Citibank, N.A. v. Accurate Steel Installers, Inc. et al

Filing 73

MEMORANDUM Opinion and Order: For the reasons stated herein, the Court's March 5, 2018 opinion stands, and the Court further orders that because CCM is a bona fide mortgagor for value, CCM's mortgage has priority over the judgment lien on the Willowbrook Property. Signed by the Honorable Harry D. Leinenweber on 3/20/2018:Mailed notice(maf)

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

RADIANCE CAPITAL RECEIVABLES
THIRTEEN, LLC, as Assignee
of CITIBANK, N.A.,
Plaintiff,
v.
ACCURATE STEEL INSTALLERS,
INC., an Illinois
corporation; PERDEL
CONTRACTING CORPORATION, an
Illinois corporation; and
ELIZABETH PERINO,
Individually,

Case No. 13 C 7481
Judge Harry D. Leinenweber

Defendants.

ELIZABETH PERINO, Trustee of
the Elizabeth Perino
Irrevocable Trust; and
ELIZABETH PERINO,
Citation Respondents.
MEMORANDUM OPINION AND ORDER
Plaintiff

Radiance

Capital

Receivables

Thirteen,

LLC

(“Radiance”) has won turnover of one parcel of real estate from
Defendant Elizabeth Perino (“Perino”).

Radiance now seeks a

ruling that its judgment lien on that real estate takes priority
over the mortgage on the same held by Perino’s lawyers, Cooney,
Corso and Moynihan, LLC (“CCM”).

For the reasons stated herein,

the Court leaves intact its previous ruling (ECF No. 69) but
denies Radiance the priority ruling it seeks.
I.
This
ordered,

is

a

and

BACKGROUND

supplemental

the

parties

ruling

produced,

reached

after

additional

Radiance’s Motion for Turnover. (ECF No. 56.)

the

Court

briefing

on

The Court assumes

familiarity with the facts described in its earlier opinion and
now recounts them only briefly.
and Order, ECF No. 69.)

(See, March 5, 2018 Mem. Op.

Perino owns the Willowbrook Property, a

residential parcel apparently worth fighting over.

An unrelated

mortgagor has already initiated foreclosure proceedings on the
Property,
assignee,

and
and

two
CCM,

parties—Radiance,
Perino’s

take of the proceeds.

Citibank’s

attorneys—claim

rights

judgment
to

second

The most important events are these:

In

August 2013, Perino transferred the Property to an irrevocable
trust.

In

March

2014,

Citibank

recorded

a

judgment

against

Perino.

Then in June 2014, CCM agreed to represent Perino on

the condition that she pay them in advance by mortgaging the
Willowbrook Property to CCM.
in June 2015.

CCM later recorded that mortgage

(Id. at 2-5 (summarizing facts of the case).)

Finally, in March 2018, this Court held that Perino’s August
2013 transfer was fraudulent and thus void under the Illinois
Uniform Fraudulent Transfer Act.
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(Id. at 15-16.)

That ruling

returned

the

Property

from

the

trust

to

Perino’s

hands

and

rendered it susceptible to her creditors, including Radiance.
However, because by the time of that ruling the parties had not
yet briefed the issue of lien priority between Radiance and CCM,
the

Court

(Id.)

ordered

further

Ultimately,

the

briefing

question

limited

of

to

priority

that
comes

subject.
down

to

whether CCM’s mortgage—agreed to when the Property was held by
Perino’s

nominally

irrevocable

trust,

and

thus

ostensibly

shielded from creditors like Radiance—is entitled to protection
under the bona fide purchaser rule.

If so, CCM’s mortgage takes

priority over Radiance’s claim. If not, the priority goes to
Radiance.
II.

DISCUSSION

CCM may prove they were bona fide purchasers if they paid
value for the mortgage and did so without notice that their
rights in the mortgage could be imperiled by the proceedings
against Perino.

See, Sobilo v. Manassa, 479 F. Supp. 2d 805,

824 (N.D. Ill. 2007) (citing First Midwest v. Pogge, 687 N.E.2d
1195,
value:

1198

(Ill.

They

App.

accepted

Ct.
the

1997)).
mortgage

First,

CCM

as

advanced

an

clearly

gave

payment

retainer in exchange for representing Perino, which they have
done and continue to do.

The question, then, is whether CCM was

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on notice back in June 2015 that Radiance had a superior claim
to the Property.
Radiance says this analysis is straightforward.

Citibank,

its predecessor in interest, recorded the judgment in DuPage
County against Perino about one year before CCM accepted the
mortgage.

From that moment on, Citibank had a judgment lien on

all real estate Perino owned in DuPage County.
101.

735 ILCS 5/12-

Lien priority is determined in Illinois by the “first-in-

time, first-in-right” rule.

765 ILCS 5/30; Aames Capital Corp.

v. Interstate Bank of Oak Forest, 734 N.E.2d 493, 496 (Ill. App.
Ct. 2000).

Under this rule, Citibank’s recorded judgment gave

it a trump card in lien contests with subsequent purchasers or
encumbrancers

so

long

as

those

parties

were

not

bona

purchasers for value without notice of Citibank’s lien.
First Midwest, 687 N.E.2d at 1198.

fide
See,

According to Radiance, CCM

does not fit the “bona fide purchaser” mold because Citibank’s
earlier-recorded judgment against Perino put CCM on notice of
Citibank’s

lien

against

the

Willowbrook

Property.

“[A]

prospective purchaser of real estate or of an interest in real
estate

is

chargeable

grantor-grantee

with

index,

knowledge

the

maintained by the Recorder.”

legal

of

what

record

appears
required

in

the

to

be

In re Heaver, 473 B.R. 734, 737-38

(Bankr. N.D. Ill. 2012) (quoting Landis v. Miles Homes Inc., 273
- 4 -

N.E.2d 153, 155 (Ill. App. Ct. 1971)), aff’d sub nom. Branch
Banking & Tr. Co. v. Olsen, No. 14 C 50027, 2014 WL 2154906
(N.D.

Ill.

May

conducted

due

22,

2014).

diligence

Radiance

before

reasons

agreeing

to

that
the

when

CCM

Willowbrook

mortgage, CCM should have seen the judgment against Perino and
thus

had

notice

that

their

potential

property

rights

Willowbrook would be imperiled by Citibank’s prior lien.
Midwest, 687 N.E.2d at 1199.

in

First

Finally, Radiance notes that it

automatically succeeded to Citibank’s 2014 priority filing date
when Citibank assigned over the judgment.

Fed. Nat. Mortgage

Ass’n v. Kuipers, 732 N.E.2d 723, 728-29 (Ill. App. Ct. 2000)
(mortgage
maintain

assignee
priority

is

not

position

required
of

its

to

record

assignor

assignment

over

to

subsequently

filed judgment lien).
There is a wrinkle on this last point which requires some
digression.

CCM

now

points

out

(for

the

first

time)

that

Radiance executed the assignment of judgment from Citibank to
itself pursuant to a limited power of attorney (“LPOA”) that
actually expired about two weeks before Radiance executed the
assignment.

(See, Modified Assignment of Judgment, ECF No. 26.)

CCM

to

appears

be

right,

although

they

ignore

that

Radiance

earlier filed a timely executed assignment (which misstated the
date and value of the assigned judgment, apparently requiring
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the later filing of the modified assignment).
Assignment of Judgment, ECF No. 25.)

(See, Original

Because this issue does

not affect the Court’s analysis, we will not wade further in.
If Citibank has not properly assigned the judgment to Radiance,
the contest at bar is not changed.

Either the judgment lien or

CCM’s mortgage takes priority, and the Court needs to sort out
which.

For present purposes, the precise ownership of the lien

does not much matter.
Turning back to the merits of the dispute, the heart of
CCM’s

rebuttal

encumbrance]

is

be

simple:

recorded

“It

in

is

not

enough

the

grantor-grantee

that

[an

index.

To

constitute constructive notice, a recorded [encumbrance] ‘must
be in the chain of title.’”

Heaver, 473 B.R. at 737-38 (quoting

Landis, 273 N.E.2d at 155).

By the time CCM conducted their due

diligence

into

Property;

her

Willowbrook,
trust

did.

Perino
And

no

longer

a

judgment

while

owned

that

against

an

individual becomes a lien on that person’s real estate once it
is recorded, no lien manifests on real estate when a creditor
records judgment against the beneficiary of a land trust that
holds that property.
Pogue,

389

explains

N.E.2d

that

First Fed. Sav. & Loan Ass’n of Chi. v.

652,

when

655

they

(Ill.
looked

App.
up

Ct.
the

1979).

CCM

now

Property

in

the

grantor/grantee index, they only searched under the trust—and
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not under Perino herself—because the trust was the title holder
of the Property.

The Citibank lien did not appear in that

search result (although it would have appeared had CCM searched
for Perino’s name instead).
required of them:

CCM thus maintain they did what was

They searched the grantor/grantee index for

the trust, which was the uncontested owner of record at the
time.

CCM

say

they

agreed

to

the

mortgage

in

good

faith,

believing it was protected from judgment by the trust, and this
Court’s

subsequent

fraudulent

transfer

determination

cannot

strip away their good faith defense.
Although
comparison

in

an

imperfect

In

re

(Bankr. C.D. Ill.

fit,

Duckworth,

the

No.

Sept. 24, 2012).

held rights in a debtor’s crops.

Court

finds

11-8104,

2012

a
WL

useful
4434681

In that case, creditors

Id. at *1.

Before filing for

bankruptcy, the debtor established shell corporations for the
purpose of selling grain free of the creditors’ liens.
Those

two

shell

corporations

established

bank

Id.

accounts

to

collect the grain-sale proceeds, and then disbursed those funds
into

the

newly

corporation.
third

shell

created

Id.

bank

account

of

a

third

shell

After the debtor filed for bankruptcy, the

corporation

paid

about

$1,200

of

the

collected

grain-sale proceeds to a general store for purchases related to
the

debtor’s

living

expenses.
- 7 -

Id.

The

bankruptcy

trustee

brought

an

adversary

proceeding

against

the

general

store,

seeking to avoid the $1200 payment it received from the shell
corporation.
avoidance

of

Id. at *2 (citing 11 U.S.C. §§ 549-550 (permitting
unauthorized

post-petition

transfers)).

Under

Section 550 of the Bankruptcy Code, an avoided transfer can be
recovered from the “initial transferee”; avoided transfers can
also be recovered from an “immediate or mediate” transferee of
the initial transferee unless that subsequent transferee took
the transfer for value, in good faith, and without knowledge of
its voidability.

Id. at *2; cf. Sobilo v. Manassa, 479 F. Supp.

2d 805, 824 (N.D. Ill. 2007) (describing bona fide mortgagor
defense for mortgagors who pay value, in good faith, without
notice

that

proceedings).

their

rights

could

be

imperiled

by

ongoing

The debtor later pled guilty to money laundering

and bankruptcy fraud, so by the time the parties appeared before
the Duckworth court there was no dispute that the grain transfer
to the shell corporations was fraudulent and avoidable.

Thus,

the Duckworth court had only to determine whether, in the final
transfer

of

funds

from

the

shell

corporation

to

the

general

store, the store had been a good faith, mediate transferee and
thus shielded from liability.

Id. at *5.

Two of that court’s analyses are relevant here.

First, the

court determined that the deposit of grain-sale proceeds into
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the shell accounts constituted a valid transfer of title, even
though the transfer was later determined to be fraudulent:
The trustee relies heavily on the undisputed fact that
the transfers were made to enable the Debtor to
perpetrate
a
fraud
upon
his
secured
creditors.
Whether a transfer of title is made, however, is not
dependent upon the transferor’s reasons for making it.
That a transfer effective at the time made may later
be undone by court order for reasons of illegality or
fraud is a separate issue unrelated to whether the
transfer occurred in the first instance.
Id. at *3 (emphasis added).
trustee’s
simply
initial

argument

alter-egos

that
of

because

the

transferee—not

Second, the court rejected the

a

the

debtor,
mediate

shell

the

corporations

general

transferee,

store
which

were

was

an

requires

another degree of separation from the debtor—and as such the
general store could not assert the good faith defense available
only to immediate/mediate transferees.

The court opined that

the trustee’s “creative attempt . . . to entirely reconfigure
the

factual

landscape”

did

not

pass

muster.

Id.

at

*7.

Accordingly, the court “refused to frustrate” what was, at the
time, a legitimate transfer.

Id. (quoting In re Lawler, 53 B.R.

166, 169 (Bankr. N.D. Tex. 1985)).
Here, both Duckworth rationales have traction for the same
reason.

Had this Court not found Perino’s Willowbrook transfer

to be fraudulent, the property would still sit in the protective
hands of the trust and CCM’s mortgage would not have to tussle
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with Radiance’s judgment lien.

(But see, March 5, 2018 Mem. Op.

and Order (never ruling on whether the trust was legitimately
irrevocable).)

The

fact

that

the

Court

later

stripped

the

Property of protection does not mean, for the purposes of the
bona fide purchaser analysis, that CCM should have had notice ex
ante that their mortgage priority was at risk.
Admittedly

there

is

daylight

between

this

Duckworth, which is after all a bankruptcy case.

case

and

The analogy is

also imperfect on the facts, most significantly because CCM do
not fit neatly into the general store’s shoes.
good-faith

purchaser

here

is

not

some

The arguably

third-party

shopkeeper

wholly ignorant of the debtor’s troubles, 2012 WL 4434681, at
*3, but rather a firm of lawyers integrally involved in the
debtor’s business and uniquely aware of her finances.

Bona fide

purchasers are protected because they cannot “be expected to
have notice that their property rights [are] in peril.”
Midwest,

687

N.E.2d

at

1199

(citation

omitted).

First
So

in

determining whether CCM is a good faith mortgagor, we must ask
what they knew, and when.

Radiance did not file a lis pendens

against the property until July 27, 2017.

Had they done so

before CCM acquired an interest in Willowbrook, CCM would have
been bound to the results of pending proceedings that affected
their lien priority on that property.
- 10 -

Id. at 1198 (citation

omitted); accord In re Leonard, 125 F.3d 543, 545 (7th Cir.
1997) (“[A lis pendens] gives notice to purchasers of the land
that there may be superior interests.”).
sufficient

but

encumbrancers

as

not
to

notice also suffices.

necessary
material

But a lis pendens is a

means

and

pending

of

alerting

future

proceedings;

actual

Id. at 1198-99 (citing Allen & Korkowski

& Assocs. v. Pettit, 439 N.E.2d 102, 108 (Ill. App. Ct. 1982)).
Although the Court can conceive of ways that CCM could have
had

actual

Perino

notice

might

that

impact

the

the

supplementary

lien

priority

proceedings
on

Property, the record does not bear them out.

the

against

Willowbrook

CCM executed the

mortgage on June 29, 2014, and they appeared with Perino the
next day in opposing counsel’s office to discuss and produce
documents under the first citation.
a judgment out against her.

Clearly CCM knew Perino had

It is not clear, however, that CCM

was on notice that said judgment had any way of reaching the
Property (then held by the nominally irrevocable trust).

The

third-party citation as to the trust did not issue until April
2016.

Indeed, the only indication CCM had in June 2014 that

Radiance might even consider trying to reach the trust’s assets
came in the form of a May 2014 letter from Radiance’s counsel in
which she requests that Perino produce several documents under
the first citation, including a copy of the trust.
- 11 -

(Pantoga

Letter, Ex. 2 to Pantoga Affidavit, ECF No. 70-1.)
request

for

information

related

to

all

assets

held

Such a
by

or

benefitting a cited debtor is routine, and there is no reason in
the record to believe this standard request should have shaken
CCM

from

Property

their
would

belief
be

safe

that
from

a

mortgage
the

on

judgment

the

trust-shielded

creditor.

Perhaps

there are facts out there dictating a contrary conclusion, but
the Court does not see them now.
III.

CONCLUSION

For the reasons stated herein, the Court’s March 5, 2018
opinion stands, and the Court further orders that because CCM is
a bona fide mortgagor for value, CCM’s mortgage has priority
over the judgment lien on the Willowbrook Property.

IT IS SO ORDERED.

Harry D. Leinenweber, Judge
United States District Court
Dated:

3/20/2018

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