REAL ESTATE LAW PRACTICE “KEYPOINTS”

(September, 2000)

 

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 2000 - All Rights Reserved)

 

(EDITOR’S NOTE: "Better late than never" seems to be a good way to begin and apologize for the delay in getting this month’s Keypoints out.

September is always "Back to School" time no matter how old we get or how long it has been since we were students…(but we’re all students of the law, forever, right?)…so this month, there are more than the usual number of non-caselaw notes that have to do with what has happened over the summer that affects your practice, announcements of procedure changes that affect real estate practitioners, some interesting continuing education information, and a "guest lecture note" on homestead from Dick Bales.

In addition to my firm’s support, that of the Illinois State Bar Association’s Real Estate Section Council, and the Illinois Institute of Continuing Legal Education, it should be noted that Chicago Title Insurance Company helps underwrite the monthly production of these real estate law Keypoints. Chicago Title is committed to the role of attorneys in real estate transactions and their continuing education in this area. Its staff attorneys are pleased to offer their view points on various developments in the law as set forth below.)

 

1. MORTGAGE LIEN PRIORITY; CONVENTIONAL AND EQUITIBLE SUBROGRATION AND REFINANCING:

In the last six months, our firm has had three cases that dealt with the issues surrounding conventional or equitable subrogation in the context of real estate litigation. All of these cases had similar facts patterns. A "missed lien" in the chain of title is discovered by the plaintiff’s attorney in preparation for litigation; usually a foreclosure case. The missed lienholder is named, appears, and answers; asserting a priority based upon the prior recording and the theory that "first in time is first in right". The plaintiff in the foreclosure case, who mistakenly thought they were in first position, counters with the doctrine of subrogation, (typically the litigation theory of the counsel hired by the title insurance company that insured the plaintiff as the holder of a first lien, and employer of the title examiner who missed the lien). As a result, the Court is faced with a classic standoff between the two theories: first in time vs subrogation.

This general fact pattern is present in the recently reported decision of Aames Capital Corporation v. Interstate Bank of Oak Forest (2nd Dist. July 31, 2000) http://www.state.il.us/court/Opinions/AppellateCourt/2000/2ndDistrict/July/HTML/2991280.htm. The Court’s decision begins with a deceptively simple statement that "This appeal arises from a dispute concerning lien priority in a mortgage foreclosure proceeding. The issue is whether a mortgagee that pays off a priority mortgage pursuant to a refinancing agreement is entitled to be subrogated to the priority lien recorded by the original mortgagee." The mortgagor was the infamous Patrick J. Wangler; a builder in DuPage County not well favored in the last few years. Mr. Wangler and his wife made a mortgage in 1986 to Hinsdale Federal that was later assigned to Standard Federal. (The "first mortgage".) Thereafter, Wangler made four mortgages to Suburban Bank during the period from 1988 through 1991. In 1996, the Appellee, Interstate Bank, obtained and recorded a judgment against Wanglers for $75,89.06; (a sixth position priority for those of you keeping track). Thereafter, Wangler executed a mortgage to Pacific Thrift and Loan Company pursuant to a refinancing agreement which paid off the mortgages of Standard Federal and Suburban Bank. This mortgage was assigned to the Appellant Aames Capital. (The mortgage instrument assigned was a standard Fannie/Mae/Freddie Mac Uniform Instrument.) This mortgage was recorded subsequent in time to the recording of the Interstate Bank memorandum, and the lender incorrectly assumed there were no prior liens. When Aames began foreclosure, Interstate answered, raising the their judgment lien and the issue of priority. Both parties came before the trial court on motions for summary judgment on the issue of priority. The trial court ruled in favor of Interstate based on the theory that the prior recording of its memorandum of judgment entitled it to a superior lien, and rejected Aames’ theory that even though Interstate’s lien predated its mortgage, it was entitled to priority because it was subordinated to the position of the Standard Federal and Suburban mortgage liens it paid off during the refinancing. Interstate countered on this issue with the argument that the doctrine of subrogation will only apply where there is an express agreement that the refinancing mortgage will assume the priority position of the debt it satisfies.

The Appellate Court begins its decision reversing the trial court by noting that "The doctrine of first in time, first is right is not always as clear and obvious as it may seem", and "blind adherence to the first in time, first in right doctrine is sometimes insufficient to determine lien priority." (The decision then notes the exceptions to the "first in time" rule for renewals of notes and mortgage and the recent case of FNMA v. Kuipers, {discussed in the July and August, 2000 Keypoints} relating to the priority position of assignees under assignments of mortgages.) Noting that "Subrogation is a method whereby one who had involuntarily paid a debt of another succeeds to the rights of the other with respect to the debt paid.", the Court makes an important factual distinction in this case: no release of the original mortgages had been recorded and there was no indication that those liens had been extinguished when Interstate recorded its judgment. Because Interstate had constructive notice of the prior, unreleased mortgages when it recorded its judgment, there was "no reason why the doctrine of first in time, first in right would require us to reject…Aame’s argument that subrogation may apply." Accordingly, the Court appears to be saying that because the prior mortgages were of record, and Interstate had constructive notice of them, merely subrogating Aames to that position would not harm Interstate, but would "comport with the purpose of the recording requirement, namely , to provide notice of liens to third parties.".

Turning to a comparison between equitable and conventional subrogation, the decision distinguishes conventional subrogation as that arising out of contract, whereas equitable subrogation is that which arises in common law to prevent unjust enrichment and depends on the facts of each particular case. Conventional subrogation requires an express agreement. The Court, however, states "we decline to analyze the present case under equitable subrogation and, instead, consider whether conventional subrogation…may be applied." (Ed.: I interpret this as implying and perhaps instructing that should a similar fact pattern arise, the theory of equitable subrogation would be favored.)

Noting that Firstmark Standard Life Insurance Co. v. Superior Bank, 271 Ill.App.3d 345 (1995) held that there must be an express agreement that the refinancing mortgage be give the priority position of the mortgage it pays off, the Court distinguishes Firstmark; (but not until reiterating that it did not appear that the decision in that case considered the distinction between equitable and conventional subrogation), and "resurrects" the theory set forth in Homes Savings Bank v. Bierstadt, (1897!), 168 Ill.618, 624. In Firstmark there was specific language in the mortgage that it was subject to the mortgage held by the appellee, and therefore there was no express agreement of subrogation that would overcome the priority of that mortgage. In the instant case, however, the mortgage instruments were the standard FNMA/FHLMC Uniform Instruments and they contained language that the mortgagors were to discharge any liens that had a priority over the mortgage; indicating an agreement of the parties that the mortgage would be a first priority lien. Conforming to the rule in Bierstadt that "the subrogee is entitled to the benefit of the security that he has satisfied with the expectation of receiving an equal lien.", and based upon an express agreement found to be present in the subject mortgage documents, the Court ruled that: "The holding in Bierstadt fits the precise definition of a mortgage refinancing" situation.

As a clear caveat, the Court notes that its application of conventional subrogation would not apply "if the original mortgagee files a release of lien prior to the recordation of the refinancing mortgagee’s lien and if a third party records its lien after the release is recorded but before the refinancing lien is recorded," AND, "Nothing in our holding, however, limits the court from considering whether the doctrine of equitable subrogation may apply."

It is finally noteworthy that the case was remanded to determine the amount to which Aames is subrogated; i.e., limited to the amount remaining on the original mortgages secured at the time of its perfection of its subrogated lien.

 

2. LANDLORD/TENANT; CONTINGENT ATTORNEY’S FEE AWARD AND LATE CHARGES CONSIDERED:

The Third District has added an interesting bit of nuance to the ordinarily mundane world of landlord/tenant law and attorney’s fees in Collins v. Hurst, (3rd Dist. August 30, 2000), http://www.state.il.us/court/Opinions/AppellateCourt/2000/3rdDistrict/August/HTML/3990937.htm. In a case revolving around a default in payments by the tenant of a lease, the two salient provisions of the lease agreement that were reviewed were (1) "Lessees shall be responsible for any or all attorney fees…" and (2) "a service charge to two percent for that month for any payment made past the 10th of the month.."

Turning first to attorney’s fees, {I knew you’d be most interested in this aspect of the case}, the landlord’s counsel had agreed to represent the lessor on a contingent fee of one third of any recovery. The Trial Court initially awarded attorney’s fees equaling one third of the $7,040.06 damage award, but, upon a motion for reconsideration, vacated the attorney fee award. On appeal, the Third District ruled that the a court may award attorney’s fees if expressly authorized by the agreement of the parties, and that this clearly was the agreement in the subject lease. Only fees which are reasonable will allowed, however, and while the court may consider the contingency fee agreement, it must also weigh the (1) skill and standing of the attorney, (2) nature of the cause, (3) novelty and difficulty of the questions, (4) amount and importance of the matter, (5) the degree of responsibility, (6) the time and labor required, (7) the usual and customary charges in the community, and (8) the benefit resulting as part of its determination. "In sum, the attorney fee provision contained in the lease…should be enforced. However, the contingency fee agreement…may not be applied…without consideration of whether that fee amounts to a reasonable award in light of the well established factors…"

On the issue of the "service charge" the decision provides very quotable language that "A lease may provide that if rent is not paid on or within a given number of date from the due date, a late charge can be added to the rent.". "A reasonable late charge provision in a contract should be enforced." This does not, however, amount to interest which can be "compounded", but "Simply put, Hurst must pay 2% of the rent due for any month that he did not pay his rent."

 

3. TAX APPEALS; STANDING AS AN "OWNER" TO APPEAL COUNTY ASSESSMENT:

Kankakee County Board of Review v. PTAB,(3rd Dist., August 21, 2000), http://www.state.il.us/court/Opinions/AppellateCourt/2000/3rdDistrict/August/Html/3990580.htm, is a case that bears reading by all real estate practictioneers regardless of whether you ever intend to hand a tax appeal. This is largely because of the discussion of who is an "owner" of real property that the court presents in its decision. At issue was whether or not Heinz Pet Products had standing to appeal the County’s assessment of taxes as an "owner". The County records showed that Gaines Foods Corporation owned the property and that the county assessor had received a letter from Star-Kist Foods, Inc. stating that all correspondence should be sent to it due to a recent change in ownership. Heinz did not present any evidence of its interest in the property at the administrative hearing, and Board of Review argued that Heinz must show that it owned the property to have standing appeal the decision to the PTAB.

The owner of real estate on January 1st of any given year is liable for the taxes on the property for that year (35 ILCS 200/9-175), and "a taxpayer or owner of property" may file an appeal of the decision of a board of review with the PTAB under the Illinois Administrative Code. Noting that "The term ‘owner’, as applied to land, has no fixed meaning applicable under all circumstances and as to any and every enactment….Title refers only to a legal relationship to the land, while ownership is comparable to control and denotes an interest in the real estate other than that of holding title thereto.", the Court ruled that "Heinz Pet Products, as operator of the facility on the property in question and as the party paying the property taxes, has standing to appeal the Board’s decision.." Heinz Pet Product’s name appeared on the check by which the property taxes were paid, but there is also good language in this decision that may apply elsewhere holding that "the key elements of ownership are control and the right to enjoy the benefits of the property."

 

4. A HOMESTEAD PRIMER: A TITLE PERSPECTIVE:

(Ed. Note: You may recall that last month, Dick Bales offered us his thoughts from a title company point of view to the question of whether a waiver of homestead was necessary when transferring a residence into a trust. It appears that the issue has been on Dick’s mind, and he sent me the following additional material on homestead for inclusion in this month’s keypoints.

I have to admit, however, that I disagree with Dick on two points in his analysis. First, while Dick argues that a "non-titleholding spouse does not have a homestead interest", I respectfully disagree. 735 ILCS 5/12-901 defines an estate of homestead as being "owned or rightly possessed by lease or otherwise and occupied …as a residence." My reading of this is that "possession" rather than "ownership" is the operative element, and therefore a spouse who is not in title has an estate in homestead. simply by virtue of being in possession.

Secondly, near the end of Dick’s article he suggests that the beneficiaries of a trust (Samantha and Darrin) which holds title to real estate by Darrin as trustee have homestead. My understanding, however, is that an estate of homestead only attaches to real estate, and not personal property. The beneficial interest is personality, and therefore there is no homestead issue here.

You be the judge, but you will note that Dick’s materials give ample argument for the waiver of homestead in most circumstances…something you might want to have on hand and ready with you at a closing next time the issue comes up… with a Chicago Title or other company examiner!)

 

"FROM THE TITLE INSURANCE PERSPECTIVE"

The end of the month generates more closings, and with them, more questions.  It seems that I am asked more questions on surveys and homestead than  anything else. Since homestead seems to be a topic of interest to many people, I thought that I might devote this month's column to the topic of homestead and discuss the common situations that seem to continually come up at the closing table.

I have always felt that homestead involves a two-pronged test. That is, 735 ILCS 5/12 901 et seq.. makes it clear that in order to have a homestead interest in land, an individual must own the land ("or rightly possess by lease or otherwise") the land and occupy it as his or her residence.

Example: John owns a home. John marries Jane and Jane moves into John's home. John and Jane now want to sell "their" home. While Jane may have to sign the deed, it is not to waive "her" homestead, since Jane does not meet the two-pronged homestead test. A non-titleholding spouse does not have a homestead interest. Rather, Jane may have to sign the deed in order to waive the homestead rights of John, the title-holding spouse.

But notice that I said that Jane "may" have to sign the deed. The attorney should keep in mind that there are enough exceptions to the laws of homestead that homestead should almost never hinder a real estate closing.

To continue with the saga of John and Jane: Note that 735 ILCS 5/12-904 makes it clear that a non-titleholding spouse does not have to sign the deed as long as possession of the property is being delivered pursuant to the conveyance. This means that as long as the title company is satisfied that Jane is willingly moving out of the property, her signature on the deed should not be a requirement at closing. To make this clear, I have sometimes suggested that the following sentence be appended to a deed: "Possession is surrendered pursuant to and concurrently with this conveyance, sufficient to convey and release homestead, as provided in 735 ILCS 5/12-904."

But if Jane did have to sign the deed: Remember that Jane merely has to sign the deed; she should not have to execute it. Why, for example, should Jane join in any warranties made pursuant to a warranty deed? It is sufficient that Jane merely sign a statement similar to: "I, Jane Doe, sign this deed for the sole purpose of effecting a release of any homestead interest."  Example: Fred and Ethel are married. They decide to buy a home. Because Ethel has such a good job, she qualifies for a mortgage all by herself.  Ethel takes title to the home in her own name. Ethel executes the mortgage.  Does Fred also have to sign the mortgage?  No. See 735 ILCS 5/12-903. A purchase money mortgage is an exception to the homestead exemption. As long as the title company is satisfied that the mortgage is a true purchase money mortgage (that the mortgage is being used to pay for the home and for ancillary closing costs, and not, for example, the purchase of a new car), the title company should not insist that Fred, as non-titleholding spouse, sign the mortgage.

Example: A year later Fred and Ethel decide to refinance. NOW Fred must sign the mortgage. A refinance or second mortgage or equity mortgage is NOT exempt. But again, Fred need not execute the mortgage. He need only sign it, using a statement similar to the one above that Jane signed.

Note that 735 ILCS 5/12-903 would also except out a construction loan. Example: Bob and Carol are married. They are buying a home; both Bob and Carol will be shown as grantees on the deed, holding title in joint tenancy.  The lender states that because Bob has such good credit, he alone can be the mortgagor, and that Carol has to sign the mortgage solely to waive homestead. Is there a problem? YES! This is not a homestead issue, this is a title issue. In order for a lender to have a lien on the land, all owners of the land must mortgage the land. Otherwise, in the event of foreclosure, the lender would receive a sheriff's deed for only a 50% interest in the land. Even worse, because of the holding in Harmes v. Sprague, 105 Ill. 2d 215 (1984), if Bob were to die, Carol, as surviving joint tenant, would own the land, free and clear of the mortgage. The rule here is: if you own the land, you have to mortgage the land!

Example: Ma and Pa Kettle have one daughter, Rebecca, who is not married. Rebecca wants to go out on her own and buy a home. Lender wants Pa Kettle to execute the note and mortgage, together with Rebecca. Should Ma also sign the mortgage "in order to waive homestead?" No. Remember the two pronged test. Homestead is an issue when the title holding spouse both owns the land and occupies it. Here, Pa does not own the land, nor will he be living there. Thus, neither criteria of the two-pronged homestead test is met.

Example: Same facts as above, but now lender feels that since Pa and Rebecca will execute the note and mortgage, they should also own the property. Pa and Rebecca take title to the property. Should Ma sign the mortgage to waive homestead?  No. First of all, it appears that this is a purchase money mortgage. But even if it weren't, since Pa doesn't live on the property, half the two-pronged test is not met, and therefore, Ma will not have to sign.

Example: Same facts as above, but now Lender is insisting that Pa and Ma and Rebecca all take title to the property. In this case, all three people should sign the mortgage, but again, this is for reasons of title and not because of any outstanding homestead interest.

Example: Oscar and Della Renta are husband and wife. They are separated. While separated from his wife, Oscar purchases a home, paying cash for it. Oscar lives there by himself for six months. He then finds out that his employer is transferring him across the country. He puts his home up for sale. It is obvious that Oscar, and only Oscar, bought the home and has lived in the home ever since he purchased it. Does Della have to sign the deed in order to waive homestead?  No. First of all, all occupants of the land are delivering possession of the land at closing. Secondly, Illinois case law makes it clear that the spouse of the titleholder must reside with the titleholder in order for the Homestead Act to be operative. See, for example, Dixon v. Moller, 42 Ill.App.3d 688 (1976); Brod v. Brod, 390 Ill. 312 (1945).

Example: Ted is married but separated from his wife, Alice. He alone owns the home that he lives in. He wishes to refinance his existing mortgage.  Does his wife have to sign the mortgage? He assures the title company that there is no hope of reconciliation, that "they will be getting a divorce soon."  I have underwritten many varying forms of this example, which I term the "abandoned possession" issue. (See 735 ILCS 5/12-904, which excepts out instances wherein "possession is abandoned.") The factors that I consider include: Did the non-titleholding spouse ever live on the property? How much time has elapsed since the non-titleholding spouse moved out? What were the circumstances of departure? Is the couple's separation permanent or temporary? What possibility is there of a reconciliation? Has the non-titleholding spouse established a new homestead? (For example, has he or she changed his or her driver's license or voter registration?) Is the non-titleholding spouse’s present whereabouts known? What proof do I have of the accuracy of this information? How credible is the party furnishing me this information? Note that there are many old cases that seem to indicate that the intent to abandon is the key, that a mere moving out of the home, without the intent to truly abandon it, does not constitute an abandonment of possession. See, e.g., McBride v. Hawthorne, 268 Ill. 456 (1915); Ketcham v. Ketcham, 269 Ill. 584 (1915). For this reason title company underwriters must thoughtfully weigh all factors before deciding not to require a spouse's signature in this type of situation.

Example: Now change the facts slightly. Unfortunately, Ted and Alice both took title to their home. Ted now wants to refinance (or sell) his home.  He tells me that Alice has been gone for at least ten years, and he has no idea where she lives or even if she is still alive. I see no answer to this except a quiet title suit. Again, this is a matter involving Alice's title to the land. While one might abandon possession of land, one cannot abandon title. And while it is technically possible to adversely possess land as against a true owner, this can only be accomplished by a complete repudiation of the title of this owner. See Carpenter v. Fletcher, 239 Ill. 440 (1909). And even so, it seems doubtful that a title company would insure the land through such repudiation..

Example: Barney owns a combination mattress company and candy store called the "Bed-Rock Candy Company." Barney is married to Betty. Barney wants to refinance the mortgage on his business. Does Betty have to sign the mortgage? No. Since the store is not an owner-occupied residence, the homestead laws do not apply. To prevent confusion later, Barney's lawyer might ask the title company to put the following statement on the mortgage: "This is not homestead property."

Example: John owns his home. He wants to convey it to his wife. Does his wife have to sign the deed? No; see 735 ILCS 5/12-904.

Example: Samantha and Darrin own a home. For purposes of estate planning, Darrin owns the home as trustee of the Samantha and Darrin living trust. If Darrin were to convey or mortgage the property, does Samantha have to join in the deed or mortgage? I have wrestled with this situation for some time, and have finally decided that homestead should not be an issue in this type of situation. I go back to section 901 of the Homestead Act, which talks of an individual owning land and occupying it as his or her residence. I feel that a legal fiction is created here in that Darrin the individual is an entity separate and apart from Darrin the trustee. Darrin the individual occupies the land, while Darrin the trustee owns it. Therefore, both parts of the Section 901 two-pronged test are not met-while Darrin the trustee owns the home, Darrin the individual occupies it. I feel that these are legally two separate people. For example, there might be a situation where a title company might waive a lien against Darrin the individual because the owner of the land is Darrin the trustee.

There is still more that can be said about homestead, but these are the issues that continuously come up at closings. If the attorney feels that he or she may have a homestead problem, the attorney should contact the title company as soon as possible. Fortunately, there are many exceptions to the application of the homestead laws. Unfortunately, many people do not realize this. If the attorney feels that the title company employee he or she is working with is one of these people, the attorney should not hesitate to go further up the chain of command.

Dick Bales, Chicago Title Insurance Company

 

5. MORE ON THE POWERS OF ATTORNEY ACT; THE IMPORTANCE OF FOLLOWING THE STATUTORY FORM:

Last month, we disseminated a number of comments generated on the ISBA Real Estate Law Section Council discussion site, (ISBA.org), relating the amendment to the Illinois Powers of Attorney Act effective June 9, 2000, requiring witnesses to validate the power and a number of other changes in the law that caught a number of us "unawares" ("flatfooted"?). I received a number of e-mails from folks who had tried to find the statutory power of attorney form on the ISBA website unsuccessfully. I have since sojourned the internet and can assure you that the form can be downloaded by going to http://www.isba.org/toolbox.asp. (While you are there in the "toolbox" you will find some other excellent resources including standard interrogatories, a legislative roadmap, and a guide to the statutes of limitation.)

A recent case which indicates the trials and tribulations that can result from the use (or "half-use") of the statutory form is Fort Dearborn Life Insurance Co. v. Holcomb, (1st Dist., August 28, 2000), http://www.state.il.us/court/Opinions/AppellateCourt/2000/1stDistrict/August/HTML/1993627.htm. The facts in this case are entertaining and read like a soap opera; the husband gives his wife a power of attorney effective only upon his disability, then they get separated, but not divorced; when he is diagnosed with "virulent cancer" and hospitalized, he has his secretary deliver a change of beneficiary forms naming his paramour as the beneficiary under his life insurance policies in place of his wife. In the meantime, of course, the wife has exercised her power of attorney given five years earlier and named herself as beneficiary under the policies. The issue is whether the power of attorney to the wife was "Durable" under the Statutory Short Form. If so, the statute, which expressly states that the agent does not have power to change any beneficiary designated by the principal unless the power explicitly so provides. If, alternatively, the power is a "broad form" outside of and not subject to the provisions of the Short Form Act, then the power to change beneficiaries was arguable granted to the wife by the husband in the "catchall" provisions.

The Court’s decision holds that the power of attorney in question was substantially compliant with the statute and therefore constituted a "Short Form entitled to the meaning and effect prescribed in Article III". This, accordingly, meant that the wife could not change the beneficiary of the policies because the husband had not specifically granted that power within the enumerations of the powers, and the change of beneficiary by the wife to herself was invalid under the document.

This case is an interesting read for the facts, but also an example of how important following the form and statutory mandates are in the preparation of powers of attorney.

 

6. THE PRACTICE OF REAL ESTATE TRANSACTIONS RELATING TO RESPA:

Another excerpt from the ISBA Real Estate Section Council email which begins on the topic of powers of attorney, but then leads to something REALLY important that is worth your consideration, is that Mike Poulos of Evanston. He writes the following about the "common practice" of "selective RESPA inclusion":

"I have been reading your flashpoints the past few months. You are

doing a fine service for members of the ISBA. (ed.: THANX, MIKE...ALL ACKNOWLEDGMENTS, HONORARIUMS, DIPOLMATIC APPOINTMENTS, AND ANY JOB OFFERS ARE ALWAYS APPRECIATED!)

Regarding the powers of attorney, our reading of the act is that the notary must state that the principal signed in the presence of the notary and the witness. The notary is not notarizing the witness's signature. (Ed.: Most of the attorneys I have spoken with agree with Mike’s interpretation.)  I would be interested in seeing some discussion of the implications of a common practice, namely leaving certain details of a real estate closing off of the RESPA at the lender's insistence. Sometimes this is just a matter of a few hundred dollars for a last minute a repair credit or a rent credit, but sometimes the amount involved is quite substantial: thousands or tens of thousands of dollars.  The RESPA is supposed to be an accurate statement of the real estate transaction, and presumably the lender is going to rely on this document, yet it is the lender who insists it be inaccurate. At some point I am concerned that the title company and/or lawyers and/or clients might get in trouble for signing off on an inaccurate RESPA.  From the seller's perspective, it would be suicidal to refuse to sign the RESPA in the manner demanded by the lender because then the deal falls through.  Perhaps you might address in a future issue the current thinking on this topic.

Thank you.

--

Michael D. Poulos

MICHAEL D. POULOS, P.C.

Attorneys at Law

1724 Sherman Avenue

Evanston, Illinois 60201

Telephone 847-492-9800

Fax 847-492-9801

E-mail Michael@PoulosLaw.com"

(Ed.: Needless to say, I think Mike’s comments strike a very true chord that is all too often played in the residential real estate transaction in Illinois. I would appreciate comments from anyone. On November 2, 2000 and November 10, 2000, the ISBA Real Estate Section Council’s annual Real Estate Law Update program will be offered in Bloomington/Normal and Chicago. This year there will be an EXTRAORDINARY panel discussion entitled the "The Future of Lawyers in Residential Real Estate Transactions" with Tim Eaton, ISBA First Vice-President, Peter Birnbaum, ATGF President, and John O’Brien, IRELA President participating. In addition to unauthorized practice, multi-disciplinary practices, and the efforts of some Realtors to exclude private attorneys from active participation in transactions, there certainly should be some discussion of the "realities vs. practicalities" of the business of practicing law suggested by Mike Poulos’ concern. If at all possible, please consider attending because this panel will encourage comments and participation from the attendees.)

 

7. UNAUTHORIZED PRACTICE OF LAW:

The Illinois State Bar Association has made the following announcement on the unauthorized practice crisis: "The ISBA has joined the Illinois attorney general in legal action against an out-of-state non-lawyer who advised local residents that pyramid investments and other chain distribution schemes may not be unlawful in this state. Read all about it at http://www.isba.org/Association/008-15a.htm. Has some non-lawyer in your area been advertising cheap services that only an attorney should be performing? The ISBA legal department in Springfield now has UPL counsel to compile a record of incidents and assist the new ISBA Task Force on Unauthorized Practice of Law, recently appointed by incoming president Herb Franks, as it implements strategy. Send documentation and narratives to

ISBA General Counsel Dennis Rendleman, 424 S. Second St., Springfield 62701. ISBA member Irene Bahr also asks any member who has information on any UPL issues relating to the Internet to please contact her by e-mail, IBAHR@aol.com, or by phone at (630) 462-1113. The task force is chaired by Ole Bly Pace III.

 

8. RAILROAD RIGHT OF WAY AND REVERSIONARY INTERESTS IN ADJOINTING LAND OWNERS:

The Plaintiffs in Marlow v. Malone, (4th Dist, August 3, 2000), No. 4-99-1024, http://www.state.il.us/court/Opinions/AppellateCourt/2000/4thDistrict/August/HTML/4991024.htm, brought an action against the defendants as adjacent landowners to quiet title to property which had once been a part of a railroad right of way. From 1967 on, Plaintiff’s owned property west of and adjacent to the Illinois Central Railroad Company right of way. They did not own the underlying property. In 1986, the ICR abandoned the right of way, and by federal statute "when railroad operations cease, the railroad has no power to convey any interest in its former right of way. (43 USC 912) Nonetheless, in 1988, the ICR conveyed the right of way to the Defendant’s predecessor in title. Plaintiff argued that since the United States Code, (43 USC 912), provides that the federal government automatically divests itself of its reversionary interest in land originally granted for railroad usage and then abandoned, and the Plaintiff’s predecessors received title by grant from the government of land surrounding the right of way, this statute operated to vest title to the property in them when initially abandoned by the ICR.

Noting that "It is a fundamental requirement in an action to quiet title…that the plaintiff must recover on the strength of his own title", and "Moreover, where a plaintiff has no title in himself, he cannot maintain an action for quiet title", the Court found that Plaintiffs did not have the quality of title needed to support a claim under Section 912 or a quiet title action. Section 912 requires title to the property underlying the right of way, and the Plaintiff only received title to the land lying adjacent to the right of way inasmuch as the deeds in the chain of title specifically described a parcel "lying West of the Illinois Central right of way". Ownership of adjacent property alone is not sufficient to acquire title to property when abandoned as in this case. While two difference owners each owning property abutting a right of way will own to the centerline of the right of way upon abandonment under state law, (65 ILCS 5/11-91-2), nothing in 43 USC 912 supports this interpretation where the claimant does not own the underlying land itself. Accordingly, the majority decision concludes, Plaintiff’s cause of action fails for lack of a claim of title in the underlying property.

Justice Cook dissented noting that the railroad could not reserve more than a right of way in itself when it conveyed title to the property adjacent to the tracks to third parties under the grant it received from the United States. Accordingly, when the deed to Plaintiff’s predecessor from the railroad described the property as that lying west of the right of way, the railroad failed to convey the underlying property to Plaintiff’s predecessors, but could not claim ownership in itself by failing to make a conveyance regarding the right of way. Therefore the title to the underlying property must have remained in the federal government. "If the title of the United States to an entire quarter-section has been conveyed to an individual, except for a railroad right-of-way traversing that quarter-section, the owner of the quarter-section will own the former right-of-way when the use and occupancy of said lands for such purposes ceased. 43 USC 912", Justice Cook argues. Since no party had a fee interest in the land underlying the right of way and the last party to hold the fee was the United States, the issue for the court to determine is who owns the land through which the right-of-way passes so that the provisions of 43 U.S.C. 912 can be applied to determine who is the property recipient of the benefit of the government’s intent to divest itself of its reversionary interest.

 

9. LEGISLATION AND REGULATION POT POURRI:

Increased Recording charges on the horizon: Public Act 91-0791, amends the Counties Code to provide that the county board of a county that provides and maintains a geographic information system may provide for an additional charge of $3 for filing every instrument, paper, or notice for record in the Office of the Recorder of Deeds. The purpose of the legislation is to provide and maintain maps as part of a geographical information system. The result, of course, is to increase the cost of recording deeds, mortgages, releases and other documents of record in real estate transactions. Each county must implement the fee increase by passing a county ordinance. Illinois has 102 counties, and this means that there will no longer be an identifiable standard recording or filing fee for all counties for the foreseeable future as the counties vary in their response to the Act. Chicago Title states that "As usual it will take 1-2 years or more before all of the counties add the fee so that fees throughout the state will again become standardized. In the meantime, we will survey at least once a quarter each office that has not implemented the add-on fee to keep our subscribers up to date." An alphabetical listing of the counties indicating which have adopted the fee increase can be found at the website of Chicago Title, http://www.nationaltitleinformation.ctt.com and from First American Title through Special Counsel James Weston, Jweston@firstam.com.

Criminal Trespass to a Residence: Public Act 91-895, (effective July 6, 2000) creates a Class 4 Felony violation for criminal trespass to a residence. The elements of this new crime provide that if a person without authority (1) knowingly enters the residence of another and knows or has reason to know that one or more persons are present; or (2) knowingly enters the residence of another and remains in the residence after he or she knows or has reason to know that one or more persons are present, that person is guilt of a Class 4 Felony. (This is one to keep in mind for the right situation.)

Clear Cutting of mature or established trees near water is prohibited by Public Act 91-907, effective January 1, 2000. The trees must be within 15 yards of navigable waters, and there is an exemption for municipalities relating to highway, bridge or drainage projects. The Department of Natural Resources is required to adopt rules allowing waivers for "necessary socioeconomic development projects" for municipalities with a population exceeding 500,000. (Here is another possible "tool" in neighboring land owner disputes.)

Electric public utilities must give notice to affected residents and the mayor or county board chairman when they trim or cutback brush, trees or weeds under Public Act 91-902, effective July 6, 2000. Whenever a "non-emergency vegetation management activity" is undertaken, the Act requires that the utility act in conformity to the current guidelines of the International Society of Arborculture (whatever that is) and the standards set by OSHA (scaffolds for tree cutting?) and the American National Standards Institute size of the cut?). The Illinois Commerce Commission has the authority to investigate and issue complaints against utilities under the Act.

Howse your Land Patent?: The Miami Tribe of Oklahoma filed suit in the U.S. District Court for the Southern District of Illinois in June, 2000, naming the owners of 15 specific parcels of land located in 15 difference counties in east and central Illinois, and alleging claims against more than 2.6 million acres throughout the counties. The Tribe alleges that its treaties with the federal government in 1795 and 1805 acknowledged the tribal rights to the land. The lands were later granted by land patent or otherwise to the defendant’s predecessors in title when they settled in what became Illinois in 1818. This litigation has an interesting impact on title companies doing business in the 15 counties, (Champaign, Clark, Coles, Crawford, Cumberland, Douglas, Edgar, Effingham, Ford, Iroquois, Jasper, Livingston, Moultrie, Shelby and Vermilion), because, of course, the very foundation of the title they are insuring is the subject of the litigation. At least one title company, (First American Title Insurance Company), is continuing to insure land in these Illinois Counties, although there is some limitation on the potential liability set forth in endorsements issued on specific policies. Jim Weston, Special Counsel for First American, recently reviewed the pending case and discovered that the Tribe has filed an amended complaint which removes the State of Illinois as a defendant, and suggests that the Tribe’s apparent motivation in bringing the suit is related to a request for a license to operate a land-based casino in Illinois.

 

10. UPDATING THE BUSINESS OF THE PRACTICE OF LAW; STATEMENTS OF WHY AND HOW ATTORNEYS SHOULD CONTINUE TO REPRESENT CLIENTS IN RESIDENTIAL REAL ESTATE TRANSACTIONS:

There doesn’t seem to be a day that passes of late that the issue of whether attorneys should/can/will continue to represent clients in residential real estate closings doesn’t come up in one form or another. Sometimes it is in the form of unauthorized practice of law issues, (see Keypoint No. 7 above), and other times in the arena of litigation between lawyer’s groups and others over each other’s role in the transaction (i.e., the pending IRELA litigation against Koenig & Strey). Two authors, each in a position of considerable respect and authority, have recently provided the bar with their thoughts and cogent reasoning on the issue of the need for lawyer involvement in residential real estate transactions. The first article appeared in the August issue of the Kane County Bar Association’s "Bar Briefs" as the ‘President’s Page" by Susan Rogaliner, and was reprinted in the ISBA Bar News on September 15, 2000, under the title of "Protect the Real Estate Client". The second was published in the August, 2000 ISBA Real Estate Section Newsletter, (Vol. 46, No. 1), entitled "The Need of Homebuyers and Sellers for Independent Counsel" by Stanley B. Balbach.

Stan Balbach, is an attorney of whom other attorneys state "need(s) no introduction…who has spoken and written so much for so long on so many real estate related matters that it would be redundant to go further". He advances the position that Attorneys not only should be involved in transactions to protect their clients "in the largest financial transaction that most people face in their lifetime, ", but proffers that there be involvement early on, before the listing agreement is signed with a Realtor, "in deciding whether to sell and in negotiating the listing contract…(because)…At this point the broker has a clear adverse interest to the seller, as the broker is paid only if the property is listed and sold." The attorney offers not only counsel at this time, but, most importantly, independent counsel that is not tied and predisposed to the consummation of a sales transaction. The article was first printed in the June, 2000 issue of Elder Law, and therefore emphasizes the importance of the role of the attorney as independent counsel in the situation where the client is a senior citizen and faces a greater need to explore alternatives to deal with and protect their generally greater equity in their residence. Noting that the transition from buyers and sellers each having independent counsel to virtually no involvement has been "gradual and with little publicity" in California, somewhat less "gradual" in Arizona, and has not occurred at all on the East Coast where lawyers frequently represent all sides in a transaction, including the lender, Stan states that "The problem of lack of representation is almost impossible to solve on an individual lawyer basis." His article ends by suggesting that "The home buyer needs independent legal counsel before signing anything, and older persons have the most to lose if they do not have this advice. Meeting that need is an ideal program for our section, which could look towards the Standing Committee on Lawyers Title Guaranty Fund of the ABA for advice and assistance."

Susan Rogaliner’s article was addressed to her fellow members of the Kane County Bar Association, and begins with the litany of disclosures required of real estate brokers by the Supreme Court of New Jersey, (one of those East Coast states where attorneys are still involved), when presenting a real estate contract; i.e. the real estate broker’s representation status as seller’s agent, buyer’s agent, or dual agent, and that neither they nor the title companies are able to give legal advice or perform legal services. Susan poses the question of whether it is time for the Illinois Supreme Court to require the same of Illinois Real Estate Brokers in an environment of increased unauthorized practice of law and where it appears that brokers are attempting to eliminate attorneys as a necessary component to the transaction. Citing Quinlan & Tyson and noting the recent litigation between IRELA and Koenig & Strey, Susan notes the obvious but often unstated: (1) Lawyers are the only persons involved in a real estate transaction who are truly looking out for the best interests of their client, and (2) The Lawyer’s duty of loyalty and independence set us apart from the business world in real estate transactions. She ends by calling upon the bar to "observe high standards in our own practices in order to combat the negative image of lawyers in our communities", and urges attorneys to report instances of unauthorized practice to the ISBA and IRELA.

(Ed. There are times when the arguments against continuing attorney representation of clients in residential transactions seem to overwhelm me; ("Attorneys don’t participate in states like Arizona and California and things don’t seem to be too bad"; "Why not abandon this area, there isn’t any money to be made in ‘house closings’ anyhow"). In the future, might suggest we keep these two articles in a drawer, handy and ready to reinvigorate our commitment to represent clients in residential real estate transactions.)