Federal Nat. Mortg. Ass'n v. Kuipers

Decision Date28 June 2000
Docket Number No. 2-99-1377., No. 2-99-0933
Citation732 N.E.2d 723,314 Ill. App.3d 631,247 Ill.Dec. 668
PartiesFEDERAL NATIONAL MORTGAGE ASSOCIATION, Plaintiff and Counterdefendant-Appellee, v. Dale D. KUIPERS; Beverly G. Kuipers; Kane County Bank and Trust Company; Unknown Tenants; Unknown Owners and Nonrecord Claimants, Defendants (Lisa R. Fortney, Defendant and Counterplaintiff-Appellant).
CourtUnited States Appellate Court of Illinois

James T. Crotty, Drew Balac, James T. Crotty & Associates, Chicago, for Lisa R. Fortney.

Amelia S. Newton, Pierce & Associates, P.C., Chicago, for Federal National Mortgage Association in No. 2-99-0933.

Robert J. Britz, Ottosen, Trevarthen, Britz, Dooley & Kelly, Ltd., Elburn, for Kane County Bank & Trust Co.

Amelia S. Newton, Pierce & Associates, P.C., Chicago, for Federal National Mortgage Association, Beverly G. Kuipers, Dale D. Kuipers in No. 2-99-1377.

Justice GEIGER delivered the opinion of the court:

This appeal arises from a dispute concerning lien priority in a mortgage foreclosure proceeding. The issue is whether an assignee of a priority mortgage may maintain that priority position over a judgment creditor without recording the assignment of mortgage.

On July 24, 1994, Dale Kuipers and Beverly Kuipers executed a note and mortgage for the sum of $100,000 in favor of Medallion Mortgage Company (Medallion). The note and mortgage were filed with the Kane County recorder's office on August 1, 1994. Pursuant to their terms, the note and mortgage were assignable to third parties. On August 3, 1994, Medallion assigned the note and mortgage to the counterdefendant, Federal National Mortgage Association (FNMA).

On July 26, 1996, the counterplaintiff, Lisa Fortney, had obtained a judgment against the Kuiperses in the amount of $650,000. Fortney recorded a memoranda of judgment with the Kane County recorder's office on June 25, 1997.

On September 8, 1998, FNMA filed this foreclosure action after the Kuiperses defaulted on the note. In its foreclosure complaint, FNMA alleged that Fortney's judgment lien was inferior and subordinate to FNMA's first mortgage lien. On October 2, 1998, FNMA recorded the assignment it had received from Medallion.

Fortney filed a counterclaim in the foreclosure, alleging that her judgment lien was recorded prior to the FNMA lien and, therefore, had priority. Both Fortney and FNMA filed motions for summary judgment as to lien priority. The trial court entered an order denying Fortney's motion and granting FNMA's motion, ruling that FNMA had first lien priority.

On appeal, Fortney argues that, because her judgment lien was recorded prior to the FNMA assignment, her lien takes priority. Fortney argues that the transfer of the note and mortgage extinguished all of Medallion's interest and that FNMA did not stand in the shoes of Medallion with regard to lien priority. According to Fortney, section 30 of the Conveyances Act (765 ILCS 5/30 (West 1996)) required FNMA to record the assignment in order to maintain priority as to any bona fide purchasers or creditors who filed liens against the property.

FNMA responds that the lien filed by Medallion has never been released and that the assignment did not operate to extinguish the lien. Thus, FNMA reasons, it was not necessary for it to record the assignment in order to maintain first lien priority, as the original lien provided sufficient notice to third parties of the existence of the first mortgage. FNMA further argues that, after the assignment, it stood in the shoes of Medallion.

We review the trial court's summary judgment order de novo. Wiseman-Hughes Enterprises, Inc. v. Reger, 248 Ill.App.3d 854, 857, 187 Ill.Dec. 589, 617 N.E.2d 1310 (1993)

. A lien is a hold or claim that one party has on the property of another for a debt. Podvinec v. Popov, 266 Ill.App.3d 72, 77, 203 Ill.Dec. 293, 639 N.E.2d 613 (1994),

rev'd on other grounds,

168 Ill.2d 130, 212 Ill.Dec. 951, 658 N.E.2d 433 (1995). A lien that is first in time generally has priority and is entitled to prior satisfaction of the property it binds. Cole Taylor Bank v. Cole Taylor Bank, 224 Ill.App.3d 696, 704, 166 Ill.Dec. 817, 586 N.E.2d 775 (1992).

A mortgage is a type of consensual lien on real property. See 735 ILCS 5/15-1207 (West 1996). Specifically, it is an interest in land created by written instrument providing security in real estate to secure the payment of a debt. Resolution Trust Corp. v. Holtzman, 248 Ill.App.3d 105, 111, 187 Ill.Dec. 827, 618 N.E.2d 418 (1993). Under the Illinois Mortgage Foreclosure Law (735 ILCS 5/15-1101 et seq. (West 1996)), a mortgage lien is created upon the recording of the mortgage with the recorder of deeds. See 735 ILCS 5/15-1301 (West 1996); see also Firstmark Standard Life Insurance Co. v. Superior Bank FSB, 271 Ill.App.3d 435, 439, 208 Ill.Dec. 409, 649 N.E.2d 465 (1995).

The perfection of mortgage liens is governed also by the Conveyances Act (765 ILCS 5/1 et seq. (West 1996)). Section 28 of the Conveyances Act provides that deeds, mortgages, and other instruments relating to or affecting the title to real estate shall be recorded in the county in which such real estate is situated. 765 ILCS 5/28 (West 1996). The purpose of this section is to give third parties the opportunity to ascertain the status of title to the property. Lubershane v. Village of Glencoe, 63 Ill.App.3d 874, 879, 20 Ill.Dec. 681, 380 N.E.2d 890 (1978). The purchaser of real estate may rely on the public record of conveyances and instruments affecting title unless he has notice or is chargeable with notice of a claim or interest that is inconsistent with the record. Bullard v. Turner, 357 Ill. 279, 283, 192 N.E. 223 (1934).

Section 30 of the Conveyances Act provides as follows:

"All deeds, mortgages and other instruments of writing which are authorized to be recorded, shall take effect and be in force from and after the time of filing the same for record, and not before, as to all creditors and subsequent purchasers, without notice; and all such deeds and title papers shall be adjudged void as to all such creditors and subsequent purchasers, without notice, until the same shall be filed for record." 765 ILCS 5/30 (West 1996).

The purpose of this section is to protect subsequent purchasers against unrecorded prior instruments. Farmers State Bank v. Neese, 281 Ill.App.3d 98, 106, 216 Ill.Dec. 474, 665 N.E.2d 534 (1996). A presumption exists that the first mortgage recorded has priority. Firstmark, 271 Ill.App.3d at 439, 208 Ill.Dec. 409, 649 N.E.2d 465. An unrecorded interest in land is not effective as to a bona fide purchaser without notice. Schaumburg State Bank v. Bank of Wheaton, 197 Ill.App.3d 713, 720, 144 Ill.Dec. 151, 555 N.E.2d 48 (1990). However, where a party has constructive notice of a prior interest in real estate, the failure to record is not necessarily fatal to the rights of the prior interest holder. See Dana Point Condominium Ass'n, Inc. v. Keystone Service Co., 141 Ill.App.3d 916, 922, 96 Ill.Dec. 249, 491 N.E.2d 63 (1986).

When a mortgage debt is satisfied, the mortgagee or its assignee must file a release of the mortgage lien. See 765 ILCS 905/2 (West 1996). Section 2 of the Mortgage Act provides that a mortgage may be released only pursuant to this method. 765 ILCS 905/2 (West 1996). Until such release is filed, the mortgage lien remains in effect.

The assignment of a mortgage note carries with it an equitable assignment of the mortgage by which it was secured. Inland Real Estate Corp. v. Oak Park Trust & Savings Bank, 127 Ill. App.3d 535, 542, 82 Ill.Dec. 670, 469 N.E.2d 204 (1983); see also Moore v. Lewis, 51 Ill.App.3d 388, 391-92, 9 Ill.Dec. 337, 366 N.E.2d 594 (1977) (a mortgage, which is a mere incident to a debt, is not assignable at law, and the transfer of the debt carries with it the mortgage security). The assignee stands in the shoes of the assignor-mortgagee with regard to the rights and interests under the note and mortgage. Community Bank v. Carter, 283 Ill.App.3d 505, 508, 218 Ill.Dec. 791, 669 N.E.2d 1317 (1996).

Fortney argues that Farmers State Bank v. Neese, 281 Ill.App.3d 98, 216 Ill. Dec. 474, 665 N.E.2d 534 (1996), directly controls the outcome of this case. For the reasons that follow, we believe that Neese does not squarely address the issue of whether the assignee stands in the assignor-mortgagee's shoes with regard to rights under the mortgage lien.

In Neese, the defendants had entered into an installment contract for the sale of real estate in July 1989. In November 1989, they obtained a loan from the plaintiff and assigned their interest in the contract as part of the security for the loan. In July 1991, the Internal Revenue Service (IRS) filed a notice of tax lien against the defendants with the recorder of deeds. In June 1992, the plaintiff recorded the assignment and the contract with the recorder of deeds.

In July 1994, the plaintiff instituted foreclosure proceedings. In November 1994, the plaintiff paid the balance due under the July 1989 installment contract due to the defendants' default. Following the foreclosure sale, the trial court first allocated to the plaintiff the amounts it paid to satisfy the July 1989 installment contract. The trial court ruled that, with regard to the remaining proceeds, the IRS lien would take priority over the lien created when the plaintiff recorded in June 1992 the assignment of rights under the installment contract.

On appeal, the plaintiff argued that, because its loan predated the notice of tax lien, it took priority over the IRS. The plaintiff reasoned that neither the contract for deed nor the assignment was required to be recorded because they did not fall within the ambit of the Conveyances Act. The court disagreed and held that the taking of an assignment of a contract for deed is a conveyance of a property interest and had to be recorded in order to provide notice to third parties. Therefore, the court held that, even though ...

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