Shehekina v. Washington Mutual Bank et al

Filing 184

MEMORANDUM OPINION AND ORDER signed by the Honorable Matthew F. Kennelly on 8/7/12. (mk)

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

YELENA SHCHEKINA,

)
)
Plaintiff,
)
v.
)
)
WASHINGTON MUTUAL BANK, et al., )
)
Defendants.
)

Case No. 08 C 6094

MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge:
Yelena Shchekina has sued Washington Mutual Bank (WaMu), JPMorgan
Chase Bank (Chase), First Magnus Financial Corp., and Dmitry Ryaguzov to quiet title
in real estate located in Long Grove and for a declaratory judgment that, among other
things, none of the defendants has an interest in the real estate. The Court has
jurisdiction based on diversity of citizenship.
Shchekina contends, among other things, that her signature on loan and
mortgage documents executed in favor of First Magnus was forged. Chase is the
current holder of the First Magnus note and mortgage, having acquired them from
WaMu, which acquired them from First Magnus. Ryaguzov is alleged to be a current
tenant of the real estate.
Chase has counterclaimed, seeking a determination that if the First Magnus loan
and mortgage documents are found to have forged signatures, it should be found to be
subrogated to a previous note and mortgage in favor of HLB Mortgage, which the First
Magnus loan paid off. Alternatively, Chase asks to be subrogated to the last mortgage

in the chain that is determined to be valid. Chase also seeks an equitable lien in an
amount equal to its own loan or the loan accompanying the mortgage to which it is
found to be subrogated.
The case was reassigned to the undersigned judge after the unfortunate passing
of its respected colleague, Judge William J. Hibbler. Chase has moved for partial
summary judgment on its counterclaim. For the reasons stated below, the Court grants
Chase’s motion in part.
Background
In 2003, Shchekina and her husband purchased residential property located at
6517 Saddle Ridge Court, in Long Grove, Illinois. To purchase the property, they
borrowed $472,000 from WaMu and executed a purchase money mortgage in WaMu’s
favor to secure repayment of the loan. Shchekina and her husband later refinanced the
WaMu loan with Guaranty Residential Lending and executed a mortgage in Guaranty
Residential’s favor to secure the loan, also in the amount of $472,000. Shchekina
admits that she signed the documentation relating to both the WaMu note and
mortgage and the Guaranty Residential note and mortgage. Shchekina has testified
that she was aware that the Guaranty Residential loan was used to pay off the WaMu
loan.
In 2005-2006, there were three subsequent notes and mortgages relating to the
Long Grove property. The first transaction involved a mortgage in favor of Guaranty
Bank, which secured a loan in the amount of $592,000, at least part of which was used
to pay off the balance of the Guaranty Residential loan. The next transaction was with
HLB Mortgage and involved a loan of $650,000, which was used to pay off the
2

Guaranty Bank loan, and a mortgage in HLB’s favor to secure repayment. The last
transaction was a loan from First Magnus Mortgage in the amount of $650,000, which
was used to pay off HLB, and a mortgage to secure repayment to First Magnus. At
each juncture, when the new lender’s mortgage was recorded, the prior lender’s
mortgage was released.
As indicated earlier, First Magnus later assigned its note and mortgage to WaMu.
Chase acquired the note and mortgage via an FDIC receivership after WaMu failed.
Shchekina disputes the validity of Guaranty Bank, HLB, and First Magnus
mortgages. Specifically, she claims that her signatures on the mortgages and loan
documents were forged. Shchekina also denies knowing that these loans were taken
out to pay off the balances of the prior loans.
Shchekina has also offered the testimony of James Hayes, a handwriting expert.
Hayes reviewed only the First Magnus documents. He has testified that the signature
on the First Magnus documents does not appear to be Shchekina’s signature.
Shcheckina has also provided affidavits from two friends and colleagues who state that
they are familiar with her signature and that her purported signatures on the First
Magnus, HLB, and Guaranty Bank mortgages are not actually her signatures.
Discussion
Chase has moved for summary judgment on its counterclaim, in which it seeks
equitable subrogation and imposition of an equitable lien. Chase concedes for
purposes of the present motion that Shchekina’s signature on the First Magnus
documents was forged. Chase argues, however, that it should be allowed to assert the
rights of the mortgagee whose loan First Magnus paid off – in other words, that it should
3

be equitably subrogated to the HLB note and mortgage. In this regard, Chase contends
that Shchekina has not offered evidence sufficient to give rise to a genuine factual
dispute regarding the validity of the HLB mortgage. In the alternative, Chase asks the
Court to find that Chase is subrogated to the position of the mortgagee on the last
mortgage in the chain that the Court finds to be valid. Chase also requests imposition
of an equitable lien in its favor.
On a motion for summary judgment, the Court “view[s] the record in the light
most favorable to the non-moving party and draw[s] all reasonable inferences in that
party's favor.” Trinity Homes LLC v. Ohio Cas. Ins. Co., 629 F.3d 653, 656 (7th Cir.
2010). Summary judgment is appropriate “if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(a). A genuine issue of triable fact exists only if “the evidence is
such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v.
Liberty Lobby, 477 U.S. 242, 248 (1986).
1.

Authenticity of signatures
Shchekina has raised a genuine factual dispute concerning the authenticity of

her signatures on the First Magnus, HLB, and Guaranty Bank mortgages and related
loan documents. In this regard, she does not simply rely on her own denial that she
signed the documents. With regard to the First Magnus mortgage, Shchekina has
submitted an affidavit from a forensic document examiner, who says the signature does
not appear to be hers. With regard to the HLB and Guaranty Bank documents, she has
submitted affidavits from two colleagues who are familiar with her signature and state

4

that the signatures on these documents are not Shchekina’s signatures. See, e.g.,
United States v. Tipton, 964 F.2d 650, 655 (7th Cir. 1992) (lay opinion testimony
regarding identification of handwriting is admissible). This is sufficient to give rise to a
genuine factual issue regarding the authenticity of Shchekina’s purported signatures on
those documents. Cf. United States v. Binzel, 907 F.2d 746, 749-50 (7th Cir. 1990)
(disregarding affidavit of person who claimed familiarity with party’s signature but did
not “identify a relationship or course of business . . . that would reasonably familiarize
him with [the] signature”).
Chase points out that the signatures in question (or at least some of them) were
notarized. It invokes Illinois law to the effect that a notary’s certification of
acknowledgment of a signatory can only be overcome by clear and convincing evidence
and by disinterested witnesses. See Witt v. Panek, 408 Ill. 328, 333, 97 N.E.2d 283,
285 (1951). In U.S. Bank Nat’l Ass’n v. Cook, No. 07 C 1544, 2009 WL 35286, at *3
(N.D. Ill. Jan. 6, 2009), the court considered a summary judgment motion in a case in
which a party claimed that a notarized signature had been forged. The notary testified
or submitted an affidavit regarding the process he followed in notarizing signatures, and
each side submitted testimony from a handwriting expert, one of whom said the
signature was forged and the other of whom said it was genuine. The court concluded
that this evenly-balanced testimony could not establish forgery by clear and convincing
evidence and thus granted summary judgment. Id.
Putting aside whether this Court agrees with the decision in Cook, the case is
significantly different from this one. In the present case, there is no affidavit or

5

testimony from the notaries (who knows even whether their signatures are valid?), and
Chase has offered no evidence of its own regarding the genuineness of Shchekina’s
purported signatures, aside from the notaries’ jurats. The Court acknowledges that
clear and convincing evidence is a significant burden for Shchekina to clear. On a
summary judgment motion, however, the Court is constrained to conclude that there is
a genuine issue of fact regarding the genuineness of Shchekina’s signatures not only
on the First Magnus mortgage but also on the HLB and Guaranty Bank documents.
2.

Equitable subrogation / equitable lien
This, however, does not end the matter. As the Court has indicated, Chase

seeks equitable subrogation to the position of the last unchallenged mortgage.
Shchekina does not challenge the genuineness of her signature on the Guaranty
Residential mortgage, nor does she otherwise attack that mortgage or the related loan.
The Court therefore considers whether Chase may be deemed to be equitably
subrogated to the position of that mortgagee.
In Illinois, common law subrogation is generally limited to certain defined types of
cases, such as those involving insurers, sureties, and principals. See Home Sav. Bank
of Chi. v. Bierstadt, 168 Ill. 618, 623, 48 N.E. 161, 161-62 (1897). In addition, Illinois
recognizes what it calls the principle of “conventional subrogation,” which results from
“an equitable right springing from an express agreement with the debtor, by which one
advances money to pay a claim for the security of which there exists a lien, and by such
agreement he is to have an equal lien to that paid off.” Id. at 623, 48 N.E. at 162.
Chase’s claim falls into neither of these categories.

6

The Illinois courts and the Seventh Circuit have, however, recognized the
principle of “equitable subrogation” under Illinois law. The Seventh Circuit has
described this as follows:
The right of subrogation originated in equity. It allowed a person who was
compelled to pay someone else’s claim or debt to succeed to that
person's rights, so that the payor could recover from the individual whose
conduct gave rise to the claim or debt. In this way, courts sought to
achieve substantial justice, “by placing ultimate responsibility for the loss
upon the one against whom in good conscience it ought to fall.”
Subrogation can arise from an agreement (express or implied) between
the subrogor and subrogee, in which case it is often referred to as
conventional or contractual subrogation. But the right to subrogation does
not invariably depend on the existence of an agreement; equitable
subrogation can arise simply from the fact of payment.
Mut. Service Cas. Ins. Co. v. Elizabeth State Bank, 265 F.3d 601, 626 (7th Cir. 2001)
(applying Illinois law) (emphasis added; citations omitted).
The next question is whether it is appropriate to apply equitable subrogation in
this case. “Equitable subrogation is a creature of chancery that is utilized to prevent
unjust enrichment. There is no general rule that can be laid down to determine whether
a right of equitable subrogation exists, since the right depends upon the particular
equities of each particular case.” Aames Capital Corp. v. Interstate Bank of Oak Forest,
315 Ill. App. 3d 700, 706, 734 N.E.2d 493, 498 (2000). “[E]quitable subrogation
prevents the unearned enrichment of one party at the expense of another and will be
granted only where an equitable result will be reached.” Id. at 707, 734 N.E.2d at 498.
As the Illinois Appellate Court has stated, “[t]he application of the doctrine of equitable
subrogation does not depend upon any set of circumstances but depends upon the
equities of each individual case.” Union Planters Bank v. FT Mtg. Cos., 341 Ill. App. 3d

7

921, 925, 794 N.E.2d 360, 364 (2003).
The Illinois Supreme Court appears to have recognized the principle of equitable
subrogation in Ohio Nat’l Life Ins. Co. v. Bd. of Ed. Of Grant Comm. High Sch. Dist. No.
124, 387 Ill. 159, 55 N.E.2d 163 (1944). In that case, the court noted that “a mere
stranger or volunteer can not [sic], by paying a debt for which another is bound, be
subrogated to the creditor’s rights in respect to the security given by the real debtor.
But if the person who pays the debt is compelled to pay for the protection of his own
interest and rights, then the substitution should be made.” Id. at 178, 55 N.E.2d at 171.
In the present case, each mortgagee, in turn, was compelled to pay the prior mortgagee
to protect its own interest in the mortgaged property.
Even if Shchekina’s signature was forged on the Guaranty Bank, HLB, and First
Magnus mortgages, she received a benefit in each instance, in that any liability she
might have had with regard to the previous mortgage was extinguished by the later
mortgagee. To put it a bit more clearly, Shchekina concedes that she executed the
Guaranty Residential note and mortgage, and thus she was liable to Guaranty
Residential. Even though her signature was allegedly forged on the Guaranty Bank
documents, the execution of those documents extinguished her liability to Guaranty
Residential. Then, when the HLB note and mortgage were executed, any liability that
Shchekina might have had to Guaranty Bank was extinguished. Finally, when the First
Magnus note and mortgage were executed, any liability that she might have had to HLB
was extinguished. If Shchekina now is found to hold the property free and clear of
Chase’s (First Magnus’s) interest, she would be getting the benefit of being off the hook
on the prior debts and mortgages without having given anything in return. Chase, on
8

the other hand, would be left holding the bag. Chase advanced funds that were used to
pay off a prior loan, which in turn (indirectly) paid off a loan on which Shchekina was
concededly liable – the Guaranty Residential loan – and yet Chase would be unable to
recover anything from Shchekina and would have no lien on the property.
The Court has found two cases from states other than Illinois that apply
equitable subrogation in similar circumstances. In Chase v. Ameriquest Mortg. Co., 155
N.E. 19, 921 A.2d 369 (2007), the plaintiff and her then husband purchased a home.
They later executed a mortgage note, using the home as collateral. Several years later,
the husband executed a new note and mortgage with Ameriquest and thereby paid off
the original mortgage. He forged his wife’s name on the mortgage documents. Id. at
20, 921 A.2d at 371. The court noted that “despite the forgery, a benefit was conferred
on Ms. Chase when [defendant] paid her valid mortgage.” Id. at 23, 921 A.2d at 374
(internal quotation marks omitted). The court concluded that Ameriquest was equitably
subrogated to the original mortgage, stating that it had met the requirements for
application of equitable subrogation: Ameriquest was not a “volunteer” because it paid
the earlier mortgage to protect its interest in the home as collateral; it paid a debt on
which it was not primarily liable; it paid the entire debt (the earlier mortgage loan); and
there was no injustice vis-à-vis Ms. Chase because she had benefitted. Id. at 27-28,
921 A.2d at 376-77. The court ruled that Ameriquest was entitled to recover the
amount for which Ms. Chase would have been liable on the earlier loan,1 because “[t]o
1

The court declined to hold Ms. Chase liable for the entire amount of the Ameriquest
loan, which was larger than the earlier loan that Ameriquest had paid off, saying that
she “should not be made to bear an increased financial burden because Ameriquest
was not vigilant in making sure that all of the signatures on the mortgage instrument”
were valid. Chase, 155 N.H. at 28, 921 A.2d at 377.
9

hold otherwise would potentially yield a windfall for the plaintiff and could encourage
collusive deception against lenders.” Id. at 28, 921 A.2d at 377.
The Court in Chase relied in part on the Florida Supreme Court’s decision in
Palm Beach Sav. & Loan Ass’n, F.S.A. v. Fishbein, 619 So. 2d 267 (Fla. 1993), which
addressed a similar scenario. Mr. Fishbein acquired a home in his own name,
assumed a prior mortgage, and executed a purchase money mortgage. Later he and
Ms. Fishbein executed another mortgage that acknowledged the existence of the prior
mortgages. Several years later, Mr. Fishbein borrowed a large sum from the plaintiff
bank and secured the debt with a mortgage on the home. Despite knowing that the
Fishbeins were involved in divorce proceedings, the bank “permitted Mr. Fishbein to
obtain his wife’s signature on the mortgage without requiring her to sign the document
in the bank’s presence.” Id. at 268. Mr. Fishbein forged his wife’s signature on the
mortgage. During later foreclosure proceedings (which took place after Mr. Fishbein
had quitclaimed his interest during divorce proceedings), the trial court gave the bank
an equitable lien on the home to the extent its funds were used to satisfy the prior
mortgage. The Florida Supreme Court upheld this ruling. It noted that based on the
ruling, Ms. Fishbein “stands in no worse position than she stood before the execution of
the mortgage.” Id. at 270. It concluded that she was not entitled to the windfall that she
would obtain if she were to hold the property free and clear of any interest on the part of
the bank. Id. at 271.
The Court believes that Illinois law would follow a similar course. The Seventh
Circuit has made it clear that Illinois recognizes equitable subrogation, and that doctrine

10

has also been recognized (though only infrequently) by the state courts. “[E]quity will
not tolerate an unjust enrichment,” see People ex rel. Palmer v. Peoria Life Ins. Co.,
376 Ill. 517, 527, 34 N.E.2d 829, 834 (1941), and that is precisely what would occur
were Shchekina to obtain a ruling that she holds the property free and clear of any
interest on the part of Chase. Specifically, Shchekina is off the hook for the last
mortgage she concedes that she executed – the Guaranty Residential mortgage – and
that is so because that mortgage was paid off by another mortgagee whose documents
she denies signing. She obtained a benefit from the forgeries to that extent. And
because Chase (via First Magnus) effectively stepped into the place of the earlier
mortgagees, it will suffer an unjust harm if it is not equitably subrogated to the position
of Guaranty Residential.
Chase would likewise suffer an unjust harm were it not given an equitable lien to
the extent of the amount that was due on the Guaranty Residential loan at the time it
was paid off. Under Illinois law, equitable liens arise in two situations:
First, [an equitable] lien arises where the parties express in writing their
intention to make real or personal property, or some fund, the security for
a debt, or where there has been a promise to convey or assign the
property as security. Second, equity recognizes such a lien without an
express agreement between the parties, which arises wholly from general
considerations of fairness and justice. In either case, the essential
elements of an equitable lien are: (1) a debt, duty, or obligation owing by
one person to another, and (2) a res to which that obligation attaches.
Paine/Wetzel Assoc. v. Gities, 174 III. App. 3d 389, 393, 528 N.E.2d 358 (1988)
(internal citations and quotation marks omitted). There is no express agreement here,
but the requirements for an equitable lien are met: the existence of a debt arises from
the Court’s determination that Chase is equitably subrogated to the Guaranty
11

Residential mortgage, and the res, of course, still exists.
The Court therefore concludes that Chase is entitled to imposition of an
equitable lien against the property. Based on the current record, the amount secured
by the lien would be the amount that was due on the Guaranty Residential loan when it
was paid off by way of the Guaranty Bank loan (not more than $472,000, and perhaps
less). The Court notes that were it determined after a trial that Shchekina’s signatures
on the Guaranty Bank or the HLB mortgage documents are valid, Chase would be
entitled to an equitable lien in a greater amount.
Conclusion
For the reasons stated above, the Court grants in part defendant JPMorgan
Chase Bank’s motion for partial summary judgment and determines that defendant is
subrogated to the position of Guaranty Residential Lending and has an equitable lien
securing the amount due to Guaranty Residential loan that was paid by Guaranty Bank.
The case is set for a status hearing on August 16, 2012 at 9:30 a.m. Counsel for all
parties remaining in the case are to attend and are to be prepared to address what
issues remain for determination in the case.

________________________________
MATTHEW F. KENNELLY
United States District Judge
Date: August 7, 2012

12