REAL ESTATE LAW PRACTICE “KEYPOINTS”

(May, 2003)

 

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 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. MORTGAGE FORECLOSURE; CURRENT LOANS AND FAIR DEBT COLLECTION PRACTICES:

In Schlosser v. Fairbanks Capital, (7th Cir., March 20, 2003), http://www.ca7.uscourts.gov/op3.fwx?submit1=showop&caseno=01-3487.PDF, an interesting new twist on mortgage foreclosure and FDCPA is presented. Fairbanks acquired the Schlosser’s mortgage in a batch of some 12,800 loans from ContiMortgage consisting of delinquent, high interest loans. The loan history information sent to Fairbanks by ContiMortgage incorrectly stated that the Schlosser’s loan was delinquent. Accordingly, Fairbanks sent Schlosser a default letter, and then filed a foreclosure case against them. The Schlossers asserted that they were not, in fact, in default, and eventually Fairbanks dismissed the foreclosure case. The Schlossers then filed suit against Fairbanks for violation of FDCPA because the default letter did not advise them of their right to contest the debt. The District Court dismissed, finding that since the loan was not actually in default, there was no violation of FDCP. The 7th Circuit reversed on appeal.

The first issue analyzed in this decision was whether Fairbanks was a "debt collector" subject to FDCPA or a "creditor"; (i.e., one actually owed the debt). The distinction, of course, is important because FDCP apply only to "debt collectors" and do not apply to "creditors". One attempting to collection their own debt is not subject to the restrictions of FDCP because the legislature assumes that "creditors" are "generally restrained by the desire to protect their good will when collecting past due accounts," from their own customers whereas "debt collectors" are unrestrained because they have "no future contact with the consumer and often are unconcerned with the consumer’s opinion of them", and therefore the consumer is presumed to be in need of protection. The distinction between whether a lender is a "creditor" or a "debt collector" depends on the status of the loan at the time it is acquired. A lender who acquires a current loan is presumed to be a creditor. If the loan is delinquent when acquired, however, the lender/servicer will be viewed as a ‘debt collector’, under 15 U.S.C. 1692a and the cases cited. Relying on this law, Fairbanks asserted it was a ‘creditor’ rather than a ‘debt collector’ under FDCPA relating to the current Schlosser loan.

Although the District Court was convinced by this logic, the 7th Circuit opinion notes that Fairbanks acquired the Schlosser loan "as though it was in default" and its activities were based on that understanding. Since the ‘debt validation’ provisions of 15 U.S.C. 1692g are intended to "prevent(ing) collection efforts based on mistaken information", it would be absurd not to require notice to correct mistakes in the situation where there actually was a mistake as to whether the loan was in default or not: "We cannot believe that Congress intended such implausible results, and therefore, even if Fairbanks’s reading is the most straightforward, it is not necessarily the correct one;"

The law cited in this case that a current loan acquired by a lender/servicer will usually vest that institution with the status of a "creditor" rather than a "debt collector" is based on the supposition that the delinquent debtor will not be one with whom an on-going relationship is likely. The distinction here, however, is that if the lender/servicer is mistaken in its understanding of the status of the loan and therefore its relationship, the loan status will not be the determining factor in the relationship. Rather, Fairbank’s understanding and assertion of the status of the loan formed the basis of its relationship with Schlosser as a ‘debt collector’ and to that standard it would be held.

 

2. MECHANIC’S LIENS; SUBCONTRACTOR’S SECTION 24 & 25 NOTICES:

I learned early on in my career as a real estate litigator that the first step in analyzing a mechanic’s lien claim is to determine whether the lien claimant is a general contractor or subcontractor. (Thank you Bill Lyman!) A lien claimant, regardless of whether a general or subcontractor, must record a notice of claim for lien within 4 months of completing work, and bring suit to enforce their mechanic’s lien within 2 years of recording. Subcontractors, however, (based on the presumed anonymity that comes from sub-contracting with the general rather than the owners), must also give notice to a residential, owner-occupied owner of their existence within 60 days of beginning work under Section 5 of the Act, and for other types of property notice must be given to the owner or representative by personal delivery or certified mail within 90 days of completion of the work under Section 24. In the event there is no owner or owner’s representative at the job-site, the 90 day notice requirement can be alternatively met simply recording under Section 25 of the act. (The same 4 month, 2 year requirements still apply, however)

The recent case of Rothers Construction, Inc. v. Centurion Industries, Inc., (4th Dist., March 24, 2003), http://www.state.il.us/court/Opinions/AppellateCourt/2003/4thDistrict/March/Html/4020347.htm, deals with when the notice requirement of Section 24 can be satisfied by recording pursuant to Section 25. Rothers was a subcontractor of Centurion Industries in a contract to build grain bins for O’Malley Grain, Inc. in Piatt County. When Rothers filed its mechanic’s lien complaint, O’Malley filed a motion to dismiss pursuant to Section 2-619 alleging that Rothers had failed to give it notice of its claim within 90 days as required by Section 24. Rothers responded that since O’Malley’s registered agent for notice was located in Cook County, (outside of Piatt County where the job site was located), it needed only to record its claim within 90 days under Section 25 of the Act. Section 25 provides that "In all cases where the owner, agent, architect or superintendent cannot, upon reasonable diligent, be found in the county in which said improvement is made…the subcontractor…may give notice by filing in the office of the recorder…". Here, while the registered agent for O’Malley was located outside of the county, the superintendent on the jobsite was able to be served in the county, and therefore reliance upon Section 25 (recording notice) rather than Section 24 (actual notice) was misplaced. Mechanic’s Lien Claims are in derogation of commonly law, and therefore perfection of the lien by strict compliance is necessary under the Act. Here, the claimant did not strictly comply and therefore did not perfect its rights to a lien.

 

3. FROM THE TITLE INSURANCE COMPANY PERSPECTIVE

ROTHERS CONSTRUCTION, INC., V. CENTURION INDUSTRIES, ET AL., No. 4-02-0347 (Fourth District) is a case that probably belongs in the quiver of every title company's claims department.

The plaintiff, Rothers Construction, Inc., was a subcontractor that sued to foreclose its mechanics lien against defendants O'Malley Grain, Inc., the owner of a construction project in Piatt County, and Centurion Industries, Inc., the general contractor.  The trial court found that the plaintiff failed to perfect its mechanics lien pursuant to section 24 of the Mechanics Lien Act (770 ILCS 60/24). The plaintiff appealed, and the appellate court affirmed.

Section 24 of the Act provides that a subcontractor shall, within ninety days after completion of the work, cause a written notice to be sent by registered or certified mail to or served personally upon "the owner of record or his agent or architect or the superintendent having charge of the building or improvement."

Section 25 of the Act provides that where the owner, agent, architect, or superintendent either cannot be found in or does not reside in the county where the work is done, the subcontractor may give notice by filing a claim for lien in the county recorder's office against the real property upon which the work was completed.

In this case the plaintiff perfected its mechanics lien by recording its notice of lien in the local Recorder's Office.  The plaintiff  argues that perfection of its lien under Section 25 was appropriate.  It relies on HOLLEMBEAK V. NATIONAL STARCH & CHEMICAL CORP., 95 Ill.App.3d 309, 420 N.E.2d 172 (1981) and claims that Section 25 of the Act applies when any ONE of the owner, agent, architect, or superintendent does not reside in the county where the work is located OR if any ONE of them cannot be found there.

The court wrote that this was a misreading of the HOLLEMBEAK case and of Section 25: "Under plaintiff's theory, if the owner, agent, and superintendent all resided in the county where the work is located, but the architect lived in an adjacent county, then the claimant would be justified in using section 25.  Section 25 does not state if any ONE of the named entities cannot be found or does not reside in the county where the work is located, mechanics liens may be perfected by recording.  Rather, if any one of the entities CAN be found in the county, personal service under section 24 must be used."

In this instance O'Malley Grain did have a representative on the jobsite.  Furthermore, this representative, Robert P. O'Malley, was a resident of Piatt County.

The plaintiff alleged that O'Malley Grain is estopped from raising the notice requirement of section 24 of the Act because plaintiff requested and O'Malley Grain's attorney provided a form and instructions to plaintiff on how to record its mechanics lien claim.  But the court cited GEDDES V. MILL CREEK COUNTRY CLUB, INC., 196 Ill.2d 302, 751 N.E.2d 1150 (2001) in discussing equitable estoppel.  It noted that the party claiming estoppel must demonstrate, among other things, that the other party misrepresented or concealed material facts and that the other person knew at the time he or she made the representations that they were untrue.  The court noted that the plaintiff did not claim that the attorney knew that his representations about how to perfect the plaintiff's mechanics lien were untrue.

The case includes a dissent; Justice McCullough argues that Section 25 does apply to the facts of the case.  McCullough argues that at the time notice was given, the plaintiff knew that O'Malley Grain was a corporation and that its registered agent was located in Cook County.  O'Malley himself told the plaintiff that he needed to record a mechanics lien. Nothing in the record indicates that O'Malley Grain or Robert P. O'Malley told plaintiff that O'Malley was the person in charge of the project.

This case reinforces existing case law as to the court's belief that statutes creating mechanics liens are in derogation of the common law and must be strictly construed.  The legislature requires that subcontractors follow certain procedures in order to effectuate their liens.  If a subcontractor fails to follow these procedures, he has not availed himself of his remedy under the Mechanics Lien Act and thus has no lien under the Act.

I think that the court made the correct decision in this case and that the dissent's logic is misplaced.  The court noted that Robert P. O'Malley was on the site three to four times a week and was available for service under section 24 upon reasonable diligence on the part of the plaintiff.  The dissent seems to imply that O'Malley Grain or Robert P. O'Malley should have told the plaintiff that Robert P. O'Malley was the person in charge of the construction project.  But the statute does not impose this duty on a subcontractor.  Rather, it is the subcontractor's duty to ferret out this information.  

On the other hand, I dare say that if the facts of the case were changed just slightly, the case might swing the other way.  What if the plaintiff had contacted O'Malley Grain and the company had deliberately mislead the plaintiff?  O'Malley's attorney gave handwritten instructions to the plaintiff on how to fill out the mechanics lien form.  These instructions included the admonition that "you must have [the lien] on file before 90 days from the last day work was done. . . . [You must] make sure it is recorded before the ninety days is up."  It is possible that the attorney was suggesting that this ninety day deadline was implied in section 25.  Otherwise, a mechanics lien is recorded to put third parties on notice of the lien; section 7 of the Act requires that the lien be recorded within four months of when the work is completed.  It does seem possible that the attorney was referring to the section 25 notice requirements in his handwritten instructions.  Nonetheless, the court did not feel that O'Malley Grain was estopped from later raising the insufficiency of this section 25 notice as a defense.

All in all, a very interesting case.

Dick Bales

Chicago Title Insurance Company

Wheaton, Illinois

 

4. MORTGAGE FORECLOSURE; WAIVER OF JURISDICTION BY ACCEPTING BENEFIT:

BA Mortgage brought a mortgage foreclosure case against Margaret Burgholzer in B.B. Mortgage , L.L.C. v. Burgholzer, (2nd Dist., April 23, 2003), http://www.state.il.us/court/Opinions/AppellateCourt/2003/2ndDistrict/April/Html/2020097.htm. Service of process was purportedly by member of household service on Margaret’s fourteen year old daughter by a special process server, although there were some questions relating to the service affidavit and strict compliance with r the provisions of the Code of Civil Procedure. A default judgment was entered, and the property was sold to a third party bidder, resulting is a surplus of $2,903.29. The sale was also approved without Burgholzer appearing, but approximately two months later, Margaret filed a special and limited appearance to vacate the judgment and sale for lack of jurisdiction alleging that she had not been served and the summons return was defective on its face. The trial court denied the motion to vacate and denied a motion to reconsider. Following the denial of the motion to reconsider, Burgholzer "moved for a turnover of the sale surplus to her, which the court granted", and then she appealed the jurisdictional ruling.

On appeal, the Second District side-stepped the issues relating to jurisdiction in favor of ruling based on the Plaintiff’s argument that Burgholzer "is estopped to question the court’s jurisdiction to order the foreclosure and sale because she accepted the benefits of those orders by accepting the sale surplus." Noting that "where a party accepts the benefits of a decree, he or she cannot prosecute error to reverse it" and "by his voluntary act, invite the court to exercise its jurisdiction and at the same time deny that jurisdiction exists.", the decision by Justice Kapala cites a partition case where an appellant was estopped to challenge a judgment by petitioning the court to pay him the proceeds, another case where attack of a judgment thwarted by later accepting and recording the release of the judgment, and a paternity action where the defendant entered into a settlement agreement calling for installment payments and thereby invoked the challenged jurisdiction for his benefit. Here, Ms. Burgholzer’s granted request for the surplus proceeds "ratified" the court’s jurisdiction by accepting the benefits of the proceedings and was thereby estopped.

 

5. ADVERSE POSSESION; VACANT LAND, PERMISSIVE PRESUMPTION AND DEFINED TRACT OF LAND:

In 1972, Gerald and Jymee Knauf purchased land in Oswego that was adjacent to a farm owned by Paul Krahn. When they purchased the property, Mr. Knauf walked around the property with the seller, James Wormley, and noted that there were stakes in the ground that appeared to mark the western boundary of the parcel. He did not obtain a survey of the land. Over the next 20 years, the Knaufs tore down and built a new barn, built a house in 1976, and lived there continuously since. During that time, they planted 37 crab apple and 12 evergreen trees along the staked line, installed a rock garden and telephone utility box in a strip that ran north and south along the western edge of their parcel adjoining Krahn’s farm, and maintained a lawn on the strip up to the edge of the plowed field to the west. John and Geri Ryan purchased the farm to the west in 1998, and had the parcel surveyed at that time. New stakes appeared several feet to the east of the original staked line, which the new surveyor advised Knauf was the actual boundary line according to his determination made using laser equipment that was not available in 1971 when the original survey was made. As a result a strip of land several feet wide upon which Knauf’s trees, garden and utility box were located now appeared to be actually on the Ryan’s property. Knauf filed a suit to quiet title claiming title by adverse possession over the strip of land between the two parcels and sought to eject the Ryans from the property in Knauf v. Ryan, (2nd Dist., April 23, 2003), http://www.state.il.us/court/Opinions/AppellateCourt/2003/2ndDistrict/April/Html/2011298.htm. At the trial, Knauf testified that in 1998, the Ryans told him that they knew the strip of land belonged to him and they would not challenge his rights to it. In 2000, Knauf asked Ryan "what it would take to get" the strip and Ryan told him not to worry, "We’re not going to fight you for it.". In a 1999 letter, however, the Ryans stated that they granted Knauf permission to use the strip of land, but that this "in no way constitutes relinquishment of our ownership or rights to this parcel", and that if the Knaufs sold their property the new owner would not be allowed to use the strip without their express written permission. In July, 2000, Knauf hired a surveyor who stated at trial that the original stakes were the correct western boundary of their parcel based on the methods of surveying that existed in the 1960’s when the boundary was created. The trial court found in favor of Knauf on the issue of adverse possession and Ryan appealed based on the law that all presumptions relating to adverse possession, (i.e., the use must exist continuously, be hostile, open, notorious, under claim of right and exclusive for a period of 20 years), are in favor of the title owner and against the party claiming, who must prove each of the elements by clear and unequivocal evidence.

Affirming the trial court, the Second District found that the planting of trees, a garden and telephone utility box was sufficiently "hostile", and distinguished the cases relied upon by the Ryans asserting that that use of vacant and unenclosed land is presumed to be permissive rather than hostile. The property here was not "vacant" or "uncultivated". Knauf’s actions also went beyond merely the "mowing the grass" which was insufficient in other cited decisions, and indicated an intent to claim the strip by their concerted actions. Additionally, Knauf’s claim would have been apparent to anyone passing by the property on the roadway, and this met the test for "open and notorious". Finally, Knauf’s claim actually ripened in the period between 1972-1976, before the acquisition of the land by Ryan in 1998, and "Once the statutory period has run, the record owner is divested of title."; leaving Ryan’s claim that the Knauf’s request for a quitclaim deed or their own grant of a license by their letter ineffective to defeat the title established by then. Adverse possession requires a defined tract established by clear and convincing evidence of location, and the original stakes here satisfied that element. The trial court’s decision was not against the manifest weight of evidence, and therefore the Appellate Court was not required to analyze whether the 1971 or 1998 survey was actually correct because title passed by adverse possession.

 

6. WARRANTY OF HABITABILITY; PURCHASE OF VACANT LAND WITH LAND FILL FROM DEVELOPER:

In Overton v. Kingsbrooke Development, Inc., (5th dist., April 18, 2003), http://www.state.il.us/court/Opinions/AppellateCourt/2003/5thDistrict/April/Html/5010759.htm the Overtons sued Kingsbrook to rescind a contract for the sale of a vacant lot intended by them to be used to build a residence. When the Overtons began to build shortly following the sale of the lot to them, they discovered for the first time that Kingsbrook had placed a large quantity of land fill on the lot prior to the sale. Kingsbrook was in the business of developing residential subdivisions for sale to build upon. Overton was a consumer with no experience in constructing homes and no knowledge of the issues relating to land fill, soil condition and building. At the trial, the Overtons’ experts testified that the fill contained brick, wood and other debris, was more than 12 fee deep in some areas, and that 95% was the acceptable compaction level required to assure there would be no settlement problems following construction. The lot had an unacceptable compaction level and would require an "engineered fill" process (consisting of excavation of the dirt, foreign debris be removed, and the dirt be dried and recompacted to the 95% density rate), or extending the building foundation down 12 to 20 feet to virgin soil with piers to resolve the soil problems and avoid the risk of structural damage. It was later determined that neither resolution was unworkable due to the high moisture level of the soil, the contractors refused to work with the pier solution, and the Overton’s builder withdrew from the project because of the fill situation. The Overton’s legal theory was that the implied warranty of fitness for particular purpose and habitability was breached and therefore the contract should be rescinded and attorney’s fees awarded to them for consumer fraud. The trial court granted rescission based on the breach of the implied warranty and awarded damages to Overton, but denied their request for attorney’s fees.

The Fifth District affirmed on appeal, basing its decision of the law of breach of warranty of habitability, and beginning its decision with a "brief historical overview of the evolution of the implied warranty of habitability" and noting that case law had refused to extend the warranty to unimproved, vacant land in the past. Nonetheless, because the case before them dealt with the habitability of a prospective home under construction, Justice Chapman did not feel that the application of the warranty was contrary to existing Illinois case law, especially considering that the underlying principal of the theory of the implied warranty is the protection of buyers who, because of their lack of expertise, rely on sellers who have expertise relating to latent defects. Here, the Overtons dealt directly with Kingsbrooke, the developer, and this created a "dependency relationship" that did not exist in other cases that had refused to extend the warranty to vacant, unimproved land. The developer here impliedly warranted that the lot was suitable for normal residential construction, which was not the case. An interesting, further distinction was the Court’s finding that Kingsbrooke did not sell "unimproved" land here, but had significantly changed the topography of the lot by placing the land fill, and thereby "improved" the parcel. The Overtons visually inspected the lot prior to purchase, but could not have known the nature and extent of the fill issues, and therefore this circumstance was a "latent" defect that could not have been discovered by the exercise of ordinary and reasonable care.

Turning to the remedy of rescission, the decision notes that the Overtons exercised reasonable care in inspecting the parcel before sale, the defect was latent, that the remedy was proper even though the parties could not be placed in status quo ante because Kingsbrooke created the condition, and that the condition of the fill was a material breach of the contract. Granting rescission, however, was fatal to the Overton’s request for attorney’s fees: "The recovery of attorneys fees is an inconsistent remedy in an action for the rescission of the contract". Here, while the contract provided for an award of attorney’s fees to a prevailing party in the event of a breach, the rescission of the contract "necessitates disaffirming the contract to allow the parties to return to the status quo.", and this leaves the prevailing party provision behind with the contract.

7. REAL ESTATE BROKERS; LIABILITY FOR FALSE STATEMENT OF PROPERTY SCHOOL DISTRICT:

In Capiccioni v. Brennan Naperville, Inc., (2nd Dist., April 15, 2003), http://www.state.il.us/court/Opinions/AppellateCourt/2003/2ndDistrict/April/Html/2020145.htm, the purchasers sued the Realtor when they discovered that the representation that the home listed and sold was in a different school district. The listing brochure declared that one of the homes features was that it was located in the "Acclaimed (School) District 204. Prior to closing the buyers inquired of the employees of the School District 204 and were told that the property was in their district. After the closing, however, it was determined that the property was actually in School District 365-U, and in order to have their children attend the school of their choice, the Buyers sold the property and purchased another. The Buyers then filed suit alleging claims against the Realtor under (1) the Real Estate License Act, (2) consumer Fraud and Deceptive Business Practices, (3) common-law fraud, and (4) negligent misrepresentation. The trial court granted the Realtor’s motion to dismiss, and the Buyer’s appealed. The Second District affirmed in part and reversed in part, remanding the cause with some direction relating to this somewhat common scenario.

The Buyers were found to have stated a cause of action under the Real Estate License Act. Section 25(a) of the Act states that "Licensees shall treat all customers honestly and shall not negligently or knowingly give them false information." Section 5(c) further serves to provide for a private cause of action for violation of the Act. Here, the false information relating to the wrong school district was either negligently or knowingly given. The facts at trial specifically indicated that the incorrect advice did not come from the seller because the seller did not have any children and had no knowledge of the correct school district, but somehow originated with the Realtor. Accordingly, the exculpatory language in Section 25(a), relieving the Realtor from liability for false information provided by the seller, was inapplicable. Further the limitation to matters "pertaining to the physical condition of the property" was independent of the mandate to not negligently or knowingly give false information. Therefore, false information is actionable even if the information relates to matters not pertaining to the physical condition of the property.

Similarly, the Consumer Fraud Act applied despite the Act’s limitation that any statements of any false misleading or deceptive information provided by the seller are not actionable. Again, the false statement relating to the applicable school district came not from the Seller, but independently from the Realtor. The protective provisions only apply where the provider of the false information is the Seller and the Realtor’s false statement is an innocent passing along of that information from the seller to the buyer. – not the circumstance here.

The false statement was also actionable as a Deceptive Trade Practice, despite the seller’s argument that the proper school district is a matter of law not fact, readily available and therefore not actionable. While a property’s school district is required to be displayed on a map in the school office as a matter of law, here an inquiry at the school board’s office lead the buyer to be misinformed about the property’s school district. Accordingly, it could not be said that there were no set of facts to establish that the Buyer did not exercise reasonable prudence to discover the law.

The only cause of action that was determined to have been properly dismissed on appeal was the common law fraud count. The Buyer’s allegations that the defendant’s knew the information relating to the school district was false was made in a conclusory fashion without any facts. It was further testified to at trial that it was "widely known in the real estate industry that considerable misinformation exists about school district boundaries", and that the mere allegations of such misinformation was not sufficient to conclude that the Realtor knew that the statements were false.

In total, the Realtor’s misstatement of the property’s school district was one which the buyer was intended to rely upon, made in the course of business, not based upon misinformation provided by the Seller, which proximately caused the buyer to purchase a property which they would not have otherwise. This case presents a fairly comprehensive analysis of a common error in the real estate industry and provides ample citation to the supporting law.

 

8. MECHANIC’S LIENS; ARTICLE 5 SIGNED SWORN STATEMENT AS A CONDITION PRECEDENT TO A CONTRACT ACTION:

The Second District takes on a question of some current confusion relating to contractors signed sworn statements as a condition precedent to recovery in mechanic’s lien claims in Northwest Millwork Co. v. Komperda, (2nd Dist., April, 2003), http://www.state.il.us/court/Opinions/AppellateCourt/2003/2ndDistrict/April/Html/2011397.htm. The underlying case was begun by a subcontractor’s mechanic’s lien claim complaint filed by Northwest as a material provider on a residential construction project for the owner, Komperda. Lipowski & Associates were hired by Komperda to provide "architectural and construction management services" for the project. Lipowski in turn contracted with Northwest to provide lumber materials. When Northwest filed suit for payment, Lipowski filed a third party complaint against Komperda to foreclose its mechanic’s lien claim and for breach of contract. Komperda filed a Section 2-619 Motion to Dismiss the mechanic’s lien claim stating affirmatively that Lipowski was barred because it had not provided a contractor’s sworn statement to Komperda as provided by Section 5 of the Mechanic’s Lien Claim Act. The trial court granted the owner’s motion and dismissed Lipowski’s lien claim.

On appeal, the Second District notes that there is a divergence of opinions in the First, Fifth and Second Districts relating to whether Section 5 requires a contractor provide the sworn statement as a condition precedent to a lien claim and contract action, and if failure to do so constitutes a bar. In Abbott Electrical v. Ladin, the Second District held that Mechanics Lien Claim Act "becomes a part of every construction contract between the owner and the contractor", and the contractor’s failure to comply with the Section 5 requirement will defeat the claim. In Ambrose v. Biggs, the Second District also ruled that a contractor can not recover for breach of contract where he fails to provide the sworn statement to the owner because of the potential prejudice to the owner relating to subcontractor claims. In Malesa v. Royal Harbour Management Corp., the Court refined its rule by holding that the contractor may not bring a contract action in the absence of providing a sworn statement, regardless of whether the owner requested the statement or not. The First and Fifth Districts, however, have failed to follow Ambrose or Malesa in their decisions on this issue, National Wrecking v. Midwest Terminal and Prior v. First National , and Lipowski used this divergence as his focus on appeal. The opinion of Justice McLaren reversed the dismissal for failure to provide the statements and remanded the case to the trial court.

In each of the Ambrose, Malesa, and Abbott cases, the Court’s reasoning considered the substantial risk of subcontractor’s claims to the owner in the absence of the Section 5 statement. Here, however, as in the Fifth District decision in Prior, however, it is noted that the doctrine of strict construction applied to Mechanic’s Liens "was never meant to be a pitfall to the unwary and that owners should not be able to rely on a technicality to defeat an otherwise valid lien." While Ambrose held that the owner’s refusal to make a final payment to the contractor who failed to provide a sworn statement was justified in order to protect against potential subcontractor’s liens, that same justification is not present here, where the time period for subcontractors to come forth had passed. Since no subcontractors had given notice within 90 days of completion as required by Section 24, the requirement of a sworn statement was not necessary to protect the owner, and therefore should not serve to defeat the lien claim. This is the same reasoning sued in Prior; where the owner’s failure to request the sworn statement demonstrated that there was no perceived or actual prejudice to be avoided by the statement, and therefore "it would be inequitable to allow them (the owners) to rely solely on a technicality to defeat what otherwise may be a valid contract claim". There was no potential for subcontractor’s claims and therefore no need for the sworn statement, let alone to allow the failure to provide the statement to bar the claim. Therefore, the dismissal of Lipowski’s third party complaint was reversed and the case remanded.

 

9. PREMISES LIABILITY; SOCIAL HOST LIABILITY IN ILLINOIS:

Most real estate attorneys will at one time or another be questioned about the law in Illinois relating to an owners liability to a guest who becomes intoxicated at a social gathering. In Wakulich v. Mraz, ( Ill. S.Ct., February 6, 2003), http://www.state.il.us/court/Opinions/SupremeCourt/2003/February/Opinions/Html/92128.htm, the Court enunciated that there is no "social host liability" in Illinois. The Plaintiff alleged that the Defendants were negligent in providing alcohol to her minor daughter in their home, failed to provide care for her after she became unconscious there, and that this proximately caused her death. Accepting the case, the Court acknowledged that the appeal required they revisit and overturn its prior decision in Charles v. Seigfried, (1995) 165 Ill.2d 482, and recognize a cause of action against adults social hosts who serve minors in their home with alcohol resulting in injury or death. Despite a recognized national trend otherwise, the Court adhered to its decision in Charles and declined to recognize any form of or create common law imposing social host liability. The Illinois legislature has enacted the Illinois Dram Shop Act, and thereby preempted the entire field of alcohol related liability in the state. In a decision that gives excellent, quotable analysis of the theory and basis of stare decisis , the Court concludes that judicial restraint in this area is appropriate and "…any change in the law governing alcohol-related liability should be made by the General Assembly, or not at all."

 

10. AN APOLOGY AND SOME "POLITICAL" STUFF; MORTGAGES FOR MUSLIMS:

There were no case law summaries or "Keypoints" in April. I was distracted and apologize to those of you who were looking for them. In those days of the heated war with Iraq, it was hard for many of us to keep the commitments we have to our bar associations, pro bono, and continuing legal education work. Before the war began, I, for one, ordinarily used the evenings after most work days, (which themselves can easily be twelve hours), to read cases off the internet and make notes for these monthly "Keypoints". This last month, however, my wife and I have spent most of our evening hours watching the war updates on CNN, Fox News, and "Nightline". We have a daughter and a son in active military duty. My wife and I are, as are all of us, proud of our children’s sacrifices and service to country. We have found ourselves angered by the ‘peace demonstrations’ despite the fact that we were in college during Vietnam and ourselves demonstrated against that war.

It is equally hard for us to keep our commitment to the principals that our great country was founded upon during these times. I also believe that it requires ‘exercise’ and diligent introspection of our motives and fears to keep our prejudices in check. A week or so, I was speaking with a very dear, older friend of mine; Warren, a man whose ethics and morals I know and greatly admire. Our conversation followed a fraternal meeting at which a Muslim friend of ours had attempted to explain Islam to us as part of a monthly dinner program. I told my friend that I was concerned that my fears for my children was feeding a growing prejudice toward Iraqis and, with them, Muslims. He turned and said to me, "I must admit that I am prejudiced." I was very surprised because I think so highly of this man, and found it hard to conceive of the fact that he might be prejudiced in any fashion. "My prejudice", he said, "is against the Japanese. I served in World War II, and I will always be prejudiced against my enemy." I was shocked and surprised. He did not apologize nor attempt to explain. If any man could have overcome this prejudice, I would have been certain, it would be this one. He made it clear, however, that there was no possibility of that happening. His prejudice was formed in a war caldron so deep and so hot that it would never cool. It was a prejudice born in an dastardly attack, fostered in a long and hard war, and finally nurtured by a homeland and government that knew no other choice but to hate the enemy without any distinction between "Japanese" as a people or "Japanese" as a government that engaged in the struggle with them. "To this day," he told me, "I will not own a Japanese car, and don’t understand how my children can buy automobiles made by the enemy." (I blushed deeply at this because I own a Japanese car.) My own father-in-law, who also served in World War II holds this same prejudice deep in his own heart. It is not against just a government that sent its planes and ships to kill our young people and threatened our way of life. It is a prejudice and hatred that became focused on an entire people; the Japanese --- a fear that lead to Internment Camps. We, too, could easily absorb this same fear, hatred and prejudice against Iraqis and Muslims in our own lives in these days.

My wife and I, of course, support our troops. We are not, however, "pro-war". We believe that rather than "pro-war", (who could ever be "pro-war"?), or "pro-peace", (at what price to our children who fight to preserve our way of life?), we are simply "pro-troops", and make an effort each day that assure that the "enemy" in this struggle remains Saddam Hussein and his government, not the Iraqi people, and certainly not that great segment of our planet’s population that believe in Islam. War is "inhuman", but when we remove the individual, human face of our enemies, we ourselves become "inhumane".

In real estate transactions in the United States, Muslims have a very human face. Their religious beliefs can make homeownership practically impossible in a marketplace in which mortgage interest rates are the driving force in transactions. I recently discovered an article in the Wall Street Journal that helped me understand a little better. In the March 26, 2003 edition of the Real Estate Journal, http://www.realestatejournal.com/buysell/mortgages/20030320-frangos.html, Alex Frangos wrote "For Devout Muslims, Interest is Forbidden", and explained how the Islamic prohibition against interest, ("Shariah"), can be and is accommodated in the western, ("halal"), real estate market. Both Federal National Mortgage Association, (Fannie Mae), and Federal Home Loan Mortgage Corporation, ("Freddie Mac"), committed $110 million last year to Islamic home mortgage programs that are structured to avoid the religious restrictions by offering payments of what is similar to "rent" plus a combination of down payment and monthly payments to reduce "principal" that accumulates equity in the property. In another structure, the financing entity purchases the property and sells it to the Muslim consumer for a "marked-up price" that reflects what a typical bank earns on typical fixed rate mortgage in the market place. The largest Islamic mortgage lender, American Finance House Lariba, (888-527-4221, www.lariba.com), is in Pasadena, California and was founded in 1987. It offers home, auto and small business loans in a manner which compete in the United States market but does not violate the precepts of Islam. Saber Salam is the vice-president at Federal Home Loan Mortgage that oversees the Islamic mortgage-investment program. In New York, HSBVC Holdings (877-344-4722, www.amanahfinance.hsbc.com), is another Islamic institution that offers "Shariah compliant alternative for American homebuyers" of the Muslim faith to help fulfill the dream of buying a home without having to pay interest. The face of a Muslim client becomes much more "human" in these contexts, and we can all keep in mind the difficulties real people must overcome in reconciling their fears and prejudices in times following a war.

My daughter and son are safe, and my wife and I relieved. Next month’s cases will include any that were missed as the war in Iraq marched into our home on the television screen night after night. Thank you for your patience.