REAL
ESTATE CASE LAW UPDATE 2008
By
Steven B. Bashaw
Steven
B. Bashaw, P.C.
Tel.:
(630) 322-9990
Fax.:
(630) 322-9993
e-mail:
sbashaw @bashawlaw.com
(Copyright
2008 - 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 production of these
real estate case law updates. 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.
EDITOR'S
MEACULPA: Yes....I know, I know. It's been quite a while, and a good many have
given up on the prospect of seeing the Keypoints renewed. But...all hope is not
lost....never lose hope. In my professional life, a few cases won, and a few
lost, and a good number resolved, leading me back to the pile of accumulated
cases on my 'other desk' to read and get caught up...and there is just too much
'good stuff' not to share, so here are the first few of some of the cases we
haven't shared over the past months. A fairly representative collection of the
cases that came down affecting real estate practitioners will be collected in
the materials presented at the upcoming IICLE 4th Annual Real Estate Short
Course,
1.
CONDOMINIUM
ASSOCIATIONS; TURNOVER AND DETAILED ACCOUNTING:
The number of times one hears
about contentious issues that arise when a developer turns management of a
condominium over to the unit owners far outnumber the instances where the
turnover is without incident and routine. The Illinois Condominium Property Act
provides that a “detailed accounting” is to be provided by developer within
60 days after election of the first unit owner board of managers; which is
required to be within 60 days after 75% of the units are sold or three years
after recording the declaration. (765 ILCS 605/18.2(b)(i) and 18.2(d)(2) ). In
many situations, the issue becomes whether the developer has properly paid
assessments on units during the development period. The Act requires that the
developer pay assessments on unsold units beginning with the first conveyance
and to collect assessments from owners of sold unit during the period from the
first sale until turnover to the unit-owner controlled board. (735 ILCS 605/9(a)
) In Metropolitan Condominium Association v.
Noting that “The purpose of
this requirement [the detailed accounting of section 18.2(d)(2)] is to insure
that the developer does not commingle funds received from the sales of units
with money collected and used for the operation of the association. (Citing M.
Perlstein, Condominium Management, IICLE, 2000)”, and that the Act
provides that the account must set forth the “source” and “nature” of
the receipts, the Appellate Court reversed the trial court. Holding that a
“detailed accounting” under the act must include the sale dates of
individual units, the assessments paid on each unit following the sale of the
first unit, and the dates on which assessments were paid the Court found the
agency relationship with both the developer and the unit owner board did not
preclude the necessity for the detailed accounting by the developer. The purpose
of permitting the unit owners to verify that the developer has complied with its
duty to pay assessments on unsold units would otherwise be thwarted.
Additionally, while Sudler served as the management agent both prior to and
after turnover, “the composition and interests of the condominium associations
fundamentally change upon the turnover”, and it can not be said that to
manage for the developer is essentially the same as managing for the unit-owners
in order to avoid an independent detailed accounting. “Construing
section 18.2(d)(2) to exempt a developer from complying with this statutory duty
whenever a unit-owner-controlled board retains a property manager initially
hired by a developer-controlled board would undermine this purpose.”
2.
FORCIBLE
ENTRY AND DETAINER; JURISDICTION BY POSTING:
In Equity
Residential Properties v. Nasolo, (1st Dist., March, 2006), 364 Ill.App.3d 26, 847 N.E.2d 126, 301 Ill.Dec. 467http://www.state.il.us/court/Opinions/AppellateCourt/2006/1stDistrict/March/1050610.pdf
, the tenant, Nasolo, attacked the jurisdiction of the trial court to enter an
order for possession based on posting notice, lost in the trial court, but won a
reversal on appeal.
Nasolo’s
primary contention on the appeal was that the landlord did not make sufficient
effort at serving her personally before posting. The record indicated that after
filing suit for non-payment of rent, the landlord placed summons with the
Sheriff. The return of service revealed that four different deputies attempted
to serve Nasolo at the rented apartment on four different occasions without
success. The last return remarked that the reason the tenant was not served was
“moved” and that the apartment appeared to be “vacant”. Based on this,
the Plaintiff’s attorney filed an affidavit stating that Nasolo could not be
found so that process could be served upon her, and that her place of residence
“upon diligent inquiry cannot be ascertained.” The Forcible Entry and
Detainer Act provides that if the plaintiff is unable to obtain personal
service, an affidavit may be filed stating that on due inquiry the defendant
cannot be found, the last place of residence, or if that place is unknown, that
upon diligent inquiry it can not be determined, to support constructive notice
by posting followed by mailing notices. Here a judgment for possession was
entered ex parte based on this limited jurisdiction. (“The statute further
specifies that notice by posting conveys limited jurisdiction to the court:
‘However, in cases where the defendant…is notified by posting…and the
defendant…does not appear generally, the court may rule only on the portion of
the complaint which seeks judgment for possession…” )
Nasolo’s
argument was that she had been generally available for personal service at the
apartment (except for the time during which she was working,
“Every
defendant…is entitled to receive the best possible notice of the pending suit
and it is only where personal service of summons cannot be had, that substituted
or constructive service may be permitted…Securing jurisdiction by constructive
service ‘is a concession of the law to the hard circumstance of
necessity…only allowable in certain limited cases, and then only after strict
compliance with the statutes governing such service… The phrases ‘due
inquiry’ and ‘diligent inquiry’ in that statute are not intended as
useless phrases but are put there for a purpose…Superficial efforts at
complying with the statute will not suffice…Instead the law ‘requires an
honest and well-directed effort to ascertain to ascertain the whereabouts of a
defendant by an inquiry as full as the circumstances can permit…Depending upon
the particular circumstances of a case, inquiring with neighbors, inquiring with
known counsel, checking court records, and investigating employment information
may be part of a ‘due inquiry’ and ‘diligent inquiry’ required of a
plaintiff intending to rely on constructive service.” The party claiming
jurisdiction by posting notice has the burden of proof of strict compliance with
the statute to confer jurisdiction. Here, the record suggested that the
Landlord did not make due or diligent inquiry, and could have at least attempted
service on the tenant at her known place of employment, but did not do so before
resorting to posting. While there were affidavits from agents of the
Landlord’s management agent indicating that they had contacted Nasolo and she
knew that she was in arrears on her rent, had mailed a certified letter to her
at her work place, and contact with her during which she made partial tenders of
her rent accompanied by promises to pay the balance, the Court viewed these
inconsequential: “More importantly, a defendant’s actual knowledge that an
action is pending or that service has been attempted is not the equivalent of
service of summons and would not relieve the plaintiff of its burden or vest the
court with jurisdiction.” Faced with two cases on this issue reaching
different conclusions, (Household Finance v. Volpert, 227 Ill.App.3d 453,
and First Federal Savings and Loan Ass’n v. Brown, 74 Ill.App.3d 901),
the Court’s decision here analyzes each case in some detail and determines
that “the more analogous case is Brown, (citation), where the
sheriff’s return of service suggested further investigation was warranted, but
the plaintiff did nothing more…Instead of investigating…the mortgage lender
[in Brown] sought constructive service by publication and obtained a
default judgment order…[creating] a significant issue with respect to the
truthfulness of the affidavit filed by the plaintiff’s attorney for service by
publication…We find the circumstances are analogous to Brown’s and
that an evidentiary hearing is warranted here”, and vacated the Order entered
against Nasolo and remanded the case for hearing.
(Ed.
Note: This decision, while within the context of Forcible Entry and Detainer,
notes that much of the precedent relied upon relates to constructive service by
newspaper publication pursuant to Section 5/2-206 of the Code of Civil Procedure
in foreclosure and other types of proceedings, but specifically states that
“this authority is nevertheless generally relevant here.”)
3. HOME
REPAIR AND REMODELING ACT: SUBCONTRACTORS AND QUANTUM MERUIT DEFENSES REJECTED:
Since
coming into effect on January 1, 2000, and especially in the past two years, the
Illinois Home Repair and Remodeling Act, (815 ILCS 513/1), has received a bit of
attention and some significant comment from the Courts. (See
The
2007 contribution to this body of law is Smith v. Bogard, (4th
Dist.,
Smith
contracted directly with the Bogards and communicated directly with them through
out the project,. There was no specific general contractor, and nothing in the
record indicated that Smith was a subcontractor under the direction of a general
contractor with only specific and limited duties. “Unlike the court in Abrams,
we need not decide the general issue of whether the provisions of the Act apply
similarly to subcontractors as general contractors because under the specific
facts of this case, Smith was ‘a person engaged in the business of home
repair’ within the meaning of the Act.”
Moreover,
the Court rejected the claim that recovery could be had under unjust enrichment
or quantum meriut, noting that “Allowing a contractor a method of
recovery when he has breached certain provisions of the Act would run afoul of
the legislature’s intent of protecting consumers, would reward deceptive
practices, and would be violative of public policy.”
4. LANDLORD
TENANT; Chicago RLTO & “OWNER OCCUPIED” EXEMPTION:
The Chicago Residential
Landlord/Tenant Ordinance, (Chicago Municipal Code Section 5-12-020(a) ), contains
provisions so onerous and potentially punitive to landlords in their dealings
with tenants, one can only wonder to what lengths landlords and their attorney
would go to avoid application of the ordinance in their business
relationships". In Detrana v. Such , (1st Dist.,
November, 2006), 368 Ill.App.3d 861, 859 N.E.2d 142, 307 Ill.Dec. 142, http://www.state.il.us/court/Opinions/AppellateCourt/2006/1stDistrict/November/1051263.pdf
, when sued for violations of the RLTO relating to the return of the security
deposit and interest thereon, the landlords, (Jerry and Serifa Such), argued
that their property was exempt under the Ordinance as “owner occupied”.
Jerry and Serifa lived elsewhere, but the basis of their contention was the fact
that Serifa’s 78 year old father, Nasrulla Murtus, who was also a title holder
by virtue of a quit claim deed to himself, Jerry and Serifa, resided and
occupied the basement apartment of the premises. It was undenied that Murtus’
furniture and clothing were in the apartment, and that he received his mail
there. The tenant/plaintiff, Detrana, filed an affidavit stating that she
never saw, communicated or met with Murtus at the property, that there was
no electric service, heat or telephone to his alleged basement apartment, and
that the elder man did nothing concerning the management of the building and
kept his ‘ownership’ secret”. The trial court, finding that Murtus
was a title holder, but that there was an issue of fact relating to his
occupancy, conducted a trial to determine the facts; and then entered judgment
in favor of the landlord on the RLTO counts based on the building being “owner
occupied” by Murtus. After the trial, the Suchs filed a petition for sanctions
against Detrana’s attorney alleging that nine sanctionable filings or
statements by the attorney. Not to be outdone, Detran also filed a petition for
sanctions pursuant to Supreme Court Rule 137. The trial court sanctioned the
Plaintiff’s attorney for “Taking a legal position that a titleholder is not
an ‘owner’ of property” and for filing under the RLTO without a basis in
fact and for the improper purpose of harassment.
On appeal, the First District
rejected the argument that an “owner must exercise control of the property
that is to be excluded” for the “owner occupied” exclusion of the
Ordinance to apply. The Ordinance is clear and unambiguous in its definition of
an “owner” as a person “in whom is vested all or part of the legal title
to property, or all or part of the beneficial ownership and a right to present
use and enjoyment of the premises.” This is not the same as the
“owner-occupier-controlled” standard the tenant urged, and not the intention
of the Chicago City Council in enacting the RLTO with its stated exemption for
owner occupied property. In 1993, the Court in Meyer v.Cohen, (1st
Dist., 1993), 260 Ill.App.3d 351, 632 N.E.2d 22, rejected an “actual
occupancy” interpretation of the Ordinance as interjecting uncertainty subject
to continual changes based on unintended distinctions “thus controverting the
express purpose of the statute, i.e., to fix more clearly the rights and
obligations which landlords and tenants have vis-à-vis each other.”
Turning to the sanctions issues,
the court noted that the Plaintiff’s attorney’s argument was whether the
ordinance’s exemption of “owner occupied” requires an element of control,
and this was a proper legal argument; especially in light of the fact that no
case law directly on point existed and the Court had considered another case on
the Ordinance’s occupancy exemption in the Meyer case. Accordingly the
trial court’s imposition of sanctions was an abuse of discretion.
5.
LIS PENDENS; DIVORCE PROCEEDINGS AND JUDGMENT
LIENS:
The
Vogas are a pretty litigious family, and the interaction between the father’s
suit against his son and the son’s pending divorce create a tidy scenario for
the application of the doctrine of lis pendens in Voga v. Voga (2nd
Dist., November 5, 2007), 376 Ill.App.3d 1075, 878 N.E.2d 800, http://www.state.il.us/court/Opinions/AppellateCourt/2007/2ndDistrict/November/2070176.pdf
. The scenario begins with LeRoy Voga suing his son, Lyle Voga, to recover
on three promissory notes in April, 1999. Things were not going well for Lyle
that year, and in June, 1999, a dissolution of marriage case with his wife
Teresa was filed, and a lis pendens relating to the dissolution was recorded. In
July, 1999, LeRoy obtained a default judgment against Lyle in the action on the
notes for $238,000, and records a memorandum of judgment against Lyle. A year
later, in June, 2000, the court awards Teresa title to the marital home in the
process of dissolving her marriage to Lyle. Prior to that, the title had been
held by Lyle and Teresa as joint tenants. More than a year later, (the Court’s
opinion notes “Thirty months after Leroy received the default against Lyle),
LeRoy served Teresa with a notice of levy on the marital home to collect on the
judgment. Teresa intervened in the levy case and filed a “Petition to Quash
Levy” and a “Petition to Quiet Title”, alleging the since LeRoy took no
action to enforce his 1999 judgment until after the dissolution of marriage
judgment was entered awarding title to her, his judgment lien did not attach to
the property. LeRoy’s argument countered that when he filed his memorandum of
judgment, the marital property was still jointly owned by Lyle and Teresa, and
was therefore subject to the levy to satisfy the judgment. The Court’s
distinction was based on the doctrine of lis pendens. First, finding that a
dissolution of marriage that deals with real estate as a marital asset is a
proper subject of a lis pendens, the Court notes that LeRoy had actual and
constructive notice of Teresa’s claim to the marital property at the time of
the entry of his judgment, and was bound by the judgment of dissolution awarding
the real estate to her. (Remember the judgment was entered and the memorandum
recorded after the lis pendens, although before the dissolution.) The
“memorandum of judgment gave LeRoy’s estate a lien not against the Sandwich
property itself but, rather, against Lyle’s interest in the Sandwich property;
i.e., his joint tenancy…and [one] who has constructive notice of the suit, is
bound by the result of that litigation as if he had been a party from the
outset…Therefore, as a matter of law, LeRoy was a subsequent purchaser who,
when he obtained his memorandum of judgment on July 1, 1999, was already bound
by whatever the trial court decided in the dissolution case. The judgment in
that case extinguished Lyle’s interest in the
(Our
good friend, Dick Bales, of Chicago Title Insurance Company, noted in his
comments on this case that “I really wonder if this decision will result in an
increased number of family law attorneys recording lis pendens when they file
dissolution actions for their clients. Hmmmm……)
6.
MORTGAGE
FORECLOSURE; CONFIRMATION OF
There
were three significant cases in the arena of mortgage foreclosure litigation and
the confirmation of sale over the last year or so. First, In Mortgage
Electronic Registration Systems, Inc. v. Jerry Thompson, (1st
Dist. November, 2006), 368 Ill.App.3d 1035, 859 N.E.2d 621, 307 Ill.Dec. 332, http://www.state.il.us/court/Opinions/AppellateCourt/2006/1stDistrict/November/1052720.pdf
, the trial court’s decision not to confirm the foreclosure sale of property
to a third party bidder was affirmed despite the argument that the effect would
be to destabilize judicial sales. Then, in
The
Thompson’s residential mortgage was foreclosed and a sale held at which a
third party bidder, Cronus Projects, Inc., was the successful bidder.
Nonetheless, the Thompsons entered into a contract to sell the real estate and
obtained a payoff letter directly from their lender (without knowledge of the
plaintiff’s attorney in the pending foreclosure), in the period between the
sale and confirmation. At the confirmation hearing, the trial court
refused to approve the sale, finding that approval of sale would violate Section
15-1508 in that “justice would not otherwise be done”, ordered that the sale
bid be returned to Cronus, and ordered that the third party be awarded damages;
(later determined to be $1,000 for attorney’s fees and $940.00 representing
interest on the bid during the time it was held by the sale officer). The
third party bidder appealed.
The
facts further indicate that at the hearing to confirm the sale it was determined
that the amount tendered by the Thompsons to the lender between the sale and
hearing date was $32 less than the total amount due. Arguing that that sale and
payoff occurred subsequent to the foreclosure sale and the lis pendens was
recorded, the third party focused on the effect of the trial court’s decision
in “destabilizing judicial sales”. The First District’s focus,
however, was on whether the refusal of the trial court to confirm the sale was
an abuse of its discretion. Noting that the trial court “acted
consistently with the policy of
Turning
to the issue of the trial court’s award of damages to the sale bidder, the
First District notes that the theories of tortuous interference with its rights
and loss of prospective economic advantage were raised by the sale bidder for
the first time on appeal and therefore waived. Nonetheless, noting that prior
case law holds that “it is well established law that the high bidder’s
‘interest evaporates upon the trial court’s determination that the sale will
not be confirmed [and]…What the trial court decides to do with the property
once it determines the sale will not be confirmed is a matter in which the [high
bidders] have no discernable interest. Citicorp, 269 Ill.App.3d 301.”
the Appellate Court clearly signals how it would have ruled had the issue not
been waived. Likewise, the Plaintiff argued in its response brief that the
trial court erred in its award of attorney’s fees and interest in favor of
Cronus, but the Court declined to rule on this issue in that it was not
the subject of a cross appeal by the plaintiff, and therefore also waived.
Another
third party bidder at a foreclosure sale, Greenwich Investors XVI, LLC, was the
instigator of an appeal of the trial court’s refusal to confirm a foreclosure
sale in Washington Mutual Bank v. Boyd, (1st Dist., December,
2006) http://www.state.il.us/court/Opinions/AppellateCourt/2006/1stDistrict/December/1060305.pdf.;
and was successful. The resulting decision is diametrically opposed to the Thompson
case, which decision is specifically referred to, and which “reached the
opposite conclusion in a case involving nearly identical facts” just the month
before. (See MERS v. Thompson, (1st Dist.,
The
final stage in this saga is Household Bank v. Lewis, (1st
Dist., May, 2007), http://www.state.il.us/court/Opinions/AppellateCourt/2007/1stDistrict/May/1060517.pdf
, where the Court holds that the trial court abused its discretion when it
refused to confirm the sale to a third party because the mortgagors had sold the
property at a private sale and in order to avoid a forfeiture. Citing both the Boyd
and Thompson cases, the Court stated: “Although
we recognize that the judicial sale yielded a lower price than the private sale
to Addie Glenn Tate, this does not change the fact that the private sale
occurred after the deadline. Accordingly, we find that the trial court abused
its discretion by refusing to confirm the judicial foreclosure sale. In so
finding, we disagree with the decision in Mortgage Electronic Registration
Systems, Inc. where another division of this court ignored the fact that a
mortgagor no longer has a right of redemption after a foreclosure sale, and
relied on cases where the circumstances that led the trial court to refuse to
confirm the foreclosure sales occurred before the expiration of the redemption
periods, not afterwards, as here.