catcity-ga,
There appear to be a handful of recent Illinois cases that provide
precedent for the situation you described. I've noted the most
relevant cases -- along with excerpts from the decisions -- in the
answer, below.
As you'll see, the matter of who has priority is very context-specific
-- different cases swing different ways regarding the balance between
mechanics liens and mortgage holders. However, these cases should
give you and your lawyer some very good grist for the mill.
Before rating this answer, please let me know if you need any further
details, or any additional information. Just post a Request for
Clarification, and I'll be happy to assist you further.
All the best...
pafalafa-ga
==========
STATE BANK OF LAKE ZURICH, Plaintiff-Appellant, v. WINNETKA BANK
No. 2-92-0626
245 Ill. App. 3d 984
APPELLATE COURT OF ILLINOIS, SECOND DISTRICT
May 24, 1993, Filed
Plaintiff, State Bank of Lake Zurich (State Bank), initiated this
action to foreclose its mortgage on certain real property located in
North Barrington, Illinois. Numerous contractors were joined as
defendants, who in turn filed counterclaims to foreclose their
mechanic's liens on the property. Theodore Brickman Company
(Brickman), Ewing-Doherty Mechanical, Inc. (Ewing), and Spancrete of
Illinois (Spancrete) are the only such defendants involved in this
appeal. After a bench trial, the circuit court of Lake County held the
mechanic's lien claims of these remaining contractors stood equally
with each other and had priority over State Bank's mortgage lien.
State Bank appeals, contending (1) State Bank has priority over
Brickman's mechanic's lien because the bank's mortgage was recorded
before Brickman...entered into its construction contract, and (2)
State Bank is in parity with Spancrete and Ewing since it paid for the
bulk of the enhancement to the property. We affirm.
...The evidence overwhelmingly supports the trial court's finding that
Brickman was a subcontractor whose construction contract related back
to the owner's original contract with S.G. Royal, Ltd., and gave
Brickman's subcontractor lien priority in time to the filing of the
plaintiff's mortgage.
...State Bank argues that since it paid $ 940,000, or approximately
90%, of the cost of ... the improvements, the bank contends it will
suffer 100% of the loss if not given priority over these remaining
subcontractors...The priority of claims as between a subcontractor and
a mortgagee is a function of the priority as between (1) the date of
recording of the mortgage, i.e., the date when the subcontractor is
considered to have constructive notice, and (2) the date of execution
of the underlying construction contract pursuant to which the
materials or services were provided by the subcontractor. ...
Generally, the priority of a contractor's lien must be based on its
strength as a contributor to the enhanced value of the property... In
Detroit Steel Products Co. v. Hudes (1958)... the court determined
that since the materialman's contract antedated the mortgage
recording, the ... language of section 16 as it relates to proof of
enhancement was clearly inapplicable and the entire claim of the
materialman, properly perfected under the Act, had absolute priority
both as to land and improvements.... Similarly, Ewing's and
Spancrete's contracts predated the recording of State Bank's June
mortgage.
==========
Fannie Mae v. Kuipers
No. 2-99-0933 & 2-99-1377 cons.
APPELLATE COURT OF ILLINOIS, SECOND DISTRICT
314 Ill. App. 3d 631
June 28, 2000, Filed
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...
...Our holding is also supported by case law from other jurisdictions.
We note that the court in United States v. Eklund, 369 F. Supp. 1052
(S.D. Ill. 1974), addressed precisely the same questions as in the
present case. At issue in Eklund was whether intervening mechanics
liens would receive priority over a mortgage lien held by the Small
Business Administration, which had taken an assignment from a
mortgagee bank after the mechanics liens had been recorded. The court
held that the recordation by the original mortgagee bank was
sufficient to provide notice of the mortgage lien and rejected the
argument that the government's lien did not attach until the date on
which the bank assigned the mortgage. Eklund, 369 F. Supp. at 1054-55.
==========
AAMES Capital Corp. v. Interstate Bank
No. 2-99-1280
APPELLATE COURT OF ILLINOIS, SECOND DISTRICT
315 Ill. App. 3d 700
July 31, 2000, Filed
This appeal arises from a dispute concerning lien priority in a
mortgage foreclosure proceeding. The issue is whether a mortgagee that
pays off a priority mortgage pursuant to a refinancing agreement is
entitled to be subrogated to the priority mortgage lien recorded by
the...original mortgagee.
...Although conventional subrogation... is seen sporadically in
Illinois case law, equitable subrogation is even more elusive. One of
the few modern applications of equitable subrogation is seen in
Detroit Steel Products Co. v. Hudes, 17 Ill. App. 2d 514, 517, 151
N.E.2d 136 (1958). In Hudes, the court found that equitable
subrogation would apply to advance the claims of the mortgagee bank in
a mechanics' lien foreclosure where the bank had required that the
borrower pay certain claims of a material provider from the loan
proceeds. The trial court found that the bank's mortgage would be
subrogated to the priority position of the material provider to the
extent that the material provider had been paid from the loan
proceeds.
==========
LaSalle Bank v. First Am. Bank
Nos. 1-98-1388 & 1-98-3292 (Cons.)
APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, SECOND DIVISION
316 Ill. App. 3d 515
September 12, 2000, Decided
This mortgage foreclosure action was initiated by appellee LaSalle
Bank, N.I. (LaSalle), formerly known as LaSalle [**622] Bank
Northbrook, which had a mortgage lien on property commonly known as
828 Pony Lane, in Northbrook, Illinois (the subject premises).
Appellant Daniel Lopez, who had signed a purchase contract on the
subject premises and had advanced a sum of money to the now bankrupt
legal owner, filed an answer and counterclaim. LaSalle and Lopez
disagreed as to the priority of their respective liens on the subject
premises. Lopez moved for summary judgment. His motion was denied and
LaSalle then moved for summary judgment. The court granted summary
judgment for LaSalle, finding that LaSalle's mortgage lien had
priority over any vendee's lien Lopez might have in the subject
premises....
...The LaSalle mortgage loan was in default and, on May 14, 1996,
LaSalle filed suit to foreclose on the mortgage. Lopez answered the
complaint and filed a counterclaim seeking specific performance of the
purchase contract between himself and Brandess and requested that the
court find his vendee's lien prior...superior, and paramount to
LaSalle's mortgage lien. Several subcontractors and tradesman also
asserted mechanic's lien claims against the subject premises.
...The judgment awarded LaSalle a lien prior to that of Lopez in the
amount of $ 220,669.27. That amount included not only the $ 150,000
related to the Parkway mortgage but also interest, late charges,
attorney fees, and costs. The judgment also settled the claims of six
mechanic's lien claimants for a total payment of $ 49,295 provided
LaSalle were the successful bidder at the judicial sale. If, however,
LaSalle were not the successful bidder, the claims of all mechanic's
lien claimants would remain in full force and effect against the
subject premises. The...judgment left unresolved, no matter who the
successful bidder was, the claim of one other mechanic's lien
claimant.
...The trial court...also stated that it was deferring prioritization
of any lien Lopez might have in relation to the remaining principal
amount of the LaSalle mortgage and the mechanic's lien claims. Lopez
objected, asking that the court prioritize his lien prior to the
judicial sale.
==========
M. Ecker & Co. v. LaSalle Nat'l Bank
1-93-4160
APPELLATE COURT OF ILLINOIS
FIRST DISTRICT, SECOND DIVISION
268 Ill. App. 3d 874
February 8, 1995
This appeal arises from a 1991 lawsuit filed by Inter-American
Insurance Company (Inter-American) to foreclose a mortgage it held on
property owned by a land trust with LaSalle National Bank as trustee
(LaSalle Trust). Jackson/Green Limited Partnership (Jackson/Green)
held the beneficial interest in the LaSalle Trust. Ken-Lee Hardware
Company (Ken-Lee) countersued to foreclose a mechanic's lien that it
recorded against the same property. Ken-Lee appeals the circuit
court's order denying its motions for summary judgment and for leave
to amend its counterclaim, and granting Inter-American's motion for
partial summary judgment. Ken-Lee questions whether the court erred
when it held, as a matter of law, that Ken-Lee's mechanic's lien was
subordinate... to Inter-American's mortgage lien, in improperly
resolving an existing factual conflict by granting summary judgment to
Inter-American, and in denying leave to amend its counterclaim.
...Ken-Lee's proposed amendment, made two years after it filed its
notice of lien and one year after its counterclaim, is merely an
attempt to avoid the unfavorable effect of the Act, which gives
Inter-American's mortgage lien priority. The proposed amendment would
not cure the defects in Ken-Lee's pleading because, as previously
discussed, the undisputed facts indicate that August 27, [*882] 1990
was the last date of performance of its contract with TKO. Ken-Lee
cannot use the additional, unauthorized work for Arc to extend the
time for filing its lien. The circuit court properly denied the
proposed amendment... and Ken-Lee's attempt to avoid an adverse ruling
under the Act. ...For the reasons set forth above we affirm the
decision of the circuit court.
==========
Teerling Landscaping v. Chicago Title & Trust Co.
No. 2-94-0496
APPELLATE COURT OF ILLINOIS, SECOND DISTRICT
271 Ill. App. 3d 858
April 20, 1995, FILED
Plaintiff, Teerling Landscaping, Inc., appeals from an order of the
circuit court of Du Page County dismissing counts I and III of
plaintiff's amended complaint. Plaintiff initiated this lawsuit
against numerous defendants to foreclose a mechanic's lien. Only three
of the named defendants are appellees in this appeal. They are:
Resolution Trust Corporation (RTC), receiver and substitute defendant
for Irving Federal Savings & Loan Association, n/k/a Irving Bank for
Savings (Irving Federal); Old Kent Bank (Old Kent); and First Federal
Savings & Loan Association of Rockford, n/k/a First Federal Bank
F.S.B. (First Federal). The other named defendants have either been
defaulted or have not submitted pleadings.
...plaintiff was clearly a nonrecord claimant in the mortgage
foreclosure case filed by Irving Federal. Plaintiff claimed an
interest in the mortgaged property by virtue of a mechanic's lien.
However, plaintiff had not yet recorded its mechanic's lien claim when
Irving Federal recorded its notice of foreclosure on December 3, 1991.
Plaintiff did not record its mechanic's lien claim until March 31,
1992. Thus, plaintiff's name and interest were not disclosed of record
at the time Irving Federal recorded its notice of foreclosure. Nor has
plaintiff asserted that a proceeding under the law in effect at the
time the foreclosure commenced afforded constructive notice of the
existence of its interest in the property.
...we conclude that the termination of plaintiff's mechanic's lien
rights in this case did not violate plaintiff's right to due
process....Based on the foregoing, we affirm the trial court's
dismissal of count I of plaintiff's amended complaint as to RTC. For
the reasons stated in the remainder...of this decision, we also affirm
the trial court's dismissal of count I of the complaint as to Old Kent
and First Federal and reverse the trial court's dismissal of count III
of the complaint.
==========
These appear to be the major, relevant cases of fairly recent vintage.
There were quite a number of historical cases on this topic going
back 50-100 years, or more, but I deliberately kept my review focused
on cases from the past decade or so, as they are likely to be more
relevant, and the major legal precedents established by earlier cases
are likely to be cited in these more recent cases.
Again, let me know if you need any additional information.
pafalafa-ga
search strategy: searched several legal databases for Illinois cases
with the terms [ mechanic's lien and mortgage ] |
