Thursday, September 26, 2013

FYI: Ill App Ct Rules in Favor of Mortgagee in REO "Special Warranty Deed" Action Involving Unpaid Property Taxes

The Illinois Appellate Court for the First District recently held that, because a tax sale occurred prior to Seller's ownership of the property, such encumbrance was not warranted against by Seller in the special warranty deed.  According to the Court, any action or inaction by the seller after the conveyance was negated as a matter of law under the language of the special warranty deed.

 

A copy of the opinion is available at: http://www.illinoiscourts.gov/Opinions/AppellateCourt/2013/1stDistrict/1123510.pdf

 

A title insurance company ("Title Insurer"), as subrogee of a buyer of real property ("Buyer"), sued the seller ("Seller") for breach of a special warranty deed.  Seller obtained title to the property on September 9, 2008, pursuant to a judicial sale resulting from a foreclosure action.  Prior to the judicial sale, however, certain delinquent taxes were purchased in a tax sale ("2007 Tax Sale") by a third party ("Prior Lienor"), who also recorded a lis pendens notice against the property.

 

Thereafter, on February 22, 2010, Prior Lienor filed a petition for a tax deed under the 2007 Tax Sale.  On the following day, Seller conveyed the property to Buyer by special warranty deed.  Although the 2007 Tax Sale was redeemable until June 21, 2010, Seller did not redeem, nor did it notify Buyer of the 2007 Tax Sale.

 

After the judicial sale, Seller was served with notice of the petition for a tax deed, but did not notify Buyer of such notice.  On October 29, 2010, Prior Lienor obtained title to the property by means of a tax deed, which was subsequently recorded.  Buyer was divested of its interest in the property.  Title Insurer paid Buyer its policy limit and the appraised value of the property, and filed suit.

 

The trial court granted Seller's motion to dismiss with prejudice, finding that Seller did not breach the special warranty deed because the tax encumbrance predated Seller's ownership of the property.  Title Insurer appealed to Illinois' intermediate appellate court.

 

As you may recall, a special warranty deed is a deed in which the grantor covenants to defend the title against only those claims and demands which occur because of an act of the grantor.  See 20 Am. Jur. 2d Covenants, Conditions, and Restrictions 62 (2005); ASK Realty II Corp. v. First American Title Insurance Co., 2004 U.S. Dist. Lexis 10334, at *18 (D. Md. June 7, 2004) (finding that a special warranty against encumbrances "is breached only if the grantor's own conduct creates an encumbrance on the title."). 

 

As such, the limited warranty "does not render the grantor liable for defects in the title based on events that transpired when the property was in the hands of a prior titleholder."  20 Am. Jur. 2d Covenants, Conditions, and Restrictions 62 (2005); Woolf v. 1417 Spruce Associates, L.P., 68 F. Supp. 2d 569, 572 (E.D. Pa. 1999) (finding that a special warranty deed does not require a grantor to extinguish all encumbrances on a property in existence at the time the property is conveyed).

 

Even construing all facts and reasonable inferences in the light most favorable to Buyer, the Illinois intermediate appellate court affirmed the trial court's decision.  According to the Court, the special warranty deed defined the scope of Seller's liability.  Under the deed, Buyer was notified (i) that Seller warranted only against title defects that were caused or created by its own conduct; (ii) that it was not responsible for defects arising before it acquired title; and (iii) that it was not required to extinguish all encumbrances on the property at the time of the conveyance.

 

As such, the Illinois intermediate appellate court held that, because the 2007 Tax Sale occurred prior to Seller's ownership of the property, such encumbrance was not warranted against by Seller in the special warranty deed.  The Court noted that it was clear from the record that Seller did not do anything to cause the encumbrance.  Instead, the 2007 Tax Sale was caused by the prior owner not paying the special assessment tax.

 

The Court also held that the alleged breach of a special warranty deed arising from any action or inaction by Seller after the conveyance was negated as a matter of law.  Without citing to any relevant legal authority in support of its contention, Title Insurer argued that Seller's failure to redeem and/or notify the Buyer of the 2007 Tax Sale after it received notice of the petition for a tax deed constituted a breach of the special warranty deed.  However, the Court disagreed, reasoning that Seller's covenant was made when the deed was delivered, and that any alleged breach can only be supported by events occurring prior to that date, not at a later time.  See Firebaugh v. Wittenberg, 309 Ill. 536, 543 (1923).  Furthermore, after Seller had conveyed the property, only Buyer could redeem the property from a tax sale under Illinois law.  See 35 ILCS 200/21-345 (West 2006).

 

Lastly, Title Insurer argued that Seller excepted from the special warranty deed only the taxes "not yet due and payable," which the Title Insurer argued implies that the unpaid taxes which resulted in the 2007 Tax Sale were covered.  However, the Illinois intermediate appellate court rejected this argument because it was made for the first time on appeal, because the Title Insurer failed to cite any relevant legal authority in support thereof, and ultimately because the argument was legally and logically untenable.  Among other reasons, the Court noted that the exception for "taxes not yet due and payable" clearly applies to taxes levied but not yet payable at the time of the conveyance to Buyer, which was not at issue in this action.

 

Accordingly, the Illinois Appellate Court for the First District affirmed the trial court's dismissal of plaintiff's complaint with prejudice.

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

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Wednesday, September 25, 2013

FYI: Cal App Ct Rejects Statute of Frauds Defense to Wrongful Foreclosure Action Involving HAMP Mod, Also Finds Borrower Met Exception to Tender Rule

Reversing the lower court's ruling, the California Court of Appeal, Fourth District, recently held that a borrower's claim that a foreclosing bank failed to perform under the terms of a trial loan modification agreement adequately alleged claims for breach of contract and wrongful foreclosure, rejecting the lender's statute of frauds defense based upon the modification agreement not having been signed by the lender, and finding that the borrower's allegations qualified for an exception to the tender rule. 

 

A copy of the opinion is available at http://www.courts.ca.gov/opinions/documents/D061997.PDF.

 

A bank and its servicer (collectively, the "bank") recorded a notice of default and election to sell as to a borrower's property, and also offered the borrower a trial modification.  The trial modification agreement provided that if the borrower is in "compliance with this Trial Period Plan...then the [bank] will provide me with a Home Affordable Modification Agreement." 

 

The borrower alleged that she fully complied with the terms of the trial modification plan.  She further alleged that the bank provided her with a document titled "Home Affordable Modification Agreement (Step Two of a Two-Step Documentation Process)" (the "Modification Agreement") following the conclusion of the trial plan period.  That document allegedly provided (1) that after the borrower executed and returned the Modification Agreement, the bank would provide her with a signed copy of same; and (2) that if the borrower's material representations were accurate, and if the preconditions to the modification were met, the "Loan Documents will automatically become modified on 7/1/10."

 

The borrower alleged that she performed as required under the terms of the Modification Agreement, but never received a copy of same executed by the bank.  She further alleged that the bank refused to cash a subsequent loan payment, on the grounds that the check was not certified.  The property was then sold at foreclosure, and the borrower was served with a unlawful detainer summons. 

 

The borrower then filed suit against the bank, alleging breach of the Modification Agreement and wrongful foreclosure.  The bank filed a demurrer, arguing that the statute of frauds barred enforcement of the contract.  The lower court sustained the bank's demurrer and entered judgment in favor of the bank.  The borrower appealed. 

 

On appeal, the borrower pressed her claims for breach of contract and wrongful foreclosure.  The Court considered each in turn. 

 

The Court began by noting that, although an agreement to modify a contract is subject to the statute of frauds, equitable estoppel may preclude the use of a statute of fraud defense "where such use would constitute fraud."  Juran v. Epstein (1994) 23 Cal.App.4th 882, 895. 

 

The Court next recited the requirements to apply the doctrine of equitable estoppel: "(1) the party to be estopped must be apprised of the facts; (2) he must intend that his conduct shall be acted upon, or must so act that the party asserting the estoppel has a right to believe it was so intended; (3) the other party must be ignorant of the true state of facts; and (4) he must rely upon the conduct to his injury.  Driscoll v. City of Los Angeles (1967) 67 Ca.2d 297, 305. 

 

With that standard in place, the Court concluded that the borrower sufficiently alleged facts supporting a claim that the bank should be equitably estopped from its statute of fraud defense. 

 

To reach that conclusion, the Court emphasized that under the terms of the modification agreement, the bank was required to either send the borrower a signed copy of the trial period plan, or send her notice that she did not qualify.  Because the bank instead sent the borrower a copy of the Modification Agreement, the Court reasoned that that action suggested that the bank "concluded that [the borrower] qualified for a permanent modification..."      

 

The Court did acknowledge that the Modification Agreement provided that the loan documents would not be modified unless and until the borrower received a copy of the agreement from the bank, which did not take place in this case. 

 

However, the Court found this provision to be inconsistent with the bank's "promises" that the loan would "automatically become modified" if the relevant preconditions were satisfied.  The Court rejected the idea that if the borrower did everything required to obtain a permanent modification, the bank could nevertheless "avoid the contract by refusing to send [the borrower] a signed copy of the Modification Agreement for any reason whatsoever." 

 

Accordingly, the Court determined that the bank's alleged conduct, combined with the language of the Modification Agreement, "could be construed as an implied representation that the statute of frauds would not be relied upon."   

 

Next, the Court considered the borrower's claim of wrongful foreclosure.  It noted that, generally, the plaintiff must either tender the amount of the secured indebtedness or be excused from doing so.  However, the Court recited several exceptions to the tender rule, noting that a recognized exception exists where the foreclosure sale is void, or where specific circumstances make it inequitable to enforce the debt against the party challenging the sale.  See Pfeifer v. Countrywide Home Loans, Inc. (2012) 211 Cal.App.4th 1250, 1280-1281.  

 

Here, the Court determined that the borrower sufficiently alleged an exception to the tender rule, in that she argued that the foreclosure sale was void due to the bank's alleged conduct in connection with her loan modification, described above.  Accordingly, the Court held that "[b]ecause [the borrower] sufficiently alleged a recognized exception to the tender rule, the trial court erred by sustaining the demurrer to her wrongful foreclosure cause of action."

 

The Court therefore reversed the judgment of the lower court.    

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

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Tuesday, September 24, 2013

FYI: Ill App Ct Holds Voluntary Payment Doctrine Did Not Apply to Bar UDAP Claim, Refund to Consumer Did Not Moot Action

The Illinois Appellate Court for the First District recently held that the voluntary payment doctrine should not be applied to defeat state UDAP claims, and that the defendant's refund to the plaintiff did not moot the action due to the fact that the plaintiff's reasonable attorney's fees could exceed that amount. 

 

A copy of the opinion is available at:  http://www.illinoiscourts.gov/Opinions/AppellateCourt/2013/1stDistrict/1122063.pdf

 

A consumer filed a lawsuit against a retailer, alleging a violation of the Illinois Consumer Fraud and Deceptive Business Practice Act (the "Act"). Specifically, the consumer alleged that the retailer collected sales tax on the full amount of a retail purchase, even though part of that purchase was subsidized by a federal voucher program.  The retailer tendered $1,000 to the consumer, without admitting liability. 

 

Both parties moved for summary judgment.  The consumer called attention to the testimony of an employee of the retailer, indicating that the retailer's policy was to assess tax only on the net price, and not on the portion subsidized by the federal program. 

 

The lower court determined that because the retailer had a policy of not taxing the subsidized portion of purchases, and of refunding any taxes mistakenly assessed, any damages suffered by the consumer were due to his failure to seek a refund.  The consumer appealed. 

 

On appeal, the Court first analyzed whether the retailer's tender of $1,000 to the consumer mooted the action.  It answered in the negative, noting that consumer alleged that his attorney fees were far in excess of the tendered amount.  Because the lower court did not determine whether fees should or should not be awarded, the Court held that "we cannot say that the [retailer's] tender to the [consumer] mooted this appeal." 

 

The Court scrutinized the retailer's argument that the consumer's claim failed on the grounds that Illinois law requires collection of the sales tax at issue, and the consumer's counterargument that the Illinois Department of Revenue (the "Department") issued a bulletin directing retailers not to charge tax on the portion of purchases subsidized by the federal program (the "bulletin").   

 

The Court sided with the consumer.  To reach its conclusion, the Court first noted that the Department's bulletin was entitled to "some deference," but was not binding on the Court.  Therefore, the Court examined Illinois' taxation scheme, and determined that "because the federal government is exempt from sales tax, its voucher reimbursement cannot be taxed as would the typical manufacturer's coupon, and indeed, cannot be taxed at all." 

 

Accordingly, the Court rejected the retailer's argument that Illinois law requires the collection of the tax at issue.  The Court also considered the retailer's argument that the consumer never sought a refund, and instead filed the instant lawsuit, and the lower court's related holding that the proximate cause of any injuries suffered by the consumer was his failure to seek a refund.  However, the Court noted that the lower court "may have been correct that the [consumer's] failure to seek a refund caused his injury, but that revelation does not mean that the defendant's actions were not also a cause of that injury." 

 

The Court also considered whether the consumer's claim might be barred by the voluntary payment doctrine.  It answered in the negative, citing case law to the effect that the voluntary payment doctrine "does not apply where the payment was procured by deception or fraud."  See Jenkins v. Concorde Acceptance Corp., 345 Ill. App. 3d 669, 675 (2003).  Further, the Court noted that the voluntary payment doctrine should not apply to defeat claims brought under the Illinois Consumer Fraud and Deceptive Business Practice Act. Ramirez v. Smart Corp. 371 Ill. App. 3d 797, 805 n.2 (2007). 

 

The Court therefore determined that the consumer's allegation of a violation of the Illinois Consumer Fraud and Deceptive Business Practice Act was well-plead, and that a genuine issue of material fact existed such that the lower court erred in granting summary judgment to the retailer.    

 

Accordingly, the Court reversed the lower court's judgment and remanded the matter for further proceedings.           

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

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Monday, September 23, 2013

FYI: Ill App Ct Rules Successful Full Credit Bid Satisfied Debt Under Wyoming Law, Despite Creditor's Intent to Avoid Redemption at Deflated Price

Applying Wyoming law, the Illinois Appellate Court for the First District recently ruled that a creditor's successful credit bid at the foreclosure sale of the mortgaged property in an amount to satisfy the creditor's obligation will extinguish the mortgage, even where the amount of the bid is intended only to prevent a mortgagor from redeeming the property at a deflated price under Wyoming's lien theory of foreclosure.

 

 

A specialty finance company ("Lessor") entered into a lease agreement with an Illinois corporation (the "Lessee").  The lease agreement provided that the Lessor would lease equipment to the Lessee pursuant to various leasing schedules. On lease schedule number one, the equipment that the lessee received was listed at a price of $6,935,000.

 

According to the Lessor, in January 2008, the Lessor learned that one of Lessee's principals (the "Principal") had previously been convicted and sentenced for participating in a fraudulent scheme involving equipment financing. Consequently, the Lessee offered the Lessor additional collateral in the form of mortgages encumbering Wyoming real estate, in exchange for the Lessor agreeing to finance additional lease schedules.

 

The Wyoming real estate consisted of six parcels of land owned by the Principal and his family.   The Principal and his son and daughter executed guaranty agreements as consideration for the Lessor's agreement to execute lease schedule number two and future lease schedules. In addition to the guaranties, the Principal's family mortgaged the Wyoming real estate to the Lessor.

 

The terms of the guaranties stated, in pertinent part: "[the Lessor's] sole and exclusive remedy against [the Principal's family] shall be limited to [the Principal's family's] interest in the Mortgage Premises." The Lessor leased equipment worth a total of $22,077,000.02 to the Lessee under four schedules.

 

During the summer of 2009, the Lessee defaulted on its lease payments to the Lessor.  Subsequently, the Lessee filed for bankruptcy in the United States Bankruptcy Court for the Northern District of Illinois.  The bankruptcy court entered an order that lifted the automatic stay with respect to the Wyoming real estate that was subject to the Lessor's mortgages. The Lessor then began the process of foreclosing its mortgages on the Wyoming real estate.  On December 1, 2009, the sheriff of Teton County, Wyoming, sold the Wyoming real estate through foreclosure proceedings. The Lessor successfully purchased the Wyoming real estate with a credit bid of $22,743,564.44, which represented the full amount of the debt owed to the Lessor under the lease agreement.

 

In March of 2010, the Lessor filed a complaint for replevin against the Lessee in Illinois, seeking immediate possession of the leased equipment.  Additionally, numerous other lessors and lenders filed similar complaints against the Lessee.  A bank ("Bank") filed a complaint against the Lessee for judicial foreclosure and declaratory judgment.  The trial court consolidated the multiple complaints into a single action. 

 

The Lessor filed an answer and affirmative defenses which contested the Bank's right to the equipment that was leased to the Lessee and sought return of the equipment.  The Lessor also filed counterclaims which sought a declaratory judgment that the Lessor was the owner of all of the equipment and that its interests in the equipment were senior to the rights of all other parties.

 

From June 2010 through July 2011, the Lessor sold five of the six parcels of the Wyoming real estate to unrelated third parties and realized total net proceeds of $2,159,777.05 from the sales of the real estate. The sixth parcel of the Wyoming real estate remained unsold.  The trial court's order stated that all parties with claims to the equipment "retain all heretofore existing rights and claims to the Auction Proceeds." The Lessor filed a proof of claim to the proceeds of the sale of the equipment leased to the Lessee, alleging that after accounting for the proceeds from the sales of the Wyoming real estate, the net amount owed to the Lessor was $17,487,520.30.

 

The Bank filed a motion for summary judgment against the Lessor, alleging that the Lessee's debt to the Lessor was extinguished because at the foreclosure sale of the Wyoming real estate, the Lessor made a "credit bid" for the full amount of the debt owed by the Lessee to the Lessor.  The trial court found that the Lessor's credit bid satisfied both the obligations under the guaranty agreements and the Lessor's claim against the Lessee.

 

The trial court reasoned that the effect of a full credit bid under Wyoming law is to extinguish the debt and that the individuals who executed the guaranty agreements did not have an independent debt to the Lessor, and  granted the Bank's motion for summary judgment. The Lessor filed a timely appeal.

 

Because this matter involved real estate located in Wyoming, the First District ruled that Wyoming law governed its analysis.


The Lessor argued: (1) summary judgment in favor of the Bank was improper because the law of guaranties applied, and therefore the guaranty agreements executed by the Principal's family were independent obligations from the Lessee's debt and therefore the Lessor's purchase of the Wyoming real estate only satisfied the guaranty agreements and not the full debt owed by the Lessee; (2) the trial court made incorrect conclusions regarding the Principal's family's ability to recoup losses from  the Lessee; (3) the "full credit bid" rule – providing that at a foreclosure sale, when a bid is equal to the unpaid principal and interest of the mortgage debt and the bidder takes title to the property, the borrower is released from future obligations – does not apply because no Wyoming court has ever applied the rule in any case; (4) because Wyoming follows a lien theory mortgage foreclosure scheme – where proceeds of a foreclosure sale are first used to satisfy obligations secured by the mortgage being foreclosed, then applied to junior lienholders – the full credit bid was made only to prevent the Principal's family from redeeming the property at a deflated price after the foreclosure, and therefore the Lessor was not bidding on the Lessee's debt, but rather on the Principal's family's obligation.

 

On the other hand, the Bank argued that the trial court did not err in granting summary judgment arguing: (1) the Lessor's argument is contradictory because the Lessor claimed that its credit bid was valid and enforceable when it obtained title to the Wyoming real estate, but the same credit bid was of no legal significance in reference to the remaining debt owed by the Lessee; (2) that the plain and unambiguous language of the mortgages and guaranties supports the trial court's judgment; (3) the Lessor's credit bid paid the Lessee's obligation in full because it was applied in satisfaction of obligations secured by the mortgage being foreclosed and therefore applied towards the Lessee's underlying debt; and (4) the Bank never based its arguments on the full credit bid rule, rather, the Lessor bid more than $22 million at the foreclosure sale, and that under Wyoming law, the proceeds of a foreclosure sale satisfy the mortgage debt.

 

Although both the Lessor and the Bank advanced multiple arguments, the First District concluded that the seminal issue was whether the mortgages executed by the Principal's family secured the Lessee's debt.  As you may recall, under Wyoming law, when a lender bids the full amount due to him at a foreclosure sale, the mortgage is satisfied and discharged. Federal Land Bank of Omaha v. Sells, 280 P. 98, 100 (Wyo. 1929); Wyo. Stat. Ann. § 34-4-113(a)(West 2010).  A guaranty agreement is a contract to pay the debt of another, and is secondary to the instrument it guarantees. Belden v. Thorkildsen, 2008 WY 148, ¶ 20, 197 P.3d 148, 154 (Wyo. 2008). 

 

The First District recognized that Wyoming follows a "lien theory" mortgage foreclosure scheme which states that the proceeds of a foreclosure sale are used to first pay expenses and attorney's fees; then used to satisfy the obligations secured by the mortgage being foreclosed; and then distributed to junior lien holders. Wyo. Stat. Ann. § 34-4-113(a) (West 2010). Any remaining proceeds are paid to the mortgagor as a surplus, while the mortgagor remains liable for any deficiency. Wyo. Stat.  Ann. § 34-4-113(c) (West 2010). After the property has been sold through foreclosure, the mortgagor has the right to redeem the real estate by paying the purchaser the amount of the bid if purchased by the mortgagee under a mortgage. Wyo. Stat. Ann. § 1-18-103(a) (West 2010). "[T]he right to sue for a deficiency is logical to bind a mortgagor to the terms of the initial bargain and prevent redemption at a deflated price after foreclosure. " Fitch v. Buffalo Federal Savings & Loan Ass'n, 751 P.2d 1309, 1312 (Wyo. 1988).

 

The Lessor argued that the guaranty agreements are separate and distinct obligations from the underlying debts for which they are collateral and that guaranty agreements executed by the Principal's family state that the Lessor's sole, and exclusive remedy against the Principal's family is limited to the their interest in the Wyoming real estate.  However, the First District observed that Wyoming law states that when a lender makes a full credit bid at a foreclosure sale, "the mortgage is satisfied and discharged." Federal Land Bank, 280 P. at 100.  Thus, the First District also examined the plain language of the mortgages to determine what debt the mortgages secured.

 

The mortgages executed by the Principal's family defined the debt that they secured in the "Secured Debt" section of the mortgages. The mortgages state, in pertinent part:

 

"Secured Debt: to the extent not prohibited by Laws, Guarantor's unconditional and absolute guaranty of the due and punctual Rent (as defined by the Guaranty) payments due under the Lease Documents and any other monies due or which may become due under the Lease documents ***."

 

The Lessor argued that in the phrase "Guarantor's unconditional and absolute guaranty," the use of the word "guaranty" shows that the mortgages secured the guaranty agreements executed by the Principal's family, as opposed to the Lessee's debt as a whole. On the other hand, the Bank argued that the mortgages state that the secured debt is the same debt as the Lessee's debt to the Lessor. 

 

The First District agreed with the Bank's argument, recognizing that in each of the mortgages, the term "Guaranty" is defined as the guaranty agreements.  However, in the definition of "Secured Debt," the phrase "Guarantor's unconditional and absolute guaranty" uses the term "guaranty" in its lowercase form, as opposed to "Guaranty" in its uppercase form. Further, in the same sentence, the term "Guaranty" is used in the uppercase form regarding the definition of the term "Rent." If the parties intended the term "guaranty" to refer to the guaranty agreements executed by the Lessee Principal's family, they could have easily used the uppercase form of the term just as they did later in the same sentence. However, the mortgages state that the Secured Debt is the "unconditional and absolute guaranty of the due and punctual Rent."

 

The First District applied the meaning of the plain language of all the terms in this clause, and concluded that the Secured Debt as defined in the mortgages is the same debt that the Lessee owed to the Lessor: specifically, the unpaid rent for the leased equipment.  Additionally, the First District highlighted that the mortgages state that "[a]ll sums realized by [the Lessor] shall be applied to the Secured Debt." Therefore, the full amount of the Lessor's bid must be applied to the secured debt. 

 

The First District concluded that under Wyoming law, and by the Lessor's own admission, the effect of a successful credit bid is to satisfy and discharge a mortgage. Thus, the effect of the Lessor's $22 million credit bid was to satisfy and discharge the mortgages and guaranty agreements executed by the Principal's family. Because the mortgages in this case secured the same debt that the Lessee owed to the Lessor, the Lessor's $22 million credit bid satisfied the Lessee's debt.

 

Although the First District recognized the Lessor's argument that the purpose of the $22 million credit bid was to ensure that the Principal's family did not redeem the Wyoming real estate at a deflated price under Wyoming's theory of lien foreclosure, the plain language of the mortgage agreements stated that they secured the same debt that the Lessee owed to the Lessor. If the mortgage agreements had stated that only the guaranty agreements executed by the Principal's family were secured, then the Lessor's strategy would have been successful.

 

Accordingly, the First District affirmed the trial court's summary judgment ruling in favor of the Bank.

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


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