Page 22 - John Hundley 2014

In Edelman v. Belco Title & Escrow, LLC, __ F.3d __, 2014 WL 1646952 (7th Cir. 2014), investors in
a real estate development transferred their funds to the developing entity and received what purported to
be a first mortgage outside of the closing which was conducted by a title company owned by the
developing entity’s attorneys. The investors never had any direct contact with that title company, which
was aware that there in fact was a prior mortgage upon the property. The investors claimed the title
company owed them a duty to disclose that their mortgage in fact would not be in first position.

Noting that under Illinois law “an escrowee, like a trustee, owes a fiduciary duty to act only according
to the terms of the escrow instructions,” the court rejected plaintiffs’ claim. “The plaintiffs entered into a
loan agreement and handed over the cash directly to the borrowers without first ensuring that they were
actually getting what they paid for,” it said. “Illinois law does not hold [the escrow agent] responsible for
the plaintiffs’ interests under these circumstances.”

No Homestead Exemption For Non-Titled Spouse

A spouse who is not on title to property, but is the spouse of the titleholder and maintains the property
as her primary place of residence, cannot claim the homestead exemption under 735 ILCS 5/12-901, a
panel in the Appellate Court’s Second District has held.

Ruling in GMAC Mort., LLC v. Arrigo, 2014 IL App (2d) 130938, the panel appeared to accept the
proposition that “mere possession is insufficient to allow a nontitled spouse to claim the homestead
exemption.” It distinguished Brod v. Brod, 390 Ill. 312 (1945), because “the couple in that case owned the
property as joint tenants.”

No Inquiry Notice For Vendor’s Lien

Illinois recognizes the equitable vendor’s lien which arises when one pays for real estate but does not
receive it, but the concept of inquiry notice will not be applied to subject third parties to such liens, a panel
in the Appellate Court’s Third District has held.

Ruling in Stump v. Swanson Dev. Co., 2014 IL App (3d) 110784, the panel rejected an argument that
a bank was on inquiry notice of the vendor’s lien and that its failure to investigate defeated its attempt to
be a “bona fide purchaser” by virtue of its mortgage loan claim upon the property.

Noting that equitable vendor’s liens are disfavored, because “these secret liens on real estate often
produce injustice” if applied to third parties, the court said it found no legal or equitable justification for
applying inquiry notice to vendor’s liens. “We, therefore, hold that the concept of inquiry notice is not
applicable to equitable vendor’s liens and that the only time – if at all – a purchaser of a property interest
who is a stranger to the original transaction can be burdened with the original vendee’s equitable –
essentially moral – obligation . . . is when the subsequent purchaser or mortgagee for value has actual
knowledge about the prior purchase that would render his own purchase or mortgage tantamount to
complicity in fraud,” the court said (court’s emphasis).

- John T. Hundley, jhundley@lotsharp.com, 618-242-0246
Brenda\SharpThinking\#117.pdf

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