ILLINOIS STATE BAR ASSOCIATION
Law Ed Series
Real Estate Law Section Council
“REAL ESTATE LAW UPDATE ”
Wednesday, September 15, 1999, Eastland
Suites Conference Center, Bloomington, Il.
 Thursday, September 23, 1999,
First
Chicago Center, Chicago, Il.

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ILLINOIS INSTITUTE OF CONTINUING
LEGAL EDUCATION
“A PRACTICAL APPROACH
TO MORTGAGE LIENS ON
REAL ESTATE”
STEVEN B. BASHAW, Moderator
McBride Baker & Coles, Chicago & Oak Brook
Terrace, Illinois
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Types of Mortgages:




Specific, consensual liens
Practical Approach: Lien priority
distinction
Two vs. Three party instruments
Equitable Mortgages: When a deed is a
mortgage and other problems
– Harney v. Colwell, (1st Dist. 1942) 324
Ill,App. 173, 41 N.E. 2d 123)
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Types of Mortgages:

Purchase Money Mortgage
Priority over prior liens against grantee to
extent of purchase debt
Application of Busse, (1st Dist. 1984) 124
Ill.App.3d 433, 464 N.E.2d 561.
Bank of Homewood, (1st Dist. 1964) 48
Ill.App.2d 316, 199 N.E.2d 293.
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MORTGAGE LIEN PRIORITY
“Prior in time (perfection) is prior in right”
 Firstmark Standard Life Insurance v. Superior
Bank, FSB, (1st Dist. 1995) 271 Ill.App.2d
435, 649 N.E.2d 465
 Subject to real estate taxes, special
assessments and mechanic’s liens
 EXCEPTIONS:
 Statutory: Recording laws & mechanic’s liens
 Case Law: Purchase money mortgage rules
 Contract: Subordination clauses

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ENFORCEABILITY & LIMITATIONS
An action to foreclose
mortgage: 10yrs after right of
action accrues
735 ILCS 5/13-115
Lorocque v. Baker, (2nd Dist.
1938) 295 Ill.App.1, 14 N.E.2d
502.
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ENFORCEABILITY & LIMITATIONS
Statute of Limitations on mortgage: 20
years from date of last payment
735 ILCS 5/13-116
Livingston v. Meyers, (1955) 6 Ill.2d 325,
129 N.E.2d 12
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ENFORCEABILITY & LIMITATIONS
No Maturity Date: 30 years from date of
instrument
735 ILCS 5/13-116
Zuls v. Bowen, (1st Dist. 1053) 351
Ill.App. 492, 115 N.E.2d 577.
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TITLE vs LIEN THEORY




ISSUE: Rights of possession:
Title theory = immediate possession;
Lien theory = adjudication
Illinois = Intermediary estate by case law
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TITLE vs LIEN THEORY

ILLINOIS MORTGAGE FORECLOSURE LAW;
735 ILCS 5/15-1701
– Distinction between residential vs. nonresidential up to expiration of redemption
Residential presumption mortgagor will continue in
possession until at least judgment
 Non-Residential presumption mortgagee will obtain
possession IF the mortgage documents provide and a
reasonable probability of ultimately prevailing

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TITLE vs LIEN THEORY
– Post Redemption
735 ILCS 5/15-1701(c)(2): “rent” @ lesser of interest
under the mortgage or fmv rental
– A Lease subordinate to mortgage shall not be
automatically terminated
735 ILCS 5/15-1504(3)(T); 735 ILCS 5/1508(g)
Kell/Lehr & Associates v. O’Brien, (2nd Dist. 1990), 194
Ill.App.3d 380, 551 N.E.2d 419 - prepaid rent
– Mortgagee is entitled to designate Receiver: 735
ILCS 5/15-1702(b)
– Priority Mortgagee is entitled to priority in all
matters relating to possession: 735 ILCS
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5/15/1702(c)
ENFORCEMENT OF PRIORITY

The Practical approach ALWAYS considers priority of
lien:
Foreclosure of priority lien extinguishes
subordinate liens;
 Baldi v. Chicago Title, (1st Dist. 1983), 113
Ill.App.3d 29, 446 N.E.2d 1205 and Orloff v.
Petak, (3rd Dist. 1992), 224 Ill.App.3d 638,
587 N.E.2d 37.

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ENFORCEMENT OF PRIORITY
A lien’s priority CAN be affected (i.e..,
altered) in litigation
Mid-America Federal Savings v. Liberty
Bank, (2nd Dist. 1990) 562 N.E.2d
1188; priority position prejudiced by
failure to participate in judgment
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ENFORCEMENT OF PRIORITY
Rights to surplus
Kankakee Federal v. Mueller, (3rd Dist. 1985),
134 Ill.App.3d 943, 482 N.E.2d 332
St. Charles Savings & Loan v. Estate of
Sundberg, (2nd Dist. 1986) 150 Ill.App.3d 100,
501 N.E.2d 322.
 Rights of subordinate lien holders; 735 ILCS
5/15-1505

Joliet Federal v. Bloomington Loan Co., (3rd Dist. 1970)
131 Ill.App.2d 619, 265 N.E.2d 400
735 ILCS 5/15-1508(B)(3) & 1506(h); Reservation of issue
of priorities to confirmation of sale
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Mechanic’s Liens; A Priority
Exercise
Strict Compliance 770 ILCS 60/1
Claim recorded within 4 mos. last work 770
ILCS 60.7
Suit (by complaint or countercomplaint) within
2 years
Priority ONLY to extent of enhancement

Mutual Services, Inc.. v. Ballantrae Development, (1st Dist.
1987) 159 Ill.App.3d 549, 510 N.E.2d 1219
Lyons Savings v. Gash Associates, (1st Dist. 1996) 665
N.E.2d 326
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IRS LIENS AND MORTGAGES
28 USC 2410 - no special priority status first in time, first in right
 Requires Judicial proceeding to terminate
 USA special service requirements and
redemption

Longer of state law redemption or 120 days from sale for Fed.
Tax Liens
Non-Tax Liens: ONE YEAR from sale

Administrative Release: 28 USC 2410(e)
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Illinois Revenue Liens (&
Condominium Assessments)
735 ILCS 5/15-1501(b)(6) & (g)
No “immunity” in foreclosure cases;
Service by certified mail to Atty. Gen.

765 ILCS 605/9
Sale extinguishes assessments prior to
the 1st day of the month following the
sale

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Ill Rev. Liens & Condo
Assessments Collide:
Lake Hinsdale Village Condominium v.
Dept. of Public Aid (2nd Dist. 1998), 698
N.E.2d 214
 Assessment lien “relates back” to date
of first perfection by filing notice of claim
for lien as each month accrues!
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Unsigned and Forged Mortgage
Documents
Consensual Lien is void if forgery EXCEPT to the extent ratified
Resolution Trust Corp. v. Hardisty, (3rd
Dist. 1995 646 N.E.2d 628; primer on
forged mortgages.
Grundy County National Bank v.
Cavanaugh, (3rd Dist. 1982), 105 Ill.
App.3d 718, 434 N.E.2d 803; failure of
land trustee to execute overcome by
beneficiary’s execution of letter of

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WAIVER OF HOMESTEAD


735 ILCS 5/12-901; Statutory “lien” for $7,500/each
owner
– Only available as to third parties, NOT among cotenants
– Each resident/owner, but not to exceed $15,000
total; First National Bank of Moline v. Mohr, (3rd
Dist. 1987), 162 Ill.App.3d 584, 515 N.E.2d 1356
– May be claimed by surviving spouse; 735 ILCS
5/12-901, 901
“Practical Approach”: Every mortgage should contain
a waiver of homestead and be signed by spouse
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TENANTS BY THE ENTIRETY

735 ILCS 5/12-112
– Property held in the entirety can NOT be sold
to satisfy the debt of one spouse
– E.J. McKernan Co. v. Gregory, (2nd Dist.
1994), 268 Ill.App. 383, 643 N.E.2d 1370
– In re Marriage of Del Giudice, (1st Dist. 1997),
287 Ill.App.3d 222, 678 N.E.2d 47
– Amendment to 735 5/12-112; exception for
“fraudulent conveyance”
– Harris Bank v. Weber, (2nd Dist. 1998) 1998
Ill.App. Lexis 601
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ASSIGNMENTS OF MORTGAGES:

Assignments recorded in addition to
endorsement of note
– Klehm v. Grecia Chalet, Ltd., (1st Dist.
1987) 164 Ill.App.3d 610, 518 N.E.2d 187
– 205 ILCS 635/3-7; borrower must be
informed of transfer and granted
forbearance if necessary

MERS: Mortgage Electronic Recording
System
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RELEASE AND SATISFACTION OF
MORTGAGES

Statutory Penalty: Illinois Mortgage Act
765 ILCS 905/0 et seq..
– Release in recordable form within 30 days;
765 ILCS 905/2
– Not applicable to foreclosure proceedings;
Liberty Loan Corp. v. FNMA, (2nd Dist.
1986) 142 Ill.App.3d 383, 492 N.E.2d 237
– Penalty: $200 plus reasonable attorney’s
fees in civil action; 765 ILCS 905/4
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EFFECT OF BANKRUPTCY




Stay of enforcement of lien; 11 USC 362
Discharge of personal liability on NOTE; In Re
Bouchelle, (M.D. Fl. 1989) 98 BR 81
Does NOT release the lien of the mortgage or enjoin
foreclosure post modification of stay; Farmers State
Bank of Sherard v. Hansen, (3rd Dist. 1990), 196
Ill.App.3d 295, 553 N.E.2d 751
Last moment to file to stop foreclosure:
– FNMA v. McEWEN, N.D. Il. 1996) 194 B.R. 594;
sale “conducted” only at confirmation
– In Re Beatty (Bankr. N.D. Il 1990), 116 B.R. 112
and In Re Christian, (Bankr. N.D. Il. 1996) 199
B.R. 382
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JUDICIAL vs NONJUDICIAL
FORECLOSURES



735 ILCS 5/15-1405; Prohibition of exercise of
“Power of Sale”
See also 15-1401 (deed in lieu) 15-1402 (consent
judgment) and 15-1106 for applicability of IMFL to
assignments of beneficial interest and articles of
agreement for deed
HUD’s Single Family Mortgage Foreclosure Act of
1994
 12 USC 3751; Balanced Budget Reconciliation
Act of 995
 Only HUD held mortgages
 Notice and sale by “power of sale” resulting in
possible 21 day notice to sale period
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DEFICIENCIES, SURPLUS &
ENTITLEMENT
Created at Confirmation of Report of
Sale; 735 ILCS 5/15-1508
 Deficiency:

– Heritage Standard Bank v. Heritage
Standard Bank, (2nd Dist. 1986) 149
Ill.App.3d 563, 500 N.E.2d 60
– State Bank of Antioch v. Nelson, (2nd Dist.
1985) 132 Ill.App.3d 120, 477 N.E.2d 77
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DEFICIENCIES, SURPLUS &
ENTITLEMENT

Surplus:
– Application: 735 ILCS 5/15-1512
Reasonable expense of sale
 Expenses of maintaining the premises
 satisfaction of claims in order of priority as
adjudicated
 Surplus to be held until further order of court

– Hart v. Wingart, (1876) 83 Ill. 282
– Kankakee Federal v. Mueller, (3rd Dist. 1985), 134
Ill.App.3d 943, 482 N.E.2d 332
– St. Charles Savings & Loan v. Estate of Sundberg,
(2nd Dist. 1986) 150 Ill.App.3d 100, 501 N.E.2d 322.
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Emerging Surplus & Lien Law
Members Equity Credit Union v. Duefel,
(3rd Dist. 1998) 692 N.E,2d 865; Buyers
take subject to outstanding debts vs.
“marshalling asset” theory
 BCGS, LLC v. Jaster, (2nd Dist. 1998)
700 N.E.2d 1075; foreclosure
extinguishes all liens over which court
had jurisdiction in favor of bidder; even
husband of owner!

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ALTERNATIVE DISPUTE RESOLUTION
& MORTGAGE LIENS:

DEED IN LIEU OF FORECLOSURE
– 735 ILCS 5/15-1401
– Voluntary
– Presumed quid pro quo: conveyance for
release of liability
– Olney Trust Bank v. Pitts, (5th Dist. 1990),
200 Ill.App.3d 917, 528 N.E.2d 398.
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ALTERNATIVE DISPUTE RESOLUTION
& MORTGAGE LIENS:

CONSENT JUDGMENT
– 735 ILCS 5/15-1402
– Voluntary
– Presumed quid pro quo: waiver of
redemption and conveyance by judgment
for release of liability
– 735 ILCS 5/15-1402; subordinate liens
foreclosed, EXCEPT U.S.A,
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ALTERNATIVE DISPUTE RESOLUTION
& MORTGAGE LIENS:

Shortening Redemption periods
– 735 ILCS 5/15-1604;Special Right to
Redeem
Residential real estate occupied by owner
 Plaintiff bids deficiency
 Revival of redemption for 30 days
 15-1604(b) payment of bid only

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ALTERNATIVE DISPUTE RESOLUTION
& MORTGAGE LIENS:
– 735 ILCS 5/15-1603(b)(3); Value of
Premises
If value of property is less than 90% of total
debt
 AND, mortgagee waives right to deficiency
 Redemption expires 60 days after judgment

– 735 ILCS 5/15-1603(b)(4); Abandonment
Finding of “abandonment”
 Redemption expires 30 days after judgment

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THE REDEMPTION PROCESS

735 ILCS 5/15-1603
– Notice of Intent to Redeem
 Not less than 15 days prior to exercise of right
to redeem
 Certificate filed with the Clerk of the Court
– Mortgagee’s Estimate of Redemption
 Filed with Clerk of the Court
 Paid Receipts or affidavits attached
– Contested hearing; 735 ILCS 5/15-1604(f) and (g)
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The “Practical Side” to
Redemption:

Fleet Mortgage v. Deal, (1st Dist. 1997), 287
Ill.App.3d 385, 678 N.E.2d 35

Commercial Credit v. Espinosa, (1st
Dist. 1997), ___ Ill.App.3d __, 689
N.E.2d 282
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That’s All!

Thanks for attending! We hope
you have enjoyed this presentation.
If you have questions, please feel
free to ask. We’re happy to help.

For a detailed listing of the upcoming CLE
schedule visit our web site at
http://www/illinoiscle.com
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