REAL ESTATE LAW PRACTICE “KEYPOINTS”
By Steven B. Bashaw
Steven B. Bashaw, P.C.
1301West 22nd Street
Oak Brook, Illinois 60523
Tel.: (630) 472-9990
Fax.: (630) 472-9993
(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.
1. FAIR DEBT COLLECTION PRACTICES; STATING THE AMOUNT OF THE DEBT AND MILLER REVISITED:
Real estate litigation often involves collecting a debt owed to a secured creditor (mortgagee) or lien holder (mechanic's lien claimant), and the attorney's conduct necessarily involves compliance with the Fair Debt Collection Practices Act. In Chuway v. National Action Financial Services, Inc., (7th Cir., March 20, 2004), http://www.ca7.uscourts.gov/op3.fwx?submit1=showop&caseno=03-2158.PDF Circuit Judges Flaum, Posner and Ripple re-visit the FDCPA requirement that any "dunning letter by a debt collector as defined by the Act [must] state 'the amount of the debt' ". This requirement has been considered in Miller v. McCalla, Raymer, Padrick, Cobb, Nichols and Clark, LLC, (7th Cir.-Il., June 5, 2000), and Bartlett v. Heibl, (7th Cir. 1997) 128 F.3d 497, 501-02, where the Court set forth "safe harbor" language which, if used by one who "does not add other words that confuse the message", will serve to satisfy the debt collector's duty to state the amount of the debt". The letter to Chuway related to the collection of a credit card debt and stated that the "balance" was $367.42, and requested the debtor "remit the balance listed above in the return envelope provided. To obtain your most current balance information, please call 1-800-916-9006". The District Court held that the letter properly "stated the amount of the debt" and did not violate FDCPA as alleged.
The Seventh Circuit agreed that had "the letter stopped after the "Please remit" sentence, the defendant would be in the clear. But the letter didn't stop there. It went on to instruct the recipient on how to obtain 'your most current balance information". If this means that the defendant was dunning her for something more than $367.42, it's in trouble, because 'something more' is not quantified." Chuway's affidavit stated she did not know whether she should pay $367.42 or some greater amount that could be determined only by calling the 800-number. The decision notes that "the entire bench was confused about the meaning of the letter until the defendant's lawyer explained it to us at oral argument. The "least sophisticated consumer" standard set forth in prior decisions does not, as the District Court thought, require an "outright contradiction", but it must be clear what is being collected. Accordingly, if a debt collector is attempting to collect a sum plus interest and other charges, it should use the 'safe harbor' language of Miller v. McCalla: "As of the date of this letter you owe $____ [the exact amount due]. Because of interest, late charges and other charges that may vary from day to day, the amount due on the day you pay may be greater. Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your check in which event we will inform you before depositing the check for collection. For further information, write the undersigned or call 1-800 [phone number]." If, however, the amount being collected is a definite, stated amount, including a phone number to call "to obtain you most current balance information" may violate the FDCPA mandated duty to "state the amount of the debt" by creating confusion. Accordingly, the summary judgment in favor of the defendant debt collector was reversed and remanded.
2. MUNICIPALITIES; MANDATORY WATER SERVICE CONNECTION CONSTITUTIONALITY:
The issue on appeal in Village of Algonquin v. Tiedel, (2nd Dist., December, 2003), http://www.state.il.us/court/Opinions/AppellateCourt/2003/2ndDistrict/December/Html/2021383.htm, was whether the Illinois Municipal Code gives municipalities the power to require private homeowners abandon their private wells, connect to the municipal water supply, and receive and use the water furnished by the municipality. Two property owners, Randy Tiedel and Mark Barzyk, refused to obtain permits to connect to the Village water system as required by ordinance and filed motions to dismiss pursuant to Section 2-619 of the Code of Civil Procedure. They argued that the Illinois Municipal Code did not give Algonquin authority to require private homeowners to abandon their private wells, and that the mandatory requirement violated their constitutional rights. The facts as stipulated were that neither of the owner's wells had failed due to either lack of water, neither was contaminated, nor had either been maintained in an unsanitary fashion. The Ordinance requiring connection was in effect as of 1997, whereas the water main at issue was not constructed until 2000, and Defendants also argued that the language of the ordinance ("The owners of …properties situated within the Village in which there is now located a public water main, shall be required to make connection to the public water main."), made it inapplicable to them. This construction was rejected as requiring the "absurd result" that "would force the Village to pass a new ordinance each time the public water main is extended." Affirming the trial court's determination that protecting the public health and general welfare is a valid exercise of police power, and that the mandatory water supply connection is rationally related to the legitimate purpose of protecting the Village's health, safety and welfare, Justice Byrne's opinion declares the ordinance is constitutional. While there are no Illinois cases that have directly found that a mandatory connection scheme is constitutional, connection to a municipal sewer system has been held by the Illinois Supreme Court to be a valid exercise, and "We perceive no meaningful distinction between mandatory sewer connections and mandatory waste water connections." Additionally, other jurisdictions from Mississippi to Montana, New Jersey, Utah and Virginia have held that mandatory abandonment of private wells and connection to municipal water supply is a legitimate exercise of police power. Regulating the water supply and providing a source of pure water is a precondition for the health of the community. It is not necessary that there be a crisis, unsanitary condition or catastrophe. "…a local govern body must necessarily enjoy broad discretionary powers to protect the public health and general welfare of its residents and must anticipate the potential for problems that may arise." citing Stern v. Halligan, (3rd Cir., 1998), 158 F.3d 729…. "Accordingly, we hold that the Village can mandate that defendants connect to the municipal water system and require that they pay for the service."
3. FAIR DEBT COLLECTION PRACTICES ACT; BONA FIDE ERROR DEFENSE:
In Hyman v. Tate and Kirlin, (7th Cir, April 1, 2004), http://www.ca7.uscourts.gov/op3.fwx?submit1=showop&caseno=03-2106.PDF, Cheryl Hyman sued Tate and Kirlin Associates under the Fair Debt Collection Practices Act, (15 USC 1692, et seq.), for sending her a 'collection letter' after she had filed a petition in bankruptcy under Chapter 13. The debt was a $427.61 credit card debt, and the collection letter had the standard provisions advising Hyman that she had the right to dispute the validity of the debt and request verification. Tate and Kirlin did not know that she had filed her bankruptcy. When Hyman contacted Tate and Kirlin by telephone and advised them of her filing, a staff person asked for the bankruptcy case number, chapter and her attorney's name. The collection file was then closed at Tate and Kirlin and no further collection steps were taken. In response to the complaint subsequently filed by Hyman, Tate and Kirlin asserted the "bona fide error" defense under 15 USC 1692K(c), which provides that: "A debt collector may not be held liable in any action brought under this subchapter if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error." The District Court held that even if the collection letter technically violated FDCPA because it was sent after the bankruptcy filing, it was within the "bona fide error" defense protection of the statute. This was based on Tate and Kirlin's evidence that its employees were trained in compliance with FDCPA and were instructed that when a bankruptcy petition is filed, all collection activities must be stopped. They also were under the impression that this particular credit card client did not forward accounts for collection where the debtor had filed a bankruptcy, and there was no indication from the usual sources, (a notice from the bankruptcy court, the debtor or his attorney, or the client), that a stay was in place. The 7th Circuit Decision by Circuit Judge Manion affirmed. The trial court's finding that there were "procedures reasonably adapted" to avoid contacting debtors in bankruptcy were not "clearly erroneous" simply because Tate and Kirlin did not specifically discuss the issue of bankruptcy accounts with their client and no one at the credit card company specifically told them bankruptcy accounts would not be referred. The court accepted the argument that the referral of bankruptcy pending accounts was 'just not good business'. Hyman's argument that Tate and Kirlin should have established its own proactive procedure such as checking the bankruptcy records or using a service provider to check the public records was also rejected. "…the FDCPA does not require collectors to independently verify the validity of the debt to qualify for the 'bona fide error' defense". Judge Manion found that on whole the balance of the cost to avoid the error, (it would have cost Tate and Kirlin $1.5 million a year to get a credit report on each account on which it under took collection), to the potential occurrence of error, (only .01% of all accounts referred are later learned to be in bankruptcy), simply did not produce the necessary result, ("any potential harm to the debtors is slight, given that T&K also has procedures in place…"). In the final analysis, "…this case illustrates the proper functioning of the FDCPA: The collection letter provided Hyman with the information necessary for her to understand her rights and to stop collection activities in the event an unintentional error occurred."
4. EASEMENTS; EVIDENCE AND THE ANCIENT DOCUMENT RULE, EXCEEDING THE STATEMENT EASEMENT LIMITATIONS:
In Duresa v. Commonwealth Edison Company, (1st Dist., March 30, 2004), http://www.state.il.us/court/Opinions/AppellateCourt/2004/1stDistrict/March/Html/1030317.htm, Robert and Bonnie Duresa filed suit against Commonwealth Edison relating to extensive damage that resulted to mature lilac bushes, trees and privets on their property when the utility did extensive repairs to their service poles. The Duresas sought to enjoin Com Ed from entering onto their property, cutting down, removing and damaging their landscaping in the process of replacing utility poles. Com Ed alleged that it was acting under an easement by the Duresa's predecessor. The easement was signed by "A. Cowles by John L. Weaver", dated September 1, 1934, and granted the right to "construct, maintain and renew pole line equipment…and also to trim, from time to time, such trees, bushes…as may be reasonably required for the construction and efficient operation of said pole line equipment." The property owners contended the easement was not enforceable because it was not signed by the property owner and not recorded, and that the utility exceeded the grant of easement in any event. Both parties moved for summary judgment in the trial court; The Plaintiff based on the argument that the easement was improperly signed, and Com Ed based on the argument that the easement was admissible and presumed genuine under the 'ancient document rule". The trial court denied both motions initially, but then upon reconsideration entered summary judgment in favor of Com. Ed, leading to the appeal. The Decision by Justice Burke reversed. The 'ancient document rule' relied upon by the Court's decision is one which "At common law, a document purporting to be 30 or more years old is generally admissible in evidence without the ordinary requirements as to proof of execution and authenticity, as long as it is produced from proper custody and freedom from suspicion are shown…The ancient document rule only dispenses with the need to present testimony to authenticate the document. It does not make it admissible as substantive or illustrative evidence…The admissibility of such evidence remains a matter within the trial court's discretion." Accordingly, the property owner's objection to the easement as not validly signed with authority by an agent of the owner was properly overruled by the trial court because the document was over 30 years old, in proper custody, and on its face was free from suspicion; even though unrecorded, because the owners had constructive notice of the easement based on Com Ed's 'actual, open and obvious possession" of the easement by the presence of its service poles. The decision is a treasure trove of case citations to decisions from various states on this issue. Then, however, turning to the strict construction required of instruments creating easements, the Court holds that the plain language of the easement granted Com Ed "the right…to trim, from time to time, such trees, bushes…as may be reasonably required for the construction and efficient operation of said pole line equipment", and thereby limited the utility to trimming only --- and did not encompass entirely removing, destroying or cutting down trees and bushes as had occurred here. Once Com Ed went beyond the limited grant of authority on the easement parcel, it "committed trespass, rendering it liable to the plaintiff for damages." Citing a West Virginia case with approval, the decision stated its approval that "a power company…in exercising its right of entry, may not inflict unnecessary damage on the land, nor may it unreasonably increase the burden placed upon the servient tenement."
Dick Bales' viewpoint from the title company is a little different, but essentially similar:
5. EASEMENTS; OVERBURDENING AND THE ANCIENT DOCUMENTS RULE:
FROM THE TITLE INSURANCE COMPANY PERSPECTIVE
We haven't had a good easement case for some time, now. Duresa v. Commonwealth Edison Company changes all that. In 1997 plaintiffs filed a complaint for a temporary restraining order and other relief against the defendant and the Village of Barrington Hills, alleging that defendant erected new utility poles on plaintiff's property, but in doing so destroyed several flowering privets and killed several trees and bushes. In 1998 the plaintiffs filed an amended complaint, alleging that defendant, contrary to the provisions of an earlier order, removed numerous trees and caused extensive damage during the replacement of utility poles. Plaintiffs also alleged that a controversy existed as to whether defendant possessed a valid easement. In December of 1998 the trial court entered an order stating that the issue was whether defendant possessed a valid easement. After the court granted the defendant's motion for summary judgment, this appeal followed. The defendant argued that it had a easement; it produced an unrecorded 1934 document that granted to defendant's predecessor in interest "the right, permission and authority to construct, maintain, and renew 'pole line equipment' . . . and also to trim, from time to time, such trees, bushes. . . as may be reasonably required for the construction and efficient operation of said 'pole line equipment.'" The easement was signed "A. Cowles by John L. Weaver." The plaintiff questioned this easement, arguing that the defendant had to prove that Weaver was an agent of Cowles and therefore had the authority to grant the easement. Pointing to what it felt was the questionable manner in which the easement was executed, the plaintiff claimed that the defendant possessed only a prescriptive easement, which it exceeded. But the appellate court in turn pointed to the Ancient Document Rule, which provides that at common law, a document purporting to be thirty or more years old is generally admissible in evidence without the ordinary requirements as to proof of execution and authenticity, as long as it is produced from proper custody and is on its face free from suspicion, and circumstances exist which corroborate its authenticity. Although not mentioned in the opinion, I immediately thought of the provisions of 765 ILCS 5/30, which provides that "All deeds, mortgages, and other instruments of writing which are authorized to be recorded, shall take effect and be in force from and after the time of filing the same for record, and not before, as to all creditors and subsequent purchasers, without notice, and all such deeds and title papers shall be adjudged void as to all such creditors and subsequent purchasers, without notice, until the same shall be filed for record." But the operative words are "without notice." The court noted that the plaintiffs admitted that they were aware of defendant's utility poles on their property. I liked this case because of the clear explanation of easement overburdening. The court noted that where an easement exists by express grant, its use must be confined to the terms and purposes of the grant. If an easement is limited in scope or purpose, the property owner is entitled to prevent the overburdening of the easement. For example, I was once asked to insure an easement in favor of a developer's new homes. But the easement was originally granted in favor of a farmer and was for the ingress and egress of a farmer's farm equipment. I declined to insure the easement, feeling that the proposed use (access over railroad tracks by dozens of new homeowners in their cars, vans, and SUVs) was an overburdening of the easement. I think that many people feel that overburdening an easement is simply where too many vehicles, e.g., are using an easement. That isn't the case; see, Beloit Foundry Co. V. Ryan, 28 Ill.2d 379 (1963). Rather, overburdening concerns the NATURE of the use and whether the nature of the use is contrary to the terms of the easement. In Duresa, the court noted that the easement provided that the defendant has only the right to TRIM trees and bushes. The court concluded that the defendant's conduct (removing, cutting down, and destroying trees and bushes) exceeded the boundaries of the easement. Accordingly the court reversed the judgment of the circuit court of Cook County.
Chicago Title Insurance Company
6. MORTGAGES: PREPAYMENT PENALTIES AND PREEMPTION:
The question of whether the Illinois statutory prohibitions relating to prepayment penalties on residential mortgages are federally preempted or not comes up frequently in list serv discussions among real estate lawyers. The recent decision by Chief Judge Flaum of the Seventh Circuit, McCarthy v. Option One Mortgage, (7th Cir., April 6, 2004), http://www.ca7.uscourts.gov/op3.fwx?submit1=showop&caseno=03-3474.PDF, states very clearly that, under specific circumstances, there is preemption. McCarthy brought suit against his former lender, BNC Mortgage, and BNC's servicer, Option One, alleging they violated the Illinois Interest Act, 815 ILCS 205/4 by charging him a prepayment penalty of $6,376.39 under the terms of his residential mortgage when he paid off the debt just a little over one year after the loan was made. The lender was granted summary judgment in the District Court based on the Alternative Mortgage Transaction Parity Act, 12 USC 3801, which provides that due to "increasingly volatile and dynamic changes in interest rates", in order "To better meet consumer demand for credit secured by real property, the Parity Act authorizes non-federally charged housing creditors to offer alternative mortgages (such as adjustable mortgages with prepayment penalties) in accordance with federal regulations…as long as they comply with federal regulations. If compliance is achieved, state regulations are preempted by the Parity Act…" Therefore, while the Illinois Interest Act prohibits prepayment penalties for residential loans where the annual percentage rate of interest is greater than 8%, the affirmative defense of preemption will be available to the extent a lender substantially complies with federal lending laws and regulations promulgated by the Office of Thrift Supervision. In this case, BNC met the burden of proof by demonstrating that it was a "housing creditor" and "substantially complied" with federal housing regulations relating to prepayments, late charges, adjustments to loan interest rates and disclosure requirements. Although McCarthy contended that BNC did not provide him with a copy of the Consume Handbook required by federal regulations, BNC's affidavits that it had a procedure in place to provide the handbook, together with a copy of a cover letter indicating the handbook was mailed to McCarthy, and signed acknowledgements of receipt by McCarthy were sufficient evidence to meet the burden. The Court "rejected the notion that this type of evidence may be rebutted by a mere denial of receipt…Accordingly, McCarthy's mere assertion of non-receipt is insufficient to raise a genuine issue of fact as to BNC's substantial compliance with 12 CFR 226." There has been continuing discussion on the ISBA list serv relating to the issue of federal preemption of Illinois mortgage law on prepayment penalties, and, while this case establishes that there is pre-emption, it also will serve to direct the debtors who wish to contest the application of prepayment penalties to them to sharpen their pencils in review of whether lenders are complying "substantially" with federal laws and regulations in order to avail themselves of this affirmative defense.