Bortz v. Bank of Am., N.A.

• Decision Date: 06 December 2016
• Docket Number: Case No. 16-cv-5338
• Parties: BETH BORTZ and MARC BORTZ, Plaintiffs, v. BANK OF AMERICA, N.A., Defendant.
• Court: U.S. District Court — Northern District of Illinois

BETH BORTZ and MARC BORTZ, Plaintiffs, v. BANK OF AMERICA, N.A., Defendant.

Case No. 16-cv-5338

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

December 6, 2016

Judge Robert M. Dow, Jr.

MEMORANDUM OPINION AND ORDER

Before the Court is Defendant Bank of America, N.A.'s motion to dismiss[10].For the reasons set forth below, Defendant's motion to dismiss[10] is granted.Plaintiffs are given until January 10, 2017 to file an amended complaint consistent with this opinion.

I.Background

This case stems from the foreclosure and sale of a property located on West Huron Street in Chicago, Illinois (the "Property").In 2007, Teresa Rygielski executed a home mortgage loan on the Property in favor of a nominee from a Countrywide Home Loans, Inc. subsidiary.Bank of America subsequently acquired Countrywide, and BAC Home Loans Servicing, LP("BAC") became the successor entity as the nominee on the mortgage.On January 5, 2009, BAC filed a complaint in the Circuit Court of Cook County to foreclose on Rygielski's mortgage after she defaulted on her loan payments.On January 20, 2010, the Circuit Court granted BAC's motion for judgment of foreclosure and sale and to shorten the period for redemption—that is, the period during which the mortgage borrower can pay off the total balance (plus fees) to reclaim the property before sale.The Property was sold by auction to BAC on March 4, 2010, and an order confirming the sale was entered on May 17, 2010.A judicial sale deed conveying title to the Property to BAC was executed on May 20, 2010, and recorded on August 28, 2010.On October 5, 2010, however, Rygielski filed a petition to vacate the foreclosure sale, claiming that BAC had failed to provide her with the required notice of the request to shorten the redemption period.

In March 2011, while Rygielski's petition to vacate was pending, BAC sold the Property to PlaintiffBeth Bortz through a Real Estate Purchase and Sale Contract (the "Purchase Contract").According to the Complaint, Paragraph 21 of the Purchase Contract states, "The deed to be delivered shall be a deed that covenants that Grantor grants only that Grantor may have and that Grantor may have [sic] and that Grantor will only defend against persons claiming by through or under the Grantor but not otherwise."¹[1, ¶ 23.]Paragraph 22, entitled "Defects In Title," states that "Seller is not obligated to (A) remove any exception; (B) bring any action or proceeding or bear any expense in order to convey title to the Property; or (C) make the title marketable or insurable."[1-2, at 14.]It further states that "Buyer acknowledges that the Seller's title to the Property may be subject to court approval of foreclosure or to a mortgagor's right of redemption."Id.Moreover, as part of the sale, BAC executed a Special Warranty Deed to PlaintiffBeth Bortz conveying tittle to the Property, which was executed on March 17.That deed contains a clause in all capital letters stating that Defendant's conveyance is "subject to any and all covenants, conditions, easements, restrictions, and any other matters of record."[1-3, at 1.]On March 31, 2011, PlaintiffBeth Bortz executed a quit claim deed conveying the Property to herself and her husband, PlaintiffMarc Bortz.Both deeds were publicly recorded.According to Plaintiff, BAC failed to disclose the Rygielski's petition in connection with the sale process.

On February 22, 2012, the Circuit Court granted Rygielski's petition to vacate the January 20, 2010 foreclosure order and the May 19, 2010 order confirming the sale of theforeclosed property to BAC.Unaware of this order, Plaintiffs leased the Property to another couple for the period of June 1, 2012 through May 31, 2014, which generated rental income for Plaintiffs.

On April 9, 2014, Rygielski filed a complaint in the Circuit Court of Cook County to evict the leasing tenants.BAC then amended its complaint from the initial foreclosure action against Rygielski in response to these events.Plaintiffs intervened in the case on June 10, and filed an answer to BAC's amended complaint that asserted a counterclaim to quiet title against Rygielski but did not assert any claims against BAC.On December 3, 2015, the Circuit Court granted Plaintiffs' motion to reconsider and vacated the February 22, 2012 order granting Rygielski's 2010petition to vacate on the grounds that Rygielski's petition was untimely.The effect of this order was to reinstate the January 20, 2010 foreclosure order against Rygielski and the May 19, 2010 order confirming sale of the Property to BAC.Because the court reinstated the May 19, 2010 order, the court found that Plaintiffs' quiet title claim against Rygielski was moot.Rygielski then filed two motions for reconsideration of court's December 3, 2015 order, which the court denied on July 7, 2016.On July 27, 2016, Rygielski's complaint for eviction was dismissed without prejudice, and she filed notice of appeal on August 8 and 9, 2016.

On May 18, 2016, Plaintiffs Beth and Marc Bortz filed the instant complaint against Defendant Bank of America, N.A. (BAC's successor-in-interest by merger) invoking this Court's diversity jurisdiction and asserting claims for breach of contract (Count I), breach of special warranty deed (Count II), and "title defects bar to financing"(Count III).Defendant moved to dismiss the complaint in its entirety [11], and Plaintiffs voluntarily dismissed Count III [18, 20].

II.Legal Standard

To survive a Federal Rule of Civil Procedure ("Rule")12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted, the complaint first must comply withRule8(a) by providing "a short and plain statement of the claim showing that the pleader is entitled to relief,"Fed. R. Civ. P. 8(a)(2), such that the defendant is given "fair notice of what the * * * claim is and the grounds upon which it rests."Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555(2007)(quotingConley v. Gibson, 355 U.S. 41, 47(1957))(alteration in original).Second, the factual allegations in the complaint must be sufficient to raise the possibility of relief above the "speculative level."E.E.O.C. v. Concentra Health Servs., Inc., 496 F.3d 773, 776(7th Cir.2007)(quotingTwombly, 550 U.S. at 555)."A pleading that offers 'labels and conclusions' or a 'formulaic recitation of the elements of a cause of action will not do.'"Ashcroft v. Iqbal, 556 U.S. 662, 678(2009)(quotingTwombly, 550 U.S. at 555).Dismissal for failure to state a claim under Rule 12(b)(6) is proper "when the allegations in a complaint, however true, could not raise a claim of entitlement to relief."Twombly, 550 U.S. at 558.In reviewing a motion to dismiss pursuant to Rule 12(b)(6), the Court accepts as true all of Plaintiffs' well-pleaded factual allegations and draws all reasonable inferences in Plaintiffs' favor.Killingsworth v. HSBC Bank Nevada, N.A., 507 F.3d 614, 618(7th Cir.2007).The "documents attached to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to his [or her] claim" and "may be considered by the district court in ruling on the motion to dismiss * * * without converting [it] to a motion for summary judgment."Wright v. Associated Ins. Cos. Inc., 29 F.3d 1244, 1248(7th Cir.1994).

III.Analysis

Defendant moves to dismiss Counts I (breach of purchase contract) for failure to state a claim, and to dismiss Count II (breach of warranty deed) on the grounds that it is barred by the statute of limitations, fails to state a claim, and is duplicative of Count I. Defendant also argues that both Counts I and II are barred by res judicata.The parties do not dispute that Illinois law governs here.Plaintiffs attached the Purchase Contract and Special Warranty Deed to thecomplaint [see 1-2, 1-3], which the Court considers in connection with ruling on the motion to dismiss.Wright, 29 F.3d at 1248.The Court begins with Count I.

1.Failure to State a Claim (Count I)

To state a claim for breach of contract under Illinois law, Plaintiffs must allege "(1) the existence of a valid and enforceable contract; (2) substantial performance by the plaintiff; (3) a breach by the defendant; and (4) the resultant damages."Reger Dev., LLC v. Nat'l City Bank, 592 F.3d 759, 764(7th Cir.2010) (quoting W.W. Vincent & Co. v. First Colony Life Ins. Co., 351 Ill. App. 3d 752, 758(2004).Plaintiffs claim that Defendant breached the Purchase Contract when Defendant"failed to disclose" Rygielski's pending petition to vacate.[1, ¶¶ 22-23.]Plaintiffs allege that this "claim or encumbrance arose during the time" when Defendant"was the record title holder to the Property and was based on the conduct and actions of [Defendant]."Id.¶ 24.Plaintiffs further allege that "[p]ursuant to the terms of the Purchase Contract and the contractual requirements of the Special Warranty Deed, [Defendant] warranted to Plaintiffs title to the Property free and clear of any encumbrances placed on the Property while [Defendant] owned record title to the Property."Id.¶ 25.As a result, Plaintiffs allegedly suffered damages of $185,000 in lost rental income from the Property.Id.¶ 26.

Defendant argues that the complaint never states exactly how the terms of the Purchase Contract were breached.The Court agrees.Plaintiffs do not allege in the complaint (or in their response) that Defendant actually breached Paragraph 21 of the Purchase Contract.That may be because Paragraph 21 does not expressly "warrant[] * * * title * * * free and clear of any encumbrances placed on the Property while [Defendant] owned record title to the Property."Id.¶ 25.The "covenant against encumbrances" is not necessarily the same as the "covenant of warranty."14-81A Powell on Real Property § 81A.03(2015)(noting that "[t]he covenantagainst encumbrances promises the grantee that there were no encumbrances,...