REAL ESTATE LAW PRACTICE “KEYPOINTS”

(November, 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: This keypoints installment comes to you at the END of the month of November, rather than the beginning, and with apologies. There are a lot of good reasons for the late submission: There weren’t any really exciting cases at the end of last month to inspire; The first week of November required a great deal of work on the ISBA Real Estate Law Ed Program Case Law Update; A number of important and demanding client matters arose at the end of October and beginning of November; And a myriad of other less worthwhile excuses….

But, nonetheless, here are some ‘keypoints’ in the practice of real estate law in Illinois this month that simply shouldn’t be overlooked. Thank you for your patience….

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 some of their unique view points on various developments in the law in these keypoints.)

 

1. ANNUAL SUMMARY OF CASELAW UPDATE AND OTHER GOOD MATERIALS AVAILABLE FROM THE ISBA LAW ED SERIES:

As noted above, one of the reasons of the late submission of this month’s keypoints was the ISBA Real Estate Law Section Council’s Law Ed Series program in Chicago and Bloomington on November 2, 2000 and November 10, 2000. The materials from this particular program are worthwhile and recommended.

Included are a section on "Attorneys Fees and Real Estate Related Legislation", by Samuel Levine, (covering the applicability of recent cases such as Miller v. Bizzell), materials on "Enforcing a Judgment Against Real Estate" by Ray Ostler, (with a good discussion of Tenancy by the Entirety from a creditor’s point of view), a "Primer in Eminent Domain" by Brian P. Liston and Jack H. Tibbetts, (setting forth some excellent introductory materials, a pathway to forms on the IDOT website, and a good discussion of highest and best use considerations), and Andy Dystrup and Jim Dunneback’s work on "Avoiding and Dealing with Post Closing Problems", (analyzing the doctrine of merger, Residential Real Property Disclosure Act, Vendee’s Liens, and Implied Warranty cases.) Regular readers of these keypoints may also be pleased to know that included in the material is a compilation of the last year’s case law updates… arranged alphabetically by topic, (beginning with adverse possession and ending with… of course, zoning), which should allow you to throw away and replace your monthly print-outs with a better organized, updated version.

If you didn’t get a chance to attend the Law Ed program or order the materials, you can contact Becky Havrilka at the ISBA, 424 South Second Street, Springfield, Illinois 62701-1779, (800) 252-8908, and she should be able to get you a copy. {If you only want the case law update portion of the materials, or the ISBA runs out of copies, you can get a copy by email from the ISBA Real Estate Section Council website in the near future when they are posted on-line, or contact Steve Bashaw, sbashaw@bashawlaw.com.)

2. UPDATING THE COUNTY INFORMATION AVAILABLE ON THE WEB:

Last month I gave a limited listing of the ‘collar counties’ that had a home page and some presence on the web. My hope was that I would hear from other attorneys giving us more information about other counties, and, …that more and more counties may eventually follow the path into the electronic communication age. (You can, for example, get complete information, including copies of orders entered the day after they are docketed, on line from the Northern District Bankruptcy Court at www.ilnb.uscourts.gov!) In response, I received the following note by e-mail from Tom Hodson of Kennedy and Hodson in Champaign:

"Your list of useful clerk web sites might have included Champaign County.

The main site is http://www.cccircuitclerk.com/.

However, docket information is available for cases filed in the last several years with a password and payment of an annual fee. The docket information is a few days behind, but it has saved me a more than a few trips to the courthouse. Thanks for the great updates. I have also enjoyed your presentation and the real estate updates.

Tom Hodson"

Please keep updating us all as the counties come "on-line", and please keep encouraging your local county government to support the expansion of information available on the internet. Can you imagine not having to go to the courthouse house some day to check the status of a case?

 

3. SUBROGATION ISSUES FROM THE TITLE COMPANY POINT OF VIEW; INSURING OVER JUDGMENTS:

(Editor’s note: Two of the more discussion provoking cases of the last year have been 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, 734 N.E.2d 493, 248 Ill.Dec. 565 and LaSalle Bank v. First American Bank, (1st Dist., September 12, 2000), http://www.state.il.us/court/Opinions/AppellateCourt/2000/1stDistrict/September/Html/1981388.htm, both of which relate to the issues of lien priority and the application of the doctrine of subrogation to upset the traditional rule of "first in time is first in right". In fact, at the recent Law Ed Series program, one of my good friends in the title industry asked me what I "had against the title companies" that I emphasized these cases and thought so poorly of the law they make.

As I had hoped, Dick Bales has some thoughts on the issue of lien priorities from his title company’s point of view. Usually the subrogation issue is raised, as occurred in the Aames Capital case, by an intervening judgment lien. Here are Dick’s notes about how he views these intervening liens, with some good thoughts on purchase money mortgages and a reference to legislation that takes effect in 2001 which may surprise you:)

FROM THE TITLE INSURANCE COMPANY PERSPECTIVE:

With the State of Illinois being blessed with two subrogation cases in as many months, I thought that it might be interesting to discuss the underwriting of judgments (735 ILCS 5/12-101 et seq.).

When the title commitment reveals a judgment against the seller, the seller’s attorney should first try to obtain a payoff letter from the judgment creditor so that the judgment can be paid off at closing. For a court case that explains how to determine the interest rate of a judgment, see Halloran v. Dickerson, 679 N.E.2d 774. If the seller wishes to contest the judgment or otherwise does not wish to pay it off, the title company will want the judgment amount, plus interest, and perhaps an additional "cushion," deposited into a title indemnity.

A little-known instrument is the "release of land from judgment." It may or may not lessen the amount of the judgment debt. It does, though, release specific land from the lien of the judgment. It is similar to a partial release of mortgage, and will be recorded against the land in question. It should always be recorded, and it usually will not have to be filed with the court case. It will contain a legal description, since it affects specific land owned by the judgment debtor. Once recorded, the title company should be able to waive the exception for the judgment.

This document can be very useful when the debtor owns more land than that being insured. Since the judgment debtor owns additional collateral, it is possible that the judgment creditor will execute this partial release of judgment, releasing a portion of land from the lien of the judgment. The creditor would be willing to do this because there is other land that remains subject to the full lien of the judgment.

If the judgment creditor will not release the land from judgment without getting paid at least some money, then the creditor should also execute a "partial satisfaction and release of judgment." This document merely acknowledges the partial payment of the debt owed. It can be recorded and filed, or only recorded, or only filed. This document would not have a legal description attached to it, as it is a release of debt, and not a release of land. It is a document that is recorded against the judgment debtor, not against the land owned by the judgment debtor. The title company would not be able to waive the judgment based solely on the partial satisfaction and release of judgment, since the remaining judgment debt continues to be a lien on the land owned by the judgment debtor. In order to waive the judgment in this situation, the title company must have both the release of land from judgment and the partial satisfaction and release of judgment.

Buyer’s counsel has much more leeway when dealing with judgments against the purchaser of real estate. A personal information statement may be helpful in clearing liens against a common name. By comparing the history of addresses on the affidavit with the addresses shown on the liens, the title company may be able to waive one or more of the liens.

If there is a judgment against the buyer, and it is a "cash sale," with no mortgage being executed, the title company should only have to show the lien on the title policy. One need not worry about clearing title. The reason for this is that it is the buyer’s policy and the buyer’s lien. The purchaser takes title subject to his or her own acts.

If there is a lien against the buyer and the buyer is purchasing the property with a "purchase money mortgage," and all the mortgage proceeds are being used to buy the land and pay related costs, with no money going back to the buyer, then again, there should be no problem. The title company should show the judgment on the owners policy, and either show the judgment on Part II, Schedule B of the loan policy, which affirms that the judgment is subordinate to the lien of the insured mortgage, or show the judgment in Schedule B of the policy, but endorse over it. The title company can do this only with a purchase money mortgage. It cannot do this with a refinance or second mortgage. The rationale is as follows: A purchase money mortgage creates a kind of "but for" test. That is, the buyer is unable to purchase the land, "but for" the mortgage. Therefore, when the seller delivers the deed to the purchaser, it is as if the deed is transferred already subject to the lien of the purchase money mortgage. Accordingly, even a memorandum of judgment that is recorded prior to the day of closing is automatically subordinated to the lien of the subsequently-recorded purchase money mortgage.

Unfortunately, some lenders may not accept this course of action and will insist that the judgment not appear at all on the loan policy. If this is the case, there is no choice but to pay the judgment debt.

Some court cases concerning purchase money mortgages include: Bank of Homewood v. Gembella, 48 Ill.App.2d 316 (1964); Curtis v. Root, 20 Ill. 54 (1858).

A judgment is a court order. Only until the judgment, or memorandum thereof, is recorded is the judgment a lien against real estate. Nonetheless, there will be times when a lender will ask the title company to hold back loan proceeds because its credit report indicates the existence of a judgment that is not shown on the title commitment. It is not on the title report because it was never recorded at the Recorder’s Office. Even though the judgment is not enforceable against the land at the time of closing, lenders will many times be adamant about insisting that there be a hold back until the judgment has been satisfied.

Title companies are often asked to waive a judgment because the property owner has been discharged in a bankruptcy proceeding. Title companies cannot do this. A judgment (properly perfected) survives the discharge unless a specific bankruptcy court order declares the judgment to be void. While the debtor may not be personally liable for the judgment debt, the judgment remains a lien on the land. See, e.g., First National Bank in Toledo v. Adkins, 272 Ill.App.3d 111 (4th Dist. 1995); In re Wrenn, 40 F.3d 1162 (11th Circ. 1994).

For a fine article that sets forth some of the more esoteric aspects of judgments, see Gary R. Gehlbach’s article in the September, 1995 issue of the ISBA’s Real Property newsletter.

Public Act 91-924 becomes effective on January 1, 2001. It adds 735 ILCS 5/12-144.5 to the statutes concerning judgment liens. This new statute provides that when there is an execution and sale on a judgment, the sale must be confirmed by the court before the judgment creditor can obtain a deed.

Dick Bales, Chicago Title, Wheaton

4. ZONING HEARINGS AND THE RIGHT TO CROSS EXAMINATION:

In People ex rel. Klaeren v. Village of Lisle, (2nd Dist., October 13, 2000), http://www.state.il.us/court/Opinions/AppellateCourt/2000/2ndDistrict/October/Html/2991256.htm an interlocutory appeal was brought from an order granting a preliminary injunction preventing the defendants, Saint Procopius Abbey and Meijer, Inc., from constructing a retail store on property owned by the Abbey pursuant to a contract with Meijer. The Plaintiffs were adjoining landowners who alleged that the ordinances enacted by the Village of Lisle, (also a defendant), annexing, rezoning, and authorizing the construction of a planned unit development on the property were adopted following procedurally defective public hearings. The defects alleged occurred at a July 9, 1998 joint public hearing of the Village Board of Trustees, Village Plan Commission, and Village Zoning Board of Appeals. At the public portion of the meeting in a local junior high school, the Mayor announced: "…this is a public hearing. It is not a debate. There will be no attempt at tonight’s hearing to answer any question raised by the audience…(There will be an orderly process of people from the audience speaking in favor and against the proposal)…To be fair to everyone in the audience, I ask that you limit your comments to two minutes each…No one will be allowed to speak a second time until everyone has an opportunity to speak once."

Based on the Mayor’s procedure, the Plaintiff’s asserted in their complaint that they were denied procedural due process by virtue of the fact that there was no opportunity to cross-examine the representatives of Meijer relating to the proposed development in order to bring out the facts and impact of the development on the community to the boards. The Defendants, of course, argued that there was no procedural due process requirement for cross-examination in a zoning hearing. The Second District noted that "this is an area of the law around which no clear consensus had developed.", and proceeded with its own analysis and determination.

The majority opinion written by Justice Hutchinson turned on the definition of the word "hearing" in the Municipal Code, and concluded that while the official presiding at a zoning hearing must be given broad discretion to ensure that the cross-examination is appropriate, relevant, reasonable and contributes to the fact-finding process, that discretion does not allow a local zoning body to adopt a procedure that does not include the right to cross-examination. Procedural devices to ease the administrative burden of allowing cross-examination, which do not unduly interfere with that right, are permissible. Limitation of the right of cross-examination based on subject matter is permissible. The joint hearing procedure used here is permissible to provide greater efficiency when several different bodies must rule on the same evidence, but the procedure must not interfere with the independent evaluation of the hearing body. The two-minute time limit used here is within the presiding officer’s reasonable discretion to limit public comment, but should be exercised with due care, and may not be the vehicle by which the right of cross-examination in the search for a full and true disclosure of the facts is denied. Finally, where a modification of a proposal before the board is produced in response to evidence obtained during a public hearing is allowed, a second hearing is required where those modifications result in a material change in the nature of the proposal, or involved introduction of additional evidence to the hearing body.

Justice Rapp dissented, noted that the process of municipal annexation and zoning is a legislative function. As an administrative body, the board possesses board discretion in conducting its hearings. While that discretion may not be exercised arbitrarily, all that is necessary is a meaningful opportunity for all to present their case. In this instance, the board’s duty was to conduct a fact-gathering rather than a full adversarial hearing. The definition of "hearing" relied upon by the majority was distinguished by Justice Rapp, and he concludes with a concern that there is "a danger in the various suggestions as to the procedures set out by the majority. Too much discretion is allowed to the presiding officer. These requirements are best left to the legislature, from which all local zoning authority emanates."

5. AN UPDATE ON IRELA v. KOENIG & STREY and UNAUTHORIZED PRACTICE:

The October 2, 2000 issue of Lawyers Weekly USA, The National Newspaper for Small-Firm Lawyers, featured an article about the status of the IRELA v. Koenig & Strey litigation entitled "Real Estate Lawyers Sue Brokers for Recommending In-House Lawyers", by Christa Zevitas. The article highlighted the efforts of the Realtor to advance one-stop-shopping for consumers in real estate sales by obtaining "in-house" representation, and John O’Brien’s counter-program on behalf of IRELA emphasizing the importance of the need for independent counsel for buyers and sellers to protect their client’s interest; representation that is not tied directly to the profits that result only when the transaction closes, regardless of problems or defects in the transaction.

In states where brokerage firms rather than independent attorneys handle closing, the closing costs are at least four times greater ; (the combined costs of title insurance, recording fees, lenders title and escrow costs are $900 in Chicago, Illinois versus $3,800 in Los Angeles). O’Brien’s concerns were echoed by Lynda Shely, Chair of the ABA Standing Committee on Client Protection in her statement that: "A term which underlines all ethical rules and all disciplinary codes is ‘"independent professional judgment’…So if a lawyer is beholden to someone other than the client, that relationship could affect his or her ability to use independent professional judgment."

The discussion on "The Future of Lawyers in Residential Real Estate Transaction" conducted at the ISBA Law Ed Series in early November included not only the thoughts and comments of John O’Brien on behalf of IRELA, but also those of Tim Eaton, First Vice-President of the ISBA, Peter Birnbaum, President of ATGF, practitioners Myles Jacobs of Joliet, Steve Bashaw of Oakbrook Terrace, and comments from the audience on these issues. What is clear from that discussion is that the issues raised by IRELA’s struggle with Koenig & Strey, while couched in terms of the Unauthorized Practice of Law, also reflect the concerns the bar has over Multi-Disciplinary Practices, the recent movement within the bar for certification of areas of concentration, (specialization), and the potential for mandatory CLE that this all suggests. The profession is at a crisis point relating to the role of lawyers in residential real estate transactions. It seems clear that if we are to use the sword of unauthorized practice to protect our turf, (see the next keypoint), we must also arm ourselves with the shields of professionalism in that fray: mandatory continuing education and a stand against multi-disciplinary practices.

 

6. MORE ON THE UNAUTHORIZED PRACTICE OF (REAL ESTATE) LAW; THE ISBA SUITS:

The Illinois State Bar Association under Herb Franks’ leadership has also filed suit on the issue of the unauthorized practice of law. In Illinois Bar Association, Herb Franks, President and Ethel Hudgens v. Reliable Research Co., Inc., Case No. 00 CH 729, (St. Clair County), an action has been brought against Reliable Research Co., a Missouri corporation and title company, seeking extensive damages and an injunction alleging that it committed consumer fraud and engaged in the unauthorized practice of law. The suit alleges that in April, 1998, Hudgens sold her home in Cahokia, and Reliable prepared and coordinated the closing. Hudgens did not have a lawyer. At the closing on her sale, Reliable told Hudgens that the buyers did not have enough money for the purchase, and that Hudgens would have to give the buyers something Reliable called a "carry back" to complete the sale. According to the Plaintiffs, in violation of the injunction entered by the Circuit Court of St. Clair County in 1995, prohibiting it from the unauthorized practice of law in Illinois, Reliable created the document. It then advised Hudgens it was like a second mortgage, had her sign it, and charged a fee to record the document with the Recorder of Deeds. After the buyers of the home filed for bankruptcy, it was discovered that Reliable never recorded the "carry back" document it had recommended and prepared. As a result, Hudgens is an unsecured creditor and is unlikely to recover her money in the bankruptcy proceeding. Her interests would have been protected, the ISBA argues, had an attorney represented her at the closing. Attorney Herb Franks of Marengo, president of the Illinois State Bar Association, said unauthorized practice of law is a continuing threat to unsuspecting consumers and to the legal system. "It is bad enough that this company is preparing legal documents and giving legal advice in clear violation of the law, but they are doing it in defiance of the injunction issued by the court," Franks said. "As a result, Mrs. Hudgens lost her ability to purchase another home because she was relying on the proceeds of her home sale for a down payment."

The lawsuit asks that Reliable be found in violation of the Consumer Fraud Act for saying or implying that it is authorized and competent to render professional legal opinions and to prepare legal documents in a real estate transaction.

It should also be noted that this is not the only suit attacking the unauthorized practice of law instituted or supported by the ISBA. In a second suit filed, People of the State of Illinois and Illinois State Bar Association v. Myrland, Case No. 99 CH 343, (Sangamon County), the Illinois Attorney General and ISBA attack legal pyramid schemes.

 

7. THE ILLINOIS PERMENANT SURVEY ACT:

When the incoming new case law on real estate is scarce, I invariably turn to newsletters and journals to keep ideas flowing, and this last month I resurrected an article on the Illinois Permanent Survey Act that appeared in the May, 2000 issue of The ATG Concept. The article was particularly timely in my practice because I was just completing the resolution of an action to quiet title. I represented an individual homeowner involved in a boundary dispute with an adjacent land developer over a strip of land which appeared to have fallen in a "gap" between two competing surveys. Each survey seemed to suggest ownership in the other land owner, and a complication relating to adverse possession and a questionable dedication of a street soon had us talking settlement. Documenting that resolution, however, was something that presented other potential problems. A statutory vehicle for resolution, however, is provided for by the Illinois Permanent Survey Act, 765 ILCS 215/1-4.

The Act provides a means to clarify or re-establish ambiguous boundaries and resolve these types of adjacent landowner disputes. The owners of the affected, adjacent parcels can either agree to be bound by a survey performed by a surveyor they choose, or, giving notice to the owners of the adjacent properties, apply to the circuit court to by petitioning for the appointment of a commission of three disinterested surveyors to determine the boundaries by a preponderance of the evidence, and submit a plat to the court for review and hearing. The Act provides for notice to anyone who is interested in or affected by the dispute, and after a hearing on the plat of survey the court enters a judgment which is final and establishes the boundaries. The survey is then recorded in the county recorder’s office along with the written agreement of the parties or the appropriate order or judgment of the court. The statute provides for the apportionment of the expenses and costs of the proceedings according to the respective interests of the parties.

There are a surprising number of cases relating to the use of the statute to resolve boundary disputes, (Gvillor v. Stutz, (5th dist., 1999), 306 Ill.App.3d 766, 715 N.E.2d 285, http://www.state.il.us/court/Opinions/AppellateCourt/1999/5thDistrict/June/HTML/5980165.htm relating to expenses, Vinyard v. Vaught, (5th Dist., 1985) 138 Ill.App.3d 641, 485 N.E.2d 1131, relating to evidence relating to the boundary lines), and this article is a good point of beginning for you if you have a similar problem to resolve.

 

8. MUNICIPAL TRANSFER TAXES, INSPECTIONS AND RESTRAINTS ON ALIENATION:

In October, 2000, an interesting discussion developed on the ISBA Real Estate Section Council discussion site at ISBA.org relating to local inspection requirements of municipalities and their impact on residential transactions.

The exchange began with a posting from John F. Dixon from Burr Ridge, Illinois, that read:

"More and more municipalities are enacting ordinances requiring local inspections and municipal approval of conveyances. These inspections seem overly burdensome and I have recently had communities cite properties for such things as corroded (but functioning) p-traps, missing basement ceiling tile, etc. At what point do these inspections become too much? I know some ordinances are claiming that EVERY property sold or leased much come up to current BOCA standards. My goal is to find the lines by which these inspections can be measured both for purposes of drafting ordinances for municipalities and dealing with them representing sellers of property. Any guidance is appreciated."

Not one to miss an opportunity to "fan the flames", I responded with:

"John: I couldn't agree more with you. If you think the situation that you describe is outrageous, imagine this twist on the scenario with, for example, the City of Berwyn: The property is owned and being sold by a financial institution that obtained the title through a foreclosure.  Accordingly, the foreclosure deed is exempt from state and county transfer tax by virtue of exception (l) to the transfer tax statute. The City was also made a party to the foreclosure and served with summons specifically alleging that their lien for nonpayment of water service was subordinate to our client’s mortgage. They defaulted and were foreclosed by the judgment.  Nonetheless, a year later, when the property was sold to a third party as real estate owned, the city resurrects the water bill, refuses to issue stamps without payment, AND requires we pay inspection an fee and go through the whole inspection. When I said, "I'd like to discuss this with your corporation counsel", they advised me that it would do no good...they don't listen to their own attorney either....So...this is America, and we should bring forth some type of pressure on this issue."

The response from others reading the discussion was a litany of similar perceived abuses at the hands of overzealous municipalities:

J.D. Graham of Swansea, Illinois, recounted a scenario in which a client was selling a small house in Cahokia, Illinois for a very modest amount. The city requires an occupancy certificate as a condition to sale, and the inspector stated on his report that the seller had to replace the shelf-paper in the kitchen cabinet before he would issue a report. J.D. issued a challenge" "I dare anyone to top that one!!!". No one has been able to do so, but Rand Juliano of O’Fallon, Illinois, advised the group about a sewer lien in the Belleville area and stated that the Belleville Area Association of REALTORS with the assistance of the Illinois Association of Realtors is considering litigation against the Village of Cahokia on this as well as the inspection issue. Another instance was recounted of an elderly woman selling a home for $115,000, who was cited by a municipal inspector for a few missing ceiling tiles in the basement and other "cosmetic" sorts of issues. The costs of a mandamus action probably exceeds the water bills or inspection/repair issues in most cases, as pointed out by a posting by M. Ranz, who suggested that the answer to these situation is probably in Springfield and not in the Courts. The issue of "home rule" however, may be considerable, and one posting stated that: "I know that the cities of Berwyn and Bellwood have municipal inspection requirements. I had a deal in Bellwood fall through because the seller did not want to make the repairs asked for by the buyer after the buyer's home inspection, but I'm sure some the repairs would have been raised by the city inspection as well. Since my practice is in Kane County, I do not handle Cook County transactions with any regularity. After I was retained by the buyer for the property in Bellwood (Cook County), the buyer's real estate agent commented to me that many real estate lawyers will not even handle transactions in Bellwood because of the municipal inspections."

In any event, and as a result of these discussions, the ISBA Real Estate Section Council has constituted a subcommittee consisting to examine and report on this matter to the membership. Jack Tibbetts issued a recent posting on the ISBA Real Estate website entitled: "Municipal inspections and restraints on transfer of property" that states:

"The issue is the extent of the problem and nature of the problem of municipal inspections and other requirements before granting real estate transfer tax. Certain municipalities now require inspections and other restraints upon the transfer of property. The Section Council is trying to determine if this is a widespread problem, the nature of the problem, and what should be done to alleviate the problem. If you can provide information it would be most helpful. Thank you."

If you have any anecdotal information, thoughts that you believe would be helpful, or simply wish to encourage or discourage this inquiry, please e-mail Jack Tibbetts at tibbetts@vil.oak-park.il.us, or post a note on the Real Estate Section discussion site at http://www.isba.org/sections/

9. REAL ESTATE COMMISSIONS AND THEFT BY DECEPTION:

While I ordinarily pass-over decisions which relate to "criminal" matters in preparing the keypoints, a recent case particularly caught my interest. People v. Kotlarz, (S. Ct., October 13, 2000) http://www.state.il.us/court/Opinions/SupremeCourt/2000/October/Opinions/Html/88078.htm, is an interesting case that deals with real estate that is recognizable to most attorneys in the northern part of Illinois, (the property on the north side of Route 88 at Meyers Road in Oakbrook that was once owned by the Tollway), and a matter that was both "in the news" and relates a story of a real estate agent and lawyer "gone wrong" in collecting a real estate broker’s commission and payment from that commission for "putting the deal together".

The property was originally purchased by the Tollway for an oasis, became excess property when the Tollway decided not to build on the parcel, but chose to sell it instead. Joseph S. Kotlarz was an attorney engaged by Waste Management as an "outside counsel" to assist them in negotiations with the Tollway. Mr. Kotlarz had been a law partner with the chief counsel for the Tollway and held himself out to various hopeful contractors with the Tollway as having a good relationship with the executive director. He was convicted of theft by deception for his part of the scheme which resulted in the sale of this real estate by the Tollway authority to Waste Management for $3.8 million. The Tollway had indicated that it would not accept less than $4 million. The "difference" was paid to Eagle Real Estate Services as a commission of $240,000 for the transaction in which they played no part and never had a listing agreement or agency contract with any party; $190,000 of which was paid to Kotlarz – (Do the math; it works out to $4.040 million). During the negotiations of the sale, a number of fascinating circumstances unfold from the telling in the criminal trial record; No one seems to be certain whose broker Eagle Real Estate Services is, or why they are entitled to a commission on the sale; When revisions to the contract are made inserting three sentences that would have clarified that Eagle was Waste Management’s broker, the attorneys at Waste Management demand the language be deleted; When a senior attorney employed by the Tollway brings the transaction to the attention of the Tollway chairman’s secretary and then meets with him and the Illinois State Policy to turn over a copy of his file contents on the transaction, he is suddenly stripped of his job title without any prior statements of dissatisfaction with the quality of his work. The contract was ultimately signed in a form which was unclear as to for whom Eagle Realty was working, and "with Waste Management believing that it was paying the Tollway’s broker a commission out of the purchase price due to the Tollway, and the Tollway believing that the broker’s commission was to be paid by Waste Management over and above the price it was receiving for the land sold." The decision refers to the conduct of the parties as a "shell game" and the case is worth reading as much as "instructions" for avoiding such schemes in the future as for its shear drama and entertainment value. (Does John Grisham want to co-author this one with me?)

 

10. HAPPY HOLIDAYS:

With the Holiday season upon us, many transactional attorneys have a few less closings to attend, litigation attorneys a few less trials starting until after the first of the year, and all of us have an opportunity to take a friend/lawyer/Realtor/client to lunch. Don’t miss the opportunity. Civility is something we all could wish for under the tree and not get too much of no matter how many times it is given. Best wishes to all of you and yours.