Real Estate Roundup

Sharp  Thinking

No. 87    Perspectives on Developments in the Law from The Sharp Law Firm, P.C.    April 2013

Quitclaim Buyer May Not Claim Breach of Contract

            A buyer of property by quitclaim deed generally may not claim breach of contract when it learns that the seller did not have fee simple title, a panel in the Appellate Court’s Third District has held. 

            Leaving open the possibility that the buyer may be able to allege such an action when the contract is made through fraud, the court said that “[i]n the absence of fraud, the consideration paid for a quitclaim deed of land cannot be recovered even if the grantor has no title to the property.”  Lindy Lu LLC v. Ill. Central R.R. Co., 2013 IL App (3d) 120337.

            At issue in Lindy Lu was a quitclaim deed given by the Illinois Central to a strip of land adjoining its tracks in Decatur, Ill.  After it was learned that the railroad had acquired the property (and much other of its right of way) by condemnation rather than purchase, the buyer sought to bring a class action suit on behalf of all parties who had purchased from the IC property it had acquired by condemnation.

            Rejecting the buyer’s argument that it was jusitified in assuming the railroad had fee simple, and noting that the buyer willingly had failed to obtain title insurance in connection with the transaction, the court said a “person may not enter a transaction with his eyes closed to available information and then charge that he has been deceived by another.”                                              

            The decision highlights the ambiguity that may exist when a railroad “owns” real estate.  If the railroad purchased the property from a previous owner, it may have a fee simple just like most other owners.  However, when it acquired the land by condemnation, it generally will have just an easement (hence the term “right of way”) with the fee still vested in the party from whom the property was condemned, or that party’s successors. 

Creditor Loses Priority When Judgment Recording Lapses

          A judgment creditor loses its priority position as to real estate when it allows its judgment to expire under the revival statute without recording a new memorandum of the revived judgment within 7 years from the date of entry of the original judgment, another panel of the Appellate Court’s Third District has held. 

            Assuming but not deciding that a lapsed judgment lien could be revived, the court in Wells Fargo Bank v. Heritage Bank of Central Ill., 2013 IL App (3d) 110706, held that when the judgment lien lapsed the judgment creditor at least lost its priority position, allowing two mortgagees to “jump ahead” and take first and second positions when the property eventually was foreclosed upon.

            Moreoever, interpreting the revival statute (735 ILCS 5/12-101), the court held that to prevent a lapse the memorandum of the revived judgment must be recorded within 7 years of entry of the original judgment, not 7 years of the recording of the original memorandum.  It rejected an argument that a memorandum recording has its own 7-year life.  “[T]he memorandum expires with the judgment,” the court said, adding that to hold otherwise would be contrary to the plain language and the spirit of the recording statute and “could lead to all sorts of mischief and create confusion rather than clarity regarding the status of titles to real estate.”

Lien Statements Only Qualifiedly Privileged, Court Says

            A qualified rather than absolute privilege applies to statements made in a duly-recorded condominium assessment lien that is not followed by a suit to foreclose, a panel of the Appellate Court in Chicago has held. 

            In Kurtz v. Hubbard, 2012 IL App (1st) 111360, the condo association had filed a lien asserting that the unit owner owed $15,593.49, and it filed suit based on that amount.  After it admitted she owed only $4,365.52 and dismissed the suit, the owner sued, claiming the lien cast her in a “false light” and was a false lien that defendants knew would impair the marketability and value of her unit.                        

            Noting that allegations made in the foreclosure suit were absolutely privileged, defendants argued that similar statements made in the lien recording should receive the same treatment, but the court disagreed.  “When evaluating a claim of privilege, it is the context, rather than the statement itself, that is important,” the court said.  “Therefore, merely because the publishing of the lien was authorized by statute does not mandate a finding that the contents of the lien were absolutely privileged.”  Reasoning that making lien statements absolutely privileged would erase Illinois’ recognition of a cause of action for malicious recording of a lien that clouds title to real estate, the court said lien statements should be only qualifiedly privileged, which privilege is subject to defeat by proof of malice in making the statement.

Conveyances Act § 11 Is Permissive, 2 Courts Say

            Section 11 of the Conveyances Act (765 ILCS 5/11) is permissive in stating what a properly recorded mortgage may contain, two lower courts have held recently.

            In both In re Crane, __ B.R. __, 2013 WL 772829 (C.D. Ill. 2013), and In re Klasi Properties, LLC, 2013 WL 211111 (Bankr. S.D. Ill. 2013), the courts dealt with challenges by bankruptcy trustees to the effect of mortgages which did not include all the information which § 11 says a mortgage may contain.  Both courts rejected or distinguished Peoples National Bank v. Jones, 482 B.R. 257 (S.D. Ill. 2012), which seemed to require the information specified in § 11.  Klasi, Crane and Peoples are all on appeal to the U.S. Court of Appeals for the Seventh Circuit, where Peoples (the first briefed and argued of the appeals) is expected to decide the issue.[1]

                                                                    John T. Hundley, jhundley@lotsharp.com, 618-242-0246

[1] The Sharp Law Firm represents the appellant in Peoples.

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