REAL ESTATE LAW PRACTICE “KEYPOINTS”

(October, 2001)

 

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 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. DEMOLITION: JURISDICTION, SUMMONS AND PROCESS:

In City of Chicago v. Yellen, (1st Dist, September 4, 2001), http://state.il.us/court/opinions/AppellateCourt/2001/1stDistrict/September/Html/1001309.htm the important of the technicalities of service of process are illustrated for the benefit of real estate practitioners who represent land owners in demolition proceedings. The City brought an action for demotion against Nathan Yellen and Marie Yellen as the owners of the property. Nathan appeared pro se for trial, but Marie failed to appear, and an order for demolition was entered. Afterwards, an attorney filed an appearance on behalf of both Nathan and Marie accompanied by a motion to reconsider, asking the Court to allow the Yellens an opportunity to rehabilitate the property, and arguing that Marie had not been properly served with summons. The trial court denied the motion to reconsider. On appeal, the trial court was reversed based on a finding that it lacked jurisdiction. The only copy of the summons in the record indicating service upon Marie Yellen had neither a seal nor a signature of the Clerk of the Court on its face. Noting that "the plaintiff bears the burden of presenting a record sufficient to establish the court’s jurisdiction before the court enters a default judgment", the court restated the law that "A summons not signed by the clerk of the court which issues it is not summons, (citations) because it is not issued by any court." An interesting distinction was also made relating to the appearance of the attorney for Marie Yellen on the motion to reconsider. The City argued that the appearance submitted Mrs. Yellen to the jurisdiction of the trial court and constituted a waiver of the jurisdictional issue. Holding that the court lacked jurisdiction over Mrs. Yellen at the time of the entry of the demolition order because of the apparently defective summons, the decision also held that her subsequent appearance by an attorney to reconsider the order would not retroactively validate the order.

This case is an excellent example of the importance of service of process and reminds us to carefully examine the procedural aspects of real estate litigation that would otherwise seem to be substantively closed to defense. The decision also has some good language relating to the nature and purpose of summons.

 

2. CONDOMINIUMS: SCRIVENER’S ERRORS AND AMENDMENT OF DECLARATION :

The decision in Schaffner v. 514 West Grant Place Condominium Association, (1t Dist. August 29, 2001) http://state.il.us/court/opinions/AppellateCourt/2001/1stDistrict/August/Html/1010441.htm begins with Justice Wolfson’s statement that: "Three into two don’t go – not when the three are the only unit owners in a condominium apartment building and the two are outside parking spaces that are part of the development but are not mentioned in the Declaration of Condominium Ownership."

The controversy arose when Alan Schaffner purchased Unit 103 in a three unit condominium building. The building had five parking spaces; three indoor spaces and two outdoor. Each unit had an indoor space assigned, but neither the Plat of Condominium nor the Declaration depicted or mentioned the two outdoor spaces. The owners of units 101 and 102 alleged that the Developer and the original purchasers of their units agreed that the outdoor parking spaces would be limited common elements for the exclusive use of their units. (The Developer was the original owner of Unit 103.) When the Plaintiff purchased Unit 103 a number of years later, according to Defendants, he knew of the "drafting error" in the Declaration and had been advised that the parking spaces had been claimed and used by the other two owners. Schaffner repeatedly parked in the outdoor spaces and threatened to continue to do so. The owners of the other two units, who were members of the Board of Directors of the Condominium Association, served notice and convened a special meeting to "correct" the Declaration. They proposed and passed an amendment providing that the outdoor spaces were limited common elements of their units by a vote of two to one, along natural lines of self interest. Schaffner filed a complaint to declare the amendment invalid. The Declaration, he argued, required an affirmative vote of 100% of the unit owners for amendment. The Defendants, however, contended that they only needed a two-thirds vote based on the statutory provision of the Condominium Law, (765 ILCS 605/27(b)(2), for correcting "scrivener’s errors" in condominium declarations. The Defendants also counter-complained for reformation of the Declaration.

The Appellate Court affirmed the trial court ruling that the amendment was void. First, analyzing the meaning of "scrivener’s error", and intent of the legislature in using this "archaic phrase that somehow has survived time and legislative amendment", the decision holds that the omission of the outdoor spaces from the declaration was not a typographical error, clerical error, minor mistake in transcription, or technical mistake. The result of the amendment was not a mere correction of an error, but a substantive change in the nature of the common elements. The effect was to diminish the common elements by granting specific unit owners exclusive use of part of the condominium property, and this thereby reduced the value of Schaffner’s ownership interest in the common elements. In order to do this, a unanimous vote of all unit owners was required by the specific provision of the Declaration. The statutory provision of the Condominium Law allowing correction of scrivener’s omissions or errors applies only to typographical or similar types of mistakes, correction of provisions which conflict with current case and statutory law, or internal inconsistency within the Declaration by vote of two-thirds of the members of the Board or Managers or a majority vote of the unit owners. (The decision also reversed the trial court’s dismissal of the Defendant’s action for reformation and rejected Schaffner’s argument that the parol evidence rule served as a bar to the introduction of evidence on mutual mistake of fact.)

 

3. REAL ESTATE TAXES: DEVELOPMENT AND RE-ASSESSMENT:

The Illinois Property Tax Appeal Board and DeKalb County Board of Review appealed the trial court’s decision in favor of the developer of land on the issue of the timing of reassessment of property in Paciga v. The Property Tax Appeal Board, (2nd Dist., May, 16, 2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/2ndDistrict/May/Html/2000177.htm.

At issue was the applicability of Section 10—30 of the Property Tax Code, (35 ILCS 200/10—30) to Paciga’s 23.59 acre parcel in Kingston, Illinois. Prior to 1997, the parcel was assessed as farmland at $1,178.00. In 1996, however, Paciga subdivided the property into 14 lots and installed a road to the lots. The result was that the DeKalb Board reassessed the subdivided property at $21,763.00 based on the median sales of comparable farmland in 1996. Paciga claimed the DeKalb Board overvalued his property before the PTAB, arguing that 35 ILCS 200/10—30 prohibited increased assessed valuation until the completion of a habitable structure on any lot of the subdivided property as set forth in subsection (c). The PTAB interpreted subsection (b) of Section 10—30, however, as allowing the new assessed valuation by calculating the subdivided property’s market value based on its use prior to the subdivision. The trial court reversed the decision of the PTAB, finding that it had misinterpreted the law. On appeal, the Second District agreed that there was an apparent ambiguity because subsection (a) provides that the assessed valuation of subdivided farmland or vacant property larger than 10 acres will not increase as a result of the subdivision, whereas subsection (b) appeared to provide for annual increase of assessed valuation based on an estimation of the value of the property at a fair, voluntary sale. Turning to the legislative history indicating the purpose of the statute was to "protect the real estate developers from rising assessment which result from initial platting and subdividing farmland for real estate development", until a house is build or the property is used for commercial purposes, the Court specifically found that: "the ‘particular evil’ that section 10—30 was intended to remedy was the imposition of a higher tax upon real estate property developers before they had the opportunity to reap the benefits of their investments." This is clear, the Court held, when subsection (a) is read in conjunction with subsection (c) stating that until a habitable structure has been completed or any lot is used for business, commercial or residential purposes, the assessed value of the lots will not be increased. When a structure on that first lot is completed however, then that lot will be assessed separately from the remaining lots pursuant to the provisions of subsection 10--30(b), and this provision explains how the remaining lots are to be assessed; i.e., "based on the estimated price the property would bring at a fair voluntary sale". The PTAB’s error was interpreting subsection (b) as allowing a change in assessed value prior to the first lot having a habitable structure, business or commercial use: "Therefore, subsections 10—(b) applied only when none of the lots contains a habitable structure or is used for residential, business, or commercial purposes. Absent such a change in use, subsection 10—30(a) applies to the entire property and the assessment valuation will not increase." To the great relief, I am sure, of all real estate developers around the state.

 

4. UNAUTHORIZED PRACTICE OF LAW; LOAN DOCUMENTS PREPARATION IN MICHIGAN:

My friend and colleague, John O’Brien of IRELA brought a recent Michigan Court of Appeals case to my attention with an admonishment that it could have significant ramifications on residential transactions in Illinois as well. In Dressel v. Ameribank, (Mich. App., August 3, 2001), 2001 WL 877574, the Dressels obtained a mortgage from Ameribank. The RESPA statement at closing disclosed a fee of $400 for "document preparation". The publication provided to the homeowners, ("Buying Your Own Home", United States Dept. of Housing & Urban Development, 1997), described this as "a separate fee that some lenders or title companies charge to cover their costs of preparation of final legal papers, such as mortgage, deed of trust, note or deed." The Dressels filed suit against Ameribank alleging that the charge for completing the mortgage documents constituted the unauthorized practice of law and violated the Michigan Consumer Protection Act. Ameribank argued that its actions were not the unauthorized practice of law because it was an interested party to the transaction. The trial court granted Ameribank’s motion for summary judgment. On appeal, the Michigan Court of Appeals reversed, finding that the preparation of the mortgage documents was the unauthorized practice of law. The purpose of prohibiting the unauthorized practice of law, the Court reasoned, is to protect the public from untrained legal counsel and incorrect legal advice. Prior Michigan decisions had held that charging a fee for the preparation of legal documents for others was engaging in the practice of law. A distinction had been drawn, however, where the document preparation was not accompanied by advise or counsel as to the legal effect or validity of the documents. Noting that Michigan real estate brokers had long engaged in filling-in pre-printed form contracts incidental to their business, the Court turned to decisions in other states, and noted that only where the pre-printed forms had been approved by an attorney, there was no advice being given, or a separate charge being assessed, were the services not transformed into the unauthorized practice of law. Compensation appeared to be a significant factor, and accordingly, "This Court agrees with the majority opinion of the states that charging a fee can take an otherwise incidental act into the realm of the unauthorized practice of law." Regardless of the fact that Ameribank was an "interested party" to the transaction, charging "the separate fee for the preparation of the mortgage documents by a bank crosses the threshold of providing services for the bank’s own benefit and engaging in a business where a profit is made from manufacturing legal documents without the requirement of licensure from the state bar."

A quick review of the last ten settlement statements most of us have received at closings here in Illinois will likely reveal that most included a separate charge for "document preparation" by the lender. Hmmmm…

 

5. CONSTRUCTION CONTRACTS; STATUTE OF LIMITATIONS:

There are two different statute of limitation provisions in the Code of Civil Procedure that can possibly relate to the filing of an action based upon a construction contract. 735 ILCS 5/13-206 provides for a ten-year statute of limitation for written contracts generally. 735 ILCS 5/13-214, on the other hand, provides for a four-year statue of limitation for actions relating to contracts for the design, planning, supervisions, observation or management of construction projects. Blinderman Construction Co., Inc. v. Metropolitan Water Reclamation District, (1st Dist., September 4, 2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/1stDistrict/September/Html/1001940.htm, affirmed the trial court’s ruling that the four-year statute applied to a contract to construct a laboratory building. Blinderman’s base contract provided for payment of $8,534,748 upon its base contract, but its verified complaint sought to recover an additional sum o $3,268,774.79 for "extra work". The District moved to dismiss the complaint pursuant to Section 2-619, arguing that the action was time barred under the Section 13-214 provision that actions based upon the performance of construction activities must be brought within four years. Binderman contended, however, that the applicable statute of limitation was the ten-year period found in the Code of Civil Procedure for written contracts generally under Section 13-206. Binderman’s theories were that the court should look to the "nature of the injury", (i.e., failure to pay under the contract), in determining the statute to apply, that the District was estopped from raising the statute of limitations because of protracted settlement negotiations between the parties, and that the District violated the Local Government Prompt Payment Act, (50 ILCS 505/1), requiring payment within thirty days of approval. The District argued the statute of limitations in reply to all theories. Noting that Section 13-214(a) provides that "Actions based upon tort, contract, or otherwise against any person for an act or omission of such person in the design, planning, supervision, observation or management of construction, or construction of an improvement to real property shall be commenced within four years from the time the person…knew or should reasonably have known of such an act or omission.", the Court held this to be the applicable limitation statute. The basis for the claim of Binderman against the District was the "extra work" resulting from the rejection of materials, services and subcontractor’s work by the District’s engineers. Accordingly, the District was "engaged in the construction activities enumerated under Section 13-214(a)…" According, faced with "the choice between the statutes prescribing the different periods of limitations [the court] looks to the nature of the defendant’s activities rather than to the form of the action", and the conduct rather than the contract controlled the applicable limitation period. Because of the ruling on this issue, it the Court did not address the industrious arguments relating to estoppel and the Local Government Prompt Payment Act.

Just as the ink was drying on this decision, the Fifth District considered a similar distinction when it reversed and remanded the trial court in Litchfield Community Unit School District No. 12 v. Speciality Waste Services, Inc, , (5th Dist., September 25, 2001) http://www.state.il.us/court/Opinions/AppellateCourt/2001/5thDistrict/September/Html/5000209.htm. The Trial court erred when it dismissed complaint filed by school district against firm it hired to perform work under written contract for asbestos-abatement based on four year limitations period for improvements to real property rather then ten year limitations period for breach of written contracts. The contract was for asbestos removal and work which constituted maintenance and repairs, and therefore did not meet the statutory definition of "improvements" to real estate. An "improvement", this decision holds, "is an addition to real property which amounts to more than a mere repair or replacement and which substantially enhances the value of the property. It does not include ordinary maintenance… Based upon agreed facts in this record, we believe that the trial court erred in finding that the work performed pursuant to the contract constituted the construction of an improvement to real property and in applying the four-year statute of limitations set forth in section 13-214 of the Code of Civil Procedure. The work amounts to ordinary maintenance and repair of an existing structure. Therefore, plaintiff's breach-of-contract action is governed by the 10-year statute of limitations set forth in section 13-206 of the Code of Civil Procedure (735 ILCS 5/13-206 (West 1996)).

 

6. MECHANIC’S LIENS; SECTION 34 AND TITLE WAIVER:

(Ed.’s note: We have covered Section 34 of the Illinois Mechanic’s Lien Act providing that an owner can serve notice on a lien claimant mandating commencement of suit within thirty days or face the loss of their lien and the decisions applying facts broad and narrow to the statute. In the world of commerce and title, however, it is most often the title examiner that determines if the demand and statute extinguish the lien. Accordingly, Dick Bales’ thoughts and concerns are most helpful to those "in the trenches":)

FROM THE TITLE INSURANCE COMPANY PERSPECTIVE

A few days ago (September 26) I received a fax from a lender. The fax consisted of two pages. The first page was the lender's two-sentence letter to me, telling me that "as the mechanics lien was not valid, you can now waive the lien, correct?" The second page was a letter dated August 23 from an attorney, advising a mechanics lien claimant that the claimant had thirty days to file its mechanics lien foreclosure pursuant to Section 34 of the Illinois Mechanics Lien Act. Is the lender right? Can I now waive the mechanics lien?

I had to advise the lender that the procedure is not quite as simple as he envisioned.

Under Section 34 a homeowner can submit a "demand to file suit" to the lien claimant. The owner can make written demand on the person claiming the lien and demand that he commence to enforce his lien within thirty days. If he does not, the lien is forfeited.

Section 35 spells out additional requirements. When a mechanics lien has been recorded, and there is a demand to file suit, and a suit is not instituted, the owner can demand in writing that the lien claimant release the lien within ten days after receipt of such written demand. If the lien claimant does not do so, he is liable to the owner for $25.00. The statute indicates that the $25 would then be recoverable in a civil action.

At one time title companies would insist that the owner then go into court and seek recovery of the $25.00. Upon obtaining a $25.00 judgment, the title company would waive the lien, feeling that the matter is now settled, that it is res judicata.

Now, though, court cases such as Pickus Construction & Equipment Co. v. Bank of Waukegan, 158 Ill. App.3d 141 (1987) and Vernon Hills III Limited Partnership v. St. Paul and Marine Insurance Company, 678 N.E.2d 374 (1997) indicate that the lien is forfeited after the initial thirty days and that the title company would not have to insist that there be a suit to foreclose the lien.

This does not mean that the title examiner can merely waive the lien. Despite the holdings of these cases, it is still possible that the lien claimant could later attempt to foreclose its lien. If so, the title company would have the duty to defend the case. Instead, the examiner will probably still want a personal undertaking; the undertaking would be for the costs of defense in defending against any attempted enforcement. Such an undertaking might read as follows:

"Costs of defense relative to the enforcement or attempted enforcement of the mechanics lien recorded ___________ as document __________."

When I receive a letter such as the fax I got this week, I first verify that the letter was sent to the lienor. The general practice is that the letter be sent via certified mail. I will make sure that the receipt indicates that the lienor signed for the letter.

In the above example it appears that the lienor received the letter on either August 23 or 24. I received the lender's fax on September 26. Can I now waive the lien?

No I cannot. The title company has to be in a position to bring down title and make sure that title is clear, that there has been no lis pendens recorded at the Recorder's Office or no suit filed (or answer filed in a pending suit) at the Circuit Court in the thirty days since the letter was received by the claimant. Because of title plant gaps, this may be a few extra weeks past the initial thirty-day period.

I explained to the lender that once I can clear title and verify that no suit was filed or lis pendens recorded, I will still need to have a personal undertaking executed. As the lien is still of record, I will endorse over it rather than just waive it.

Note that this procedure can also be used when an attorney's client has title indemnity money deposited with the title company. If the attorney's client wants to know how he or she can get back his title indemnity money before the two year mechanics lien statute of limitations is up, the attorney may want to proceed against the lienor via Section 34.

I realize that the standard form title indemnity contains powerful language that protects the title company. Nonetheless, I still like to have the customer sign a personal undertaking for defense costs. I do this because I want to impress upon the customer that I will still expect him to step up to the plate and defend a later foreclosure of the lien. I want to make sure that he realizes that when he gets his check for the money that was in the title indemnity, he still has liability.

So what if a customer comes in and says that work has been done but not paid for, but the contractor has not yet filed a lien? He wants to use Section34 to get rid of a lien that has not yet been recorded. Can he do this?

No, he cannot. Section 34 is only to be used for recorded liens. See Kryminski v. Dziadowiec, 695 N.E.2d 1275 (1998).

Dick Bales, Chicago Title, Wheaton, Illinois

 

(Ed.’s Note: Just as I completed reading Dick’s missive, I also noted the following exchange of email on the ISBA Transactional Bulletin Board between John W. Foltz and Brian Mooty, suggesting that in addition to a Section 34 demand, a homeowner might well employ the Home Repair and Remodeling Act and the Consumer Fraud and Deceptive Practices Act.

Brian:

For the Homeowner who had the contractor who filed the mechanics lien for unsatisfactory work and then notified the homeowner's lender, did the contractor comply with the Home Repair and Remodeling Act? The contractor probably has not as very few of them comply with the HRRA. If so, the homeowner can advise the contractor that he/she has violated the Consumer Fraud and Deceptive Practices Act. The homeowner can then consider advising the contractor's attorney that a demand will be sent to the contractor to sue on the lien within thirty days (or the lien will be void) and that if the contractor does so that homeowner will counterclaim under the Home Repair Act, among other things. Sometimes you reap what you sow.

John:

To respond to your question of 8/28: You are correct that the Home Repair and Remodeling Act only sets forth a right to enforce by the States Attorney or the Attorney Generals office. So if you only plead a cause of action under the HRRA it could be dismissed for lack of a right by a private party to bring a cause of action. However, Public Act 91-0230 which created the HRRA also amended section 815 ILCS 505/2 Z of the Consumer Fraud and Deceptive Business Practices Act by adding to that section that a violation of the HRRA is also a violation of the Consumer Fraud Act. So, the cause of action would be based on the Consumer Fraud Act at 815 ILCS 505/1 et. seq. claiming a violation of the HRRA. Which is cool because you are also provided a statutory basis to claim attorneys fees if the homeowner prevails.

Brian:

Thanks for the email. This act certainly applies to this transaction. However, this are no statutory damages contained in the act and it appears that it can only be enforced by the State's Attorney or the Attorney General. Are you saying that a violation of this act is sufficient to bring suit under the Consumer Fraud and Deceptive Practices Act?

John W. Foltz

 

7. TRUTH IN LENDING; DISCLOSURE OF PAYMENT DUE DATE AND REGULATORY COMMENTS:

In Clay v. Johnson, (7th Cir., September 5, 2001), No. 00-1203, the Seventh Circuit Court of Appeals confronted and reversed a finding by the District Court that disclosure of the beginning payment on a series of retail installment contracts and mortgages to finance home improvements would be due "30 days from completion" did not satisfy Truth in Lending. Davenport Construction Company entered into a series of three contracts with Ree Clay and her sister Ruby Chivers for home improvements. Each of the retail installment contracts attempted to comply with the requirement of Truth in Lending that there be disclosure of the exact date on which payments would be due, (or an estimate of the due date if they could not determine a precise calendar date), by reference to "30 days after completion". (15 USC 1638(b)(1) and 12 CFR 226.17(a)(1). The District Court granted summary judgment to the Plaintiff consumers on the issue of liability, rescinded their contracts, and awarded statutory damages and attorney’s fees for failure to comply with the disclosure mandate.

On appeal, the Court’s interpretation of the statute and applicable regulations was complicated by the fact that Comment 81(g)-4 promulgated by the Board of Governors of the Federal Reserve System to interpret the provisions of TIL on this issue changed during the pendency of the proceeding. The original, proposed comment published in December, 1997 specifically provided that disclosing that the first payment was due "30 days after completion of construction" was not sufficient to comply with TIL. The Board received a large number of response to the proposed comment stating that determining the exact date on which payments should begin is often difficult at the time the disclosures must be made and that compliance with the interpretation would be practically impossible. Accordingly, the final Comment provided that "In a limited number of circumstances, the beginning-payment date is unknown and difficult to determine at the time…Alternatively, the disclosure may refer to the occurrence of a particular event, for example by disclosing that the beginning payment is due "30 days after the first loan disbursement.", and thereby specifically stated that a creditor could satisfy TIL by defining the beginning payment date by reference to the occurrence of a particular event rather than disclosing a specific date. The issue then evolved to the question of whether the final comment was retroactively applicable to the case at hand, and the Court of Appeals stated this depended upon whether the Comment was a change in the law (i.e. one which can not be applied retroactively) or merely a clarification of the existing law, (which can be applied retroactively). While the District Court thought that it was "incongruous for the Board to characterize both of these positions as a clarification of the existing law", the Court of Appeals ruled otherwise. "We are convinced that the Board’s retraction of its initial position is not sufficient to tax the Board with inconsistency. The Board recognized that creditors were confused…Although the Board initially thought is property to clarify the law by requiring creditors to disclose an exact date, it apparently thought better of that position following the comment period in light of the comments it received." The result is that it is established that TIL disclosure of the beginning date of payments can be with reference to an occurrence rather than a specific date. The process of getting to that result is a decision which anyone who has a case involving regulatory comments and changes in the law should read.

 

8. REAL ESTATE CONTRACTS; STANDING TO SUE & LAND TRUSTS:

Kaplan v. Shure Brothers, Inc., (7th Cir., September 4, 2001), No. 00-4027, brought suit in the Northern District of Illinois asserting breach of a 1987 real estate contract against Shure. The suit was based on allegations that Shure had misrepresented the industrial property sold to RBK Furniture, Inc. nine years earlier had not been used for production or storage of hazardous substances and had never been used as a landfill. The contract provided these representations survived the closing. Title to the real estate was conveyed at closing by Shure to a land trustee for the benefit of RBK. When RBK needed financing to renovate the property, Kaplan, as the majority shareholder, officer and director of the corporation, executed a guaranty of 25% of the outstanding principal of the loan to Fidelity Mutual Life Insurance Company. In exchange, RBK assigned its entire beneficial interest in the Land Trust to him. The Trust then leased the land to RBK for use as a retail furniture showroom warehouse and office until it ceased business and assigned its assets for the benefit of creditors in 1991. Fidelity foreclosed the mortgage and Kaplan paid in excess of $1,000,000 to settle his liability on the guarantee. Prior to the completion of the foreclosure, however, the Trust entered into a contract with Wal-Mart to sell the property in an attempt to avoid foreclosure. The contract was terminated when Wal-Mart conducted an environmental examination of the site and discovered contamination. In addition to the failure of that transaction, RBK was then visited with an action by the owner of the adjacent property against it claiming its property was contaminated by the RBK property. Kaplan settled that matter as well. As a result, Kaplan brought this action against Shure on the contract for sale to RBK. The District Court granted Shure’s motion to dismiss for lack of standing, rejecting Kaplan’s argument that he was a third party beneficiary to the contract, and when Kaplan amended his complaint to allege that he was RBK’s "successor" under the contract by virtue of the assignment of the beneficial interest in the land trust, it again granted summary judgment in favor of Shure on the standing issue.

In a clear recitation of Illinois law, Judge Bauer’s decision begins by noting that "Under Illinois law, a cause of action may be brought only by a party to that contract, by someone in privity with such a party, or by an intended third-party beneficiary of the contract.", and then defines the concept of privity, (which "may arise by operation of law, by descent, or by voluntary or involuntary transfer"). Finding that there was no indication that the real estate contract was assigned by RKB to Kaplan, (only the beneficial interest in the land trust was assigned), the Court rejected the theory that he was a successor in interest; "without some positive indication that Kaplan and RBK intended Kaplan to succeed to RBK’s rights in the real estate contract, we cannot grant Kaplan the relief he seeks." Too often, real estate lawyers look at land trusts as mere holding vessels and equate holding the beneficial interest with ownership of all of the "bundle of rights" relating to the real estate. Here, a clear distinction is made when the Court concludes "Overwhelmingly, the evidence suggests that the Land Trust contained on the real property and not the real estate contract rights), and that the assignment transferred only the rights under the Trust Agreement. Therefore, Kaplan cannot successfully argue that any rights to the real estate contract "flowed through" the Trust to him as the beneficial interest holder." Now….if you are working with Land Trusts and transferring interests in the subject of those trusts…it bears repeating: "Be careful out there."

 

9. LANDLORD TENANT: SEMIANNUAL PAYMENTS AND NOTICE OF STRICT COMPLIANCE WITH LEASE PAYMENT TERMS:

In a case of first impression, the First District was called upon to determine the date upon which "semi-annual" payments are due in Fox v. Commercial Coin Laundry Systems, (1st Dist. September 13, 2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/1stDistrict/September/Html/1003820.htm. In this case, the owner of an apartment building filed a forcible entry and detainer case against the lessee, Commercial Coin, for failure to make timely rent payments under the lease. The July 2, 1987 lease provided that the lessee was to pay 15% of the coin receipts "semi-annually" to Fox. During the 13 years preceding this litigation, Commercial alleged that it made its payments "sometime" during January and July of each year. Fox wrote Commercial on January 27, 2000, stating that he understood the lease to require payment on January 2 and July 2 of each year, and that while he had accepted three late payments in the past, any future late payment would be a breach of the lease. When the July 2 payment date passed without payment, Fox served a five-day notice on July 3, 2000, and then file his complaint on July 14, 2000. The trial court granted Commercial’s motion for summary judgment, finding that Commercial had not breached the payment terms of the lease; (presumably because the suit was filed before the end of July). On appeal, Justice Theis’ decision reversed. Holding that a "valid lease requires a definite agreement as to the time of payment", and noting that "where by the contract the rent is payable either yearly, half-yearly, quarterly, monthly, or weekly, and there is no provision for payment at any particular time during such period…the rent is not due and payable until the end of those respective periods…", the decision finds that the January 2 and July 2 dates were implied by using the definition of "semiannually" found in the dictionary in conjunction with the fact that the particular lease before the Court was entered into on July 2, 1987. "To hold, as Commercial suggests, that the rent could be paid at any two times during the year is inconsistent with the rule in Illinois requiring a definite time for payment." Most importantly, the Court also found that the letter Fox directed to Commercial on January 27, 2000 was "sufficient notification to his desire to insist on strict compliance with the lease."

 

10. PARTITION SUIT; BONA FIDE PURCHASER PROTECTION AND VOID JUDGMENTS:

In December, 2000, the case of Steinbrecher v. Steinbrecher, (2nd Dist., 1/26/2000), 726 N.E.2d 1118, 244 Ill.Dec. 807, was reported in these "Keypoints" for the proposition that the Circuit Court did not have authority in a partition proceeding to order that property be listed under an exclusive listing with a real estate agent in lieu of the mandated "public sale" under Section 17-116. That case was mired with procedural issues and the usual "baggage" that comes with pro se litigants, so it should come to no surprise that when the Illinois Supreme Court issued its decision in this case, Steinbrecher v. Steinbrecher, (Il. S.Ct., September 27, 2001),  http://www.state.il.us/court/Opinions/SupremeCourt/2001/September/Opinions/Html/89551.htm, the majority opinion focused on whether Rosemary Steinbrecher’s attack on the sale could affect the third party bidder’s rights under Supreme Court Rule 305(j), while the dissenting opinion declared the entire sale void for lack of jurisdiction. The result, though, offers some excellent analysis on both sides of the argument relating to the impact of sales generally.

The bidder at sale, Moser Enterprises, Inc., was not a party to the partition proceeding and purchased the property by submitting an offer in the form of a contract through the Clerk of the Court the evening before a continued hearing for confirmation before the trial court. The Second District vacated the confirmation of the resulting "sale" to Moser by this process and remanded the case for further proceeding, determining that the discretion allowed to the trial court under the Partition Act did not permit it to direct the property be offered for sale by a Realtor rather than at a public sale; "We do not find that such discretion allows the trial court to ignore the plain language of the Code, which requires a public sale." Rosemary Steinbrecher continued her legal odyssey by petitioning for leave to appeal to the Illinois Supreme Court, but failed to obtain a stay of the judgment pending appeal. In reversing, the Supreme Court majority relied upon the provisions of Rule 305(j) that if a stay is not perfected with the time for filing of a notice of appeal, the reversal or modification of a judgment on appeal does not affect the rights of any person who was not a party to the proceeding appealed from and who obtained rights in real or personal property after or through the judgment. The majority opinion adopts the theories that the law needs to protect the integrity and finality of judicial sales and extend this protection to bona fide purchasers at those sales because, absent such assurance, "no person would purchase property involved in a judicial proceeding." This, it notes, is the purpose of Supreme Court Rule 305(j). Accordingly, the majority opinion holds, even should the sale be vacated, the result could not, as the directed by the Second District, affect the interest of Moser as the purchaser at sale. Noting that "The dissent suggests that this court ignore the plain language of Rule 305(j) and strong public policy favoring the finality and permanence of judicial sales to address alleged procedural irregularities occurring during the sale.", the majority nonetheless held steadfast in its reversal.

The dissent, beginning with the theory that since the trial court undertook a sale beyond its statutory authority the judgment was void, and advanced a multi-faceted argument. In addition to asserting that the judgment was void because it directed a non-public sale, the dissent also notes that the commissioner did not take the oath required by the Partition Act to fairly and impartially partition the property, the commissioner’s report did not state specifically the property could not be divided in kind, and there were numerous "irregularities" in the sale process relating to Moser’s "last minute contract" which would not have occurred at a public sale under the Act. Justice Freeman concludes that: "Rosemary argued that the judgment of partition, and the sale pursuant thereto, were void because the circuit court did not comply with the requirements of the Act. The majority answers that Rule 305(j) precludes Rosemary from contesting the validity of the sale…If the circuit court’s judgment, and the resulting sale, are void, Rule 305(j) does not apply, for it is a requirement of the rule that the property passed pursuant to a final judgment. Avoid judgment may be attached either directly or indirectly at any time."

The majority, however, parries this argument by noting that the judgment is either "void" or "voidable", and the distinction relates to jurisdiction over the parties and subject matter. A judgment is "void" only if jurisdiction is lacking. Here, the trial court had both personal and subject matter jurisdiction, therefore, the resulting judgment was not "void" as argued by the dissent and Rule 305(j) applies.

This case, while limited in its application because we are unlikely to ever see another partition suit like this one, is nonetheless worthwhile in the reading because of the analysis that leads to all three decisions; the Second District, the Majority and the Dissent.