REAL ESTATE LAW PRACTICE “KEYPOINTS”

(September, 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

E-mail:  sbashaw @bashawlaw.com

(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.      LANDLORD TENANT: EXCULPATORY VS INDEMNIFICATION PROVISIONS:

 

In Whitledge v. Klein and Nolan Real Estate Services, (4th Dist., May, 2004), http://www.state.il.us/court/Opinions/AppellateCourt/2004/4thDistrict/May/Html/4030820.htm the tenants filed a suit against the landlord for negligence when a fire occurred in their fireplace and damaged their personal property.

 

The lease contained a provision directed to the tenants that “It will be your responsibility to carry renters insurance…The insurance is to provide protection for your personal possession.  [The Landlord] is not responsible for your property in case of an accident.”  Based on this clause, the Landlord filed a motion to dismiss under Section 2-619 of the Code of Civil Procedure, noting that Illinois case law,  (Dix Mutual Insurance v. LaFramboise, (1992) 149 Ill.2d 314), has upheld such a provision in a lease where there is insurance available to cover the loss.  The tenants countered with the argument that the Landlord Tenant Act makes this provision unenforceable in that “Every covenant, agreement or understanding in…any lease…exempting the lessor from liability for damages for injuries to person or property caused by or resulting from the negligence of the lessor…shall be deemed to be void as against public policy.”  (765 ILCS 705/1) The trial court denied the Landlord’s motion to dismiss. The Fourth District affirmed. 

 

The Landlord attempted to make a distinction on appeal between an “exculpatory” lease provision as barred by the Act and an “indemnification” provision such as that contained in the subject lease. Noting McMinn v. Cavanaugh, (1st Dist., 1988), 177 Ill.App.3d 353, had responded to a similar argument stating “An indemnity clause in a lease has the same effect as a lease exculpatory clause; the landlord does not pay.  We cannot believe that the legislature, while prohibiting landlords from avoiding paying claims through exculpation, intended to allow landlords to avoid paying claims through indemnity.” The Fourth District here holds that to bar exculpatory language while permitting an indemnification provision would produce an “absurd result” that would be “illogical”.   The Landlord also attempted to argue that the indemnification provision was a “risk allocation through insurance [which] is not an evil which the Act sought to cure”.   That didn’t work either.

 

 

2.      REAL ESTATE CONTRACTS:  ATTORNEY’S MODIFICATION AND COUNTEROFFER – A CONTINUING DEBATE:

 

This last month there was a good deal of  discussion among real estate lawyers on the ISBA listserve relating to the issues surrounding an attorney’s modification of contract,  and whether that action constitutes a “counteroffer” which the other party can either accept or reject, thereby terminating the contract. (To see the length and breath of the discussion go to http://list.isba.org/forum=isba-transactional, log-in and then search “not a counteroffer”.)

 

Although a recent decision from the Second District authored by Judge Hutchinson is a Rule 23 opinion, Terry v. Cafferata, (July 19, 2004, 2nd Dist. Rule 23 Opinion) Case No. 2-03-0498; (a copy of which can be obtained from John O’Brien, jobattny@aol.com  or IRELA http://www.reallaw.org ), it sets forth one side of the continuing argument on state of the law on this issue very succinctly:

 

(1)   Where an offer contains an attorney review provision, the "acceptance" forming a contract is "conditional" under Olympic Restaurant v. Bank of Wheaton, (2nd Dist. 1993), 251 Ill.App.594. The purpose of this clause is to give the parties, who may not be sophisticated in matters relating to real estate and/or contracts, a chance to have their attorneys scrutinize the offer before final acceptance;

 

(2)   A letter from an attorney which does not accept the terms of the contract and proposes modification and/or one which contains what appears to be an acceptance conditioned upon a modification of other terms constitutes a rejection of the offer and becomes a counteroffer that the original offeror must accept before a valid contract is established, Groshek v. Frailey, (1995), 274 Ill.App. 3d 556, 570;  

 

(3)   An attorney's right to reject a contract pursuant to an attorney review clause is limited only by the implied covenant of good faith and fair dealing found in every contact, Groshek ; and

 

(4)   While estoppel may appear to apply where the parties continue to work towards closing, lacking the existence of a contract, the doctrine of estoppel or waiver may be severely limited by the facts and inapplicable as a defense.

 

The first "problem" with relying on this as a definite statement of the law on this issue, of course, is that this opinion has no precedential value and is not to be cited pursuant to Supreme Court Rule 23. Once you get past that limitation, however, the reasoning of the Court is, nonetheless, clear and sound. The second “problem” is that there are a large number of attorneys practicing transactional law that either disagree with or can distinguish the facts in their transaction from those of the decisions in Terry decision, Olympic and Groshek. Their opinions can be found on the listserv.

 

 

3.      MORTGAGE FORECLOSURE; ELECTION TO ARBITRATE:

 

Arbitration clauses are becoming more common in mortgages. In Household Finance v. Buber, (2nd Dist., August, 2004), http://www.state.il.us/court/Opinions/AppellateCourt/2004/2ndDistrict/August/Html/2040035.htm, the Court deals with the issue of whether the lender waived its right to arbitrate by filing a foreclosure and then whether it failed to “timely” assert its right to arbitrate.

 

Household filed its suit to foreclose a first mortgage and home equity line on Defendant’s residence on January 17, 2002, based on a monetary default.  On March 29, 2002, Defendant’s attorney appeared in the case.  There were three continuances of Plaintiff’s motion for default to permit Defendants to plead to the complaint, and on August 2, 2002, an answer was filed accompanied by Defendant’s counterclaim to rescind the mortgages. The essential argument in the counterclaim was that after they fell behind in their payments, the Plaintiff induced Plaintiff Defendants to refinance at terms that exceeded Defendant’s income and ability to pay.   Plaintiff noted that Defendants had previously filed a bankruptcy and been discharged, and argued that inasmuch as Defendants had not listed their counterclaim against Plaintiff as an asset in their bankruptcy, the claim still belonged to the trustee --- therefore Defendants did not have standing to pursue the counterclaim.  Defendants went back to the trustee in bankruptcy, purchased the counterclaim, and on August 13, 2003, re-filed their counterclaim against the Plaintiff.

Both the first mortgage and home equity line documents contained a two page arbitration rider providing that either party could elect to submit any dispute to binding arbitration. The Plaintiff served a notice of election to arbitrate on September 19, 2003, and requested the trial court stay proceedings pending arbitration.  The court granted the stay, and Defendants filed an interlocutory appeal.

 

On appeal the Defendants argued that Plaintiff had waived its right to arbitrate the counterclaim by filing the foreclosure.  The filing, Defendants argued, resulted in an abandonment of the right to arbitrate.  The Appellate Court disagreed and affirmed the trial court.

 

To constitute a waiver of the right to arbitrate, a party must act inconsistently with the right to elect arbitration and demonstrate that it has intended to abandon that remedy.  The Court’s focus is on the party’s conduct, a delay in exercising the election, and whether the delay prejudiced the other party.  Noting that “There is simply no bright-line rule that, merely by filing a complaint, a plaintiff waives the right to demand the arbitration of the issues raised by the complaint.”, here, the election to arbitrate was in response to the filing of the counterclaim, not the original default, and notice of the election came approximately one month after the filing of the counterclaim.  While the foreclosure was filed in January, 2002, it was not until August, 2003 that the Defendants had standing and did file the counterclaim.  Plaintiff’s election in September, 2003, therefore was not “a delay”.  The arbitration rider attached to the mortgages also specifically stated that “use of the courts shall not constitute a waiver of the right of any party, including the plaintiff, to submit any claim to arbitration…”  Where courts have found parties had participated in litigation and thereby waived the right to arbitrate, there were motions filed in the case to resolve the substantive merits of the issues before arbitration was elected.  Here, there was no such submission of the issues to the trial court for ruling before the notice of election. Accordingly, there was neither delay, nor inconsistent conduct, nor prejudice to the Defendants, and arbitration was appropriately elected.

 

 

4.      MORTGAGE FORECLOSURE; FEDERAL PREEMPTION OF STATE FEE LIMITS AND THE ILLINOIS INTEREST ACT 9 (DE JA VUE):

 

Last month, in a review of the decision of the First District in  U.S. Bank N.A. v. Clark, (1st Dist.,  March, 2004), http://www.state.il.us/court/Opinions/AppellateCourt/2004/1stDistrict/March/Html/1012535.htm(where the defendants argued that the lenders charged fees in excess of 3% in violation of the Illinois Interest Act, 815 ILCS 205/1a(f), on residential loans with an interest rate in excess of 8% and the issue before the court was whether the Depository Institutions Deregulation and Monetary Control Act, (12 U.S.C. 1735 et seq., “DIDMCA”),  and the Alternative Mortgage Transaction Parity Act,  (12 U.S.C. 3801 et seq, “Parity Act”), federally preempted the Illinois Interest Act), it was noted that there were already competing decisions reaching contrary findings in the Illinois Appellate and Seventh Circuit Courts. (See In Fidelity Services v. Hicks, where the First District held in 1991 that the loan at issue was not controlled by the DIDMCA because it was unclear that the trust deed at issue was a first lien and the federal law only applied to purchase money mortgages and dicta questioned the preemption generally.  That decision declined to follow the earlier, 1988, decision by the 7th Circuit in Currie v. Diamond Mortgage holding in favor of pre-emption. Additionally, there  then followed several unpublished decisions of the Northern District of Illinois, an opinion letter issued by the Illinois Attorney General in 1996, (Op. No. 96-37), and a 1998 letter issued by the Illinois Office of Banks and Real Estate, all of which also supported preemption.)

 

Now, this month the Seventh Circuit Court of Appeals adds more fuel to the fire of this debate with Reiser v. Residential Funding Corp., (7th Cir., August 19, 2004)  http://www.ca7.uscourts.gov/op3.fwx?submit1=showop&caseno=04-8017.PDF in a ruling on an interlocutory appeal raising the same issues.  Here the Plaintiff alleged that the lender violated Truth in Lending, RESPA, and the Illinois Interest Act by charging excessive closing fees and fee splitting at the closing. The District Court below refused to follow the decision in Currie, noting that the state court had since ruled otherwise in Hicks and Clark, and finding the state decisions “more persuasive”.  The Seventh Circuit welcomed the opportunity and stated that “By treating Currie as having no more than persuasive force, the district court made a fundamental error…district judges must follow the decisions of this court whether or not they agree…A decision by a state’s supreme court terminates the authoritive force of our decisions interpreting state law, for under Erie our task in diversity litigation is to predict what the state’s highest court will do. Once the state’s highest court acts, the need for prediction is past. But decisions of intermediate state courts lack similar force; they, too, are just prognostications...until the state’s Supreme Court, which alone can end the guessing game, does so. Illinois has an internal division on this issue, with two judicial decision set against the view of two executive officials.  The state must resolve this conflict internally; restlessness at the federal level serves no useful purpose.”

Accordingly, the case was remanded with instructions to dismiss that portion of the complaint alleging a cause of action based on the Illinois Interest Act as federally preempted….. It seems we will continue to have conflicting decisions until the Illinois Supreme Court takes up and resolves the matter.

 

 

5.      PREMISES LIABILITY; SNOW PLOWING AND DUTY TO TRAVELERS ON ADJACENT ROADWAY:

 

Every time I try guessing the holding in a premises liability case these days, it seems I can’t get it right.  For all of the other real estate lawyers who get these questions asked of them by their clients and suffer from the same inability, the recent case of Raffen v. International Contractors, Inc., (2nd Dist., June, 2004), http://www.state.il.us/court/Opinions/AppellateCourt/2004/2ndDistrict/June/Html/2030936.htm   may be of some help.  Dean Raffen was killed when he was thrown from the car his sister was driving when it collided with another auto exiting the driveway of International Contractors on a frontage road.  The accident occurred in January, and the Plaintiff contended that a snow pile next to the landowner’s driveway prevented the drivers from seeing each other and proximately caused the accident.  International Contractors moved to dismiss based on its position that it owed no duty to travelers on the adjacent roadway.  The trial court agreed and granted the motion.  The Second District Appellate Court reversed and remanded.

 

The issue was whether International Contractors was negligent because it failed to properly remove snow from its property, piled the snow in such a way that it obstructed the view of drivers exiting and traveling adjacent to its exit and created an unsafe ingress and egress situation for which it should be liable. Holding “We believe that a reasonably thoughtful person piling snow at the edge of a frontage road would take that [creating a snow pile large enough to block the view of oncoming traffic] into account and would alter his actions accordingly”, the Court  found the situation reasonably foreseeable.  As such, a landowner has a duty, once it undertakes to plow snow, to take care that it not do so in such a manner that obstructs the view of motorists on the roadway. (See also Ziencina v. County of Cook, (1999) 188 Ill.2d 1, where the Illinois Supreme Court deals with the issue of overgrown foliage similarly, but reached a different result based on the fact that the driver’s independent negligent acts were the cause of the accident.)  The magnitude of the burden of requiring a landowner to pile snow in one location rather than the other to avoid obstruction is not great, and the consequents of placing that burden are appropriate since the landowner is in the best position to prevent the circumstance giving rise to the incident.

 

 

6.      REAL ESTATE BROKERS; TERMINATION OF EXCLUSIVING LISTING AGREEMENT,  LIQUIDATED DAMAGES, ARBITRATION AND PERSONAL LIABILITY:

 

The exclusive listing agreement between the owner, Kostiner, and Jameson Realty Group to market seventeen condominium units in a Chicago apartment building was terminated by the owner after four units had been sold and thirteen units were remaining. Jameson Realty Group v. Kostiner, (1st Dist., July, 2004), http://www.state.il.us/court/Opinions/AppellateCourt/2004/1stDistrict/July/Html/1032914.htm  The Realtor, pursuant to the provisions of the contract relating to submission to arbitration filed a grievance before the Chicago Association of Realtors to recover commissions.  The Arbitration Commission dismissed the matter “as it fails to merit further consideration”, agreed to later consider the case, and set an arbitration date; but in the interim, the Owner’s attorney advised the Commission in writing that his client “must respectfully decline the current invitation to arbitrate.”  Jameson filed a complaint in the Circuit Court for breach of contract and damages based on a liquidated damages clause in the listing agreement and other relief. After a bench trial, the court held that the Realtor had used its “best efforts” to sell the units and that the owner had improperly terminated the listing agreement.  As a result, the validity of a liquidated damages provision in the contract requiring Kostiner to pay Jameson an amount equal to the 5% agreed upon commission payable on the full price of each unsold unit as set forth in a price list attachment came under the Court’s scrutiny.  The trial court warded Jameson damages in the amount of $261,820, representing the 5% commission on the list price.  The First District decision by Justice Quinn affirmed, holding the liquidated damages provision valid.

 

As a general rule, a liquidated damages provision will not be enforced unless it is clear that (1) the parties intended to agree in advance to the settlement of damages, (2) the amount of the liquidated damages was reasonable at the time of contracting and bears some reasonable relationship to the damages which might be sustained, and (3) actual damages would be uncertain or difficult to prove.  Additionally, liquidated damages which operate as a “penalty” for nonperformance or serve as a “threat” to secure performance will not be enforced. Illinois Courts have previously considered liquidated damage provisions in numerous real estate contract actions between buyers and sellers, (see the decision for an excellent listing of citations), but had not yet considered these provisions in a real estate brokerage contract context.  Here the Court holds that “there is no reason to treat a liquidated damages provision in a real estate brokerage contract differently.”, but noted that “There is no fixed rule applicable to all liquidated-damages agreements, and each one must be evaluated on its own facts and circumstances.”, to determine that actual damages would be uncertain or difficult to prove at the time of contracting, and that the liquidated damages clause is for a specific amount for a specific breach and reasonable in light of the anticipated or actual loss caused by the breach.  Following the Restatement (Second) of Contracts, Section 356, the Court holds that “Compensation associated with real estate contracts [in a broker context] is by its nature difficult to estimate since what is being compensated is the presence of a ready, willing and able buyer, regardless of any real effort or expenditures on the part of the agent…Thus, the real estate brokerage contract context offers and ideal setting for such a clause”.  Here the liquidated damages provision was clear and unambiguous on its face, the amount of damages specified by reference to the attached list setting forth the price of the units to be multiplied by the 5% agreed upon commission rate, and the amount bears a reasonable relationship to the damage Jameson would incur upon termination given the fact that it would be deprived of the opportunity to present buyers regardless of how much time and effort was or was not required.

 

Turning to the owner’s argument that the matter should have properly arbitrated, the Court held that Kostiner had waived his right to arbitration.  He had indicated in writing that he did not intend to submit to arbitration and never participated in arbitration.  Accordingly, on appeal, the owner could not be permitted to argue that the Realtor was bound by the Commission’s initial determination that that matter lacked merit; “…a contractual right to arbitrate can be waived as with any other contract right ‘when a party’s conduct is inconsistent with the arbitration clause, thus indicating an abandonment of the right to arbitration’.”

 

This case also has an interesting discussion relating to the owner’s contention that Jameson breached the contract when its designated exclusive agent refused to work with Kolstiner because he was “abusive and rude”.  Noting that it was his own behavior that caused the particular agent to quit, the Court held that the owner was not entitled to terminate the agreement because he, himself, had breached his duty to cooperate fully with the Realtor, as well as his duty to act in good faith, and there was nothing in the contract indicating that only this agent would work on the project giving the owner the right to terminate if she did not.   Finally, by his statement of “fine, lets go on, get somebody else” to the managing broker upon advice of the agent’s unwillingness to work on the project;  and then waiting six months to terminate, the owner waived the right to terminate and acquiesced in the substitution of another sales agent.

 

Kostiner was also held to be personally liable for the award despite his argument that he was merely acting as the agent for the true owner of the property, 844 West Adams L.L.C.  Noting that there was nothing on the face of the listing agreement that indicating Kostiner was acting as an agent for another, the trial court properly applied the law and held him personally liable.  “An agent who contracts with a third-party on behalf of an undisclosed or partially disclosed principal is liable personally on the contract…The reason for the rule is reliance…If the agent would avoid personal liability, the duty is on him to disclose his principal…There is no hardship in this rule of liability against agents who do not disclose their principals; they always have it in their power to relive themselves from such liability…”

 

 

7.      LANDLORD/TENANT; REFUSAL TO RENT TO SECTION 8 TENANT CONSTITUTES DISCRIMINATION BASED ON ‘SOURCE OF INCOME’:

 

In Godinez v. Sullivan-Lackey, (1st Dist, August, 2004), http://www.state.il.us/court/Opinions/AppellateCourt/2004/1stDistrict/August/Html/1022101.htm,  a prospective tenant, Sullivan-Lackey, brought an action before the City of Chicago Commission on Human Relations for discrimination against Godinez for refusing to rent an apartment to her based on the fact that her source of income to pay rent was a Section 8  assistance voucher.  The Commission determined that it is an “unfair housing practice” to discriminate in the process of renting housing against a person based on the “source of income” of the prospective tenant under the City of Chicago Fair Housing Ordinance.  The Circuit Court of Cook County reversed finding that Section 8 benefits are not a “source of income” within the meaning of the Chicago anti-discrimination ordinance, citing Knapp v. Eagle, 54 F.3d 1272, and the City of Chicago ordinances does not contain an explicit requirement that landlords seek Section 8 certification of their property.  In reversing, the First District holds that Section 8 vouchers are properly a “source of income” under the Municipal code, and the policy of the Code to “assure a full and equal opportunity to all residents of the city of obtain fair and adequate housing for themselves…without discrimination against them because of their …source of income.” was violated by the landlord’s conduct here.

 

While a landlord might be able to avoid a discrimination complaint in these situations by objecting to the financial burden of having to complying with Section 8 inspection and certification requirements, denying an application solely on the basis of Section 8 vouchers as the source of income fails the test,  and there must be more than a de minimus burden on the landlord; “…whether [the landlord] violated the ordinance turns on [the landlord’s] reasons for refusing [the tenant’s] Section 8 vouchers and whether any reason for the refusal implicated a substantial financial burden upon [the landlord]. The First District also ”decline[d] to adopt the reasoning in Knapp that Section 8 vouchers are not included as a source of income discrimination.”  Knapp involved the Wisconsin Open Housing Act definition of “lawful source of income”, which was not as broad in its definition as the Chicago Fair Housing Ordinance, and the court in Wisconsin did not have a history of administrative interpretation such as that of the Chicago Commission on Human Relations ---   which has consistently held “source of income” to include Section 8 vouchers since 1995.  Had the landlord taken a different position, and different outcome might have occurred, but here “Plaintiffs did not submit any evidence to the Commission that they would be subjected to a substantial financial burden if they had to follow the Section 8 regulatory requirements.”

 

 

8.      FAIR DEBT COLLECTION PRACTICES; MORTGAGE FORECLOSURE AND ATTORNEY’S FEES IN EXCESS OF JUDGMENT:

 

There are often grumblings at closings relating to the attorney’s fees and costs charged by the plaintiff’s counsel in a pending foreclosure case to payoff the mortgage.  In Singer v. Pierce & Associates, P.C., (7th Cir., Sept. 2004),  http://www.ca7.uscourts.gov/op3.fwx?submit1=showop&caseno=03-3108.PDF,  Singer brought suit seeking to recover based on the Fair Debt Collection Practices Act when the attorneys’ fees and costs on the payoff statement substantially exceeded those approved by the state court in the foreclosure.  The mortgage and note clearly provided for the collection of “reasonable attorney’s fees” in the event of a default.  Singer did default, and her lender, Wells Fargo Bank retained Pierce and Associates to foreclose.  Wells Fargo also employed Saxon Mortgage Services to act as its servicer on the loan, collecting payments and issuing statements of the sums due. After the state court had entered a judgment of foreclosure awarding $1,100 in attorneys’ fees and $908.00 in court costs to Pierce & Associates, a foreclosure sale was scheduled for May 10, 2002.  In order to avoid losing her equity in the property at the foreclosure sale, however, Singer arranged to sell the property privately and requested a payoff letter.  The letter was issued by Saxon and included  $2,574.00 in attorney’s fees.  Singer closed and paid according to the payoff letter, and the state court thereafter dismissed the foreclosure and vacated the prior judgment and orders on Wells Fargo’s motion.  Singer then brought suit in Federal District Court alleging a violation of FDCPA against Pierce for its attempt to collect $2,574.00 in fees when the state court had only awarded $1,100.00.

 

The District Court dismissed based on a finding that the mortgage documents provided for the collection of reasonable attorney’s fees and costs and noting the prior order finding $1,100.00 to be reasonable had been vacated. The Seventh Circuit affirmed.

 

The opinion by Judge Kanne is based on the simple finding that “Thus no violation of Section 1692(g) occurred here when attorneys’ fees were determined, requested, and obtained without receiving court approval for the amount charged.”  The payoff letter clearly itemized and delineated the charges, noting which sums were attorneys’ fees and costs.  There was no “misleading” an unsophisticated debtor here by ‘lumping’ attorney’s fees in with the principal debt so the nature and extent of the sums collected were hidden.  Additionally, the fees were authorized by the mortgage agreement between the creditor and the debtor. In fact, the order to which the debtor looked as setting the standard of reasonable fees alleged to have been exceeded was vacated.   Singer simply sold her property and paid the loan in full, allowing the foreclosure proceedings to be dismissed and the prior orders vacated.

 

In dicta, the decision also notes that it is questionable if the payoff letter constitutes a “demand for collection of a debt” required by FDCPA.  The foreclosure action was already pending and the judgment entered.  Singer was represented by counsel in the transaction and could no be characterized as an “unsophisticated consumer”. It was Saxon, rather than Pierce, that actually sent he letter including the $2,574.00 charge, “and we are somewhat mystified as to why Pierce is alleged to have violated FDCPA in that regard.”

 

 

9.      FROM THE TITLE INSURANCE COMPANY’S PERSPECTIVE; UNIFORM TRANSFERS TO MINORS ACT:

 

FROM THE TITLE INSURANCE PERSPECTIVE

I recently received a phone call from someone who asked me to look over a file; the title examiner told me that the property had been conveyed to a minor.  I sighed into the phone; I had visions of someone falling for some Internet babble about how one can convey one's home to his or her child for estate planning purposes.  I was about ready to offer up the "pound sand" endorsement when I decided to first see what she was talking about.

Well, was I chagrined, humbled, and generally put in my place!  It seems that the entire transaction was done pursuant to 760 ILCS 20/1 et seq., which is the Illinois Uniform Transfers to Minors Act.  This Act regulates the transfer of property to minors.  Real property (including the necessary deed language) is discussed at 760 ILCS 20/10(5).  This statute provides that "custodial property is created and a transfer is made whenever . . . real estate or an interest therein is the subject of an executed and delivered deed, assignment or similar conveyance into the name of the transferor, an adult other than the transferor, or a trust company, followed in substance by the words: 'as custodian for ___ (name of minor) under the Illinois Uniform Transfers to Minors Act.'"

This property can later be conveyed without requiring a court order or the appointment of a guardian.  760 ILCS 20/14 provides that "a custodian, acting in a custodial capacity, has all the rights, powers, and authority over custodial property that unmarried adult owners have over their own property, but a custodian may exercise those rights, powers, and authority in that capacity only."  See also 760 ILCS 20/13.

If a title company is conducting a closing of the transfer of custodial property, the examiner should first review the deed to the custodian to make sure that it conforms to the statute.  It seems to me that any deed from the custodian would have to be executed by the named custodian (Jane Smith, e.g.), "as custodian for ___ (name of minor) under the Illinois Uniform Transfers to Minors Act."  Any proceeds check would probably have to be made payable to, e.g.,”Jane Smith, as custodian of John Jones, a minor."

Dick Bales

 

 

10.  MISCELLANEOUS:

 

As noted in the recent ISBA REAL ESTATE AND ESTATE PLANNING UPDATE--September 1, 2004:

 

CHICAGO REAL ESTATE TRANSFER TAX

Mayor Daley is exploring the possibility of raising Chicago's real estate transaction tax by as much as 53 percent to help close a $220 million budget gap, City Hall sources said Monday.  Chicago home buyers would pay through the nose -- as much as $960 more on the purchase of a $240,000 property -- if Daley ultimately decides to cash in on the city's booming housing market and voters approve the tax increase in the referendum required by state law.

Story is in the Chicago Sun-Times at

<http://www.suntimes.com/output/news/cst-nws-taxhike31.html>”

 

Watch out for this one!  It is already an ‘interesting’ undertaking explaining to unwary purchasers that there is a substantial ‘hidden cost’ to purchasing property in Chicago. Increasing the tax by more than 50% in addition to zoning and water certificates is making this entire practice area more complex and complicated.

 

At those same closings, you might have a chance to discuss the hazard insurance required by the lender, (another great, misunderstood ‘cost of closing’), and should note the following reported by the ISBA updates:

 

“MORTGAGE INSURANCE: ISBA Director of Legislative Affairs James Covington advises that P.A.93-1021 amends the Mortgage Insurance Limitation and Notification Act to prohibit a lender from requiring a borrower, as a condition of receiving or maintaining a loan secured by real property, to provide hazard insurance coverage against risks to the improvements on that real property in an amount exceeding the replacement value of the improvements on the real property.  The new law is effective when signed, August 24, 2004.  Read it at

<http://www.legis.state.il.us/legislation/publicacts/fulltext.asp?name=093-1

021>”

 

Last month’s issue, (the August, 2004 review of cases),   included Bonavia v. Rockford Flotilla 6—1, Inc., (2nd Dist., April, 2004),  discussing premises liability, the open and obvious risk exculpatory rule, exceptions relating to distraction and deliberate encounters and the balancing test employed by the Illinois Courts.  While this case decision is an excellent overview of the area, not to be missed is the article in the July, 2004,  ISBA Bar Journal by Jennifer E. Simms entitled “The Open and Obvious Doctrine and Landowner Liability: The Rule and the Exceptions”, Vo. 92, p. 352.  In addition to covering the ‘distraction’ and ‘deliberate encounter’ exception, Ms. Simms also gives background on the objective standard applied to the rule and its applicability to injuries to children.

 

Another case reviewed in prior issues that has gotten some comment recently is Hall v. Henn, (December 18, 2003), http://www.state.il.us/court/Opinions/SupremeCourt/2003/December/Opinions/Html/95431.htm

This case dealt with the application of the Recreational Use of Land and Water Areas Act, 745 ILCS 65, as a limitation of liability for landowners who open their property up to the general public for recreational use versus those who only allow selected friends use the sled run in their back yard. (The Henns were not protected by the Act because they did not open their sled run to the general public as required under the Act for limitation of liability.)  Following the decision’s publication, Helen Gunnarsson’s “Law Pulse” article in the June, 2004 issue of the ISBA Bar Journal, Vo. 92, pg. 286, noted that some “critics” fear that the court’s stance on the immunity issue would discourage people from making their property available to others and “discourage neighborliness”.  In the “Letters to the Editor” section of the August, 2004 ISBA Bar Journal, Vol. 92, pg. 386, however, there is a letter from Hans A. Mast of Crystal Lake, who represented the Plaintiff, Ellen Hall, in the case, and presents a different point of view; that the Supreme Court had no alternative but to refuse to apply the immunity of the Act only intended to protect property owners whose property was available to the general public.   Helen provides an interesting parry and the public policy debate seems to be on-going.

 

Then, the intervening issue of the Bar Journal also contains some other things of interest for real estate lawyers.  Vol. 92, pg. 338, “Law Pulse” presents the point of view of transactional lawyers on title work for closings entitled “Title Work is Lawyer’s Work”, and reviews the RESPA, Unauthorized Practice of Law and client’s best interests perspectives.  The preceding page, Vol. 92 pg. 337, warns “Don’t let your clients lead you down the road to a RESPA violation by misstating the price of real estate” in an  article entitled “Watch Out for (un)real Estate Deals.” 

 

The June ISBA Bar Journal also contains an article by Brian Kozminski entitled “When Can Landlords Refuse Tenant Requests to Sublease” which takes “A look at a landlord’s obligation to be ‘reasonable’ when a tenant approaches with a proposed sublease or assignment”.

 

The August, 2004 review of cases included the denial of federal preemption of the Illinois limits of prepayment penalties under the Illinois Interest Act  by the  Depository Institutions Deregulation and Monetary Control Act, (12 U.S.C. 1735 et seq., “DIDMCA”),  and the Alternative Mortgage Transaction Parity Act,  (12 U.S.C. 3801 et seq, “Parity Act”) in U.S. Bank N.A. v. Clark, (1st Dist., March, 2004), http://www.state.il.us/court/Opinions/AppellateCourt/2004/1stDistrict/March/Html/1012535.htm.  The First District held that under the facts in that case there was no preemption.  It should be noted, however in the earlier April, 2004 “Keypoints” The question of whether the Illinois statutory prohibitions relating to prepayment penalties on residential  mortgages are federally preempted was decided otherwise in the 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.  This case states very clearly that, under specific circumstances, there is preemption.     There seems to be more to say in this area of the law.

 

But the “last and final word” on residential and commercial surveys in Illinois can be found in the recent publication of the first edition of a new title by Richard F. Bales and Michael Filipski.   Dealing in issues as foundational as “Types of Surveys” and “Survey Certifications”,  (How many of you know the difference between a “mortgage inspection” and “boundary survey”, ALTA/ACSM, and ‘spotted survey”?), as mundane as “Ordering a Residential Boundary Survey” and “Examining Surveys”,  and as sophisticated as riparian boundaries and how “gaps” in competing surveys are resolved, the work is peppered with “Practice Pointers” that are almost as good as having Dick or Mike down the hall for a quick consultation whenever needed. The last chapter includes sample easement and license agreements and discusses using the strategy of a “letter to the neighbor” to remove the potential of adverse possession by an encroachment disclosed by a survey.   The Appendix contains an excellent bibliography and an impressive Table of Cases referred to in the text  Most of the material appears in the handbooks published for “Residential Real Estate” (IICLE 2003) and “Commercial Real Estate” (IICLE 2004), but the May 2004 update and concentration of the material in this single volume make it very valuable.