Illinois Appellate Court invalidates mortgage where lender was not properly licensed under the Residential Mortgage License Act

In a case of first impression in Illinois, the Appellate Court for the Second District of Illinois has determined that a mortgage made by an entity lacking authorization to conduct business under the Residential Mortgage License Act (205 ILCS 635/1-1 et seq.) is void as against public policy.  First Mortgage Company, LLC v. Daniel Dina and Gratziela Dina, 2014 IL App (2d) 130567 (March 31, 2014).

The Plaintiff, First Mortgage Company, LLC, filed a foreclosure complaint relating to property in North Barrington, Lake County, Illinois, naming as defendants Daniel Dina, the property owner and borrower, and Gratziela Dina, who had also signed the mortgage.  According to the Complaint, the lender was an entity identified as FMCI.  Defendants, the Dinas, appeared through counsel and asserted that Plaintiff, First Mortgage Company, LLC was neither the mortgagee nor the successor in interest to the mortgagee and that Plaintiff lacked standing.  Plaintiff moved for summary judgment in which it provided evidence of a merger between FMCI and Plaintiff.

The Dinas missed their deadline to respond to the motion for summary judgment, sought additional time and filed a proposed response asserting that neither entities were licensed to do business in Illinois or licensed under the RMLA. The circuit court granted Plaintiff’s motion for summary judgment and entered judgment for foreclosure.

On appeal, the appellate court relied on Illinois law relating to other licenses and sister-state law concerning statutes analogous to the License Act to reach its determination that a License Act violation results in an unenforceable contract. The court further concluded that because the mortgage contract would be void as a matter of public policy, any technical flaw in the way the defendants raised the defense did not result in a forfeiture of the defense.

The court’s opinion made clear that where a mortgage has been assigned to another entity who then seeks to enforce its terms through foreclosure, it is the licensure status of the original mortgagee that is relevant. Under the License Act, “[n]o [nonexempt person or entity] shall engage in the business of brokering, funding, originating, servicing or purchasing of residential mortgage loans without first obtaining a license from the [Secretary]. Opinion ¶16; 205 ILCS 635/1-3(a).  Thus it is the original mortgagee’s status, not plaintiff’s that is relevant here. Id.

In reaching its decision, the court relied on the rationale stated in Chatham Foot Specialists, P.C. v. Health Care Service Corp., 216 Ill 2d 366 (2005):

It is well settled that ‘courts will not aid a plaintiff who bases his cause of action on an illegal act.’ More specifically, ‘courts will not enforce a contract involving a party who does not have a license called for by legislation that expressly prohibits the carrying on of the particular activity without a license where the legislation was enacted for the protection of the public, not as a revenue measure.’

The Second District concluded, therefore, that a mortgage made by an entity lacking authorization to conduct business under the RMLA is void and against public policy.  The court noted that although the Dinas did not properly raise the defense, under the circumstances they did not forfeit the defense as a matter of public policy, and stressed that it is within the court’s power and discretion to sua sponte consider whether an agreement is unenforceable as against public policy, even if no party raised the point. The court vacated the foreclosure judgment and remanded to the circuit court to permit the Plaintiff to respond to the Dinas’ defense.

Judgment obtained by Bill Sauerwein and Trent Bond affirmed by Court of Appeals

A judgment obtained by Bill Sauerwein and Trent Bond on behalf of a group of homeowners has been affirmed by the Missouri Court of Appeals. In issuing its lengthy opinion, the court of appeals held that correction of the homeowners’ vesting deeds was permitted and proper, even to the detriment of a mechanics’ lien judgment creditor whose sought to attach and enforce its judgment against the homeowner’s property.  The execution on the judgment was quashed and the lien claimant was permanently enjoined from executing against the property in satisfaction of his judgment against the original developer. Read the full opinion at Missouri Land Dev. I, LLC v. Raleigh Dev., LLC, Missouri Court of Appeals, ED99258 (June 28, 2013).

Sarah Holdener secures judgment establishing priority of refinance deed of trust

Sarah Holdener has secured judgment on behalf of a bank client establishing the senior priority of its refinancing deed of trust, where another lender had initially agreed, but failed, to issue a subordination of its own deed of trust.

Illinois legislature passes SB16 to address effect of In re Crane decision

In response to the now infamous In re Crane decision, the Illinois legislature yesterday passed SB 16. The relevant language appears at the end of the enrolled bill at the following link: SB0016

The bill will become law effective June 1, 2013,  if signed by Governor Quinn.

 In In re Crane, an Illinois Bankruptcy Court held a mortgage avoidable in bankruptcy if it fails to include the maturity date and the interest rate of the underlying debt within the mortgage document as recordedIn re Crane, Case No. 11-90592, U.S. Dist. Ct. C.D. Ill., February 29, 2012; Supplemental Opinion and Order, April 5, 2012.  The Debtors, Gary and Marsa Crane, filed for relief under Chapter 7 of the Bankruptcy Code, and a trustee was appointed. The Gifford State Bank claimed a mortgage lien on various parcels of real estate owned by the Debtors. In an adversary proceeding, the trustee claimed that the mortgages were defective and subject to avoidance pursuant to 11 U.S.C. § 544, because both mortgages failed to state the interest rate and the maturity date thereof, in violation of the Illinois conveyancing statutes, specifically 765 ILCS Sec. 5/11. This failure to comply with Illinois statutes, argued the trustee, meant that the mortgages did not give constructive notice to subsequent bona fide purchasers, and that the trustee had the power to avoid the mortgages per 11 U.S.C. § 544(a)(3). The bankruptcy court agreed with the trustee and found that the failure to include the maturity date and the interest rate in the mortgage violated the express requirements of Illinois conveyancing statutes, and thus did not provide the constructive notice to the trustee necessary to prevent the avoidance.  The Crane decision is currently on appeal with several amicus filing, including by the Illinois Land Title Association. 

 SB16 proposes to modify the Conveyances Act, found in Section 765 ILCS 5/11, by adding the following language:

 Sec. 11. (a) Mortgages of lands may be substantially in the following form:

       * * *

 The provisions of subsection (a) regarding the form of a mortgage are, and have always been, permissive and not mandatory.  Accordingly, the failure of an otherwise lawfully executed and recorded mortgage to be in the form described in subsection (a) in one or more respects, in cluding the failure to state the interest rate or the mature date, or both, shall not affect the validity or priority of the mortgage, nor shall its recordation be innefective for notice purposes regardless of when the mortgage was recorded.

Stewart Schneider and Trent Bond obtained Summary Judgment

Stewart Schneider and Trent Bond were awarded Summary Judgment on behalf of a Bank client, in a Judgment declaring the Bank’s deed of trust to be in a first lien position.  Central to the case was whether or not a Quit Claim Deed at issue, which was signed during the grantor’s life but not recorded until after the grantor’s death, was validly delivered to the grantee.  Subsequent to the recording, the grantee sold the property and an heir to the deceased grantor sought to invalidate the Deed and all subsequent conveyances.  The Court found that delivery had been made and the Bank and its borrower qualified as a bona fide purchasers under Missouri law.   The real property at issue was adjudged to be free and clear of the heir’s claims.

Bill Sauerwein obtains reversal of trial court’s judgment in the 4th District of Illinois.

Representing a property owner and a lender, Bill Sauerwein successfully argued for reversal of a trial court’s judgment awarding damages and a lien to a judgment holder which attributed fault to the negligence of the title insurer.  The 4th District Appellate court reversed in a lenghty opinion – United Community Bank, et al. v. Prairie State Bank & Trust et al (2012 WL 2834221) that explored the doctrines of Equitable Conversion, Equitable Subrogation, and the duties owed to a Junior Lienholder by a title insurer.

Bill Sauerwein and Trent Bond reach favorable resolution of substantial mechanics lien claims.

Bill Sauerwein and Trent Bond successfully resolved claims on behalf of a lender at a mediation conducted at Missouri University School of Law.   At and following the mediation, a favorable settlement was reached with a contractor who filed a substantial mechanic’s lien against lender’s property.

FIRREA and standing arguments win dismissal and judgments for client

Bill Sauerwein and associates Anne Kelly and Mike Schroer combined efforts to obtain a dismissal of claims filed in the United States District Court against the FDIC.  The case involved an attempt by a partnership to invalidate a multi million dollar deed of trust delivered to a bank later placed in receivorship by the FDIC.  The court in entering its Judgment agreed that the action was barred by FIRREA and that the Plaintiff lacked standing to bring the action based in part on the Supreme Court’s opinion in Lutjan v. Defenders of Wildlife, 504 U.S. 555 (1992).

Bill Sauerwein Obtains Summary Judgment in Multi-Million Dollar Mechanics Lien Suit

Bill Sauerwein obtained Summary Judgment in favor his client in a sizeable case in St.Clair County Illinois.  The Plaintiff in the case contended it was entitled to a $6.5 million dollar mechanics lien and sought priority over the lender’s $9 million mortgage.  The court found the Plaintiff was jointly interested in the project through its dealings with the owner of the property and therefore not entitled to a mechanic’s lien.  The mechanics lien sought by the lien claimant was declared invalid.

Mechanics Lien Summary Judgment

On behalf of national bank as owner through foreclosure, Trent Bond obtained Summary Judgment on the basis that the bank’s interest through its Deed of Trust was prior in time to a claim for a $232,000 mechanic’s lien and therefore the lien been extinguished at foreclosure.