REAL ESTATE LAW PRACTICE “KEYPOINTS”

(March 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

e-mail:  sbashaw@bashawlaw.com

(Copyright 2002 - All Rights Reserved)

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. CONDEMNATION; GOOD FAITH NEGOTIATION REREQUISTE:

The City of Naperville appealed an Order of the Circuit Court of DuPage County dismissing its condemnation action in City of Naperville v. Old Second National Bank of Aurora, (2nd Dist., February 7, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/2ndDistrict/February/Html/2001482.htm. The issue was whether the trial court erred in dismissing the complaint based upon its finding that the City did not make a bona fide attempt to reach an agreement with the owners on the amount of compensation to be paid. Section 7-101 of the Code of Civil Procedure relating to condemnation actions provides that "private property shall not be taken or damaged for public use without just compensation, and Section 7-102 provides that a condition precedent to the exercise of the power is an attempt to reach agreement with the owners on the amount of compensation to be paid. (735 ILCS 5/7-101, 102). The subject premises here were adjacent to the DuPage River in Naperville, and sought to be acquired for improvements along the Naperville "River Walk". The property had been listed for $634,000 based upon a review of comparable property and using the income approach by a Realtor, and the City of Naperville had obtained an appraisal of $500,000. The City initially offered $200,000 for the property, and justified its offer with its concerns that there would be demolition costs and potential for environmental clean-up, but nonetheless included a due diligence contingency in its offer. The owners rejected the offer. The City Council approved condemnation, but also directed that negotiations continue. The City made two further offers of $325,000 and $425,000 with the same contingencies. This all played out against a backdrop of partnership litigation in Kane County between the owner-partners to wind-up the partnership, and an offer to purchase at $550,000 and $590,000 by a third party. This offer was presented to the Court in the partnership litigation for approval, but approval was denied when one of the partnership owners exercised a first right of refusal on the same terms and price.

The Second District affirmed the trial courts’ finding that the City, knowing there was litigation pending and difficulties between the owners, had an obligation to at least offer the appraised value of the property where there was no contradictory indication of value in order to comply with the good faith negotiation requirement. Noting that the nature of the negotiations between a condemning body and a private owner is intrinsically different than an arms length transaction in the marketplace, (i.e., an owner in condemnation does not have the luxury to simply walk away from an unacceptable price because if the owner does not agree to the offer made, he must absorb the cost of defending the ensuing condemnation proceedings), the Court held that "It is for this reason that the condemning authority must make a good-faith effort to negotiate prior to filing suit." The decisions notes that most cases clearly indicate a good faith effort where the condemning body offers the appraised value, and that in the only case discovered where the appraised value was not offered, the court had found the government had not negotiated in good faith. The burden of proof is on the government, and the arguments that the owners did not counteroffer and the City was under an obligation to the taxpayers to acquire the property for the lowest possible price were both rejected.

 

2. CONDOMINIUMS; CORPORATE OPPORTUNITY & BIDDING AT FORECLOSURE SALE:

Phillip and Cynthia Goldberg sued on behalf of themselves and the Glenstone Homeowners Association in Goldberg v. Howard W. Michael, et al, http://www.state.il.us/court/Opinions/AppellateCourt/2002/2ndDistrict/March/Html/2010016.htm alleging that the members of the Association’s Board and attorney had breached their fiduciary duties relating to the foreclosure sale of a lot for nonpayment of dues. The owners of the parcel fell behind in their assessments, and the Board instructed attorney Marshall Dickler’s firm to file a lien and commence foreclosure. The Complaint was actually verified by Phillip Goldberg as the treasurer of the Association at the time, and he later executed the affidavit of prove-up that lead to the entry of the judgment. The sale was set for a public auction pursuant to the foreclosure statute, at which time Howard Michael, a defendant in the case and a member of the Association’s Board of Directors at the time, purchased the parcel. (Three other members of the Board were either present, intended to bid, or actually did bid at the sale.) Thereafter, the Board issued a resolution alleging that Michael and three other members of the Board had "usurped the Association’s corporate opportunity", committed fraud, and breached their fiduciary duties by failing to inform the Association of their plans bid at the sale. (There is no clear statement of how these allegations could possibly have been actionable given the fact that the sale was a public auction at which anyone was able to bid and that Goldberg received regular updates and advice of the status of the foreclosure from attorney Dickler.) Following the resolution, the Board executed settlement agreements with two of the Directors, releasing them liability, and determined that it would not pursue the remaining Directors and Howard Michael. Attorney Dickler also filed suit for payment of his fees relating to the action, and the Association entered into a settlement agreement with him as well.

When Goldberg nonetheless filed this suite, the trial court granted the defendant’s motions to dismiss finding that Goldberg lacked standing, the Association had full knowledge of the foreclosure proceedings, and the settlement agreements released defendants. The Second District opinion by Justice Byrne affirmed, stating "we find plaintiffs’ arguments pointless." There was no "concealment" of the foreclosure action from the Association and the property was sold at a public auction. "Defendants’ status as board members did not place them in a better position to purchase…" The Association’s primary purpose was to maintain and administer the Association property, not purchase foreclosure property, and therefore that purchase at sale did not infringe on its "corporate opportunity" or purposes. The penalty for ignoring the fact that the sale was a matter of public record and the clear intent of the releases of the defendants was the imposition of sanctions in the form of attorney’s fees pursuant to Supreme Court Rule 375(b) for filing a frivolous and bad-faith appeal.

 

3. BANKRUPTCY; MODIFICTION OF STAY, SALES, AND MOOTNESS:

Bankruptcy, particularly the filing of a Chapter 13 Petition, is more frequently becoming the "defense of choice" to mortgage foreclosure litigation. The very brief and pointed decision of the Bankruptcy Appellate Panel for the Eight Circuit of In Re Gene E. Dudley, Sr., (8th Cir., February 15, 2002), No. 01-6054 WM, gives a clear indication of the basis for modification of the stay to proceed with a foreclosure sale, as well as the fact that a sale, once completed, is not subject to modification on appeal unless a stay pending the appeal was also granted. Mr. Dudley was in prison in Texarkana, Texas when he filed his Chapter 13 petition in July 2000 to stay a foreclosure sale that was to take place later that month. The lender prevailed on a motion to modify the stay based on the facts that Dudley had not filed a Chapter 13 plan, filed his schedules, and had no apparent source of income with which to make payments to the trustee. Section 1307 provides for relief of stay based on the failure to file a plan in and of itself. Although the "prison mail box rule" applied to Dudley’s filing of the notice of appeal so that his appeal should not have been dismissed for untimely filing, the fact that he did not secure a stay pending his appeal of the grant of the lender’s motion to modify and they proceeded to sale, his appeal was then rendered moot. Citing the law that "an appeal may be rendered moot when the occurrence of certain events prevent the appellate court from granting effective relief", the Eight Circuit found it need not reach the merits of the appeal since it could not "undo" the foreclosure sale that occurred in the absence of a stay. The modification of the automatic stay allowed the lender to proceed to sale. The failure to obtain a stay of the sale pending appeal rendered the appeal moot.

 

4. MORTGAGEES; RESIDENTIAL LOANS AND PREPAYMENT PENALTIES:

A continuing dialogue on the ISBA Real Estate Section Council discussion site, http://www.isba.org/Discussions/ is the issue of whether a residential lender can impose and collect a prepayment penalty on a mortgage in Illinois. There is of course, the Illinois Statute that prohibits prepayment penalties on residential mortgages when the interest rate is 8% or greater. 815 ILCS 205/4(2)(a):

(2) Except for loans described in subparagraph (a), (c), (d), (e), (f) or (i) of subsection (1) of this Section, and except to the extent permitted by the applicable statute for loans made pursuant to Section 4a or pursuant to the Consumer Installment Loan Act: (a) Whenever the rate of interest exceeds 8% per annum on any written contract, agreement or bond for deed providing for the installment purchase of residential real estate, or on any loan secured by a mortgage on residential real estate, it shall be unlawful to provide for a prepayment penalty or other charge for prepayment.

The United States Code (12 USC 1735f-7a) provides, however, that relating to any loan made by a federally charted institution, federally insured (FHA) or federally guaranteed (VA) loan, the usury laws of the various states shall be preempted on first lien mortgages on residential real estate:

Sec. 1735f-7. - Exemption from State usury laws; applicability

(a) The provisions of the constitution of any State expressly limiting the rate or amount of interest, discount points, or other charges which may be charged, taken, received, or reserved by lenders and the provisions of any State law expressly limiting the rate or amount of interest, discount points, or other charges which may be charged, taken, received, or reserved shall not apply to any loan, mortgage, or advance which is insured under subchapter I or II of this chapter.

Against this backdrop, the "hot topic" of "Predatory Lending" seems to have a place. As noted in a discussion site response to a posting by Timothy Gutknecht on this issue, "There is a strong argument that HOEPA (Home Ownership Equity Protection Act, 15 U.S.C. 1602(aa) & 1639), may preempt the preemption for high interest rate variable or balloon payment mortgages. HOEPA in turn provides that federal law does not preempt more protective state legislation. So if you have a HOPEA loan, it is still covered by the Illinois Interest Act. OBRE actually makes this argument in its brief in support of the Illinois regulations governing prepayment penalties."

The days when banking and bankers were a reliable and honorable part of the residential marketplace are long gone. The issue of whether the preemptive protection provided by federal law to allow collection of prepayment penalties may not be as foregone a conclusion as one might think, especially when viewed in the arena of consumer protection of the greatest remaining asset in most consumer’s portfolio; i. e., their home.

 

5. TAX INCREMENT FINANCING DISTRICTS (TIF); STATUTORY PREREQUISITES:

During the discussion or consideration of almost any project of considerable size or cost these days, it is almost guaranteed that the subject of "TIFs" will come up at one time or another. Familiarity with and an understanding of Tax Incremental Financing through the establishment of a redevelopment district as a financing vehicle is a prerequiste for representation of many developers. In Board of Education v. Village of Robbins, (1st Dist., February 8, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/1stDistrict/February/Html/1002704.htm, a somewhat lengthy opinion gives insight into the political interplay and interrelatedness of TIF districting. The Village of Robbins established a TIF district for a parcel of land upon which a waste incinerator was to be built. The local School District filed suit challenging the TIF due to the impact it would have on the District’s revenues from taxes. "Under the TIF Act and city ordinances, taxes on incremental increases in the equalized assessed value of property within the TIR district are to be collected by the county treasurer, remitted to the city treasurer, deposited into a special allocation fund and spend on statutorily approved expenses of the TIF district…In other words, the TIF Act authorizes municipalities to encourage redevelopment of blighted property by freezing real estate taxes and offering the developer the value of future incremental property taxes to be generated as a result of improvements to the property. As the trial court noted, ‘…[w]hile the TIF Act speaks in terms of depositing the incremental taxes in a special fund and using them to pay eligible project costs, the practical effect of using TIF is to cap - at pre-improvement levels - the real estate taxes on the property for up to 20 years."

The Board of Education filed a ten-count complaint challenging the Village’s determination that the parcel was not subject to investment and growth by private investment and constituted an appropriate TIF district. In affirming the trial court’s dismissal of all ten counts, the First District’s decision specifically deals with the expert testimony of "TIF experts" that investors would not have otherwise been drawn to the project and the bond financing of the project required districting. Although the particular developers spent years planning the project, no other developers ever expressed any interest in this site, and the Village had no other commercial or industrial business developments that could provide growth and development through private enterprise investment without resort to the adoption of a redevelopment plan and districting. The developer did not have the finances or capability to complete the waste facility on its own. Robbins was clearly a blighted, economically depressed community and could not reasonably anticipate growth and development without the redevelopment plan and district, as required by statute; 65 ILCS 5/11-74.43-3(n)(J)(1). Under these circumstances, and despite the challenges that the treatment of waste is a municipal function rather than one for private enterprise and the subject parcel was being rented by the Village to the developer, the TIF district was upheld.

 

6. ZONING; EXCLUSORY ZONING AND STATE PREEMPTION

Hawthorne v. Village of Olympia Fields, (1st Dist., February 8, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/1stDistrict/February/Html/1010447.htm, deal with a challenge by a homeowner of the Olympia Fields prohibition against her use of her home as a day care center. Two important facts in this case are that (1) the Village of Olympia Fields is a non-home rule municipality, and (2) Sonia Hawthorne had obtained a license from the State of Illinois to operate a day care facility in her home prior to the Village denying her request for a variance of the local zoning ordinance relating to her "home occupation" use of her property. Hawthorne alleged that the Village prohibition constituted exclusionary zoning and was preempted by state law from exercising its land use control over licensed home day care centers. The trial court ruled in favor of Hawthorne, and the Village appealed.

On appeal, the First District affirmed the trial court and denied the Village’s motion for a stay. There were a number of amici curiae briefs filed by not-for-profit organizations interested in day care and women’s businesses. While the Village had a comprehensive zoning ordinance permitting "home occupations" in residential areas, it took the position that because Hawthorne was employing a non-family member to assist her, had a separate kitchen facility, parents would be dropping off and picking up as many as 14 children, and the back yard was to be used as an outdoor play area, the residential character of the home was altered beyond that of one merely used in a "home occupation". Hawthorne argued that the Village exceeded its authority by wholly excluding home day care from the Village, and that the state licensing of her home preempted the prohibition. The Illinois Child Care Act, (225 ILCS 10/1), requires a license or permit by the DCFS and sets forth minimum standards for facilities. In a case of first impression, the Court ruled that "Under Dillion’s Rule, a non-home rule municipality only possesses those powers which are specifically conferred by the Illinois Constitution or by statute." ("Dillon’s Rule" refers to the treatise Dillion, Municipal Corporations, (5th ed., 1911), where, at page 448-50, the Court cites, as have other decisions referenced in the opinion that "It is a general and undisputed proposition of law that a municipal corporation possesses and can exercise the following powers, and no others: First, those granted in Express words; second, those Necessarily or fairly implied in or Incident to the powers expressly granted; third, those Essential to the accomplishment of the declared objects and purposes of the corporation, --not simply convenient, but indispensable. Any fair, reasonable, substantial doubt concerning the existence of power is resolved by the courts against the corporation, and the power is denied.") The Village’s citation to case law from other jurisdictions in support of its position that was exercising its valid police powers to regulate and limit the use of property within its jurisdiction to preserve "residential tranquility" was distinguished as interpreting an ordinance to "infringe upon the spirit of the State law or are in repugnant to the general policy of the State". Adopting Hawthorne’s argument that "nowhere does the legislature grant to municipalities the power to wholly restrict a lawful business from their boundaries", the Court found that the Village here engaged in "exclusionary zoning" which was preempted by the Child Care Act empowering only one state agency, DCFS, with the administrative, regulatory, oversight and licensing authority to deal with day care facilities.

Justice Quinn, specially concurring in part and dissenting in part, disagreed with the majority holding that the Child Care Act preempts the Village in to the extent that it could not affect the use of residential property by zoning ordinances. Villages, Justice Quinn argues, have the right to regulate and limit the intensity of use, classify and regulate the location of residential property, trades and businesses, and divide the Village into districts for different uses. While he agrees that the Village can not exclude all day care homes by its zoning ordinances, or limit the use of play areas in residential districts so as to thwart compliance with the DCFS requirement of these facilities in licensed centers, he does believe that restrictions prohibiting non-family members from employment in the day care are rationally related to the Village police powers.

 

7. ZONING: ALARM ORDINANCE, STATE PREEMPTION & HEALTH, SAFETY AND WELFARE:

The enforceability of the Village of Hinsdale Alarm Detection ordinance was challenged not by a village resident, but by the entity having the most business interest at stake, Alarm Detection Systems, Inc., in Alarm Detection Systems, Inc. v. The Village of Hinsdale, (2nd Dist., December 12, 2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/2ndDistrict/December/Html/2001393.htm. ADS provided fire alarm services to commercial and residential customers in a large number of communities, including Hinsdale. The Village enacted an ordinance amendment to its building code requiring that all commercial building alarms be directly connected to the Village fire department.. The purpose of the amendment, according to the Fire Chief’s testimony at trial, was to reduce the fire department’s response time to alarms, thereby saving lives, property, and promoting firefighter safety. ADS sought an injunction against the Village mandating direct connection by a specific date, arguing that the ordinance was beyond the scope of the Village’s authority as a non-home rule municipality, an illegal restraint on trade, (the Village had entered into an exclusive contract with Security Link/Ameritech to maintain and operate the fire board, and Security Link was a competitor of ADS), a de factor regulation of fire alarm services, deprived it of its rights without due process, and beyond the scope of it home-rule authority. The trial court found the ordinance a proper exercise of the Village’s police powers and rationally related to the community health, safety and welfare.

The Second District affirmed on appeal. Rejecting the home-rule argument, the Court noted that Illinois Courts have consistently held that the Municipal Code grants powers to regulate the construction and maintenance of existing buildings within municipal boundaries to protect the public health, safety & welfare. 65 ILCS 5/11 -- 30--4, 5/11 -- 8-- 2. Accordingly, having determined that the authority exists and a rational relationship to public health, safety and welfare was demonstrated, the issue became whether the ordinance was unduly burdensome upon private property owners or businesses. Noting that municipal ordinances often have a "secondary impact" on businesses, (and citing the case in which the Greyhound Bus Lines challenged the City of Chicago’s ban on pay toilets…unsuccessfully to a grateful public), the Court held that "the right of an individual to conduct business in a certain way is subordinate to the interests of public safety and welfare", and that the Hinsdale ordinance was not an illegal attempt to regulate the private alarm industry despite the existence of the regulatory powers set forth in the Private Detective, Private Alarm, Private Security, and Locksmith Act of 1993, 225 ILCS 446/1 et seq. (If you find yourself at odds reconciling this decision’s determination that a non-home rule municipality did not infringe upon the Alarm Act’s regulatory scheme, whereas the Olympia Fields case finds that the Village interpretation of its zoning ordinance did usurp the authority of DCFS relating to home day care centers, sit on this side of the room with me, and I suspect we’ll be lectured on the importance of public healthy, safety and welfare.) Finally, relating to the allegation that the Village engaged in an unreasonable restraint of trade, the Court notes that the Illinois Antitrust Act, (740 ILCS 10/1 et seq.) contains a specific exception for "activities of a unit of local government at Section 10/5(15).

 

8. FRAUDULENT MISREPRESENTATION; BANKS, THEIR OFFICERS AND JUSTIFIABLE RELIANCE:

Schrager v. North Community Bank, (1st Dist., January 24, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/1stDistrict/January/Html/1993727.htm, presents a case in which a complaint was filed alleging negligence and fraud against North Community Bank, its chairman, president, and CEO based upon representations made to a real estate investor. Barry Schrader alleged that in a meeting on March 11, 1993, held at the Bank, he was told that the principals of the 1255 State Parkway Building Limited Partnership were "excellent real estate developers, very good customers of the bank, and very good businessmen" by the Bank officers. As a result, he invested in the partnership and became a guarantor on its mortgage loans with the bank. In fact, the officers knew that one of the principals was bankrupt at the time, the partnership account at the bank had been overdrawn on at least 57 occasions during the preceding year, and that there were significant disputes with the City of Chicago zoning department and the building’s condominium association which were impediments to the development. The trial court granted summary judgment for the bank, holding that the bank officer’s statements were mere nonactionable opinions, not statements of fact upon which Schrader could reasonably rely, and that there was no relationship between Schrader and the Bank which imposed a duty upon the Bank toward him relating to the representations.

On appeal, the First District opinion by Justice Cohen reversed, holding that whether the bank officer’s statements relating to the character and business acumen of the principals was a statement of mere opinion or one of material fact depends upon the entirety of the circumstances under which the representations were made, and therefore not the proper subject of a summary judgment ruling. Whether the statements were such that a reasonable man could rely upon them to be assurances of "a history of sound fiscal management, economic cusses and financial stability", when coming from the bank with which the partnership business was conducted on a daily basis, was an issue of fact, not law. The representations took place in the bank, during regular business hours, and related to an acknowledged customer of the bank. The bank possessed actual knowledge of the bankruptcy and financial difficulty of the principals and partnership, and the circumstances could reasonably support the inference that defendants were summarizing their detailed knowledge of the bank’s customer.

On the issue of fraudulent misrepresentation and concealment, the decision begins by noting that "As a general rule, no fiduciary relationship exists between a guarantor and a creditor as a matter of law." The First District agreed with the trial court that there was no duty imposed by virtue of any fiduciary relationship between Schrader and the bank. Significantly, however, was the fact that as a result of the misrepresentations of the bank, Schrader became a guarantor of the loans upon which the bank held a mortgage. This, coupled, with the bank’s superior knowledge and experience in the matters of the financial circumstances of the partnership and its principals, placed the bank in a position of influence sufficient to warrant a fact finding rather than summary judgment.

Finally, on the issue of justifiable reliance, the decision notes that "Illinois law has long held that, where the representation is made as to a fact actually or presumptively within the speaker’s knowledge, and contains nothing so improbably as to cause doubt of its truth, the hearer may rely upon it without investigation, even though the means of investigation were within the reach of the injured party and the parties occupied adversary positions toward one another." Whether Schrader was reasonably able to rely upon the bank’s representation, without independent investigation, again is a question of fact under the totality of the circumstances.

 

9. CONTRACTS; CONTINGENCIES AND IMPLIED DUTY OF GOOD FAITH:

In a case from the Court of Appeals of the Third Circuit applying Pennsylvania contract law to a lease of land, the Court nonetheless gives some worthwhile insight into a fairly common factual pattern here in Illinois. In Huang v. BP Amoco, (3rd Cir., November 9, 2001), No. 00-3607, the Huangs were the lessors and BP Amoco the lessee. The lease was for a term of 15 years for commercial property upon which to operate a gas station. No rent was to be due until the station become operational, and Paragraph 7 of the lease gave Amoco 180 days to obtain approvals from various governmental agencies for building the gas station, subject to thirty day extensions with the lessor’s agreement, and further provided that Amoco could terminate the lease if it were unable to obtain the approvals or if it were unable to enter into a satisfactory agreement with a third party for co-development of a fast food restaurant on the premises. During the initial 180-day period, Amoco made no efforts to obtain the required approvals, and requested an extension. The Huangs agreed. After the expiration of the second approval period, without making any effort again, Amoco sought to terminate the lease. The Huangs brought suit on the lease. The District Court granted summary judgment in favor of Amoco. Interpreting the lease to provide that Amoco could terminate for either (1) failure to find a co-developer, or (2) obtain the approvals, the District Court ruled "that common sense dictates that Amoco would not have been required to apply for zoning permits, variances, or other Approvals until it had determined with specificity how it would develop and operate the property" and "any obligation on Amoco to pursue approvals was continent upon its success on procuring …third-party co-developers". Since Amoco was not able to obtain a third party co-developer for the fast food restaurant portion of the property, the District Court reasoned, it did not violate its duty of good faith and fair dealing implied in the lease.

The Third Circuit disagreed and reversed. Beginning with that statement that "one of the most important principals of contract law is the implied covenant of good faith," and noting that "Because of the implied covenant of good faith, an approvals contingency clause does not give a lessee an absolute right to terminate the lease without penalty.", the opinion concludes that "whether a party has made a good-faith effort is a question of fact", not law. Taking the District Court to task, the Circuit Court determined that "the District Court made an unsupported factual assumption that colored its analysis. It assumed that BP Amoco could not seek the Approvals until it reached suitable agreements with third-party co-developers…it assumed that getting a suitable co-developer was the horse before the cart of taking even the first step in obtaining the Approvals…Relying on this assumption enabled the District Court to avoid the factual question that lies at the heart of this case; whether BP Amoco’s failure to seek the Approvals violated its covenant of good faith and fair dealing. By assuming the co-developer agreements must precede any effort to obtain Approvals, the District Court effectively rewrote the Lease to contain a condition precedent to BP Amoco’s obligation regarding those Approvals. In so doing, the Court gutted BP. Amoco’s good-faith obligation to seek Approvals…"

 

10. DEDICATION OF ROADWAYS; STATUTE OF LIMITATIONS AND EASEMENT BY PRESCRIPTION:

(Ed. Note: Last month, the "Keypoints" reviewed this case from a litigator’s point of view. As usual, Dick Bales’ treatment from the point of view of a title insurance examiner provides another important facet of the law, and some very helpful background.)

FROM THE TITLE INSURANCE COMPANY PERSPECTIVE

Klose v. Mende, No. 3-01-0098, (December 7, 2001) is a few months old but still deserves some commentary.

In this case the plaintiffs claimed that they owned fee simple title to some roadways in LaSalle County. The defendant, who was the Commissioner of Highways, produced a ledger that indicated that the two roads had been dedicated to Meriden Township in 1856. Plaintiffs, however, maintained that the dedications were invalid in that they failed to conform to the statute (1851 Ill. Laws 35).

The appellate court agreed with the plaintiffs, stating that "the 1856 dedications cannot be shown to be valid. While the absence of the record of a personal examination by the town commissioner is an excusable error the dedications fail to meet even the most basic requirements of the Act. Since there was no order or petition in the town clerk's records, there was no valid evidence that could support the bare ledger entry and, therefore, establish the dedication of the two roads as public highways. Defendant's proffered ledger entry does not, without more, satisfy [the statute's] requirements. Accordingly we cannot find that the 1856 dedications were valid."

The court went on to indicate that the defendant had acquired an easement by prescription for the road then currently in use.

Title companies are often asked to issue commitments for rights-of-way. We are usually unwilling to issue such commitments because we are unsure as to who the owner of the right-of-way is. The reason for this uncertainty stems from the Plat Act. (765 ILCS 205/1 et seq.)

Section 1 of the Plat Act sets forth the requirements for a plat of subdivision. Section 3 provides that "the acknowledgment and recording of such plat... shall be held in all courts to be a conveyance in fee simple of such portions of the premises platted as are marked or noted on such plat as donated or granted to the public . . . and the premises intended for any street, alley, way, common or other public use in any city, village or town, or addition thereto, shall be held in the corporate name thereof in trust to and for the uses and purposes set forth or intended."

In other words, when roads are dedicated by a statutory plat, title to the road vests in the public. But only plats created pursuant to the Plat Act are statutory plats. If the plat is not created pursuant to the Plat Act, it is termed a common law plat. With a statutory plat, the public owns the land in fee simple, and the adjoining owners have no ownership interests. With a common law plat, the public has only an easement interest; the adjoining landowner owns the underlying fee interest.

When title companies are asked to issue commitments on dedicated rights-of-way, they have no way of knowing whether the plat that created the right-of-way is a common law plat or a statutory plat. And even worse, as this case indicates, courts have construed the distinction between these two types of plats very strictly. For example, in City of Chicago v. Rumsey, 87 Ill. 348 (1877), the court concluded that a plat was a common law plat because the plat was not properly acknowledged. In Thompson v. Maloney, 199 Ill. 276 (1902) the plat was said to be a common law plat because it was executed by an attorney in fact. In Village of Auburn v. Goodwin, 128 Ill. 57 (1889) the court said that a plat was a common law plat because it was prepared by a deputy surveyor and not the county surveyor. In Road King Petroleum Products, Inc. v. Village of Wood Dale, 23 Ill.App.3d 181, 318 N.E. 2d 710 (1974), the court ruled that there was no statutory dedication of a platted fifty foot strip because the owner signed the plat before words of dedication were added by the surveyor.

The issues presented in Klose v. Mende have ramifications far beyond the four corners of the title commitment. Yesterday a surveyor called me up, asking my opinion of a plat of subdivision that he was preparing. Section 1 of the Plat Act indicates that the lots or parcels in a plat of subdivision be identified by "progressive numbers." The municipal attorney was arguing with the surveyor, asking that one of the parcels of land be identified as "Outlot A." If the surveyor eventually agreed to acquiesce to the attorney's wishes, would this plat then be a common law plat, as it did not conform to the Plat Act?

So what, you say? Well, what happens when the municipality wants to install additional utility easements within a platted roadway? Admittedly, in Chicago Title and Trust v. Village of Burr Ridge, 41 Ill. App. 3d 112 (1976), the court allowed the construction of a municipal water main under the highway without compensating the owner of the fee interest. But on the other hand, see Cammers v. Marion Cablevision, 64 Ill.2d 97 (1976). Here the court stated that a cable television company, being a private company, and not a public utility, had no right to install its lines in a street, without the consent of the adjoining landowner, when the underlying land is owned by said landowner. Finally, see Benno v. Central Lake County Joint Action Water Agency, 242 Ill.App.3d 306 (1993), where the court held that the installation of a water main under the highway was beyond the scope of the highway easement. Thus, the water agency was not able to install the water main in the land without first obtaining the property owner's permission.

 

Dick Bales