(February, 2004)


By Steven B. Bashaw

Steven B.  Bashaw, P.C.

Suite 1012

1301West 22nd Street

Oak Brook, Illinois  60523

Tel.: (630) 472-9990

Fax.: (630) 472-9993


(Copyright 2004 - 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.



Every winter it seems at least one case about slipping and falling on ice covered sidewalks comes along. This year, the Illinois Supreme Court considered whether homeowners who made a sled run in their backyard were immune from liability for injury under the Recreational Use of Land and Water Areas Act, (745 ILCS 65/1), to invited guests in Hall v. Henn, (December 18, 2003), Time and Sue Henn built a "luge-like" sled run, complete with a platform and steps with snow, sprayed with water and hardened into ice in their backyard. Only invited guests who received the Henn's permission were allowed to use the run, and only when they were present to supervise. A neighbor telephoned and asked of her family and a friend visiting could use the run and permission was granted. The visitor, Ellen Hall, slipped and fell on the stairs after a couple of runs and was knocked unconscious, fractured an arm ,and tore a knee ligament. The Defendants successfully moved the trial court for summary judgment in the negligence action filed by Hall based on the Act. The Second District Appellate Court reversed in an unpublished decision, holding that the Act's protection did not apply because the run was not made available for public use. The Supreme Court affirmed. The purpose of the Act is "to encourage owners of land to make land and water areas available to the public for recreational or conservation purposes by limiting their liability toward persons entering thereon for such purposes." Section 3 of the act provides that where the owner invites or permits people to use the property for recreational or conservation purposes without charge, there is no assurance that the premises are safe, no status of invitee or licensee granted to someone using the land, and no assumption of liability for any injury to one who enters on the land or is injured by any natural or artificial condition, structure or personal property. The Act does not apply where a fee is charged for use of the land, and does not protect an owner who engages in willful or wanton conduct. Under the Supreme Court's interpretation of the statute, the Act also does not protect an owner who limits use to invited guests rather than offering the use to the general public. Even though the Henns offered their land for use for recreational purposes, Justice Thomas holds that the legislature only intended the protection of the act to extend to persons who opened their land to the public generally. Because the Henns only allowed invited guests to use the sled run, they were not among the intended group of owners of land who "make land and water areas available to the public" and therefore were not protected. Although it might appear to be counter-intuitive for owners to allow the general public free access to their land, the decision notes that this is the limited scope of the intended protection offered by the legislature. "[W]ere we to ignore section 1's express caveat that the property in question [must] be made available for such purposes to the public, we would largely eliminate premises liability in this state." The purpose of the legislature was to encourage public recreational and conservation use of land by insulating owners against liability, and not to protect owners from suit by their invited guests.



Dart v. Leavell, (5th Dist., July 25, 2003), affirmed the trial court's finding that the lease granted to Leavell had been forfeited due to non-production according to its terms. The four production wells and an injection well were all run by electricity, and at trial Dart testified that as he was farming the land around the wells, he noticed they had stopped pumping and vegetation had grown up around them over an 18 month period. The account supervisor at the local electric coop testified that their records indicated only a minimal usage and that the service was cut-off for nonpayment at one point. The Defendant testified he did not abandon the wells and explained did not pay the electric bill because he intended to install a new pump house. He also testified that oil prices were depressed during the period in question and that he had found it unprofitable to run the wells at that time. The lease provided that the term was for a primary term of six months and thereafter for "as long as oil…products or any of them is produced." The law in Illinois is that an oil and gas lease may be "abandoned by the cessation of operations for an unreasonable length of time…[and]…The long-standing rule is that 'temporary cessation of production after the expiration of the primary term is not a cessation of production within the contemplation and meaning of the 'thereafter' clause if, in the light of all surrounding circumstances, reasonable diligence is being exercised by the lessee to continue production of oil or gas under the lease." Here, the trial court determined that Leavell was not diligent and rejected his assertion that that the depressed prices of oil justified his cessation of operating the wells. The Fifth District noted that unprofitability did not actually prevent operation of the well, just made it unprofitable, and there was no provision in the lease excusing production in the event of a market depression. The trial court's determination that the reasons for lack of production were not "matters beyond their control and that the defendants failed to show reasonable diligence to continue production under the lease", was not against the manifest weight of evidence.



Another oil and gas lease case from the Fifth District, Maschhoff v. Kockenkemper, (5th Dist., October 21, 2003), deals with whether the Illinois Oil and Gas Lease Release Act, (765 ILCS 535/2), entitles the owner of the land to an award of attorney's fees incurred on appeal under the statutory recovery scheme. The Act, in a manner that is akin to a similar provision in the Illinois Mortgage Release Act, provides that when any oil or gas lease becomes forfeited it is the duty of the lessee to record a release in the county Recorder's Office within 60 days without any cost to the owner of the land. The Act also provides that if the lessee fails or refuses to record the release, and lessor is required to resort to litigation, the lessee shall be liable for "all costs by such action, including a reasonable attorney fee to be taxes as costs" upon the entry of a judgment. (765 ILCS 535/2) In this case, the lessee appealed the trial court judgment in favor of the lessor, and after the appellate court affirmed the judgment, the Plaintiff sought an award of additional attorney's fees and cost to cover the expense of defending the appeal after the mandate was returned to the trial court. The Defendant argued that the Act only provides for an award of fees incurred up to the entry of judgment, and did not include fees for the not appeal. Beginning with a succinct but excellent summary of the "American Rule" that parties to litigation must bear their own attorney's fees and costs, Justice Chapman notes that statutes that are in derogation to common law are to be strictly construed. Because there is no case on point to date, the briefs of the parties argued "by analogy" to cases under other statutory schemes such as the Illinois Human Rights Act and eminent domain proceedings, but the Court's decision rests on cases under the Consumer Fraud and Deceptive Practices Act. Noting that "The plaintiff here had no choice but to defend the appeal as a continuation of the underlying claim", and that "the statute itself states that the goal is that the proceeding to enforce the claim is to be achieved 'without any cost to the owner or owners of the land.", the mandate of the legislature that the lessee "shall" pay "all costs" was deemed to include the expenses of the appeal, including attorney's fees.



The University of Illinois sought to take William Shapiro's property on the near west side of Chicago to expand its campus in Board of Trustees v. Shapiro, (1st Dist., September 30, 2003), Shapiro's property was a vacant and unimproved lot zoned for industrial use only, and at trial he attempt to rely upon two appraisers to establish value. One, however, was barred by virtue of the grant of a motion in limine for failure to produce the appraiser for a deposition. The second appraiser relied upon four comparable properties to establish value; three of which were based on sales made under threat of condemnation. and these were also acknowledged to be zoned for commercial use. The University sought and obtained a motion in limine from the trial court to keep the appraiser from using values of the three properties which were under threat of condemnation, and also obtained a finding that they were not "comparable" sales because of their zoning. The trial court also struck the appraiser's testimony that there was a possibility of rezoning Shapiro's property to commercial use as indicative of value. On appeal the First District affirmed, noting that "it is well established that property sales made under threat of condemnation are not reliable evidence of fair market value…because the party asserting the sale evidence cannot establish that the property was 'sold freely and in the open market'. " The admission of evidence of comparable sales in condemnation cases is entirely within the discretion of the trial court and will not be disturbed absent an abuse of discretion. While a 'reasonable probability of rezoning is a proper factor to be considered in determining the value of property taken in a condemnation proceeding…[there must be a]…preliminary showing as to the reasonable probability of rezoning" before the witness may testify. There was no preliminary showing here, and therefore the trial court correctly barred the testimony. Finally, although there was clearly an issue of whether the Board had authority to condemn this particular property, (as "not designated as one of the 75 properties to be acquired" by specific tax parcel numbers set forth in the resolution), because Shapiro failed to file a traverse or motion to dismiss within the time granted by the court, any objection to the authority of the Board to take the property was waived. Even though "A municipality can only exercise the power of eminent domain when it has been specifically conferred by legislative enactment…", a failure to object to the condemnation by traverse waives the jurisdictional issue. A "traverse" serves as a motion to deny the legal right of the complainant in a condemnation case, and the property owner bears the burden of claming and presenting evidence that the municipality lacks authority to condemn. If not raised, the owner can not attack the condemnation on appeal, even by correctly noting the authority of the legislation was exceeded.



(Ed. Note: Dick Bales apologized for the length of these comments, but the writing is worth the reading! This is as close to a complete course on how a divorce impacts real estate as you will come!)

An attorney came to see me this afternoon. His client was recently divorced. She and her husband owned their home in an Illinois land trust. When the couple got divorced, the judgment of dissolution mandated that the husband convey his interest in the home to his ex-wife. He dutifully did this, and the deed was recorded. 

Thankfully, a trustee's deed was also recorded, but the attorney was concerned that this "wild deed" might result in an adverse title exception. I assured him that it would not. 

This story had a happy ending. But what if the ex-husband, after executing his quit claim deed, took off for parts unknown? And what if BOTH parties had the power of direction to convey the land trust property? And what if the ex-wife now wanted to sell the home? How could she do so without her now-absent ex-husband joining in the direction to convey? This is just one of the many pitfalls that can arise in dissolution of marriage situations. This column will address some of the problems that I have encountered through the years. Yes, the basic facts in all of the examples below are true stories. 

Example: Title company issues a title commitment showing that husband and wife are in title. It notes a current divorce case wherein the decree provides that the husband is to quit claim all interest he has in the property to his wife. But there was never a deed recorded. Now you are at closing, and the wife is prepared to sell "her" property. You tell the title company that it can rely on the court case. "After all," you say, "the judge ordered him to convey the land." Good answer? 

Nope. You can not rely on the court case. Perhaps the husband and wife later reconciled, at least to a degree, and decided that there need not be a conveyance. Note that 750 ILCS 5/503, also known as section 503 of the Illinois Marriage and Dissolution of Marriage Act, allows the court to arrive at a "just" division of property upon the dissolution of marriage. The court is allowed to "assign" property based on a calculation. But this assignment is not sufficient for a title company examiner to vest property. Title companies have long held that the entry of a final order in a dissolution of marriage proceeding is not sufficient to divest title. A deed is necessary. If the one spouse fails to execute a deed pursuant to order of court, the court may execute the deed instead. See 735 ILCS 5/2-1304(b) which deals with orders for conveyances. 

So what can you do? The title company might consider holding back one-half of the sale proceeds until you can get a judge's deed. Or perhaps, depending on the situation, the title company might give you a pass, based on your assurance that you are very familiar with the case and that you will get the judicial deed IMMEDIATELY. 

For further information, see "New Rules on Property Classification and Division upon Dissolution of Marriage," 72 Ill. Bar J. 336 (1984); In re Marriage of Patrick, 233 Ill.App.3d 561 (4th Dist. 1992); 750 ILCS 5/503. 

Note that a judgment of dissolution of marriage may contain a money judgment for attorney's fees against one of the litigants. If the judgment, or memorandum thereof, is recorded, it becomes a lien on the land of the judgment debtor. 

Example: The title company issues a title insurance commitment for a sale of Blackacre and finds that the property is in a land trust. But the application states that the seller is "John Jones," and so the title company does a name search of John Jones. It discovers a current divorce case that includes a judgment for dissolution that states that John Jones is supposed to convey his interest in the land to his wife in exchange for $20,000. The title company has its loan package at the closing table. A trustee's deed is included. What does the title company do? Should it be concerned about cutting a check for John in the amount of $20,000? 

The title company need not worry. When the land is in an Illinois land trust, the trustee owns the land; the beneficial owners only have a personal property interest. The divorce decree is a nullity, as far as the title company is concerned. It issued a title commitment that indicated that title is in the trust, and the trustee has prepared a deed and has arranged for it to be delivered to whom it feels is the proper party. The title company is insulated from any liability for failure to collect and deliver the $20,000. (This is the case, assuming that the deed contains no adverse "subject to" exceptions relative to the judgment of dissolution; for further information, see below.) 

Example: Al and Tipper buy Whiteacre in 1995. They hold title in joint tenancy. In 2000 they get divorced. In 2001 Al dies of a broken heart. Two months later Tipper schedules a closing; she now wants to sell "her" property to a third party, take the sale proceeds, and leave town. Her attorney points out that Tipper and Al took title as joint tenants, she is the surviving joint tenant, and he is giving the title company Al's death certificate and a joint tenancy affidavit. Does the title company have a problem? 

Possibly yes. There are three Illinois cases that discuss this situation. By far the most important case is In Re Marriage of Dowty, 146 Ill. App. 3d (1986), but the others are In Re Marriage of Dudek, 201 Ill. App. 3d 995 (1990) and Sondin v. Bernstein, 126 Ill. App. 3d 703 (1984). 

In the Dowty case, Janice and Ronald Dowty got divorced. There was a property settlement agreement, bolstered by oral testimony, that provided that "the property be sold as soon as reasonably possible." Also, that upon a sale, the proceeds would be shared equally. 

But Janice died before the property could be sold. Ronald felt that he owned the land as a surviving joint tenant, but the administrator of Janice's estate brought suit to enforce the property settlement agreement-that is, that the property be sold and the proceeds be divided according to the agreement. 

The appellate court indicated that a divorce decree, in and of itself, does not sever the joint tenancy. But the court instead will look to the intent of the parties, and then try to carry out what the parties intended to do. The court found that the divorce decree, the property settlement agreement, and testimony at the dissolution hearing, all evidenced an intent to divide up the property, and hence, a severance of the joint tenancy. 

The court distinguished other cases when it stated that "the language in a marital property settlement agreement which provides only for the possible or contingent future sale of jointly held real estate is insufficient evidence of an intent to sever the joint tenancy." For example, the court in both Dudek and Sondin held that there was no severance of the joint tenancy. But in Dudek the settlement agreement stated that the property should remain in joint tenancy, and so again the court recognized the intent of the parties. In Sondin the decree included the words "in the event of a future sale." As the court indicated in Dowty, such words that provide for a "possible future sale" are not sufficient evidence of an intent to break the joint tenancy. 

Again, the court will look to see what the parties intended, and then attempt to carry out their intent. 

So in the case of Tipper and Al, before the transaction closes, the title company must first carefully examine the divorce decree to see what it states as to the disposition of the property. If the decree contains language similar to that in the Dowty case, then it is very likely that the divorce severed the joint tenancy. This would mean that Tipper would not be a surviving joint tenant. Before the title company could insure the sale, it will need an affidavit of heirship and a copy of Al's will to see if Al left any heirs or legatees. 

But if the decree contained wording like that contained in Dudek or Sondin (e.g., "the property shall remain in joint tenancy; in the event of a future sale,") then it is quite possible that the joint tenancy was not severed, which would mean that Tipper would be able to sell the land as a surviving joint tenant. 

Example: John and Jane own the family home as tenants by the entirety. They get divorced. The divorce decree says that they should put the house up for sale and the proceeds split, 50-50. But before they sell the house, John dies. John and Jane had two children, ages 16 and 20. What are the issues? 

Remember that the tenancy by the entirety statute states that upon a dissolution of marriage, "the estate shall, by operation of law, become a tenancy in common until and unless the court directs otherwise." (See 765 ILCS 1005/1c) 

Before the divorce John and Jane owned their home as tenancy by the entirety. After the divorce they own the house as tenants in common, not as joint tenants. Thus, it appears that the joint tenancy case law previously discussed would not be applicable. You will now need deeds from both the wife and the children; see 755 ILCS 5/2-1(a). Since one child is a minor, a guardian will have to be appointed for the child, and the title company will need a court order, approving the sale. See 755 ILCS 5/11-1 et seq., especially 755 ILCS 5/11-13( c ). 

It seems clear that the attorneys who handled the divorce for John and Jane should have inquired as to how they owned their real estate. Here, it appears that they either assumed that ownership was in joint tenancy or assumed that the survivorship aspects of tenancy by the entirety remained intact after the judgment of dissolution. 

Example: Bill and Hillary buy Blackacre in 1995. In 2000 they get divorced. The divorce decree states that upon a sale of the property, Bill will get $10,000 and Hillary will get the balance of the net sale proceeds. At the closing, the title company discovers that Bill's attorney has called in the closing figures so that Bill gets $15,000. Is there a problem? 

Not necessarily. As long as all parties to the divorce-Bill and Hillary-sign the RESPA settlement statement, the final distribution of proceeds can be adjusted in any manner the parties see fit. 

Example: Fred and Wilma buy Bedrock in 1995. In 2003 they get divorced. The judgment of dissolution states that Fred will convey his interest in the land to Wilma in exchange for $50,000. In September of 2003 there is a deed recorded, a conveyance from Fred to Wilma. In October of 2003 the title company is asked to do a closing. Wilma is now refinancing Bedrock. Does the title company have to make sure that Fred got paid? 

Not necessarily. Assuming that Fred's deed was not "subject to" the terms of the divorce, or that a "memorandum of judgment" relative to the divorce was not recorded, then when Fred executed the deed, he gave up all interest in the land. Therefore, the title company does not now have to check "in back of" the deed to make sure that Fred was paid. The title company will, though, want to carefully examine the deed in order to make sure that the deed is not a forgery. 

If Fred was not paid, then what he has is not a lien on the land-the wording of the deed makes it clear that he gave up his interest in the land-rather, he has a constructive trust on the proceeds of the refinancing. See 765 5/10: "Quitclaim deeds may be, in substance, in the following form: The grantor, for the consideration of _____, convey and quitclaim to _____ ALL INTEREST IN the following described real estate . . . ." In this example, Fred gave up all interest he has in the land by signing and delivering the deed. 

But now change the facts slightly to this story. The home was owned by husband and wife. The parties got divorced, and now wife is refinancing. She brought in the deed from the husband to the wife. The deed reads that it is "subject to the terms of order entered in dissolution of marriage case number. . . ." 

I checked the order entered in the case. It provided, among other things, that the husband would quit claim his interest in the land to the wife, but that when the youngest child reached the age of eighteen, the house would be sold, and at that time, "the husband shall be paid forty percent of the net value of the residence-net value is defined as the MAI appraised value less the first mortgage and four percent of the appraised value." 

This concerned me. Could not the wife mortgage the property, spend the money, then sell the home, with virtually nothing in gross proceeds to split with the husband? And wouldn't this be contrary to the order? 

I decided that we could not close this refinance until the husband at least consented to the mortgage we were insuring. He did in fact consent; in fact, he came in and crossed out the provision on the deed and initialed the deletion. 

I think that here the title examiner has three options: one, the lender takes subject to the terms of the divorce decree; two, the "other" spouse consents to the mortgage; or three, the "other" spouse subordinates his or her rights in the property that arise out of the order to the insured loan. 

Example: Katherine and Spencer buy a home. They pay cash for it. They get divorced. The judgment of dissolution states that Katherine is to quit claim her interest to Spencer, but that when he sells the home, she will be entitled to fifty percent of the sale proceeds. A deed from Katherine to Spencer is executed and recorded. A month later Spencer comes in and wants to close on a new mortgage. The home is worth $300,000, and the mortgage is for $275,000. Is there a problem? 

I personally am somewhat unsettled by this. I do not think that Katherine envisioned a situation whereby Spencer would be able to drain all the equity out of the land before he sells the property. But I do not see how I can justify insisting that Katherine approve the mortgage prior to my insuring it, if the judgment is silent in this regard. 

Note that some decrees will actually state that "Spencer agrees that he will not mortgage the property without Katherine's consent." Note here, unlike the previous situation, the deed to Spencer did not contain a "subject to" relating to the terms of the dissolution order. 

Example: Fred and Ethel get divorced in 2002. Ethel's attorney records the judgment for dissolution of marriage. Because of this, the title company is especially concerned about its provisions. The judgment states that in addition to some lump sum payments, Fred also has to pay Ethel some ongoing monthly payments for the next five years. Fred wants to refinance in 2003. How does the title company handle the recorded judgment? 

The title company should obtain evidence-either from Ethel, her attorney, or as a last resort, even Fred-that he paid Ethel her lump sum payments and that he is current with his monthly payments. Then, when the title company issues the loan policy, it will show the recorded judgment as an exception to title, but it will include a statement below the exception, indicating that all payments are paid through the date of policy. 

It seems to me that this situation is somewhat analogous to a judgment for child support. 735 ILCS 5/12-101 states that "any lien hereunder arising out of an order for support shall be a lien only as to and from the time that an installment or payment is due under the terms of the order." 

If this were a child support judgment, I would be comfortable in simply waiving the judgment from the loan policy, as I would have the statute to justify my position. But in this divorce situation I have no statute to buttress my position, and so I would not waive the exception, but instead I would endorse over it. 

It is clear that situations concerning real estate and a dissolution of marriage offer many traps and pitfalls for the unwary attorney. The attorney must be exceedingly careful.

Dick Bales

Chicago Title Insurance Company

Wheaton, Illinois



Last month Steve reported on Nave v. Heinzmann, which discussed one of my favorite topics, equitable mortgages.

I have always felt that there are two issues concerning equitable mortgages that the title company has to be aware of. The first was discussed in this case-that is, the idea, as set forth in 765 ILCS 905/5, that a deed might be construed as a mortgage.

A relatively recent case in this area is Robinson v. Builders Supply & Lumber Co., 223 Ill.App.3d 1007 (1991). (This case was not cited in Nave v. Heinzmann.) Here are the facts:

An elderly woman owns her home. She is not sophisticated financially, and she allows her taxes to go to tax sale. She cannot borrow the money to redeem the taxes, so in desperation she goes to an area businessman. He prepares documents that include a deed from her to him, an option whereby she can repurchase the building at some time in the future, and a lease, with her as lessee. When she gets behind in her rent the man sells the building for $100,000 and attempts to evict her. She then brings suit against the businessman, charging that the deeds were equitable mortgages.

In this case the court noted several factors that can help determine whether a deed absolute on its face could be an equitable mortgage: Adequacy of consideration; the existence of a debt, the relationship between the parties, the availability of legal counsel; the sophistication and circumstances of the parties; and whether the grantor of the deed remained in possession of the land.

Title examiners should be wary of such transactions. Several years ago I was asked to insure title to a transaction where the facts, it turned out, were almost exactly like those in the Robinson case. At the time I could not prove that there was anything shady going on, but I had my doubts, and so I insisted that his owner's policy contain this exception: "Possibility that the deed vesting title in the insured could be construed as an equitable mortgage."

At the time I felt that such an exception would keep me from having to defend a claim later. But I was wrong. The woman later brought suit against the man, alleging that she had never signed the deed to him and that her signature had been forged! He then tendered me the defense of her claim!

The second issue concerning equitable mortgages is not as well known. Consider the case of Trustees of Zion Methodist Church v. Smith, 335 Ill.App. 233 (1948). Here are the facts: Landowner borrowed money from Lender and gave Lender a promissory note to evidence the debt. On the note Landowner wrote: "This note is secured by a real estate mortgage on (legal description of the land.") In actuality there was no mortgage. Nonetheless, the court held that the note, with the above endorsement, constituted an equitable mortgage on the land, for it clearly expressed an intention that the land should act as security for the debt.

Title examiners may occasionally see recorded documents in a property's chain of title that are similar to the document in the above case. They may be asked to waive these instruments from a title commitment on the ground that they are not "real" mortgages, but rather, simply promissory notes.

Examiners should consult with an underwriter first. It is quite possible that the document could be construed as an equitable mortgage. I have several examples of these recorded "quasi-mortgages" in my collection of real estate "stuff."

And on another note: Today an attorney came to me with these facts: Seller owns land. Seller sells it on an installment contract to purchase to Buyer. The contract was not recorded. Buyer gets behind in his payments. A federal income tax lien and a state income tax lien are recorded against Buyer. Buyer gives Seller a quit claim deed and bails out and takes off for parts unknown. Seller records the quit claim deed. The attorney now wants to know if the two liens will be a problem, now that Seller is ready to sell the property to someone else.

I have always felt that this issue-do general liens against a contract purchaser attach to the land?--is a question that almost ranks up there with: do Federal tax liens attach to the beneficial interest in a land trust? The issue, of course, is equitable conversion. Shay v. Penrose, 25 Ill.2d 447, 185 N.E.2d 218 (1962) is probably the classic case. It indicates that the owner of the land holds the legal title to the land, but in trust for the buyer; the buyer becomes the equitable owner of the property and holds the purchase money in trust for the seller.

I went into my files and looked for some more information. I found a column by Robert Bruss, reporting on a case, Vereyken v. Annie's Place, 90-1 USTC 50298, which stated that "the U.S. District Court ruled that the land contract sellers' rights have priority over the IRS tax lien against the buyers." But then I also found two cases, Farmers State Bank v. Neese, 281 Ill.App.3d 98, 665 N.E.2d 534, 216 Ill.Dec. 474 (1996) and Hayes v. Carey, 287 Ill. 274, 122 N.E. 524 (1919), which indicated the exact opposite, that the liens of a contract purchaser will attach to the purchaser's equitable interest in the land.

The attorney and I talked about it. I suggested that a title company might be more willing to waive the two liens if the deed had not been recorded. In retrospect, recording the deed might not have been the best thing to do, since the original contract was never recorded.

But what about the issue of the contract purchaser's equity? In this case the contract purchaser just walked away; he had no equity. With no equity in the land, there would be nothing for the liens to attach to. The Federal Government recognizes this concept; consider its "Certificate of Discharge of Property from Federal Tax Lien." I told the attorney that if the title company were furnished evidence that the contract purchaser turned over the deed and walked away with no money in hand, then the title company might be willing to waive the two liens. I added, though, that the title company might want to charge an "additional risk premium" before it agrees to such creative underwriting.

Finally, our talk about equity reminded me of this case, Cochran v. Cutler, 39 Ill. App. 3d 602 (1976). This case indicates that the use of a RESPA statement in determining a seller's equity might be erroneous. The appellate court, after noting the trial court's approval of a closing statement that included seller's credits for earnest money, tax prorations, seller's title charges, and revenue stamps, called this determination of a seller's equity "an erroneous method of computation in our view." 39 Ill. App. 3d at 607. Rather, this court said, a seller's equity should be determined by subtracting from the sales price only amounts for tax prorations and for senior encumbrances, if any, that predate the recording of the judgment, or memorandum thereof.

Like I always can't make this stuff up. There's never a dull day at the title company.

Dick Bales

Chicago Title Insurance Company

Wheaton, Illinois



While the bar associations have been generally successful in their actions against non-lawyers preparing legal documents in Illinois, the recent case of Jenkins v. Concord Acceptance Corp., (1st Dist., December 31, 2003), is an example of the Courts 'drawing the line' in this arena, and reads more like the recent cases finding no violation of truth in lending laws in favor of mortgagees This case consists of 37 consolidated appeals, (the printed version of this case is 13 pages long, but the first 9 pages contain only the captions of the consolidated cases!), and the plaintiffs appealed from the decision of the Circuit Court of Cook County dismissing their various actions alleging the unauthorized practice of law brought against mortgage lenders and financial institutions who prepared notes, mortgages and related documents. The complaints argued that the institutions engaged in the unauthorized practice of law by preparing and filling out loan documents and then charging borrowers a 'document preparation fee' for doing so. The remedy sought was restitution of the document preparation fees, plus a finding that the failure to disclose that their conduct was the unauthorized practice of law constituted Consumer Fraud, entitling the plaintiffs to attorney's fees and costs. The defendant institutions filed motions to dismiss based on assertions that: (1) their conduction was not the unauthorized practice of law, (2) the plaintiffs did not have private right of action to sue for damages for unauthorized practice, (3) federal preemption as to those institutions which were federally chartered barred the actions, (4) the Consumer Fraud Act does not allow claims for unauthorized practice of law, and (5) the voluntary payment doctrine. The Court based its decision entirely on the voluntary payment doctrine, and did not reach the remaining issues of law in affirming the trial court's dismissal. The voluntary payment doctrine provides that money paid voluntarily in response to a claim of right to payment and with knowledge of the facts by the person paying can not be recovered solely because the claim is illegal, unless there is fraud, misrepresentation, mistake, or compulsion. "Thus, to negate the applicability of the voluntary payment doctrine, one must not only show that the claim asserted was unlawful, but also that payment was not voluntary, that there was some necessity which amounted to compulsion…" Here, the Court rejected the argument that the voluntary payment doctrine cannot be used to defeat public policy; (i.e., the unauthorized practice of law), and distinguished cases which recognized a cause of action to recover fees paid to unlicensed architects, attorneys licensed in Wisconsin attempting to collect fees for work in Illinois, unlicensed grain brokers, real estate brokers, employment agencies, and physicians; all based on the fact that "In each of these cases the fees had not been paid, let alone voluntarily paid; thus there was no question of disgorging the fees." The financial institutions did not appear to have "held themselves out as attorneys", and the document preparation fees were separately itemized from attorneys fees on the settlement statements. "[T]he illegality of the fee does not defeat the voluntary payment doctrine." Payment was voluntary and with knowledge of the facts. This serves as a bar to recovery (Hmmmm…..without a doubt, lenders seem to winning the battle of the closing fees these days.)



Iver Johnson brought a foreclosure action against Kathy Johnson for non-payment of installments on a mortgage made to finance home improvement work in Johnson v. Thomas, (1st Dist., July, 21, 2003), Thomas filed a counter-claim alleging slander of title and violation of Truth in Lending relating to the circumstances of the loan origination. During the trial, it was determined that Thomas initially entered into a contract for home improvement work for a total sum of $15,000 at her home in July 1995, with a builder, Marvin Bilfeld, d/b/a Davenport Construction . Bilfeld told her that while he would be responsible for the work, his "partner" Johnson would collect the monthly installment payments. Bilfeld then prepared, and had Johnson sign, loan and disclosure documents containing a number of blank areas; including the annual percentage rate, finance charge, amount financed, and total of payments. As the work progressed Ms. Johnson became unhappy with the quality of the improvement work, and asked Bilfeld to make some corrections. The contractor agreed, but stated that Johnson would have to pay and additional $3,000 for the work, increasing the contract price to $18,000. She agreed, but stated at trial that she did not sign any new documents, and only later received copies of documents with blanks filled in without her knowledge. From the evidence at trial, it was clear that a number of documents had been altered using "liquid paper" without Johnson's initials indicating her approval. While Bilfeld attempted to explain the changes as reflecting the agreement to increase the price of the contract, the trial court "found Thomas to be a credible witness and 'in no way' believed Bilfeld's testimony.", and awarded Thomas $6,000 for three TILA violations, denied the foreclosure, but ordered Thomas to pay $10,000 for the value of the work performed, and then granted Thomas' attorneys fees and costs of $59,901.00. Johnson was found to be a "creditor" under TILA due to the fact that Bilfeld held him out as his 'de facto partner' during the negotiations with Thomas. Johnson appealed this last finding. Noting that the purpose of TILA is to "assure a meaningful disclosure of credit terms so that the consumer will be able to compare…and avoid uninformed use of credit and to protect the consumer against inaccurate and unfair credit …practices", the First District affirmed the trial court's finding that Johnson was liable under TILA, but only because "An assignee of a creditor is also liable for a creditor's failure to provide the required disclosures when the TILA violation is apparent on the face of the disclosure statement." The use of 'liquid paper' to alter the documents without initials by Thomas made the violations here apparent on the face of the disclosures and served to bind Johnson even though he was only an assignee. The trial court's finding that Thomas's testimony that the expiration date of her three-day right of rescission was not written on the disclosure when she signed it, and not extended when the contract amount was changed, also supported her right to rescind. As to the other TILA violation, Johnson was not liable due to his status as an assignee and because the violations were not apparent on the face of the disclosures. Even though an assignee is not liable for attorney's fees under TILA for a creditor's failures where he "had no notice of TILA disclosure violations at the time of an assignment" under cited case law, the fact that the violations here were "apparent on the face" of the documents rendered Johnson liable for Thomas' attorney's fees under the Act. The final aspect of the decision that has garnered some comment, (See ISBA Commercial, Banking & Bankruptcy Law Section Newsletter, December 2003, Vol. 48, No. 3), is the review of what are recoverable costs under TILA and the Illinois Code of Civil Procedure, (735 ILCS 5/5-108). The trial court's award in favor of Thomas included $9,000 in costs. This included computer legal research, photocopying, postage, facsimile, messenger fees, and court reporter costs. Johnson argued these were "overhead" costs not properly allowable. Remanding for further determination, the First District points out that "overhead charges" which are "fixed" that attorneys regularly incur regardless of specific litigation such as telephone, and in-house photocopy, paralegal, secretarial costs are not recoverable. Recoverable costs include those charges for expenses incurred to third parties and specifically in furtherance of a particular cause of action, such as expert witness fees, special process expense, deposition and court reporters, filing fees and outside messenger services. Minimal expenses such as telephone charges, postage and photocopy charges "should be treated as overhead costs in that they are routinely incurred in virtually every legal matter handled...Only when such expenses are extraordinary in terms of volume and costs, e.g., in class action suits requiring extensive mailing or voluminous copying, should they be recoverable." Fees for computerized legal research have been found to be recoverable, but courts have also observed that there is a corresponding benefit in reduced research time expended. Regardless of whether the fees are paid in-house or to third parties, however, they must be reviewed and found to be reasonable and necessarily incurred. For this determination, the case was remanded to the trial court.



Another Truth in Lending case that was reported in the 7th Circuit this summer is Carmichael v. The Payment Center, (7th Circuit,. July, 2003) Carmichael alleged that The Payment Center violated TILA in making the disclosure of the finance charge and total of payments. The mortgage was for $69,000 for home remodeling. There were to be 12 monthly installment payments of $709.79 and a final "balloon payment" at the end of the year. The Carmichaels made several of the monthly payments, but then attempted to rescind the loan based on Truth in Lending disclosure errors. The TILA statement provided to the Carmichaels was accurate "except for two glaring errors: it greatly overstated the finance charge as $188,716.76, and it likewise overstated that the Carmichaels' total of payments would be $257,716.76. Both amounts due under the loan contract were only a fraction of the numbers listed." The Carmichaels eventually paid the loan off, and then sought to rescind the loan during the statutory extended rescission period of three years which applies when the creditor makes a material non-disclosure. The trial court granted The Payment Center's motion for summary judgment, finding the disclosures satisfied TILA, and the Seventh Circuit decision by Judge Manion affirms. Noting, (as did the Court in Johnson v. Thomas) that the purpose of TIL is to allow consumers to compare credit so they can make informed decisions in using credit, the Court nonetheless held that the provision that "requires lenders to disclose accurately the number, amount and due dates or period of payment scheduled to repay the total of payments.", (15 USC 1638(a)(6), was not violated here. The fact that the TILA disclosure did not state the amount of the 13th payment, (i.e., the balance due on the loan balloon date), did not violation the disclosure requirement of a stated "amount" because "Although the word 'amount' as contained in Section 1638(a)(6) is susceptible to different definitions, Regulation Z makes it clear that there are instances in which a creditor may satisfy the amount requirement without providing a dollar figure." (This is noted to be consistent with prior decisions holding that "due dates" requirement could be met even where the creditor provided no precise date, as along as the borrowers had information from which they could determine the date.) Here, since the Carmichaels could have calculated the unpaid principal balance on their loan after the 12th payment using the information provided with "a method that would enable a reasonable consumer to calculate the dollar figure of the final payment", there was no violation. The Court rejected the Carmichael's contention that since the amount was not specifically stated, they could have incorrectly calculated the amount due by taking the misstated total of the payments disclosed, ($257,716.76), subtracted the total of their payments, ($8,516.88), to arrive at an erroneous and exaggerated balance due of $249,199.88. "Such an 'easy' assumption would be ridiculous where, as here, the original loan was for $69,000.", and "TILA immunizes creditors from liability under the Act where, as here, they overstate a disclosure affected by a finance charge. Section 1605(f)(1)(B)….The Act protects consumers only when the stated amount is less than the amount required to be disclosed." The finding "as a matter of law that PCI did provide the requisite information, it follows that the Carmichaels were not entitled to the extended rescission period" that is granted by TILA where the creditor fails to deliver the required disclosures.

(Ed. Note: Is it appropriate to state, then, that if a creditor is going to make a mistake in the disclosure of TILA amounts, it is best to assure that they are (1) grossly overstated so they can be categorized as "glaring errors" that "greatly overstate" the required amounts, and (2) to err on the side of stating an amount greater than the amount required to be disclosed ?)



In 1995, the United State Supreme Court shocked most lawyers when it held that attorneys are 'debt collectors' under the Fair Debt Collection Practices Act in Heintz v. Jenkins, (1995), 514 U.S. 291. That case was an auto loan collection matter, but has changed the face of mortgage foreclosure practices by attorneys throughout the country. This year, the 7th Circuit takes another step that may significantly alter the way mortgages are foreclosed in Thomas v. Simpson & Cybak, (7th Circuit, January 13, 2004),; another automobile case. Thomas lost his job and was unable to make payments on his automobile to GMAC. GMAC retained Simpson & Cybak, who filed suit against Thomas in state court. The complaint and summons contained a "FDCPA statement" that the firm was attempting to collect a debt. Thomas filed suit in District Court alleging that the suit was an "initial communication" from the law firm as a debt collector, (a prior letter from GMAC was not an "initial communication" because GMAC was the creditor, not a debt collector), and that they failed to send a debt validation notice advising him of his rights as a debtor. Section 1692(g) of the FDCPA requires a debt collector send a debt validation notice within five days of an initial communication advising the debtor of his rights as a debtor. The District Court dismissed Thomas' suit for failure to state a claim, finding that the complaint and summons were not an "initial communication" under the Act. The 7th Circuit opinion by Circuit Judge Williams reversed, finding that the complaint and summons are an "initial communication" by a debt collector, and Circuit Judge Evans dissented. The majority opinion reviewed the FDCPA provisions relating to its definition of a "communication" and determines that the broad language of "the conveying of information regarding a debt directly or indirectly to any person through any medium" found in Section 1682(a)(2) includes a complaint and summons that begins the litigation process. Recognizing that there is a divergence of opinion already existing on this issue between District Courts in Florida and Ohio, and that a proposed bill to amend FDCPA to specifically exclude pleadings from the definition of a collector's communication, the majority nonetheless rejects the argument that the state courts offer sufficient protections to guard against abusive debt collection tactics during litigation as "unpersuasive", and holds that "Thomas has stated a viable claim for violation of 15 U.S.C. Section 1682g." Judge Evans' dissent is based on his reading of how the "communication" language of FDCPA "should be read" versus the majority's decision of how it "could be read". While lawyers are "'debt collectors' when they act like them---by engaging n the kind of 'unfair, harassing and deceptive debt collection practices' that the FDCPA is designed to protect against", Judge Evans does not believe they are acting in that role when "they were doing what lawyers traditionally do -filing a lawsuit in state court on behalf of their client. To hold that they must include in their court pleadings all the notice/validation, etc. information required by the FDCPA seems very odd indeed." The dissent cites the Florida District decision of McKnight v. Benitez, (also referenced by the majority opinion), but with approval of the reasoning that "There is no indication whatsoever that Congress considered state law legal remedies to be 'abusive', nor does it appear necessary to alter the procedure for filing state lawsuits to level the playing field. After all, if state lawsuits are used in an abusive manner, protection already existis in the court where the action is brought." Ending with how the amendment proposed to the Act "could" versus "should" be viewed, Judge Evans also notes that the pending legislation in Congress to exclude pleadings from "communications" under the Act "should" be read as "an effort to curtail erroneous interpretations of what is included in the word 'communication' under the FDCPA.

(Ed. Note. It is interesting to note that the holding in Circuit Court of Appeals for the 11th Circuit, In Re: Pablo Martinez, (11th Cir., November 5, 2002), 2002 WL 31455510, 271 BR 696,, that that the inclusion of the FDCPA verbiage in a summons presents confusion and uncertainty arising from the conflict between the summons and the FDCPA Notice, and thereby violates the FDCPA when judged by the 'least sophisticated consumer' standard, is not referenced or considered by either the Majority or Dissenting opinion in this case.)