(December 2001 - January 2002)


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


(Copyright 2002 - All Rights Reserved)

(Ed. Note: Noooo, there was no installment for December. Sorry, but getting new phone lines when our local service provider went ‘out of business’, (please note new telephone and fax numbers above), practicing law, the holiday season and family obligations kept me from my "appointed rounds". But, fear not, no cases will go unturned!)

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.)



The Illinois Condominium Property Act, (765 ILCS 605/1 et seq.), specifically provides that in the event of a default by a unit owner in the payment of assessments, the association has the right to maintain an action for possession as set forth in the Forcible Entry and Detainer article of the Code of Civil Procedure; (765 ILCS 605/9.2; Article IX Code of Civil Procedure, 735 ILCS 5/9/101 et seq.) The Code of Civil Procedure, however, also provides for and governs the estate of homestead. In the recent case of Knolls Condominium Association v. Harms, (2nd Dist., November 26, 2001),, Justice Geiger of the Second District opined on an issue of first impression relating to whether a condominium unit owner could assert her homestead as a defense to the association’s forcible entry and detainer action. Mary Harms’ assessments accumulated to $2,326.40, and the association filed a forcible entry against her. Judge Hollis Webster ruled that the estate of homestead does not constitute a defense to the action when Harms asserted that her homestead was a possessory right that cannot be divested by a forcible proceeding. In reversing, the Second District noted that Section 12-901 provides that "every individual is entitled to an estate of homestead to the extent of value of $7,500 of his or her interest in…a condominium…owned or rightly possessed by lease or otherwise and occupied by him or her as a residence’ and that the ‘homestead…is exempt from attachment, judgment, levy or judgment sale…except as provided in this Code…". Section 12-904 provides that a waiver of the homestead estate must be in writing and signed. Despite the fact that the Code of Civil Procedure specifically recognizes forcible entry and detainer as a remedy against unit owners who fail to pay assessments, ( See 735 ILCS 5/9-102(a)(7) and 735 ILCS 5/9-111(a) ), the Court’s interpretation was while that "the homestead statute specifies its own exceptions and one of the specified exceptions is the enforcement of a lien by a condominium association for the nonpayment of common expenses…" nonetheless, "The homestead statute does not provide for an exception to an estate of homestead with respect to a forcible entry and detainer action, including such an action brought by a condominium association".

Citing the principal of inclusio unius est exclusio alterius, (i.e., inclusion of one is exclusion of the other), Justice Geiger’s reasoning is that the legislature expressly made foreclosure of a lien by a condominium association an exception to the claim of homestead, (735 ILCS 5/12-903), but failed to create the same exception for a forcible entry and detainer, and therefore did not so intend; (i.e., making a distinction between a foreclosure action seeking to sell the unit to satisfy the lien, and a forcible action seeking possession of the unit based on the default.)

Justice Bowman dissented based on the result of the majority reasoning as producing "a statutory disharmony that the legislature could not have intended." Noting that the provision in the Forcible Entry and Detainer statute was added in 1972 with the "unique" and specific purpose of providing condominium associations with the remedy of eviction against a defaulting unit owner, which has resulted in "one of the better collection procedures found in any state", Justice Bowman does "not believe that where the legislature specifically provided for a procedure for evicting a unit owner who fails to pay her assessments, it then intended to eliminate this remedy by not specifically listing it in section 12-903 of the homestead statute as one of the exceptions to the applicability of an estate of homestead."

For the time being, it appears that attorneys presently using the forcible courts as a vehicle to collect assessments on behalf of their condominium associations should re-think this procedure; (….anyone need a foreclosure co-counsel?)


An unusual set of circumstances in 1350 Lake Shore Associates v. Christopher Hill and City of Chicago, (1st Dist., November 29, 2001) resulted in the Appellate Court reversing Judge Nowicki’s denial of a petition for a writ of mandamus directing the City of Chicago Department of Planning to issue an approval letter as a precondition to the issuance of a building permit for the construction of a 40 story, 196 unit apartment building. The saga begins 23 years earlier, when 1350 Lake Shore Associates obtained an amendment to the property’s zoning to allow a residential planned development which would have allowed the construction of the apartment building. Over the next eighteen years, however, the Plaintiff chose not to proceed with development. In 1996, presumably based on the fact that the Chicago Zoning Ordinance provided that such a residential planned unit development must be undertaken within a period not to exceed 20 years, the developers sought an approval letter from the Department of Planning in order to proceed with construction. The Commissioner took no action, and did not respond to requests thereafter to issue the letter, and this suit was filed. The City argued that ordinance did not provide for a 20 year expiration period, but should be interpreted as requiring the landowner to develop property "contemporaneously". It also noted that in the interim, the Chicago City Council approved a "down-zoning" ordinance for the property which would not permit the project. The Plaintiff countered by arguing that the it had a vested right to the issuance of the approval letter which would lead to a permit, substantially changed its position in reliance on those rights, and therefore was entitled to the approval letter and permit despite any subsequent change in zoning. (The Plaintiff was actually seeking a "Part II Approval letter", which was a necessary prerequisite to a zoning certificate, which was necessary to obtain a building permit.) Finding that "a landowner is entitled to the issuance of a Part II Approval letter when his property is located within a planned development and the plans he submits meet all requirements of the applicable planned development ordinance", the Court noted that the ordinance did not state that the approval of a planned development expired upon a property owner’s failure to timely develop the property, and found that the Commissioner did not have a right to refuse or delay the issuance of the permit because there was a pending ordinance which would prohibit the use -- and could not await the outcome of the pending "down-zoning" ordinance before issuing the approval. Accordingly, the Plaintiff established (1) that it had a clear right to the issuance, (2) the Commissioner had a clear duty to issue, and (3) the Commissioner had the clear authority to issue. A mandamus is an extraordinary remedy used to require the performance of office duties by a public officer where there is no exercise of discretion on his part involved, and, where the party seeking the writ establishes an absolute right to the performance, it should be awarded as a matter of judicial discretion.




Amcore Bank v. Hahnaman-Alrecht, Inc., et al., No. 2-00-1462, a second district case, contains some valuable lessons for real estate attorneys who are fond of using powers of attorney.

The facts of this case are as follows: Plaintiff lent $17,000,000 to defendant. When the defendant defaulted on the loan, plaintiff sued the defendant and also the individual guarantors, including one Thomas F. Conley. Conley's guaranty had been signed by his son, Kristopher, pursuant to a power of attorney. When Conley died, Grand Premier Trust and Investment, Inc., as trustee of the Thomas F. Conley trust, was substituted for Conley. Grand Premier argued that the guaranty was invalid because Kristopher did not have the authority to sign it. The trial court entered judgment for Grand Premier.

The plaintiff appealed, arguing that the trial court erred in (1) failing to find that the plaintiff acted in good faith in relying on the power of attorney; (2) concluding that the power of attorney did not authorize Kristopher to sign guaranties; and (3) failing to find that Grand Premier ratified the guaranty. The appellate court affirmed the decision of the trial court, stating, among other things, that "the evidence is clear that Conley never explicitly gave Kristopher the authority to sign guaranties on his trust's behalf. The power of attorney lists specific powers given to the attorneys-in-fact, and the power to execute guaranties is not among them."

Although the plaintiff tried to rely on the broad grant of agency in the power of attorney's opening paragraph, the court discounted this argument. Citing the recent case of Fort Dearborn Life Insurance Co. V. Holcomb, 316 Ill.App.3d 485 (2000), the court stated that "no matter how the power is characterized, a 'catchall' provision will not operate to expand powers expressly limited in other portions of the same instrument."

Citing section 2-8 of the Illinois Power of Attorney Act (755 ILCS 45/2-8), the plaintiff also argued that it should be protected because it relied in good faith on the durable power of attorney. Attorneys may recall that this section of the statute was amended after the infamous In Re Estate of Addie Davis case, 632 N.E. 2d 64 (1994). In this first district case, the court held a bank liable for the payment of assets from the estate of a decedent. The bank relied in good faith on a forged power of attorney. The case caused widespread controversy and was the impetus for this amendment.

The section 2-8 amendment now provides that "any person who acts in good faith reliance on a copy of a document purporting to establish an agency will be fully protected and released to the same extent as though the reliant had dealt directly with the named principal as a fully competent person." But the appellate court in Amcore Bank said that this statute was of no help to the plaintiff, for "just as the power of attorney did not actually give Kristopher the authority to execute guaranties, it did not PURPORT to do so either [emphasis in original]."

So what can we glean from this case? It seems to me that when we use powers of attorney, we have to make sure that the powers granted are consistent with the contemplated authority. Even the blanks of the current version of the Illinois statutory short form durable power of attorney must be filled in with care. For example, note that this form has fifteen categories of powers. When filling out the form, the principal is instructed to strike out any category that he or she does not want the agent to have. There is a category for "real estate transactions" and a category for "borrowing transactions." If the attorney is representing a seller of real estate, then "real estate transactions" MUST be permitted. If ONLY "borrowing transactions" is allowed, this authority would NOT be sufficient! ( On the other hand, if the title company is insuring a mortgage executed with a power of attorney, then EITHER "real estate transactions" or "borrowing transactions" would be permitted.)

If the power of attorney is between spouses, and the attorney knows that his client is in the process of getting divorced or obtaining a legal separation, remember that section 2-6 of the Act provides that if a principal and agent are husband and wife and if the court enters a judgment of dissolution of marriage or legal separation after the power of attorney is signed, the law presumes that the agent has died at the time of the judgment for all purposes of the agency.

Section 2-8 of the Act provides powerful protection to third parties. But as the Amcore Bank case illustrates, this protection is not absolute. Granted, Section 2-4 of the Act states that "every agency, including, without limitation, the statutory property and health care power agencies, shall have the benefit of and be governed by [the Act]." Section 2-4 is consistent with the ruling of the Fort Dearborn case, where the court held that a power of attorney that was similar to but not identical to the short form statutory power of attorney was nonetheless subject to the provisions of the statute.

So in light of Section 2-4, I have often wondered why the current statutory short form contains language that "this power of attorney will not be effective unless it is notarized and signed by at least one additional witness." When this form first came out, some title company closers initially felt that a power of attorney was invalid and unacceptable if it were not witnessed. This is not the case; Section 2-4 makes it clear that an unwitnessed power of attorney is nonetheless valid.

But remember the words of Thorpe Facer, who pointed out in the July 2001 issue of the ILLINOIS BAR JOURNAL that "the most obvious lesson from Fort Dearborn is to use the statutory short form verbatim if you want to be sure to be governed by [the Act.] Modifications, while explicitly allowed both by statute and by the holding of this case, risk, however slightly, a finding that the power is not subject to [the Act.] Modifications must be done with care and in light of the court's declared test: 'Whether the power of attorney, in its totality, indicates that the legislative purpose of the Short Form Act has been satisfied.'" Thus, it seems to me that although an unwitnessed power of attorney or non-statutory short form might be valid, such a form might not carry with it the extensive protections of Section 2-8.

Is there anything else we can learn from the Amcore Bank case? The plaintiff lost because the power of attorney did not authorize Kristopher to sign guaranties. In recent months I have been furnished powers of attorney wherein the agent has assigned his agency to a third party. It seems to me that such an assignment is invalid unless the original power of attorney specifically authorizes the principal to assign the power. For similar reasons, I do not think that an executor of an estate can assign his or her responsibilities as an executor to a third party. Finally, consider a trustee of a declaration of trust. Does the trustee have the power under the declaration of trust to execute a power of attorney?

The trustee can only do what the trust documentation says he or she can do. Granted, the Trusts and Trustees Act (760 ILCS 5/1 et seq. states at section 5/3(2) that "this Act applies to every trust created by will, deed, agreement, declaration or other instrument." And granted, section 5/4.10 states that a trustee has the power "to delegate to a co-trustee for any period of time any or all of the trustee's rights, powers, and duties." But section 5/3(1) seems to control: "A person establishing a trust may specify in the instrument the rights, powers, duties, limitations and immunities applicable to the trustee, beneficiary and others and those provisions where not otherwise contrary to law shall control, notwithstanding this Act. Thus, it seems clear that although the Trusts and Trustees Act might give a trustee the right to use a power of attorney, the rights given in the Act are tempered by the limitations of the actual trust agreement. If the trust documents do not give the trustee the right to assign his responsibilities to a third party, it does not appear that he can bootstrap authority from the Trust and Trustees Act. (But on the other hand, a corporation, e.g., could grant a power of attorney, assuming it had a corporate resolution authorizing the power of attorney.)

Finally, remember that sometimes it is not necessary to reinvent the wheel. I recently had a closing where the attorney did not use the statutory short form, but instead drafted his own power of attorney. Somewhat archaically worded, it provided for a grant of power of attorney to A, B, and C and not A, B, or C. Unfortunately, only A showed up at the closing. In this situation, wouldn't I need all three parties to sign the documents? Somehow we worked it out, but I was concerned. What was the intent of the parties here? Was it convenience (any one of three people can sign) or was it due diligence (three people must sign the deed). Yes, the attorney did intend to draft a document whereby only one person need sign at closing, but that is not what he prepared! And although that is what the attorney intended, what was the intent of the principal?

I believe that Amcore Bank v. Hahnaman- Alrecht, Inc. is extremely important for all real estate practitioners and title companies. The court in Addie Davis swung the pendulum in one direction. The legislature responded by amending Section 2-8, thereby swinging it in the other direction. Amcore Bank has now centered it between these two extremes, making two things clear: one, Section 2-8 is not absolute protection against faulty or insufficient draftsmanship, and two, although the statutory short power of attorney is basically a "cookie cutter" form, care must still be taken when filling it out.


Dick Bales, Chicago Title Insurance Company, Wheaton, Illinois



While the decision and facts in The Society of Lloyd’s v. Estate of John William McMurray, (7th Cir., December 11, 2001),, may have little to do directly with real estate, the case is interesting from a number of points of view, (i.e., the explanation of the relationship between Lloyds of London and its "Names" post-9/11 alone is worthwhile), and is included here because so many real estate practitioners deal with trusts that have language similar to that which formed the crux of the decision in this case.

Lloyds obtained a money judgment against John McMurray for approximately a million dollars. While the suit was pending in England, McMurray died, but not before transferring substantially all of his assets into a revocable trust naming himself as the sole beneficiary and trustee. Lloyds registered its foreign judgment in the Northern District of Illinois just weeks after two years following McMurray’s death, and filed a citation to discover assets against Harris Bank as the executor of his estate and successor-trustee of the trust. The Magistrate found the English judgment valid and enforceable. The Citation against the estate was quashed because it was filed after the two year period for claims in the Illinois Probate Act, 755 ILCS 5/18-12(b). The Motion to quash the citation against the trust, however, was denied and a turnover order entered in favor of Lloyds and against the trust.

The trial court held that the trust assets were not part of the estate of McMurray, and therefore subject to the seven year limitation period for enforcing foreign judgments, (735 ILCS 5/12-620), rather than the two year claim period. Noting that the Illinois statutes provide broad authority for courts to permit discovery and then compel the turnover of assets, (735 ILCS 5/2-1402), the Seventh Circuit affirmed Judge Manning, finding that although the judgment was no longer enforceable against the estate, it could be enforced against the trust. The trust clearly provided, (in what is ‘standard language’ customarily included by drafters), that at McMurray’s death "the trustee shall pay from the residuary trust estate without reimbursement my legally enforceable debts." The Lloyd’s judgment was a "legally enforceable debt" upon entry in the English Courts. The trust did not require that collection efforts be undertaken before payment, but simply "directed the trustee to pay McMurray’s debts. It did not instruct the trustee to wait until McMurray’s creditors sued to collect. Nor did it instruct the trustee to hide behind legal technicalities in an attempt to avoid paying valid debts…This is not a situation in which a long-lost creditor seeks to enforce a forgotten debt years aft the decedent’s death, compromising the State of Illinois’ interest in swift resolution of the decedent’s affairs. Harris simply seeks to evade a valid debt of which it had prior and timely notice."

(How many of you are thinking about the last trust agreement you wrote, right now?)



In a case which attorneys representing condominium associations against developers would do well to consider, the First District recently reversed the trial court’s determination that the developer had the right to grant easements after the control of the association had been turned over to the unit owners. LaSalle National Trust, N.A. v. Board of Directors of the State Parkway Condominium Association, (1st Dist., December 19, 2001) The plaintiffs were unit owners who, after renovation and conversion discovered that the building’s electrical service was inadequate to provide power to their units. The building had already been turned over to the owners, but the developer nonetheless granted the plaintiffs nonexclusive easement to allow access to the existing electrical lines to provide them with electrical service. The easement provided that the unit owners would reimburse the Board for their power usage at the same rate paid by the Board plus 5% to cover the administrative costs. The plaintiffs then installed the necessary electrical equipment and paid the Board for their use at the industrial rate charged by Commonwealth Edison. Thereafter, however, the Board granted the plaintiffs a perpetual, nonexclusive easement for the electrical service from the common elements line, but the easement required the payment for service charged at the residential rate plus 5% administrative cost. Even though the Board paid for electrical power at the industrial rate, it demanded payment from the plaintiffs at the higher, residential rate, and the unit owners file suit for declaratory judgment. In reversing the trial court’s finding of summary judgment in favor of the unit owners, the First District found that construing the Condominium Property Act, Condominium Declaration and Bylaws as a whole, the developer no longer had a right to create easements after control of the property was turned over to the unit owners upon election of the first board of directors. The intention of the parties was that the control of the property would pass from the developer to the unit owners’ board upon election, and they would assume the powers formerly exercised by the developer. While the Declaration did grant the developer with easement rights, those rights were of limited duration for the purpose of construction and development and were extinguished once control was surrendered. "Finally, we are of the opinion that the provisions of the Act which require the transference of authority from the developer to the board of managers would be undermined if the developer were allowed to exercise the power to grant easements long after it ceased to have an interest n the property. See 765 ILCS 605/18.2."



A case dealing with the rights of the tenant to exercise an option to purchase in the lease and a declaration of breach, Wolfram Partnership, Ltd. V. LaSalle National Bank, (1st Dist., December 19, 2001) (note that this link is to the modification of December 19, 2001, opinion on Denial of Rehearing), offers some insight into the interrelationship between exercising an option and defaulting on a lease. The particular lease permitted subletting, but had a requirement that the tenant provide the landlord immediate written notice of any sublease. (It also required the tenant maintain insurance which adequately protected the landlord.) In the event of a default, the tenant was given an opportunity to cure within 30 days of receipt of notice from the landlord. A rider to the lease also gave the tenant the option of renewing the lease for a five year period, and an option to purchase during the original lease term and renewal period. The property was sublet by the tenant on a number of occasions over a number of years without written notice to the landlord. The tenant then notified the beneficiaries of the trust of an intent to exercise the option to purchase. The option required that the full purchase price of $250,000 be deposited in escrow. The tenant only deposited $50,000, but correspondence suggested that the parties may have agreed to this lesser sum provided that the deposit was non-refundable. Title and survey were ordered and a closing date set. Prior to the closing, however, the beneficiary notified the tenant of the breach of the lease for failure to give notice of the sublease and provide adequate insurance, and asserted a default. The tenant deposited the balance of the purchase price in escrow, and when the landlord refused to close, the tenant brought this action for declaratory judgment that it had materially complied with its obligations under the lease and had properly exercised its option. The landlord counterclaimed for declaratory judgment that the tenant had breached the lease and for forcible entry and detainer. Both parties moved for summary judgment.

The Appellate Court reversed in part and affirmed in part the trial court’s grant of summary judgment in favor of the landlord, finding that there were material issues of fact. Of interest in the decision is the discussion of the effect of the exercise of the option to purchase. The option, when exercised according to its terms, extinguished the lease and transformed the parties’ relationship from landlord-tenant to vendor-vendee. The rights of the parties are thereafter determined according to the terms of the option. The purchaser must exercise the option strictly in conformity with the terms, and failure to do so continues the landlord-tenant relationship. The proper termination of the lease by the landlord, however, extinguishes the option. Accordingly, the factual issue of whether the option was properly exercised by the deposit of funds into escrow prior to the termination of the lease was sufficient to require remand. (Because the lease was not drafted to require compliance with the terms of the lease as a condition to exercise the option, the tenant’s alleged default prior to the exercise of the option did not affect its right to purchase since no default had been declared – interesting drafting issue, eh?) There were also factual issues relating to whether the breach was material or had been waived , and the Court notes that "In the context of lessor-lessee relationships, our supreme court has stated ‘it has long been established that any act of a landlord which affirms the existence of a lease and recognizes a tenant as his lessee after the landlord has knowledge of a breach of lease results in the landlord’s waiving his right to forfeiture of the lease." Here, the record indicated that landlord knew of the subtenancy six years before the declaration of a default and continuously accepted monthly rent. Whether this conduct amounted to a waiver was an issue of fact.



In West Suburban Bank v. Attorneys’ Title Insurance Fund, Inc., (2nd Dist., December 19, 2001),, Justice McLaren considered the assertion of Commercial Real Estate Brokers’ Lien under the Act, (770 ILCS 15/1 et seq.), and the ramifications of proceeding with a sale transaction based upon establishing an escrow under the provisions of the law. Section 15/20 of the Act provides that when a claim for lien has been recorded which prevents the closing of a transaction, an escrow account in an amount sufficient to release the claim for lien shall be established from the proceeds of the sale to be held until the written agreement of the parties, a court of law, or other process determines the rights of the parties. "Upon funds in the amount of the claimed lien being escrowed, a release of the claim for lien shall be provided by the broker claiming the lien." Accordingly, when the Lombard Moose Lodge was sold for a sum insufficient to satisfy all of the liens and pay it’s brokerage commission from the proceeds of sale, Coldwell Banker Stanmeyer recorded a notice of claim for lien. West Suburban Bank, the buyer, and seller all agreed to establish an escrow sufficient to pay the Broker and closed the transaction. The Broker was not a party to this agreement. Western Suburban’s existing first mortgage was paid in full and it accepted a "short payoff" on its second mortgage lien. It was also the source of the financing for the new buyer, and released its existing mortgages at the time of closing predicated upon the establishment of the escrow and issuance of a title insurance policy insuring it as the first mortgage upon the property following the closing. Thereafter this declaratory action was filed by West Suburban Bank for recovery of the escrow and requesting an order directing the Realtor to release its lien. The Realtor argued that West Suburban’s release of its mortgage at closing extinguished its claim to the escrow funds, and asserted that it was not required to release its lien under the Commercial Real Estate Broker Lien Act under these circumstances.

Reversing the trial court’s grant of summary judgment in favor of West Suburban, the Second District decision begins by finding that the Realtor was entitled to a commission and properly recorded its claim, thereby establishing a valid lien prior to closing. Further, the statutory provision requiring a Realtor to release its lien upon the deposit of funds in escrow under the Act has a stated exception when "the proceeds from the transaction are insufficient to release all liens claimed against the commercial real estate". Here the sales price was insufficient to satisfy the mortgage liens of West Suburban Bank and the Realtor, so the exception applied and the release was not mandated by Section 15/20 of the Act. Because West Suburban released its mortgage liens, it extinguished any priority or interest it had in the real estate, despite the fact that generally "Prior recorded liens and mortgages shall have priority over a broker’s lien." (770 ILCS 15/15). Additionally, West Suburban was equitably estopped from claiming a right in the escrowed proceeds by virtue of the fact that it released its liens on the property in order to obtain title insurance from Attorneys’ Title. This case clearly illustrates the danger in blindly following a statutory process; misguided and premature recording of the mortgage releases not withstanding.



In Board of Managers of the Village Centre Condominium Association, Inc. v. Wilmette Partners, (Il. S. Ct., November 21, 2001), the Board brought suit against the builder for breach of the implied warranty of habitability. The complaint alleged that design and construction defects in the concrete garage floor left it unable to support the weight of vehicles, in danger of collapse, and unfit for use by the unit owners for its intended purpose under a stated cause of action for breach of the implied warranty of habitability. The builder filed a motion to dismiss pursuant to 735 ILCS 5/2-619(a)(9) citing disclaimers contained in the contracts for sale that specifically excluded the "warranties of fitness for particular purpose and merchantability". The trial court dismissed the Board’s complaint and the First District affirmed. The Illinois Supreme Court granted leave to appeal and reversed by Justice Thomas’ opinion.

The basis of the decisions in the trial and appellate district court were their interpretations of the Illinois Supreme Court’s language in the 1979 case of Peterson v. Hubschman Construction Co., (1979), 76 Ill.2d 31. In that case, the Court first recognized the implied warranty of habitability in contracts for the sale of new homes by builder-vendors in order to reduce the impact of caveat emptor and the doctrine of merger in new construction. Noting that the use of the term "habitability" was "unfortunate because that term implied that the warranty was satisfied where a house merely was capable of being inhabited.", Justice Thomas explains that "in order to clarify the implied warranty of habitability, we stated that the meaning of habitability in the context of a new home purchase might be more accurately be conveyed through language similar to that used in the Commercial Code warranties of merchantability or of fitness for a particular purpose." This did not mean, however, that these warranties (merchantability, fitness for particular purpose, and habitability), are "interchangeable". "Given that the implied warranty of habitability is distinct from other warranties by its very nature, we find any disclaimer that does not reference the implied warranty of habitability by name is not a valid disclaimer of that warranty. Consequently, because the disclaimer in this case did not refer to the implied warranty of habitability by name, that disclaimer was not effective to waive the warranty." The decision concludes with some (sort of) direction to those who would know how to draft the "magic words" by reference to the disclaimers published by the Chicago Bar Association in its article, The Waiver and Disclaimer of the Implied Warranty of Habitability, by T. Homburger, Chi. B. Rec. 364, Apendix I (May-June 1984), and as discussed in the case of Breckenridge v. Cambridge Homes, Inc., (1993), 246 Ill.App.3d 810, 813-14, as those which would "clearly identify the implied warranty of habitability, set forth the consequences of waiving the warranty, and establish that the disclaimer was the agreement of the parties."



No one who practices in the area of mortgage foreclosure can deny the fact that it is increasingly difficult to communicate with lenders in the event of a default and obtain any meaningful accounting of the sums due and owing. The frustration of that situation is compounded by the concern that should be generated by the recent case of Citizen’s Bank – Illinois, N.A. v. American National Bank and Trust Company of Chicago, (1st Dist., November 30, 2001), There, the defendants, in response to a mortgage foreclosure complaint filed by Citzen’s Bank, filed a counter-complaint for breach of contract, an accounting, breach of obligation due to third party, and breach of fiduciary duty. The defendant had purchased the subject real estate consisting of a gas station and convenience food store from the original mortgagor under articles of agreement for deed. The plaintiff bank knew of and consented to the sale by express waiver of its rights under a due on sale clause in the original mortgage. Importantly, the bank contended, it did not enter into a formal relationship with the purchaser (i.e., a formal assumption of the loan), but merely "accommodated" the sale by waiving its right to declare the loan due on sale. The defendant purchaser, however, contended that the written consent/waiver of the due on sale acknowledged that it assumed the obligation of the original mortgagor and created a relationship. The importance of the possible existence of a relationship between the parties became apparent when the defendant demanded an accounting of the amounts paid into a tax escrow account and alleged that the bank misapplied funds and failed to pay taxes. Citizens "communicated freely" with the defendant regarding the loan, amounts necessary for taxes, and moving all of its banking business to Citizens. When the loan did mature, Citizens solicited the refinancing, but Defendant demanded a full and complete accounting on the loan. Citizens apparently could not account due to "software changes" and refused to account, contending that the Defendant was not entitled to an accounting as a "non-party" to the loan. Negotiations broke down, and Citizens filed foreclosure on February 11, 1999. On May 20, 1999, Citizen’s attorney provided Defendant with an itemized statement of the amount necessary to payoff the loan, including principal, interest, release fees, attorneys fees and costs and a credit for the balance stated to be on hand in the escrow account. On June 28, 1999, Defendant’s counsel tendered the sum pursuant to the itemization, and requested the foreclosure be dismissed upon acceptance of the funds. On March 9, 2000, Defendants, still unrequited in their quest for an accounting, filed their counterclaim, and thereafter, a dismissal of the foreclosure complaint by stipulation of the parties left only the counterclaim pending. The trial court dismissed the counterclaim pursuant to 735 ILCS 5/2-615 on Citizen’s motion and denied Defendant’s motion for leave to replead, holding that there was no set of facts upon which recovery could be had against the Plaintiff.

Justice Greiman affirmed noting that below "The court found that appellants did not have any form of contract with Citizens and that Citizens owed no fiduciary duty to the appellants, because ‘there is no is no fiduciary relationship between a mortgagor and a mortgagee." Finding that the correspondence from Defendant’s attorney tendering payoff funds was "devoid of any indication that either (Defendant) or its counsel requested or even desired a further accounting or discovery of any of the obligations listed in the bank’s payoff letter", the Defendant "relinquished any rights it may have had to demand an accounting or contest the figures provided in that payoff letter." The Defendant demanded an accounting, received an itemization, paid the itemization, but did not ask the bank to reveal the calculations behind the itemization, and thereby stipulated to the bank’s claim when the dismissal order relating to the foreclosure complaint was entered. The Defendant was no longer legally able to argue that the itemized amounts in the payoff letter were accurate. Mortgagee beware!



Thanks to Jim Covington, Legislative Liaison of the Illinois State Bar Association for this item on Illinois Land Trusts and the new UCC Article 9:

Public Act 92-234 is intended to ensure that the former practice of perfecting assignments of beneficial interests in Illinois land trusts will remain the same despite the enactment of new Article 9. It was unclear whether new Article 9 required UCC filings to perfect assignments of beneficial interests in land trusts. The new law is effective Jan. 1, 2002.