REAL ESTATE LAW PRACTICE “KEYPOINTS”
By Steven B. Bashaw
Steven B. Bashaw, P.C.
1301West 22nd Street
Oak Brook, Illinois 60523
Tel.: (630) 472-9990
Fax.: (630) 472-9993
e-mail: sbashaw @bashawlaw.com
(Copyright 2003 - 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. JUDGMENT LIEN PRIORITY, CONSTRUCTIVE NOTICE AND LEVY SALES:
In Banco Popular v. Beneficial Systems, Inc., (1st Dist. November 4, 2002), http://www.state.il.us/court/Opinions/AppellateCourt/2002/1stDistrict/November/Html/1010247.htm, the Court was confronted with a priority issue between lien claimants and the propriety of a levy sale. George and Helen Kaltezas owned real estate in Chicago, which had fallen into disrepair and needed work to correct building code violations. They hired Morris Reynolds to do the work, but did not pay him. Eventually he obtained a judgment and recorded his memorandum as a lien against the property on May 3, 1996. In March of 1995, however, unbeknownst to Reynolds, the Kaltezases quitclaimed their interest in the property to Marsha Azar. Marsha did not record her deed, however, until August, 1996; three months after the recording of the Reynolds judgment. In the period between March 1995 and August 1996, Azar redeemed the real estate taxes and paid the water bill, placed a sign on the building for her management company, managed, rented and rehabbed the building. In June 1996, (after he had recoded his memorandum but before the quitclaim deed), Reynolds assigned his judgment lien to Beneficial Systems, Inc., (BSI). In June, 1997, the property was sold at a Sheriff's Levy Sale based on BSI's direction, and BSI was the successful bidder. The sale was confirmed, and the Sheriff delivered a deed to BSI. Marsha Azar and Banco Popular (who was the holder of a mortgage upon the property made by Azar in August, 1996 when she recorded her quitclaim deed) brought an action against BSI to set aside the Sheriff's Deed based on their theory that title had passed upon delivery of the deed from Kaltezas to Azar and therefore the lien did not attach when recorded against Kaltezas. BSI contended that since the deed was not recorded until after its memorandum of judgment, Azar's title from Kaltezas was subject to the prior recorded judgment lien and therefore extinguished by the levy. In the trial court, BSI issued a Request to Admit Facts to Azar and Banco Popular requesting admission that there was no public record prior to the recording of Azar's quitclaim deed in June 1996. Azar failed to respond to the request, and BSI, accordingly, moved for summary judgment using the implied admission and arguing that since its judgment lien was perfected prior to any public notice of her interest, it's interest was superior and the sale extinguished her rights; (and Banco Popular's mortgage as dependent upon her interest). The trial court ruled otherwise and granted summary judgment in favor of Azar and the bank, finding that the Reynold's judgment lien did not attach to the Azar's interest and therefore the levy sale and deed were null and void. BSI appealed arguing that Reynold's judgment did attach because the quitclaim to Azar was not recorded until after the recording of the memorandum. Azar contended that BSI had actual and constructive knowledge of Azar's interest in the property, and because BSI did not give them notice of the levy and sale, the resulting deed could not affect them without due process. Turning first to the issue of the priority of a judgment lien over the interest of a prior purchaser who failed to record their deed until after the recording of the memorandum of judgment, the First District held that Reynolds, (and BSI as his successor), was without notice of Azar's interest and it was only after the quitclaim deed was recorded that the deed became an effective conveyance as to that judgment. Accordingly, both Azar and her lender, Banco Popular, took their interest subject to the memorandum of judgment. Section 30 of the Conveyances Act provides that all documents affecting title take effect only from and after the time they are recorded, and are void to all creditors or subsequent purchasers without notice. Accordingly, even though the Kaltezases had conveyed their interest to Azar prior to the judgment, until the deed was recorded it had no effect on Reynolds, and his lien attached to the title even though the Kaltezases no longer 'owned' the property; (i.e. a creditor who has recorded prevails over the holder of a prior but unrecorded interest in the land. Recall from law school that Illinois is a "race/notice" state relating to priorities and recording.) Of course, if there were facts here that suggest there was constructive notice of Azar's interest other than by the recording of the quitclaim deed, (the sign on the building, management, rental and payment of taxes and water bills), and these, the First District determined were issues of fact that precluded the entry of summary judgment in any event. Turning then to the issue of whether the levy sale was defective because BSI did not give Azar or Banco Popular notice, the Court also found that there were issues of fact relating to the levy procedure, which also required reversal and remand. Citing the Property Tax Code (?) as requiring a tax purchaser to service notice of the sale of property upon all persons holding an interest in the property who can be discovered by 'diligent inquiry', the court here found that there was a question of fact concerning whether BSI could have discovered Azar and Banco Popular's interest by diligently searching the public record, and therefore remanded on this issue as well.
(Ed. Note: The decision does not, however, state a statutory basis upon which it determined that notice of a levy sale to all parties having an interest in the real estate must be given. 735 ILCS 5/12-115, governing notice of sale in levy, only seems require publication for three successive weeks in a newspaper of general circulation and posting in three of the 'most public places' in the county. There is no mention of service of notice directly upon all parties having an interest in the real estate and the Court's apparent reliance on the Property Tax Code for this requirement is somewhat puzzling. In any event, the decision does reveal that the argument was made by Azar and Banco Popular that their due process rights were abridged by BSI's failure to provide them with notice. BSI seems to have responded simply with their compliance with Section 115. There is at least one pending case in the trial courts that also deals with the issue of the due process rights of persons having an interest in real estate at the time of a levy sale, and this is likely to be an issue that will arise in another case in the near future. Additionally, it is noteworthy that a fairly recent amendment to the Code of Civil Procedure now requires that all levy sales be confirmed in a manner and procedure similar to mortgage foreclosures. Newly added Section 144.5, (735 ILCS 5/12-144.5), effective on January 1, 2001, provides:
Sec. 12-144.5. Report of sale and confirmation of sale. (a) When the premises mentioned in the certificate are not redeemed in pursuance of law, the legal holder of the certificate shall promptly make a report to the court that issued the underlying judgment. The report shall include a copy of the certificate of sale; an affidavit, under oath, containing a good faith appraisal of the fair market value of the property; and a listing of all liens and mortgages including the value thereof. (b) Upon motion and notice in accordance with court rules applicable to motions generally, including notice to the judgment debtor, the court issuing the underlying judgment shall conduct a hearing to confirm the sale. Unless the court finds that (i) notice as required by law was not given, (ii) the terms of the sale were unconscionable, (iii) the sale was conducted fraudulently, or (iv) justice was otherwise not done, the court shall then enter an order confirming the sale. In making these findings, the court shall take into account the purchase price at the sale in relation to the fair market value of the property less the value of any mortgages and liens.
This does not resolve the issues of notice to lien holders or parties in interest inasmuch as Section 12-115 only requires publication and posting notice, but brings the matter, at least, to judicial review.)
2. RESPA and OVERCHARGING FOR RECORDING EXPENSES REDUX:
In the August, 2001 issue of these case law updates, we noted the 7th Circuit case published July 5, 2001 entitled Eschevarria v. Chicago Title & Trust Company, (7th Cir., July 5, 2001), http://www.ca7.uscourts.gov/fox/foxweb.exe/Op3?submit1=showop&caseno=00-4087, which dealt with the issue of "overcharging" for recording charges and whether this is a violation of RESPA. (This case has since been published at 256 F.3d 623.) Affirming the District Court's dismissal of the suit for failure to state a cause of action under the Federal Rules of Civil Procedure, the Eschevarria Court essentially found that "pocketing" the extra recording fee in an overcharge situation is not the equivalent to "fee-splitting" under RESPA. While RESPA prohibits accepting any portion, split or percentage of any charge made for rendering a real estate settlement service, Chicago Title convinced the Court, (as had Intercounty Title Company in Durr v. Intercounty Title Company, (7th Cir., 1993), 14 F.3D 1183, cert. denied 513 U.S. 811), that because it received the extra money from the plaintiffs and kept the overcharges itself, rather than sharing them with a third party, there was no "fee-splitting" required to support a finding of a RESPA violation. It seemed that the flawed logic of this decision was also perceived by HUD, because thereafter the Department issued a policy statement in which it "stated its disagreement" with the 7th Circuit's "decision and made clear its view that section 8(b) [the anti-kickback provision] is not 'limited to situations where at least two persons split or share an unearned fee." The newest round in this boxing match is Krzalic v. Republic Title Company, (7th Cir., December 26, 2002), http://caselaw.lp.findlaw.com/data2/circs/7th/022285p.pdf. The facts are similar; Republic charged the plaintiffs in a class action $50 for recording their mortgage, yet paid the county recorder only $36, and did not refund the balance. Judge Posner's decision recounts the history of the issue from the decisions in Eschevarria and Durr to the HUD policy statement at 66 Fed. Reg. 53052, 53057, (Oct. 18, 2001), and then notes that the HUD policy statement was 'not adopted in a notice and comment rulemaking proceeding or with any other deliberative formalities." Accordingly, and despite the amicus brief filed by HUD in the case, Posner's decision upholds the District Court's ruling that there was no claim upon which a cause of action could be stated, based on the Eschevarria decision. "The plaintiff's beef", Judge Posner so eloquently states, (as earlier he had referred to "small d-democrats" as those who "might question [the Supreme Court's] shift of legislative power to the bureaucracy"), is that the county recorder did not charge $50 to record their mortgage;" and then suggests that "On the plaintiff's understanding, they themselves violated the statue because the gave the Recorder a portion of the fee charged by the county recorder!". The next step in the Court's logic is to classify Republic's action as "repricing" the charges it is passing on to the consumers, and notes that RESPA does not place a ceiling on the charges one can impose for closing services. "Republic charged them a closing fee of $315 plus various expenses that included the $50 recording fee. Had Republic charged the Krzalics only the actual recording fee of $36, it could have raised its closing fee to $329 and be in the identical economic position that it was in the repricing of the fee." The decision then goes on to opine that consumers have the ability to chose closing agents based upon their "repricing" levels, (in the real world?), and notes that "Nothing is more common than for professionals to reprice the incidental charges they incur on behalf of their clients. Law firms typically reprice their copying expenses in their bills to their clients". (They do? No wonder we're not making any money here --- those of you who find such "repricing" distasteful and unprofessional or whose clients are too smart for that stuff and go to Kinkos when they need photocopies and to a lawyer when they need legal services need to weigh-in on this issue.) Judge Posner acknowledges that a quick visit to the Recorder's website can accurately determine the actual cost for recording a mortgage of any page length, but still concludes that "if there is a fraud here, there are plenty of legal remedies, though none so far as we know under RESPA" and refers to this as simply a "market failure" that Section 8(b) of RESPA is not designed to redress because this is not a "price control statute". Judge Easterbrook, in his concurring opinion, further clarifies the viewpoint of the Court relating to these charges in his statement that "The Recorder of Deeds' fee is Republic Title's wholesale price for a service; Republic's retail price is higher." In the end the policy statement by HUD is found to be "A simple announcement (which is) too far removed from the process by which courts interpret statutes to earn deference. A simple announcement is all we have here…No public process preceded it…", and accordingly it is entitled to no judicial preference in the interpretation of RESPA. Judge Easterbrook, again, gives us more insight: "The Department of Housing and Urban Development has the power to prescribe regulations, see 12 U.S.C. Section 2617(a), but elected instead to announce its interpretation of the statute. It issued a broadside and hoped that the courts would kowtow…All that matters today, however, is that when the executive branch does not employ regulatory power delegated by the legislative branch, resolution of ambiguities in private litigation belongs to the judicial branch." Obviously, the 7th Circuit isn't kowtowing, but in the interim, a whole lot of consumers are paying a whole lot more for recording instruments than they would be charged if they themselves walked up to the Recorder's window…and are being told the fees are non-negotiable and non-refundable… and there is nothing that can be done about it.
(Ed. Note: Of course, playing against this backdrop are the newly proposed HUD Regulations for RESPA currently pending. Real Estate Practitioners are heavily impacted by these regulations and must keep current with the practice implications as well as the political and caselaw developments in this area. For another perspective on this issue see the article entitled "Recent Court Decisions Shed Light on RESPA Section 8" by Sheldon E. Hochberg, which appeared in the July/August 1998 issue of "Title News" published by the American Land Title Association and the most recent article covering the new RESPA Regulations proposed by HUD entitled "Hud's RESPA Regulations: the Proposals. The Comments, the Future" by Sheldon E. Hochberg published in the January/February, 2003 issue of "Title News"; both of which can be found on the internet at http://www.alta.org/utility/search.htm by searching under the author's name.)
3. TENANCY BY THE ENTIRETY; FRAUDULENT TRANSFER:
In the recent case of LaSalle Bank v. DeCarlo, (2nd Dist., January 28, 2003), http://www.state.il.us/court/Opinions/AppellateCourt/2003/2ndDistrict/January/Html/2011146.htm, the Second District, (which started the Tenancy by the Entirety/Fraudulent Transfer epiphany with the decision in E.J. McKernan Co. v. Gregory in 1994), reviewed the trial court's finding that the "sole intent" of the debtor in transferring title to his homestead from joint tenancy to tenancy by the entirety was to defraud creditors, and affirmed that finding. The debtor was Richard DeCarlo. Freightforce Worldwide, Inc. obtained a judgment against Richard for $81,242.00. (LaSalle Bank is the successor to Freightforce.) Richard appealed the underlying judgment of the trial court and that judgment was affirmed on September 3, 1999 by the Second District. Although Richard and his wife Elaine had owned their home as joint tenants since 1977, on September 20, 1999, ("within days after we affirmed the judgment entered against him" the Second District decision in this case notes), they conveyed title to themselves as tenants by the entirety. In response to the motion to set aside the transfer as one excepted from the protection of the entireties in 735 ILCS 5/12-112 "if the property was transferred…with the sole intent to avoid the payment of debts existing at the time of the transfer beyond the transferor's ability to pay those debts as they become due.", Richard alleged that avoiding his creditors was not his sole intent. He stated that had received advice from a lawyer in 1997 suggesting he transfer the title to the entireties long before the judgment was entered against him, and that the advice was given without any awareness of the litigation that resulted in the judgment. Richard also stated a Realtor had likewise suggested he re-title his home in the entireties. Finally, he stated that his purpose was "to protect the estate" and his wife, because the residence would "transfer easier" upon his death, and that he "never intended to defraud a creditor." Richard's wife Elaine testified that she first considered transferring title to the entireties before 1998 when she was working on her parent's financial matters, had no intent to defraud any creditor, and that she didn't even know about the judgment against Richard until after the conveyance. Judge Wheaton didn't buy any of this in the trial court. She held that Richard's reasons for the transfer were "vague, inarticulate, specious and totally incredible". The Appellate Court decision authored by Justice Byrne affirmed, but added some important findings of law in addition to the deference shown to Judge Wheaton as the trier of fact in weighing the evidence and credibility of witnesses. First, Justice Byrne noted, the intent of the debtor's spouse is not relevant to the exception created by the statute. "The legislature intended that focus is on the debtor's intent in transferring the property", and the spouse's intent will not serve to raise the conveyance above the "sole intent" to determine if there was a legitimate purpose for the transfer. The "actual intent" standard set forth in the Fraudulent Transfer Act must be tempered with the Illinois legislation's expressed "sole intent" standard, and the specific intent at issue is that of the debtor. Further, the decision concludes, legislature did not intend to protect a transfer that takes place after the judgment has been rendered. Quoting Senator Cullerton in the General Assembly discussion of the statute, "only in a very limited situation, where after there is literally a judgment entered against you, you can't transfer your property into - from joint tenancy into tenancy by the entirety; you should do it beforehand." The evidence showed that at the time of the transfer, Richard had assets of less than $4,000 exclusive of the marital residence, and therefore the transfer rendered him insolvent. His intentions alone control, and those intentions "may not have been so suspect" if the result was not to render him insolvent within days of the entry of the Court's decision affirming the judgment against him.
4. ZONING AND NONCONFORMING USE; PRE-EXISTING USE MUST BE "LEGAL" :
The City of Marengo filed a complaint against Walter Pollack and Northwest Pallet Supply Company for violating a 1992 ordinance limiting outdoor storage of materials to 1,000 sq. ft. in areas zoned industrial within the city. City of Marengo v. Pollack, (2nd Dist., January 8, 2003), http://www.state.il.us/court/Opinions/AppellateCourt/2002/2ndDistrict/December/Html/2010775.htm Pollack's company had been repairing and selling wood pallets on the property since its purchase in 1986. At the time he purchased the property, the existing zoning limited storage of materials such as wooden pallets outdoors to 10% of the lot or tract; (i.e., 9,924 feet based on the square footage of the property). Accordingly, Pollack asserted the affirmative defense of a legal nonconforming use. Additionally, he argued, the City was barred by laches from enforcing even this 10% limitation due to the fact that it had inspected the property on numerous occasions, issued permits to build improvements over the years, and never complained about the size of outdoor storage area other than to ask that he reduce the height of the pallets as stored. The trial court found that Pollack was entitled to continue using 10% of the property for outdoor storage as a nonconforming use, but ruled in favor of the City on the laches defense. Both parties appealed. The City argued on appeal that because Pollack had continually violated the earlier ordinance by using more than 10% of the property for storage, his was not a legal nonconforming use at the time, and there fore should not be allowed to continue as a nonconforming use. Pollack appealed the rejection of his laches affirmative defense. Turning to the laches defense, the Second District held that "mere inaction and delay in enforcing its ordinances did not give rise to laches or equitable estoppel". "Laches should be invoked only in extraordinary circumstances. Also , the mere non-action of governmental officers is not sufficient." There was no delay in asserting the right to require compliance with the ordinance, upon which the defendant relied to his detriment, and which misled or prejudiced the defendant, as required elements. A legal, nonconforming use is one that is not permitted under the current zoning, but is allowed to continue because it predates the ordinance. The right to a legal nonconforming use is a property right that cannot be taken unless mandated by public welfare. Noting that "Plaintiff (the City) is correct that a use that was not lawful at its inception is not a legal conforming use and therefore may be eliminated if it violates the current zoning ordinances.", the Court nonetheless found Defendant had a right to a nonconforming use. Even though Defendant stored more pallets than the previous ordinance had allowed, exceeding the 10% limit did constitute an "illegal use" which required the forfeiture of the right to continue to use 10% for storage. Drawing an analogy to a case in which an Evanston zoning ordinance limited apartment buildings in an area to a maximum of 10 units, and noting that the existence of an 11th unit in a building, while a violation, did not require that the owner forfeit his rights to continue using the permitted 10 apartments, the Court stated that "it is very easy here to separate the permitted use from the prohibited use". Pollack's use of more than 10% of the lot for outdoor storage did not make the nonconforming use "unlawful" so that it would defeat his prior legal use. Exceeding the 10% was only a violation of the legal nonconforming use. "We are aware of no authority requiring us to hold that, by exceeding the 10% limit, Defendants forfeited their right to continue using 10% of the lot for outside storage. Adopting plaintiff's (the City) argument would lead to absurd results and unreasonably result in the forfeiture of vested property rights." (Ed. Note: One issue that was not dealt with was exactly what constituted exceeding 10% of the lot or tract when considered from a three dimensional view point on a square foot basis. Remember the defendant was vertically stacking pallets in the outdoor space. Sometimes those pallets would be 12 feet high and at others 30 feet high according to the facts in the decision. Was the 10% based on a ratio of the 'foot print' of the lot compared to the 'foot print' of the stack of pallets, or is there some component for the height of the stack ???)
5. SPECIFIC PERFORMANCE; LIQUIDATED DAMAGES, RETURN OF EARNEST MONEY AND EXCLUSIVE REMEDIES:
Leroy and Beverly O'Shield sued for the return of their earnest money in O'Shield v. Lakeside Bank, (December 16, 2002) http://www.state.il.us/court/Opinions/AppellateCourt/2002/1stDistrict/November/Html/1012065.htm. The O'Shields entered into a contract to purchase a townhouse under construction by Defendant. The contract provided that if the townhouse was not substantially complete within 180 days after the estimated completion date, "the Purchaser may, as its sole remedy, terminate this Agreement…and the Earnest Money…and all other sums paid by Purchasers shall be refunded…whereupon this Agreement shall be null and void without further liability to Seller." The contract further provided in the section relating to default that "If Seller fails to perform…Purchasers only remedy shall be to terminate this Agreement…and thereupon this Agreement shall be null and void." The O'Shields tendered more than $48,000 as earnest money to the Seller, but once the townhome was completed, the builder refused to close the sale to them. (The decision does not indicate why; should we assume because it could be sold for a great deal more to someone else?) Plaintiff filed their complaint for specific performance, and Defendants moved to dismiss relying upon the exclusive remedy provisions of the contract. This first motion to dismiss was granted, but following amendments to Plaintiff's contracts including counts for money damages for interest on their earnest money, intentional infliction of emotional distress, and allegations of racial bias, the case proceeded through discovery to motions for summary judgment by Defendant. Defendant's motions for summary judgment were granted finding that Plaintiff's had not adequately stated facts to support racial bias and the other tangential causes, and that there was no genuine issue of fact relating to specific performance. Plaintiff was not entitled to that remedy because of the exclusive remedy provision in the contract. On appeal, the Second District affirmed. The contract was unambiguous and the parties had a right to contract to provide for an exclusive remedy. Illinois Courts have recognized and enforced exclusive remedy provisions even without the word "exclusive" being used. The Plaintiff argued that the contract language relating to the exclusive remedy should be viewed as a liquidated damages provision and therefore be unenforceable and allow them specific performance. Correcting the underlying presumption in this argument, the Court's decision notes that the fact that there is a provision in a contract that provides for liquidated damages in the event of a breach does not in and of itself prevent a decree of specific performance. Here, however, the contract provides both that (1) purchaser's sole remedy is return of the earnest money, and (2) the contract would then be null and void. Because of this clear and unambiguous second aspect of the agreement of the parties, there could be no specific performance because it had been agreed the contract would cease to exist and therefore not be subject to specific performance. Accordingly, regardless of whether the Court were to deem the contract as providing for liquidated damages or not, there could be no specific performance because upon return of the earnest money the contract would be null and void by the agreement of the parties.
6. VACANT LOT CHECKLIST FROM THE ISBA REAL ESTATE LISTSERV:
Every so often something comes across the ISBA Real Estate Listserv that is the result of a lot of thought, work, or experience, and simply shouldn't go into the email 'delete' folder. At the end of January, the following was posted from "aestrumpf" on the listserv that gave great checklist for attorneys working with vacant land acquisitions that is obviously the result of all three:
"Checklist letter summarizing discussion. Thank you for the discussion.
At our meeting __________ presented an acquisition opportunity of a ____ acre out lot in ____________. The copy of the plat is enclosed for your reference. I would ask that you consider the following checklist with respect to the potential acquisition of this vacant lot.
1. Is it a platted lot? If not platted, it may present difficulties with the plat act. 2. Do we know the drainage patterns, flooding potential and groundwater level history? Are there storm water management/water retention requirements imposed by covenants or subdivision ordinances? 3. Is there any available soil testing or geological information for the property. 4. What environmental data has been gathered for the property? 5. Is the property listed for sale now? What does the MLS listing data tell us? 6. What will utility build out and hook up fees cost if this property is improved? 7. What impact fees remain unpaid on the property? 8. Are there any existing recapture or recoupment agreements with respect to roads and utilities? 9. What is the tax status with the Assessor's Office? Are there any accruals of taxes that would have to be paid by you? 10. Are all pre-subdivision costs and work paid for? 11. What is the lien status of the property? 12. How do setbacks and easements change the shape of the parcel and ultimate use of the parcel? 13. Are there any access limitations or curb cut requirements? 14. What is the zoning/building permit capability of the property? 15. What are the restrictive covenants related to the property? "
Is that great, or what? Pretty inclusive, eh? Thanks to "asestrumpf" !!
7. FROM THE TITLE INSURANCE COMPANY PERSPECTIVE: THE MORTGAGE RELEASE PROBLEM and CHICAGO TITLE'S SOLUTION:
The issue of obtaining and recording mortgage releases has been plaguing real estate lawyers and the real estate industry for quite some time. The legislature first attempted to solve the problem with the enactment of the Mortgage Release Act, 765 ILCS 905/0 et seq, which provides for a fine of $200, together with reasonable attorneys fees in the civil action, in the event a lender did not issue a release within 30 days of receipt of payoff funds. Although there were some willing to sue under this statute, those interested seemed to be so far and few between that the mortgage industry simply paid the fines and fees when they were caught and went about their business until then. Then, the Mortgage Certificate of Release Act, 765 ILCS 935, created a process whereby title companies could record certificates of release in lieu of the actual release to clear title. This act has a sunset provision that schedules repeal of the act on January 1, 2004, and the title industry appears to have found the notice of intent provisions allowing use of the certificate to be overly burdensome. A third generation, non-legislative response comes from my friend, Dick Bales, who has advised me that Chicago Title is going to take the following steps:
"FROM THE TITLE INSURANCE COMPANY PERSPECTIVE:
Chicago Title Insurance Company is changing its practices with respect to mortgage release recordings. This change is in response to class action litigation concerning the collection of release recording fees.
Chicago Title will no longer collect at closing the statutory fee for recording releases for 1-4 residential properties. Chicago Title will undertake no duties with respect to the issuance or recordation of any mortgage releases. Chicago Title has no control over the issuance of mortgage releases. As you know, only a lender can issue mortgage releases.
When Chicago Title sends the loan payoff amount to the lender, it will request that the release be sent directly to the original borrower. The lender may send the release to the borrower, or it may record the release. If the borrower receives an unrecorded release, he or she may choose to record it by sending the release with the recording fee to either the appropriate Recorder of Dees of Chicago Title.
If desired, Chicago Title will now prepare and record a "Record of Payment". This document will confirm that Chicago Title has paid funds pursuant to a lender's payoff letter for the purpose of satisfying a mortgage. This Record of Payment, however, is not a release, and if a borrower does not wish to have the Record of Payment recorded, Chicago Title will not collect a recording fee for it.
8. IRS RULES RE: GAIN ON SALE OF RESIDENTIAL REAL ESTATE:
Those of us who have "been around" for a few years remember when our clients had to purchase replacement residences within specific periods in order to defer capital gain on the sale of their home. Then there was a specific 'once-in-a-lifetime' exclusion for taxpayers over 55 yrs in selling their residence. In 1997, of course, the IRS substituted an exclusion of up to $250,000, ($500,00 for a married couple filing jointly), for the sale of a residence. This exclusion can be claimed repeatedly, but there are some issues that need to be considered, such as selling residences within two years of the last sale and fulfilling the two of five years requirement, determining what is a principal residence, and perhaps how to allocate gain between residential and business use of a residence also used as an office. As noted in the ISBA Transactional Law update at the end of January, the IRS has published a helpful (and almost readable!) article setting forth the regulations entitled "IRS Issues Home Sale Exclusion Rules" which can be found at http://www.irs.gov/newsroom/article/0,,id=105042,00.html. This is an article, (for those of you who loath reading federal regulations or statutes), that in two pages printed on your printer clarifies that:
· taxpayers need not allocate gain between business and residential use within the same dwelling , but must pay tax on gain equal to the depreciation taken;
· joint owners who are not married can take up to $250,000 for each joint owner;
· the two out of five years need not be concurrent as long as there was no excluded gain on another home sold within two years of the current sale,
· there are "unforeseen circumstances" for an exception to the two year rule: i.e., a tax payer can still exclude gain if a residence is sold within two years of the last sale if the sale is the result of a death, divorce or legal separation, loss of employment or relocation of more than 50 miles based on change of employment, multiple births resulting from the same pregnancy (the 'twin/quintuplets exclusion'?), damage to the residence resulting from disaster, war or terrorism and condemnation.
9. DEVELOPMENTS IN REAL ESTATE FRAUD; WHAT TO WATCH FOR:
On February 4, 2003, Attorney's Title Guaranty Fund, Inc. presented a continuing legal education program entitled "Bold, Outrageous, and Highly Organized: The New Game in Real Estate Fraud". The primary focus of the program was the fraud scheme that took place in the summer of 2000, in which attorney and ATGF member Robert Voltl, working with mortgage brokers, real estate agents and appraisers, conspired to purchase and then resell residential real estate at inflated prices ("flipping"). The materials consisted largely of reprints of newspaper articles relating to the discovery and indictment of the schemers, but speakers, including the FBI agent in charge and a Secret Service agent (I didn't know the Secret Service is charged with identify theft matters!) presented some excellent 'tips' to identify transactions that may involve real estate fraud.
According to the FBI agent, the typical 'indicators' for 'flipping' schemes to be wary of are:
(1) two simultaneous closings where the funds from the second are used to fund the first; (2) use of a corporation or land trust to hold title for a very short period; (3) inflated price between the first and second closing without any cognizable basis for an increase in value; (4) either the seller or buyer or both doesn't attend the closing; (5) attorneys representing multiple parties in the transaction; (6) letters of direction relating to disbursement of proceeds used for payment of 'kickbacks'; i.e., "Title companies should be careful that they don't be the criminal's checking account"-the government agents refer to this as "Smurfing", a reference to the cartoon in which "Daddy Smurf" 'takes care' of the other Smurfs; (7) requests for issuance of multiple checks in a sum less than $10,000 at the disbursement of proceeds to avoid reporting when cashing/banking checks.
The speaker from the Secret Service confirmed that "Identity Theft" is on the rise. His advice was that the best step to avoid identity theft is to periodically run your credit report to assure there are no usual or unexplained entries in you record. The three major reporting agencies will do this quarterly at no charge:
Equifax Credit Information Services - Consumer Fraud Div.
Trans Union Fraud Victim Assistance Dept.
If you have been the victim of identity theft, you should know that the Federal Trade Commission (FTC) is the federal clearinghouse for complaints by victims of identity theft. Although the FTC does not have the authority to bring criminal cases, the Commission assists victims of identity theft by providing them with information to help them resolve the financial and other problems that can result from identity theft. The FTC also may refer victim complaints to other appropriate government agencies and private organizations for further action. If you have been a victim of identity theft, you can file a complaint with the FTC by contacting the FTC's Consumer Response Center. Here is the contact information from the Secret Service website, (http://www.secretservice.gov/financial_crimes.shtml)
Toll-free 877-FTC-HELP (382-4357)
Consumer Response Center
There is a lot of other, good information on the Secret Service website; (there is a section on those emails you keep getting from Nigerian royalty asking you to help them…yep, it's a fraud/scheme too! But you knew that…right?)
10. REVIVAL OF JUDGMENTS; STATUTORY CLARIFICATION:
A number of years ago, I recall having a very interesting conversation with a couple of other attorneys who concentrated their practice in real estate litigation and collection matters. The topic was what would happen if the holder of a recorded memorandum of judgment did not revive his lien prior to the expiration of seven years from the date it was recorded, (when it ceases to be a general lien), but then revived the judgment thereafter, only to find that there was an intervening lien claimant. Would the reviving lien holder revert to his priority position or be subordinate to the intervening lienholder following the revival? We didn't know the actual answer, and still may not, but now the enactment of Public Act 92-817 appears to clear up some of the confusion. The Act was signed into law by Governor Ryan on August 21, 2002, and is effective immediately. It amends the Code of Civil Procedure by changing Sections 2-1601 and 12-101 and adding Section 2-1602. The new section 1602 states clearly that a judgment can be revived at any time during the 20 years following entry by petition filed in the original case. An amendment to Section 12-101 provides that the judgment lien can be foreclosed under the Mortgage Foreclosure Act, but that the redemption period shall run 6 months after the sale and the homestead exemption will apply. The amended Section 12-101 then "answers" our initial question by clarifying that a lien is only a lien for a period of 7 years, and unless it is revived during the 7 year period and a memorandum is recorded before it expires, it lapses. The language appears to be clear that the lien is not a lien until the revival occurs and if revival does not occur during the seven year period the lien become a lien once again only on revival…which means it loses it's "place in line", right? (There are also special provisions relating to bankruptcy and judgments for child support and some judgments for damages based on certain criminal actions set forth in the statute that should be reviewed.)