REAL ESTATE LAW PRACTICE KEY POINTS

(September, 2001)

By Steven B. Bashaw

Steven B. Bashaw, P.C.

Suite 1012

1301West 22nd Street

Oak Brook, Illinois 60523

Tel.: (630) 974-0104

Fax.: (630) 974-0107

e-mail: sbashaw@bashawlaw.com

(Copyright 2001 - All Rights Reserved)

 

(Editor’s Note: In addition to encouragement from the Illinois Institute of Continuing Legal Education and the Illinois State Bar Association’s Real Estate Section Council, 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 from the perspective of a title company serving the public and the attorneys who represent their clients in real estate transactions.)

 

1. WRONGFUL TREE CUTTING ACT; TREBLE DAMAGES AND PUNITIVE DAMAGES:

The Illinois Wrongful Tree Cutting Act, (740 ILCS 185/0.01), provides that "Any party found to have intentionally cut or knowingly caused to be cut any timber or tree which he did not have the full legal right to cut or caused to be cut shall pay the owner of the timber or tree 3 times its stumpage value." "Stumpage" is defined to mean a standing tree. (hmmm…being a "city boy", I guess I don’t understand this stuff…I thought a "stump" was left after a tree was cut down…).

In Marsella v. Shaffer, (2nd Dist., August 1, 2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/2ndDistrict/August/Html/2000912.htm, the Plaintiffs appealed the jury’s award of damages for trees wrongfully cut by the Defendants. The Defendants cross-appealed the award of both treble damages and punitive damages for the same injury.

The Plaintiff’s third amended complaint consisted of ten (10) counts, and the mere listing of the causes for negligent property damage, assault, trespass, violation of county and local ordinances for burning trees, nuisance, and an injunction seeking to keep the Defendants from building a home on their property after cutting trees on Plaintiff’s adjoining parcel gives some measure of the animosity between the parties. The injury occurred when David Shaffer crossed onto the Marsella’s property to clear trees on his property for construction of a house. He used a Bobcat and chainsaws, and then burned the logs and tree limbs to avoid the cost of disposal. Shaffer testified that he inadvertently misjudged the lot line, and that the affected area of the Plaintiff’s property was a heavy thicket, underbrush with a few smaller trees of little value. There was extensive expert testimony relating to the quality and value of the trees cut. One expert testified that using the "trunk formula method" placed the value at $15,448, whereas replacement cost was approximately $8,350. The trial court’s instruction to the jury informed them that the plaintiffs were entitle to "three times the standing value of the trees cut down on the plaintiff’s property." by the statute. The jury’s verdict was an award of $10,500 as three times the standing value of the trees under the act, and included $5,000 punitive damages for intentional trespass.

In affirming in part and reversing in part, the opinion by Justice McLaren noted that when Defendant’s counsel argued that the Plaintiff’s "want this punishment thing. They want to stick it to him." He "completely misstated the law and, essentially, asked the jury to ignore the legislature’s mandate that the stumpage value was to be determined and then tripled. Defendant’s counsel essentially told the jury that it could choose to ignore the legislature’s mandate to punish defendants and simply award plaintiffs actual damages only." Having determined that the argument presented by defense counsel was improper and constituted error, the Court also noted that the jury’s award of $10,500 strongly suggested it accepted the argument to simply compensate the Plaintiff’s with replacement cost, rather than using the mathematic trebling formula of the statute, and reversed due to the prejudice that occurred. Finally, however, the Court agreed with the Defendant that the Plaintiff could not be awarded both treble damages under the act and punitive damages for the same conduct as a common law remedy. A party can seek both a statutory penalty and a common law punitive damages award in its complaint, but there cannot be a double recovery for a single injury. The treble damages provisions of the act is punitive in nature and allowing punitive damages in addition constituted a double recovery for the same injury. The case was reversed as to the issue of damages under the Wrongful Tree Cutting Act, and remanded for a new trial on damages with instructions and a direction that there be no double recovery for the same conduct.

 

2. PRELIMINARY INJUNCTIONS; PREJUDGMENT ATTACHMENT AND AN INTEREST IN REAL ESTATE DISTINGUISHED:

The case of Franz v. Calaco Development Corp., (2nd Dist., June 21, 2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/2ndDistrict/June/Html/2001023.htm deals with a preliminary injunction granted in favor of a limited partner, enjoining the general partner from continuing to sell real estate lots in a development pending the trial of a complaint for breach of contract and fiduciary duties. The purpose of the limited partnership was to develop and sell vacant lots for construction of single-family residences and townhomes. The Complaint alleged that the general partner breached the partnership agreement by selling vacant lots to affiliated entities without the written consent of the limited partners and for less than the prices set forth in the partnership agreement, resulting in loss profits to the limited partner in excess of $1 million dollars. To support the request for a preliminary injunction against the further sale of lots in the trial court, the plaintiff claimed irreparable harm in that the only partnership asset was the lots which would be depleted by the sales, and there would be insufficient funds in the partnership to satisfy a judgment in plaintiff’s favor. Following an evidentiary hearing, the trial court granted the injunction, finding plaintiff had shown irreparable harm, no adequate remedy at law, and that the only remaining asset of the partnership was the unsold lots. Without an injunction, the trial court ruled plaintiff faced the possibility of an uncollectible judgment, and rejected defendant’s argument that there was an adequate remedy in the form of money damages and no right to an injunction to ensure collection should plaintiff prevail.

The Second District reversed. After reviewing the elements and underlying purpose of a preliminary injunction, the Court found that the trial court’s ruling "effectually amounts to a prejudgment attachment and that the plaintiff has failed to establish the requisite elements of irreparable harm and inadequate remedy at law." A prejudgment Attachment is a specific remedy provided by the Code of Civil Procedure, (735 ILCS 5/4-101), and the decision notes that "The law does not provide for a process of equitable attachment. Taking away the control of property by means of an injunction for the purpose of anticipating a judgment is abhorrent to the principals of equitable jurisdiction." Additionally, the only harm to the plaintiff in this case was monetary; lost profits. The Appellate Court rejected the plaintiff’s claim of an absence of an adequate remedy at law due to the fact that the subject of the partnership was real estate. "The fact that the controversy concerns the conveyance of land does not change the character of the complaint or the relief sought therein. The limited partnership was formed for the purpose of developing real estate. However, plaintiff’s entitlement based on the partnership agreement is to profits in the partnership, not to an interest in real estate." By halting the sale of the real estate with the injunction, the trial court effectively granted the plaintiff an interest in real estate ("effectively placed a lien") by the prejudgment attachment without complying with the Code of Civil Procedure. This was not the intention of the parties to the underlying limited partnership agreement, which gave plaintiff only a right to profits from sales of real estate; an important, if discreet, distinction.

(Ed. Note: The author of these Keypoints was counsel of record for the appellant in this case, and may certainly be less than completely objective in the review of this decision.)

 

3. INSTALLMENT CONTRACTS AND EQUITABLE CONVERSION; INSURANCE POLICY RECOVERY AND PREMIUM PAYMENTS:

The Suburban, Inc. entered into an installment contract for the sale of a tavern and restaurant to Larry Joe Pasley. The contract provided that Pasley was also required to maintain insurance on the property. Suburban had an existing policy of insurance on the property at the time, and remained the insured under its policy, but Pasley was added as a "loss payee" after the contract was in place. Pasley paid the premiums on the policy during the contract. The tavern was destroyed by fire during the term of the seven-year period of the contract. After Suburban filed an initial claim, a dispute arose between it and Pasley regarding who was entitled to the proceeds and who had the right to make a claim under the policy. Suburban filed a complaint against Pasely and the insurer, Cincinnati Insurance Company, seeking declaratory judgment that it was entitled to proceeds of an insurance policy, and that Pasley was only entitled to the sum equivalent to what he had paid under the installment contract. The Suburban, Inc. v. Cincinnati Insurance Company, (3rd Dist., June 20, 2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/3rdDistrict/June/Html/3000704.htm Pasley, on the other hand, argued that he was the equitable owner of the property under the doctrine of equitable conversion and entitled to the insurance proceeds to rebuild the tavern. The trial court granted summary judgment in favor of Pasley, subject to payment of the balance on the contract to Suburban. The trial court also granted summary judgment against Cincinnati and denied its motion to dismiss based on the policy language that only the named insured, Suburban, was entitled to seek replacement costs.

The Third District reversed on appeal holding that while the doctrine of equitable conversion provides that the seller of land, after entering into a land sales contract, holds legal title to the property in trust for the buyer, and the buyer becomes the equitable owner of the property, this doctrine is effective only as between the parties to the contract. It does not alter the rights and obligations of third parties, such as insurance carriers. Accordingly, while the doctrine of equitable conversion affects the relationship between the buyer and seller, it does not entitle a purchaser, such a Pasley, to a direction action suit against the insurer if only the named insured is given that right under the policy terms. Pasley’s rights were "derivative in nature and wholly dependent upon the rights of the named insured"; (i.e., Suburban).

Just as you might wonder where the Court is going with this decision, however, Justice Breslin writes, "Our analysis does not end there, however. It is the law in Illinois that when a party contracts for insurance, pays the premium, and the insurer makes the loss payable to such party, the agreement pay is a contract with the party who paid the consideration, and he has a right of action in his own name, despite the fact that the insurance is in the name of another." Noting that the pleadings filed by Pasley alleged that he paid all of the premiums, but that there was no conclusive evidence of the payment, the Court reversed the summary judgment and remanded the case to the trial court because there was a material issue of fact. (It seems much ado about equity, but perhaps the "lesson" in this case is that all parties to an installment contract and their attorneys should give some extra thought to who is the named insured on policies.)

 

4. LEASE GUARANTY AND EXTENSION; RELEASE AND WAIVER:

The issues presented for review in T.C.T. Building Partnership v. Tandy Corporation, (1st Dist., May 31, 2001) http://www.state.il.us/court/Opinions/AppellateCourt/2001/1stDistrict/May/Html/1001749.htm, were whether the guarantor of a lease is excused from liability when an option to extend the lease is not exercised in strict accordance with the terms of the lease, whether the defendant waived this defense when its principal’s tardy exercise of the option was nonetheless accepted by the lessor, and the impact of express waiver language in the guaranty. The tenant of the commercial real estate was Color Tile of Illinois, Inc., and the lease granted Color Tile the right to extend the lease for four additional terms of five years each upon written notice given at least six months prior to the expiration of the original term or any extension period. Defendant "absolutely and unconditionally" guaranteed Color Tile’s performance. Color Tile gave notice to extend the lease, but the notice was given less than six months prior to the termination of the original lease term. The lessor, nonetheless, accepted the notice and extended the term of the lease. Thereafter, of course, Color Tile declared bankruptcy and defaulted. In a suit on the guaranty, the Defendant alleged that because Color Tile had failed to exercise its option timely, it was released from liability on its guaranty during the extension period. The Plaintiff argued that the failure was so minor that a release was inappropriate and that the express language of the guaranty waived the defense by Defendant’s agreement that "no extensions of the time granted to the lessee for the payment of said rents…or for the performance of the obligations of the lessee… shall operate to release or discharge the Guarantor from its full liability under this instrument of guaranty or prejudice the rights of lessor hereunder." The trial court entered judgment in favor of the Defendant, and the Plaintiff appealed.

Agreeing that the Plaintiff had the right to waive strict compliance with the notice provisions of the lease relating to extending the lease as for its benefit, the Court nonetheless noted that the issue was not one of waiver of the benefit of the provision of a contract between the parties, but the impact of that waiver on a guarantor. Holding that a guarantor can be released when a lessor, without the consent of the guarantor, permits a lessee to extend the lease without strict compliance with the terms of the option because this extends the liability of the guarantor beyond the precise terms of its undertaking, the Court also noted this to be a case of first impression, and cites cases from Rhode Island, Arizona, and Georgia in accord, as well as the prior holdings that guaranty contracts are to be strictly construed in favor of the guarantor. Turning to the language of the guaranty in this case, however, the Court also ruled that the defendant unambiguously consented to continue to be bound regardless of the extension by the express language of the guaranty. "Consequently, that portion of the defendant's guaranty wherein it agreed that no extension of time granted to Color Tile for the performance of any of its obligations under the lease or the lessor's forbearance or delay to enforce any of the provisions, covenants, agreements, conditions, and stipulations of the lease would operate to release or discharge it from liability under the guaranty" was an express, enforceable waiver of any release based on the untimely extension. Accordingly, since the notice requirement was for the benefit of the lessor and could be waived by the plaintiff, and the defendant unambiguously waived any release by virtue of the tenant’s failure to perform in a timely manner, there was no release. While a guarantor will generally be released where a landlord permits the lessee to extend the lease without strict compliance with the terms of the lease/option, a guarantor can agree to be bound by its guaranty notwithstanding conduct that might otherwise discharge it from liability. Accordingly, the guarantors have good, new law suggesting a release of liability, and the landlord’s attorneys have a blueprint for avoiding the impact of that law in the drafting of their lease guaranties.

 

5. JUDGMENTS; CALCULATING POST JUDGMENT INTEREST:

FROM THE TITLE INSURANCE COMPANY PERSPECTIVE

If I ever decide to expand my legal interests beyond surveys, legal descriptions, and pro-bono bovine work, I think I would delve deeper into the law of judgments. I find the area fascinating, probably because judgments can impact so many different areas of real estate law. Can a title insurer underwrite a judgment against a buyer for his loan policy? Can a title insurer waive a judgment after the seller has gone through bankruptcy? Should a title insurer show a judgment on a title policy when land is held as tenants by the entirety? The answers are not as obvious and simple as one might think.

So when I read the synopsis of Kramer and Reichert v. Mt. Carmel Shelter Care Facility, Inc., et al., No. 5-99-0152, I got excited, which should probably cause me concern. But this case discussed how post-judgment interest is measured, which reminded me of a great article I read in the October 22, 1997 issue of the CHICAGO DAILY LAW BULLETIN. Chicago attorney Thomas H. Fegan discussed Halloran v. Dickerson, 697 N.E.2d 774, which explained how to calculate interest on a judgment. He noted four steps:

First determine the amount awarded by the court or jury as damages and add in the plaintiff's court costs. Also add any interest that accrues between the date the verdict is returned and the date the judgment is entered. This is the full amount of the judgment upon which interest will accrue.

Second, consult 5 ILCS 70/1.11 to determine the starting and ending dates of accrual.

Third, determine the amount of interest accruing per year by multiplying the amount of the judgment by the applicable annual rate of interest in order to get the amount of interest per year. Then divide this amount by twelve to arrive at the amount of interest accruing per month. And then divide the amount of interest accruing per calendar month by thirty to arrive at the amount of interest accruing per day for any period that is less than one full calendar month.

Four, he points out that partial payments apply first to the interest owed, and that only after all the interest is paid in full will the amount of the judgment principal be reduced.

Fegan gives an example: Assume that a verdict, together with court costs, is $10,000. The verdict is rendered and judgment is entered on June 30, 2000. You represent the seller, and you will be paying off this judgment at closing, which is August 7, 2001. The attorney for the judgment creditor has given you a payoff letter, but you want to verify the amount:

One: On June 30, 2001, one full year has elapsed. At nine percent simple interest, $900 of interest has accrued. (Fegan noted that the court in Halloran indicated that in Illinois the accrual of interest is simple interest and not compound interest.)

Two: To determine the interest that accrued in July, 2001, divide $900 by twelve (months). This indicates that $75 in interest accrued in July.

Three: Divide $75 by thirty (days). This equals $2.50 interest per day. Therefore, for the seven days in August, 2001, $17.50 in interest would accrue.

Four: Add the $900 (interest for one year) and the $75 (interest for one month) and the $17.50 (interest for seven days). This sum of $992.50 represents the interest that is owed on August 7, 2001. Naturally, an additional per diem might be needed for post-closing delivery time.

Although these steps are simple, this case (and Fegan's article) has great impact on real estate lawyers and title insurance companies. Title insurers are often asked to set up title indemnities for judgments and other liens. The oft quoted rule, "one-and-one-half times the amount of the lien" is routinely tossed around (and perhaps more routinely ignored) in determining the amount of the holdback. But a judgment is good for seven years from the date of judgment (not, incidentally, from the time the judgment, or memorandum thereof, is recorded; see 735 ILCS 5/12-101). And the judgment can be revived, which means it can last even longer. If a title insurer is asked to set up an indemnity for a judgment, how much money should the title officer take in? Even though accrued interest is simple interest and not compound interest, there may be instances when the amount of money that the title insurer wants to hold back is substantial. In light of this case, the answer seems clear. When the attorney reviews a title commitment that discloses a judgment against his client, and he or she would like the title company to underwrite it in some fashion, talk to the title insurer as soon as possible and work out a game plan that is mutually agreeable to both parties.

Dick Bales, Chicago Title Insurance Company, Wheaton

 

6. LANDLORD TENANT; SECURITY DEPOSIT INTEREST AND PENALTIES:

In Aurelia Lawrence v. Regent Realty Group, Inc., (Il. S.Ct., July 26, 2001), http://www.state.il.us/court/Opinions/SupremeCourt/2001/July/Opinions/Html/88237.htm, the majority opinion by Chief Justice Harrison noted that "The sole issue presented for our consideration is whether the trial court was correct in concluding that the RLTO requires a landlord’s violation of the interest payment provisions to have been willful before the tenant is entitled to recover the damages, attorneys fees and costs provided by the ordinance." The decision then holds that a tenant who brought an action against her landlord for failure to make annual interest payments on a portion of her security deposit was entitled double damages, fees and costs pursuant to the provision of the Chicago Residential Landlord and Tenant Ordinance, (RLTO), Chicago Municipal Code Section 5-12-080(f), regardless of whether the landlord’s actions were willful or not.

The issues of the case were important enough to justify a grant to the Chicago Association of Realtors, Illinois Association of Realtors, Illinois Consumer Justice Council and Legal Assistance Foundation of Chicago to file amicus curiae briefs. The portion of the security deposit upon which the landlord failed to pay interest was a $100 "pet deposit". Each year the landlord credited Ms. Laurence with the accrued interest on her "basic security deposit", but refused to pay interest on the "pet deposit" portion of the funds. They claimed that they did not regard the "pet deposit" as a "security deposit" within the meaning of the RLTO, and denied that they intentionally violated the ordinance as a defense to the tenant’s request for double damages, costs and attorneys fees. The trial court ruled that the penalty provisions of RLTO should only be applied where the landlord’s failure to pay is willful, and denied the relief the tenant requested relating to her fees, costs and double damages; limiting her recovery to a refund of the amount of her security deposit with accrued interest.

The First District reversed, finding that a showing of willfulness is not necessary for recovery under the Ordinance, and the Supreme Court granted the landlord’s petition for leave to appeal.

Noting that "the statute must be enforced as written, and a court may not depart from its plain language by reading into it exceptions, limitations or conditions not expressed by the legislature." Supreme Court of Illinois refused to "second-guess the city council’s judgment" in apparently intending to impose the double damages, costs and fees penalty as absolute liability and regardless of a willful violation. "The purpose of the law is to help protect the rights of tenants with respect to their security deposits…the amount of interests landlords owe…is too small to warrant litigation…Without the prospect of liability for significant additional damages…" to assure compliance. "Under our system of government, courts may not rewrite statutes to make them consistent with their own ideas of orderliness and public policy."

Justice Freeman dissented. He saw two issues, (rather than one, sole issue), in the case, and those were (1) whether RLTO is a remedial or penal ordinance, and (2) whether a showing of willfulness is required to subject a landlord to the penalties of the Ordinance. Justice Freeman, after recounting the legislative history and background of RLTO, concludes that the Ordinance was remedial rather than penal, and therefore does not believe that the courts may impose absolute liability on a landlord absent a clear indication that the City Council intended to impose the penalty regardless of willfulness. Noting that the majority’s decision to impose absolute liability must rest on a belief that landlord’s failure to pay interest on security deposits is "a pervasive problem in the City of Chicago", Justice Freeman states that "I cannot agree that punishing landlords for inadvertent infractions of the ordinance best serves the interests of tenants and the City of Chicago in quality housing…(the penalties) may devastate the smaller landlord. I do not believe that the Chicago city council intended to force smaller landlords out of business. Instead, I believe that the Chicago city council intended to punish landlords only for knowing violations of the Ordinance."

 

7. SPECIFIC PERFORMANCE AND RESCISSION; COST OF ENVIRONMENTAL REMEDIATION:

The recently reported decision in Bond Drug Company of Illinois v. Amoco Oil Company, (1st Dist. June 8, 2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/1stDistrict/June/Html/1000961.htm, is more of a "re-visit" of the Court’s prior decision in 1995 then a "new case". Even though the substantive holdings of this ruling would be of interest primarily to appellate practicioners, (relating to the trial court’s obligation to follow the mandate and the doctrine of the law of the case on remand), the language in the case reiterating the prior decision relating to specific performance and equity are simply too good not to note here for real estate lawyers.

Amoco entered into a contract with Bond whereby Amoco was to convey a gas station site to Bond in exchange for other properties elsewhere worth $1,175,000. The fact that there was significant environmental contamination on the property was not known until after the Exchange Agreement had been entered into by the parties. Shortly before the final closing, Amoco gave Bond notice that it considered the exchange agreement terminated because of the unexpected cost of having to correct the contamination of the premises. Bond disagreed citing the provision in the contract which provided that if zoning, building, fire or health code violations were found to exist on the premises, Amoco would correct them prior to the final closing. When Amoco failed to comply with the terms of the agreement and close, Bond filed a complaint for specific performance. Amoco counterclaimed for rescission, alleging that the cost of remediation, ($1,01,.096.53), was so great that enforcement was unconscionable and constituted grounds for rescission. Amoco’s position was that there was a mutual mistake of fact, which allowed them to rescind, and enforcing the contract by specific performance would be inequitable. In the instant case, the First District noted that Bond I, (the first decision reversing the entry of summary judgment in favor of Amoco, found at 274 Ill.App.3d 630), held "there was no mutual mistake of fact in this case. Rather than a mutual mistake of fact, this case involves a unilateral mistake in the cost to be incurred for performance of the contract and is not a basis for rescission." On the issue of the inequity or unconscionability of forcing Amoco to pay almost as much in remediation as the value of the exchange, the Court reiterated its prior ruling that "No equitable principal, including unconscionability, will compel the cancellation of a valid contract merely because one of the parties thereto will possibly or probably sustain a loss. Where the parties to an instrument are competent to contract with each other, and there is no question of fraud, neither can be relieved from his agreement on the ground that he did not use good business judgment in entering into the contract…In addition, if the Exchange Agreement is enforced according to its terms, Bond will merely receive what it is supposed to receive under the Exchange Agreement. It will not receive a windfall or some type of serendipitous benefit." The contract was fairly entered into by the parties without any fraud, duress or oppression, the fact that the circumstances, although unknown, will result in a "bad deal" to one party are neither the grounds for rescission or defense to specific performance. There is no "unjust result" in specific performance under these circumstances.

 

8. CREATING AND VACATING STREETS AND ALLEYS:

I recently was retained as an expert in litigation between a landowner and a municipal corporation relating to whether or not the village extended due process and equal protection to the landowner relating to providing services to their land. One of the issues at trial will be whether or not the village has rights in a strip of land adjacent to the individual’s parcel by virtue of a deed executed in the 1940’s conveying title "subject to a road way". The question is whether the mere mention of the road way in the deed is sufficient to establish an interest in the village, (which was not a party to the deed), or if something more is necessary. My research has resulted in the good fortunate of finding a recent publication by Chicago Title Insurance Company in their series of "Title Issues", (Vol. 10, No. 1, June 2001), entitled "Vacating Streets and Alleys under 65 ILCS 5/11-91-1" by Melissa J. Roth and Douglas M. Karlen. The seven-page monograph begins by noting that streets are created by dedication, prescriptive use, deeds, or condemnation mechanisms. Statutory dedication is accomplished through the Plat Act, 735 ILCS 205/1, and vests a fee title to the roadway in the municipality. Common law dedication results in the owner retaining a fee, but creating an easement in favor of the municipality. A public road may be created through prescriptive use and results in an easement, but need only be by virtue of continuous use of the land for a road for 15 years by statute. Condemnation is the most common method of creating a roadway, and, of course requires the payment of just compensation. Vacating streets and alleys is the other facet and real focus of this article. After discussing the statutory provisions for vacating streets and alleys found at 65 ILCS 5/11-91-2, the authors relate this process to a hypothetical situation they present relating to counseling a client on using the vacating process to acquire additional land adjacent to their existing parcel, and turn to the recent Illinois Supreme Court case of Chavda v. Wolak, (1999), 188 Ill.2d 394, 721 N.E.2d 1137, (discussed in the February, 2000 "Keypoints"), to discuss the practical implications in counseling a client to use this political process to solve a substantive real estate problem. The process requires notice and a hearing before the village board in order to avoid the statutory presumption that the title to vacated land will vest in the owners of the land abutting the parcel in the equal proportions, and raises some interesting equal protection issues when one landowner receives a greater benefit than another; as in Chavda. The process concludes with the enactment of a municipal ordinance vacating the street or alley, and the pitfalls of drafting the ordinance are discussed. Finally, of course, the issuance of title insurance insuring the vacated parcel is considered. Should you have an opportunity to look into creating or vacating a street or alley, this case provides not only a good beginning point, but some interesting creative considerations to come back to once your research is complete.

 

9. DEED DELIVERY; ESCROW AND TRUST DISTINGUISHED:

In Albrecht v. Brais, (3rd Dist., July 27, 2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/3rdDistrict/July/Html/3000906.htm, the trial court was confronted with the issue of whether certain farmland was includable in the Estate of Harry Emhouser, or had passed by deed deposited in escrow prior to his death. The will admitted to probate provided that the farmland in question was to be devised to a group of churches. The special administrator of the estate, however, took the position that the farmland was not part of the estate (and therefore could not be devised) due to the fact that it had been conveyed by quit claim deed deposited in escrow prior to death. Both Harry and his wife Rose executed a document entitled an "escrow agreement" that provided a quit claim deed conveying title to Marlo Jean Popp Brais that they executed would be held by Courthouse Title Services and delivered to Brais when both of the Emhousers were deceased. Prior to that time, however, the "escrow" agreement provided, Harry or Rose could recall the deed at any time prior to the death of the survivor of the two of them. Rose died first, and then a year later, Harry bequeathed the farmland to the churches in his will.

The trial court found that the farmland was part of the estate because Harry’s will was "an effective revocation of the trust", and Brais appealed. In affirming the trial court, the Third District decision first deals with the distinction between an "escrow" and a "trust" arrangement. Brais argued that the deposit of the deed with Courthouse Title Services actually created a "trust", which is only revocable by an inter vivos act of the settlor. The Court disagreed, noting that a trust encompasses a conveyance to a trustee who holds legal title for the beneficiary as the equitable owner, whereas an escrowee is not vested with title and simply holds the documents of conveyance pursuant to directions. Here Courthouse Title Services was clearly acting as an escrowee and not a trustee. Title remained in the Emhousers because they could revoke the deed at any time and there was no "delivery". This aspect of the case focused the Court’s reasoning on the issue of whether this was a proper escrow, and inasmuch as the escrow agreement specifically allowed them to recall the deed prior to the death of the survivor, there was no enforceable escrow. "To be a complete delivery, the grantor must have intended to party with all dominion, power and control over the deed." Here the deed was not unconditionally delivered, and therefore there was no "escrow" which could then pass title to Brais at Harry’s death. Since Harry retained dominion and control over the deed, the farmland was still a part of his estate at his death to be disposed of by his will. (This case, in conjunction with the ‘dresser-drawer deed" case last year, (In re Estate of Wittmond, see July, 2000 "Keypoints"), certainly reinforces the fact that there are disputes and litigation over the issues of delivery of deeds in modern Illinois law as well as law school text books.)

 

10. LEGISLATIVE UPDATES AND SUMMER READING FOR REAL ESTATE LAWYERS:

The Tenancy by the Entirety Act has long been a potential source for malpractice for real estate attorneys. Last year the ISBA Real Estate Section Council took on the task of supporting legislation that would remove the "magic words" required in a deed to create a tenancy by the entirety. Effective January 1, 2002, Public Act 92-136 deletes the requirement that a husband and wife be named and expressly identified as such in the deed. The act also modifies Section 5 of the Joint Tenancy Act, (in which the Tenancy by the Entirety provisions are found), by removing the requirement that the deed also negate tenancy in common and joint tenancy. (See: 765 ILCS 1005/1c).

Another "target" of the ISBA Real Estate Section Council membership last year was the Illinois Responsible Property Transfer Act. The mandated environmental disclosures in real estate transactions were often ignored and seldom properly complied. Accordingly, effective August 9, 2001, Public Act 92-299 repeals IRPTA, but note that "any action that accrued under the Responsible Property Transfer Act of 1988 before the effective date of this Act may be maintained in accordance with the provisions of the Responsible Property Transfer Act of 1988 as it existed before its repeal."

Although I am a proponent of most things electronic, computerized and Internet, I’m really not certain about Public Act 92-97. This enactment, effective July 18, 2001, amends the Probate Act, (755 ILCS 5/20-7), to provide that a decedents real estate may be sold through the Internet or other electronic media, with court approval. The notice must contain a statement that public access to the Internet can be had at public libraries, and excepts the provision that such sales must otherwise be conducted between 10:00 am and 5:00 pm for Internet sales in apparent recognition of the absence of the usual time constraints in electronic commerce.

Worthwhile reading, (although perhaps not at the beach) as the summer draws to a close is Harold Levine’s article in the DuPage County Bar Association Brief, June 2001, entitled "Some Thoughts on Home Inspections." Harold notes that there is some case law that mentions the role of home inspectors and a trade association, (the American Society of Home Inspectors), that sets forth some criteria for a proper inspection, but to find any licensing or minimal competency laws, one would have to sojourn to New Jersey these days. Every standard form contract approved in the State of Illinois now seems to provide for a home inspection. This step in the process of buying and selling a home is almost universal and institutionalized, but not governed or regulated in our state. Noting that "The New Jersey Act would be an excellent starting point for the establishment of such an Act in Illinois. In fact, such legislation has already been proposed, Harold needed only to give us the name and phone number of the sponsor to rally behind.

Last month’s critique of the Seventh District’s confounding decision in Eschevarria v. Chicago Title & Trust Company, (7th Cir., July 5, 2001), No. 00-4087, dealing with the issue of "overcharging" for recording charges and whether this is a violation of RESPA, was echoed in an article that first appeared in the Washington Post and was carried in the Daily Herald on Friday, August 17, 2001. Entitled "Consumers lose as court Oks high markups on credit reports, appraisals", Ken Harney speculates on the disasterous implications of the Court’s decision, (lender’s charging $450 for a $300 appraisal and "pocketing" the difference, marking-up credit reports on the internet from $15 to $60, and raising courier fees to really profitable levels), and notes that the decision announces that "companies that gouge consumers with markups are perfectly within their legal rights" and ignores opinion letters, and regulations from HUD since 1992 holding that such markups on settlement services are illegal. Harney even notes that "One large Midwestern mortgage company actually rewarded one of its loan officers with a prize last year at its annual Christmas party for having produced the highest volume of $60 charges for credit reports that rarely cost the company more than $15." The article closes with a suggestion that consumers demand to settle the backup documentation on settlement charges and suggests that "If you live anywhere except the 7th Circuit, you still have a federal legal basis to sue…". Ken Harney’s e-mail address is kenharney@aol.com. Perhaps he would like to hear from those of us who support his criticism of this law, or those mortgage lenders and title companies that can give a basis to justify the court-approved conduct of "pocketing" these overcharges with impunity also long as there is no third party to whom the "kickback" is being paid.