facts as set out in the Court's opinion are very detailed and worth reading for their "horror-story" value alone.) The Antonuccis filed a two-count complaint in the law division for breach of contract and consumer fraud.  Fieldcrest filed answers, affirmative defenses and counterclaims asserting anticipatory breach of contract and seeking relief under quantum meruit for the extent of the work completed. The rough carpenter subcontractor and a material supplier both intervened and filed mechanic's lien claims.  The trial court issued a 19 page opinion containing findings of fact and ruled that Fieldcrest breached the contract, but was entitled to the reasonable value of its services less the injury suffered by the Antonuccis due to the breach.  Judgment was entered in favor of the subcontractors. (The case was remanded to the trial court for clarification on whether the judgment for Fieldcrest included or was exclusive of the sums due to its subcontractors or constituted paying twice for the same services.)

 

The Appellate Court's opinion holds that under the theory of quantum meruit, the measure of recovery is the reasonable value of the services, and they would not disturb the trial court's finding as to that reasonable value; (even though it may have included amounts billed for "overhead, fees and general conditions".)  The measure of damages for breach of contract when a builder has provided less than full performance or defective performance is generally the cost of correcting the defective condition and the owner may be able to recover damages for delays, but he must prove with reasonable certainty that the delays were caused solely by the other party.  Citing the recently noted case of Brown &. Kerr, Inc. v. American Stores Properties, Inc., (1999) 306 Ill.App.3d 1023, the Court noted that where both parties won and lost on claims in the proceedings below, neither could be awarded costs as the prevailing party, and reversed the award of costs in favor of Fieldcrest on its quantum meruit claim. Most importantly, the opinion affirms the Trial Court's order extinguishing Fieldcrest's mechanic's lien.  Holding that the burden is on the lien claimant to prove every essential element to establish the lien, and noting that the Trial Court had found that Fieldcrest breached the contract before substantially performing, the Appellate Court ruled that a contractor is not entitled to a mechanic's lien, (nor entitled to recovery of its attorneys fees under 770 ILCS 60/17), and is limited to recovery in quantum meruit only where it breached the contract.

 

 

5. TAX DEEDS; EXEMPT PROPERTY AND PARTIES ENTITLED TO NOTICE:

 

The case of In Re Application of Ward, (2nd Dist., December 23, 1999, note: court opinion modified on Jan. 26, 2000 per denial of rehearing after the release of these Keypoints) , sets forth some good instruction relating to property which is "tax exempt",  and the parties to whom notice of a tax deed petition must be sent,  in an not-too-unusual circumstance.  The property sold at a tax sale was a park consisting of approximately eight acres in a residential subdivision.  After the tax deed had issued and been recorded, the property owners in the subdivision brought an action pursuant to Section 1401 of the Code of Civil Procedure to dismiss the tax deed claiming that: (1) the property was exempt, not subject to taxation, and therefore improperly sold, and  (2) the tax deed petitioner did not name the homeowners as parties or make a diligent effort to learn of their interest and then serve notice upon them as a condition to the issuance of the tax deed.

 

The plat of subdivision as recorded indicated in large block letters that the area sold was designated a "PARK" for the benefit of the homeowners.  The recorded declaration of covenants also stated that the property designated "PARK" was to be conveyed to a homeowners’ association, which was to hold title to the property. (The homeowners' association was never formed, and title never conveyed; therefore the tax deed petitioner argued that a search of title indicated that persons other than the association were the assessee and trust holding title, and notice was given to those two persons.)  The McHenry County Treasurer admitted that the assessor had over-assessed the property because it qualified for a $1 assessment, had this been known a certificate of error would have been issued, the sale would have been a "sale in error", and the County had no objection to the Court vacating the sale.

 

The Appellate Court first rejected the homeowner's assertion that the property was exempt from taxation. The property, although dedicated to common use, remained privately owned, and therefore was not "exempt” as dedicated to public use. (i.e., an assessment of $1 is not the same as tax exempt.)   Turning to the issue of notice, however, the Court found that the homeowners were "parties interested in the property" under 35 ILCS 200/22-15, to whom notice of the petition for tax deed must be given. The recorded plat and declarations were found to be clear expression of donative intent for the benefit of the homeowners, and this created an interest sufficient to make the homeowners parties with a right to redeem to whom notice could have easily been sent.  Accordingly, the dismissal of the motion to dismiss the tax deed was reversed and remanded. 
 

 

6. SPECIFIC PERFORMANCE AND THE STATUE OF FRAUDS:

 

In Crawley v. Hathaway, (4th Dist., December 16, 1999), the Court was confronted with a classic case of whether a writing was sufficient in details to take it out of the Statute of Frauds defense interposed and allow specific performance if parole evidence were admitted; in this case a survey created after the agreement.  It was, and the Trial Court's dismissal was reversed, but not without a dissent.

 

Crawley and Hathaway entered into a handwritten contract whereby Hathaway was to sell  "100 Acres More or less, 83 acres of pasture & timber and 19 acres of tillable ground for $90,000.00." to Crawley.  Crawley paid $7,500 of earnest money and then went out looking for financing.  A survey was thereafter created.  With both parties present, and Hathaway directing the surveyor on the boundaries of the parcel he agreed to sell, the resulting survey revealed the parcel consisting of 127 rather than 100 acres.  Hathaway reneged, listed with a Realtor, and sold the property for $150,000 to a third party.  Crawley sued for specific performance.

 

The majority decision noted that a memorandum is sufficient to satisfy the Statute of Frauds if it contains the names of the parties, a description of the property sufficiently definite to identify the same as the subject matter, the price, terms and conditions of the sale, and the signature of the party to be charged. The intention of the parties is to govern, and any ambiguity may be explained by parole evidence.  Accordingly, parole evidence may supply the details, and the survey and testimony regarding the survey are held to be admissible as evidence of the property intended to be sold.  As a result of this parole evidence, the majority reasoned, the Court could have determined that the parties knew exactly what property was intended to be sold, even if Hathaway was unaware of how may acres it may covered at the time, and should have granted Specific Performance.  The purpose of the Statute of Frauds is to prevent fraud, not facilitate it, and the Courts will refuse to apply the Statute of Frauds if the result would be to perpetrate a fraud, as here.

 

Justice Steigmann's dissent states that "The particular document before us is so bereft of any meaningful description that the majority's resort to parole evidence amounts to 'supplying the missing terms'", and notes that the memorandum "contains nary a clue as to where this property might be located....  Because the law governing the Statute of Frauds permits Crawley to use parole evidence only to clarify the terms of the purported contract, not supply missing terms, this court should agreed with the trial court's decision to grant Hathaway summary judgment....  We should also reject Crawley's argument that the land survey...may be considered...Although a contract may consist of several writings, they must be connected in some definite manner...", and Justice Steigmann didn't see a connection.

 

 

7. MECHANICS LIENS AND BANKRUPTCY STAY; A FURTHER REFINEMENT:

 

Last year, we reported the impact the decision in Chicago Whirly, Inc. V. Amp Rite Electric Co., (1999), 304 Ill.App.3d 641, on the existing law set forth in Garbe Iron Works, Inc. v. Priester, (1983), 99 Ill.2d 84, holding that a bankruptcy filing by a necessary party in an action to enforce a mechanic's lien stayed and extended the time available to a subcontractor to file suite for a period equivalent to the amount of time the contractor spent under bankruptcy protection.  This year's refinement on this rule of law comes in Concrete Products, Inc. v. Centex Homes, (2nd Dist., December 3, 1999).  In this case, the general contractor filed for bankruptcy after the Plaintiff's filing of the complaint to foreclose mechanic's lien, but before a ruling on a motion for summary judgment, and the issue on appeal was the effect of the automatic stay of judicial proceedings pursuant to Section 362(a) of the Bankruptcy Code, (11 U.S.C. 362).  The appellants contended on appeal that the automatic stay required that the Plaintiff's action be abated until either the general contractor was discharged or the plaintiff obtained relief from the automatic stay in the bankruptcy court.  The Second District agreed, and declared that inasmuch as the motion for summary judgment was initiated after the commencement of the automatic stay, the trial court's ruling granting summary judgment and awarding attorneys fees was void, and "We must therefore vacate all of the trial court's rulings made after the automatic stay took effect and remand the case."  (Surely there can be no further confusion on this issue now!)

 

 

8.  PRIORITY OF DEEDS; TAX DEEDS ARE NOT ALWAYS "FIRST":

 

Most of us have been schooled in the maxim that liens generally attach according to the time they are perfected, (i.e., "first in time is first in right"), except for real estate taxes and mechanic's liens, (under specific circumstances).  Accordingly, a judicial deed issued based upon a superior lien should extinguish subordinate liens.  And, of course, inasmuch as real estate taxes always occupy a superior lien position, a tax deed should extinguish all other liens and any judicial deed obtain based on those liens, Right?  Well, In Re Application of County Treasurer, (1st Dist., October 21, 1999) appears to set forth something different based on the language contained in the Illinois Municipal Code relating to the Chicago Abandoned Property Program, (CAPP), 65 ILCS 5/11-31-1(d).   In this case, the City of Chicago filed a petition to vacate a tax deed issued to City Sites, L.L.C. on July 22, 1997, following the sale of the property for nonpayment of taxes in 1992.  The City had obtained its own judicial deed to the same property pursuant to CAPP on July 7, 1997, and recorded it on July 10, 1997. Based on the language of that statute that "a conveyance by judicial deed shall operate to extinguish all existing ownership interest in, liens on, and other interests in the property, including tax liens", the City argued its judicial deed operated to extinguish the tax deed.  The Circuit Court denied the City's petition to vacate the tax deed, and on appeal the City contended that the Court abused its discretion in denying its petition to vacate the tax deed pursuant to 65 ILCS 5/11-31-1(d).  The First District reversed and remanded with directions to vacate the deed noting, "Under the plain language of that section, the issuance of the judicial deed extinguished all existing ownership or other interests in the Property, including those of the tax purchaser....  There is no rule of statutory construction which authorizes a court to declare that the legislature did not mean what the plain language of the statute says."  The decision found that the tax deed was a nullity and that the tax purchaser was entitled to a refund of the monies paid at the tax sale. (And, in that short, three page decision, the First District has forever made me wonder what OTHER statutory exceptions to the "first-in-time-first-in-right-except-for-taxes- special-assessments-and-mechanic's liens" rule there are that I don't know about yet....)

 

 

9.  FEE SIMPLE DETERMINABLE BY BANKRUPTCY REORGANIZATION PLAN:

 

And, another case that makes you take stock of everything you know about priorities and real estate liens is Klein v. DeVries, (2nd Dist., December 28, 1999).  John DeVries filed for bankruptcy while Metropolitan Life held a first mortgage on his real estate.  Under the final plan of reorganization, DeVries was to deliver a quitclaim deed in escrow to Metropolitan's attorney.  In the event of a default, Metropolitan was to give notice to DeVries, "each junior lien or mortgage holder" and "all other creditors and parties in interest", who would then have an opportunity to cure the default or title would pass to Metropolitan free and clear of liens and encumbrances.  The reorganization plan was recorded in the Ogle County Recorder of Deeds office in April 1987.  In February 1989, DeVries executed a mortgage to Klein, and then subsequently defaulted on the Metropolitan mortgage.  Metropolitan sent notices to DeVries and other parties, but not to Klein, and then recorded its quitclaim deed on December 7, 1989.   In September 1997, Klein filed a complaint to foreclose his mortgage and for declaratory judgment that sought a finding that his mortgage was valid.  The Trial Court dismissed Klein's complaint pursuant to Section 2-619 of the Code of Civil Procedure, and he appealed. Affirming the Trial Court, the Second District's decision held that "In general, a mortgagee can have no greater rights than his mortgagor", and since DeVries had not right to cure a default on Metropolitan's mortgage after he entered into the reorganization plan, his title was a fee simple determinable that had been terminated by the occurrence of the condition subsequent. When DeVries defaulted on the Metropolitan mortgage, both his and Klein's estate in the property ended.

 

 

10.  THE BUSINESS OF THE PRACTICE OF LAW; SOME CRITICISM AND ANOTHER POINT OF VIEW:

 

Over the last few months material has appeared in these monthly updates directed to practitioners which some have told me they feel are "very public" and "very harsh criticisms" of Attorney's Title Guaranty Fund, Inc., and its recent efforts to "create new opportunities for our ATG membership".  Specifically, some have felt that my comments on the recent ISBA Opinion 99-06, (See the December, 1999 "Flashpoints", No. 3), relating to attorneys being compensated for referral of trust administration work, and the development of "Ancillary Business", (See the January, 2000 "Flashpoints", Trend No. 3), whereby attorneys are positioning themselves to "broker" litigation publication notices, (as well as trust administration and title/agency relationships), into additional compensation vehicles,  were unduly harsh.   I do not see my reference to these materials or remarks as being either "harsh" or "shaming", but simply my best, (although less than perfectly objective), effort to keep real estate practitioners aware and cognizant of the ethical issues and conflicts that confront us all on a daily basis-- like new cases or developments in the law.  This is nothing "new".  Lawyers who bill by the hour are continually confronted by the stress between "running up time" and client's best interest, settling a case and taking it to trial.  Some do. Some don't. Some make the decisions based solely on the client's interest to the best of their ability. Some don't.  Those that "get it" don't need any more than to be reminded from time to time, and those that "don't get it" will not benefit from any amount of ethical refresher courses.

 

It IS true that real estate transactional practitioners, perhaps more than others, are at a crossroads which may lead to extinction.  These are difficult times.  On one hand, we have Realtors such as Coldwell Banker who want to take "one-stop-shopping" to the point of installing attorneys on-site in their offices to see clients who have already been "steered" to the desired lender, surveyor and title company.  On another hand, the Multidisciplinary Practices movement promises to erase the boundaries between financial, trust, accounting, and legal services which clearly threatens the majority of the legal community while appearing to offer promise to a few. Transactional attorneys advertise "flat rate" legal fees that can not possibly allow them to make a living because they only allow the expenditure of something less than two hours on a transaction that typically takes one and half hours at the title company alone to close.  I honestly don't know the answers to these thorny issues any better than anyone else.  I have a lot more questions and uncertainties than most, and any opinion that I might have would need to contain a footnote of my own profit and loss statement, and an admission that I am not nearly as profitable as I should be, used to be, and wish to be.

 

Some important statements that have come my way that you have an equal right to are these:

 

"ATG seeks to position lawyers to compete with lay entities, which have sought to diminish or eradicate the role of transactional lawyers in recent years. Witness the recent bank deregulation legislation which may give lenders the ability to take over the title and conveyancing process. Witness the efforts of national banks and life companies to displace the estate-planning lawyer.  Witness Coldwell Banker's recent effort to displace transactional real estate lawyers by hiring "in-house counsel.  If law firms are unable to respond to these challenges, they will certainly perish.  ATG wants to position lawyers for survival, not extinction."

 

---Letter of Peter J. Birnbaum, President, Attorney's Title Guaranty Fund, Inc. dated January 13, 2000.

 

In response to my issues about ISBA Opinion 99-06, Dennis Norden, Chairman of Guaranty Trust wrote on December 23, 1999:

 

"Guaranty Trust Company (“GTC”), of which I am chairman, is the entity that formally submitted the issues addressed by Opinion 99-06.  Guaranty Trust Company is an independent trust company, authorized to do business in Illinois and Wisconsin, and is a wholly owned subsidiary of Attorneys’ Title Guaranty Fund, Inc. (“ATGF”).  ATGF is a bar-related title insurance company that offers lawyers in Illinois, Wisconsin and Indiana the ability to write title insurance policies in conjunction with their real estate practices.  ATGF has been extremely successful in achieving its original goal of preservation of the role of the real estate lawyer in residential real estate transactions.

 

Some five years ago, ATGF began to hear complaints from lawyers concerning a growing lack of availability of trust and investment services for their clients.  The mania of mergers and acquisitions in the financial services area was taking place everywhere.  Trust services were being consolidated or, in many instances, eliminated entirely.  Moreover, the much larger banks that resulted from the process initiated larger minimum account requirements, often $1,000,000 or more.  In light of this, many lawyers felt that corporate trustee services were simply unavailable to their clients.  In addition, we have witnessed, in recent years, great proliferation of the unauthorized practice of law by banks and financial services providers in the area of estate planning.  It is not uncommon for the mega-bank or life company to provide putative customers with pre-printed living trusts and the like.  “This was prepared by our New York law firm,” the unwitting customer is told.  The recent move toward “multidisciplinary practice” will only exacerbate this problem.

 

Therefore, GTC was created by ATGF to furnish trust and investment services for lawyers and their clients.  We decided early to involve lawyers on an ongoing basis with trust matters.  In the areas of business advice, asset protection and estate planning, many clients see their lawyers as much more than legal technicians; they are viewed as trusted advisors and counselors because of their long-standing relationships with their clients.  We asked the lawyers to remain primarily responsible for maintaining the client relationship within the trust context.  Because this involves spending time beyond traditional legal services, we believe it to be only fair to compensate the lawyers.  The compensation and the dual agency role of the lawyer give rise to the conflict of interest issue.  GTC addressed the question by requiring a full and written disclosure and a written waiver by the client.  In fact, GTC’s disclosure document urges that the client seek independent legal advice on the matter.  This is what was submitted to the ISBA.  Going beyond the opinion, GTC recommends that each lawyer discuss reasonable alternatives to GTC with the client.

 

GTC furnishes a complete line of trust services to lawyers and their clients, including investment, accounting and custody of trust assets. Although we ask that lawyers be primarily responsible for the client relationship, we are always available to meet with the lawyers and their clients.

 

The opinion is correct in stating that the trust company does not practice law and does not draft documents.  We expect lawyers to do that.  GTC furnishes a form book to its lawyers that was prepared by the estate planning department of a very prominent law firm.  If a lawyer needs assistance in a particular area, GTC refers that lawyer to another lawyer or law firm with expertise in that area.  GTC does not render legal advice.

 

Each lawyer who wishes to participate with GTC must fill out a lengthy application form, attend one of our estate planning seminars and undergo a thorough background check.  We have conducted six of these seminars since November 1998.  In addition, we have helped put on other seminars and programs about estate planning for individual lawyers and local bar associations.  GTC believes that it is in the best interests of the clients that both the clients and the estate-planning bar have good information about the estate planning process.

 

The very core of our program, continued lawyer involvement in the trust process, seems to be what is most compelling to the clients.  In the feedback GTC is getting about client reaction, the most important factor is that the client need only look to his or her own lawyer for trust and investment services.  The client no longer needs to fear the financial environment with further mergers and acquisitions lessening or removing trust and investment services.

 

GTC’s trust program helps lawyers untangle some webs for their clients."

 

---Letter of Dennis A Norden, Chairman, Guaranty Trust Company, dated December 23, 1999.

 

Both Peter and Dennis are concerned, ethical, and trying-like-anything to survive professionals.  More importantly, they are committed to helping attorneys in the trenches survive.  It is not them that I worry about. It is the other lawyers and service providers in the trenches who concern me. It is whether the client truly knows and understands all of the conveyancing costs and whether there was some confusion or disadvantage there.  I believe that a client is far better served by having an attorney prepare and administer their estate plan trust rather than a bank officer who fills in the blanks on the forms without appropriate, unbiased legal counsel the decision deserves.  I am not convinced that a defendant in a mortgage foreclosure suit will be benefited by the plaintiff's lawyers "brokering" their publication notices.  I do not think prospective buyers and sellers will be best served by being steered to an "in-house lawyer" at a broker's office on a Sunday afternoon, nor do I think that "controlled business relationships" between Realtors, lenders, title companies, surveyors and home inspectors work well for anyone other than the referring party.  Multidisciplinary practices may be an idea whose time has come, but the "bell tolls" for individual clients and small law firms and sole practitioners.

 

In the coming year, the Illinois State Bar Association Real Estate Section Council subcommittee on "The Future of Lawyers in Real Estate Transactions " hopes to consider these and other "survival" issues that affect lawyers who practice real estate law.  The subcommittee is constituted with members of varied viewpoints like Peter Birnbaum, President of ATG, which has the survival of lawyers a primary focus, John O'Brien of the Illinois Real Estate Lawyers Association, who has a passion for promoting and serving real estate practitioners, and few "fuddy-duddys" like Myles Jacobs and myself who are often criticized as being "too inward looking".  It is our hope to flesh out some of these issues in the coming months in a constructive manner. I will keep you advised, (as objectively as I am able!), and encourage each of you to participate in our conversation.  Somewhere, among all of the truly bright and talented lawyers that we know, there is someone who has an insight to these problems that can become a solution. 

 

 

ET CETERA:

 

In the December "Flashpoints" we noted the case of Voyles v. Sandia Mortgage Corporation, n/k/a Fleet Mortgage Corporation, (2nd Dist. November 4, 1999) No. 2-98-0753, as the first time an Illinois court has recognized an action in tort for breach of the covenant of good faith and fair dealing.  The importance of the court's own observation that no Illinois case had heretofore explicitly recognized the independent existence of a tort action in favor of a borrower for a lender's breach of the covenant of good faith and fair dealing also recommended the decision for our "year-end" summary of significant cases.  Those of you who have attempted to obtain a copy of the case, however, have since learned that the decision has been "withdrawn" by the Court.  The appellant filed a petition for rehearing, which was granted on December 9, 1999.  The order granting rehearing required the appellee to file an answer to the petition for rehearing within 21 days and the appellant to file a reply within 14 days.  The December 9, 1999, order also withdraws the November opinion.  Oral argument is not scheduled and typically not held on a petition for rehearing.  We will keep you advised of the developments of this case on rehearing.