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
- 5 -
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
- 6 -
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
- 8 -
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
- 9 -
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
- 12 -
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