The Bank of New York v. Langman , 2013 IL App (2d) 120609 ( 2013 )

ILLINOIS OFFICIAL REPORTS
Appellate Court
Bank of New York v. Langman, 2013 IL App (2d) 120609Appellate Court THE BANK OF NEW YORK, as Trustee for the Holders of EQCC
Caption Asset-Backed Certificates, Series 2001-2, Plaintiff-Appellee, v.
VINCENT J. LANGMAN; ABDUL REHMAN HAMIDANI; WELLS
FARGO FINANCIAL ILLINOIS, INC., f/k/a Northwest Financial
Illinois, Inc.; TCF NATIONAL BANK; JOYCE HAMIDANI;
UNKNOWN OWNERS AND NONRECORD CLAIMANTS,
Defendants (JP Morgan Chase Bank, National Association, as the
Purchaser of the Loans and Other Assets of Washington Mutual Bank,
f/k/a Washington Mutual Bank, FA, from the Federal Deposit Insurance
Corporation, Intervenor-Appellant).
District & No. Second District
Docket No. 2-12-0609
Filed March 20, 2013
Held In an action with a convoluted procedural history arising from a situation
(Note: This syllabus involving a property subjected to multiple mortgages, assignments of
constitutes no part of mortgages, foreclosures, and a forged release of a mortgage, plaintiff’s
the opinion of the court filing of a notice of foreclosure lis pendens placed the subsequent
but has been prepared intervenors on notice of the problems created by the forged release, and
by the Reporter of the appellate court upheld the trial court’s finding that plaintiff’s
Decisions for the mortgage interest in the property was superior.
convenience of the
reader.)
Decision Under Appeal from the Circuit Court of Kane County, No. 06-CH-943; the Hon.
Review Leonard J. Wojtecki, Judge, presiding.
Judgment Affirmed.
Counsel on William J. Holloway and Kristy K. Singler, both of King Holloway LLC,
Appeal of Chicago, for appellant.
Anna-Katrina S. Christakis and Scott G. Weber, both of Grady Pilgrim
Christakis Bell LLP, of Chicago, for appellee.
Panel PRESIDING JUSTICE BURKE delivered the judgment of the court, with
opinion.
Justices Jorgensen and Hudson concurred in the judgment and opinion.
OPINION
¶1 In two separate cases proceeding concurrently against the same property, the circuit court
of Kane County entered orders of foreclosure of first liens in favor of two different
mortgagees. In the action at issue here, the trial court granted plaintiff, the Bank of New
York, as trustee for the holders of EQCC Asset-Backed Certificates, Series 2001-2 (BONY),
an order of foreclosure (BONY foreclosure action). In a separate action, the trial court
granted intervenor, JP Morgan Chase Bank, National Association, as the purchaser of the
loans and other assets of Washington Mutual Bank, f/k/a Washington Mutual Bank, FA,
from the Federal Deposit Insurance Corporation (JPM), an order of foreclosure (JPM
foreclosure action). When JPM learned of the conflicting foreclosure order, it intervened in
the BONY foreclosure action, claiming that its mortgage had priority. The trial court found
that BONY’s mortgage was superior. JPM claims on appeal that its mortgage has priority due
to proper reliance on a forged release of BONY’s mortgage. We disagree and hold that the
recorded pending BONY foreclosure action gave JPM notice, actual or constructive, that
BONY’s mortgage was superior. We affirm.
¶2 FACTS
¶3 Although this case has a fairly convoluted procedural history, we summarize the facts as
simply as possible.1 In 1999, GN Mortgage Corporation (GN) extended to defendant Vincent
J. Langman a loan secured by a mortgage on the residential property located at 2311 Collins
Court, Batavia, Illinois (the property). On August 16, 2000, a forged release of the GN
mortgage was recorded; however, Langman continued to pay the loan to GN for over two
years.
¶4 Meanwhile, on December 4, 2001, Langman obtained a mortgage on the property from
1
To simplify the facts, we have appended a chronological flow chart.
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Matrix Financial Services, Inc. (Matrix). Langman then defaulted on the Matrix loan. On
December 9, 2002, Deutsche Bank, as assignee, commenced a foreclosure of the Matrix
mortgage, but it did not name GN or BONY (which had been assigned the GN mortgage) as
a party to the foreclosure action. A judgment of foreclosure was entered against Langman,
and Deutsche Bank sold the property to defendants Abdul Rehman Hamidani and Joyce
Hamidani on January 31, 2005. The Hamidanis then mortgaged the property to defendant
TCF National Bank (TCF).
¶5 During the intervening time, Langman, who had continued to pay the GN debt in spite
of the recorded forged release, defaulted on the GN mortgage in February 2003. In late
March 2006, BONY learned through its agent, Select Portfolio Servicing, of the forged
release of the GN mortgage. On June 29, 2006, BONY obtained an affidavit from GN
confirming that the release was forged. BONY also learned that Langman had continued to
pay monthly installments after the GN release was recorded, until January 1, 2003. BONY
filed its complaint for foreclosure on July 10, 2006, and recorded a notice of foreclosure lis
pendens on July 13, 2006.
¶6 Shortly thereafter, on August 1, 2006, the Hamidanis entered into a mortgage and a
revolving line of credit with Washington Mutual Bank (WaMu). The Hamidanis defaulted
and WaMu filed a foreclosure action on March 10, 2008. According to JPM, it acquired the
Hamidani’s mortgage on September 25, 2008, after WaMu was placed in receivership. The
trial court entered an order of foreclosure and sale in favor of JPM on June 6, 2008.
¶7 Extensive litigation ensued in the BONY foreclosure proceeding to determine the state
of title to the property. On July 24, 2008, the trial court granted summary judgment in favor
of BONY, holding, in part, that the purported release of GN’s mortgage was a forgery and
that WaMu was not a necessary party to the foreclosure proceeding due to the recording of
BONY’s notice of foreclosure lis pendens. On December 19, 2008, the court entered a
judgment of foreclosure and sale with the redemption period to expire on March 19, 2009.
Neither the BONY foreclosure action nor the notice of foreclosure contained any mention
of the forged release. At no time did GN or BONY record an affidavit of correction from GN
or any other document confirming that the release of its mortgage had been forged.
¶8 When JPM heard of the BONY foreclosure action, it filed a petition to intervene on
March 12, 2009, to obtain a ruling as to which mortgage had priority on the property. JPM
argued that it should be allowed to intervene because its mortgage on the property created
an enforceable interest in the property and a judgment of foreclosure and sale had been
entered in its favor six months prior to the judgment of foreclosure and sale in the BONY
foreclosure action. The trial court permitted JPM to intervene. JPM then filed a motion to
determine mortgage priority, requesting an order to declare its mortgage, dated August 1,
2006, as prior and superior to BONY’s mortgage. The trial court denied the motion and
found that there was no just reason to delay enforcement or appeal.
¶9 We dismissed on the ground that there had been no final order adjudicating priority
between the BONY and the JPM mortgages. Bank of New York v. Langman, 2011 IL App
(2d) 101118-U.
¶ 10 Subsequently, the trial court found that the BONY mortgage had priority over the JPM
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mortgage. Essentially, the trial court concluded that JPM should have performed a reasonable
inquiry, which would have revealed BONY’s adverse interest. JPM timely filed a notice of
appeal.
¶ 11 On appeal, JPM contends that (1) the Hamidanis, as bona fide purchasers for value,
properly relied on the forged release and took title free of the GN mortgage when they
mortgaged the property to WaMu; (2) alternatively, BONY is equitably estopped from
asserting its lien interest, because it failed to record an affidavit of correction once it
discovered the forged release; and (3) the trial court’s reasoning was faulty.
¶ 12 ANALYSIS
¶ 13 Standard of Review
¶ 14 At issue here are the rules of priority under the Illinois Mortgage Foreclosure Law (735
ILCS 5/15-1101 et seq. (West 2010)), as applied to BONY’s lien and JPM’s lien. The
priority of parties’ respective security interests is a question of law. Travelers Insurance Co.
v. First National Bank of Blue Island, 250 Ill. App. 3d 641, 644-45 (1993). Our review of a
question of law is de novo. Southwest Bank of St. Louis v. Poulokefalos, 401 Ill. App. 3d 884,
891 (2010) (citing Du Page County Board of Review v. Department of Revenue, 339 Ill. App.
3d 230, 233 (2003)).
¶ 15 Bona Fide Purchasers
¶ 16 JPM contends that the Hamidanis, as bona fide purchasers for value, properly relied on
the recorded release and took title free of the GN mortgage. JPM asserts that Matrix had no
reason to suspect that the release of the GN mortgage was forged, and therefore each party
in the chain of title received title unencumbered by the GN mortgage. Thus, JPM claims that,
before the Hamidanis mortgaged the property to WaMu, title passed free and clear of the GN
mortgage.
¶ 17 BONY raises several arguments in response. BONY first contends that the bona fide
purchaser doctrine does not apply to Deutsche Bank, WaMu, or JPM because the release was
forged. Second, BONY argues that the bona fide purchaser doctrine does not apply to a
patently invalid release, as the release here is because it is filled with typographical and
grammatical errors, does not contain a corporate seal of authenticity, does not certify or
acknowledge satisfaction of the debt secured by the property, and does not purport to release
GN’s interest in the property. Finally, BONY argues that, even if the bona fide purchaser
doctrine applies, Deutsche Bank, WaMu, and JPM are not bona fide purchasers, as they had
notice, actual or constructive, of BONY’s adverse interest.
¶ 18 BONY relies on Oswald v. Newbanks, 336 Ill. 490, 491 (1929), and Osby v. Reynolds,
260 Ill. 576, 583 (1913), to support its first argument, that the bona fide purchaser doctrine
does not apply because the release was forged. However, these cases concern forged deeds
or deeds delivered without authorization, not forged releases. Furthermore, the bona fide
purchaser doctrine does apply to forged releases under Illinois law. See Lennartz v. Quilty,
191 Ill. 174, 179-80 (1901); Ogle v. Turpin, 102 Ill. 148 (1881).
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¶ 19 We disagree with BONY’s next contention, regarding the patent invalidity of the release.
The release itself is titled “Release of Mortgage or Trust Deed” and is referred to as a
“release” in bold print at the bottom. Additionally, JPM notes that the document provides
that GN “does hereby remise, convey and quit-claim onto” Langman all “the right, title
interest, and claim” in the property. Because the document quitclaims all title interest to
Langman, it clearly purports to extinguish the GN debt, and Matrix and the remaining
mortgagees in the chain of title had reason to believe that the GN mortgage had been
released. See In re Estate of Ozier, 225 Ill. App. 3d 33, 36 (1992) (vesting in party of legal
title at same time as ownership of mortgage indebtedness secured by mortgage upon title
results in merger in him and extinguishes debt).
¶ 20 As to BONY’s last argument, that Deutsche Bank, WaMu, and JPM are not bona fide
purchasers, as they had notice, actual or constructive, of BONY’s adverse interest, JPM
responds that the release of the GN note before it was due did not give rise to suspicion of
the authenticity of the release. See Polish National Alliance of the United States of North
America v. Lipinski, 288 Ill. App. 234, 244 (1937). JPM raises its original contention that,
in the absence of a reason to suspect the authenticity of the release, a subsequent bona fide
purchaser for value takes title free of the apparently released mortgage, and therefore, as
bona fide purchasers for value of the property, the Hamidanis properly relied on the release
and took title unencumbered by the GN mortgage. JPM cites Vogel v. Troy, 232 Ill. 481, 487-
88 (1908), Lennartz, 191 Ill. at 179-80, and Ogle, 102 Ill. 148, in support of its argument.
¶ 21 JPM, Vogel, Lennartz, and Ogle stand for the proposition that the unauthorized release
of a debt does not discharge the debt as between the original parties; but subsequent
purchasers, without notice or anything to put them on inquiry of an adverse title or lien, may
rely on the recorded release and will take priority of title over the original lienholder. Had
this been a title dispute between the Hamidanis and BONY or a lien priority dispute between
Matrix and BONY, the proposition from the cases relied upon by JPM would not favor
BONY. The difference here is that this case involves a lien priority dispute between BONY
and JPM, as assignee of WaMu.
¶ 22 Nonetheless, the cases cited by JPM clarify two points. First, BONY’s lien would take
priority over any subsequent purchaser with notice or anything to put that purchaser on
inquiry. See, e.g., Ogle, 102 Ill. 148. In this case, BONY recorded its notice of foreclosure
on July 13, 2006. WaMu subsequently extended a mortgage to the Hamidanis on August 1,
2006. Clearly, WaMu was on notice of BONY’s interest in the property before WaMu
obtained its mortgage. “If facts appear in the chain of title which would cause an ordinary
prudent man to investigate, he cannot close his eyes and refuse to go further than the release
deed.” Polish National Alliance, 288 Ill. App. at 245. WaMu closed its eyes and did not
investigate the basis of BONY’s foreclosure action. Furthermore, every proceeding involving
real property shall, from the time of the filing of the lis pendens, be constructive notice to
every person subsequently acquiring an interest in or a lien on the property. See 735 ILCS
5/2-1901 (West 2010). Thus, WaMu was on constructive notice of the lien as well.
¶ 23 Second, the Deutsche Bank foreclosure action did not completely extinguish the BONY
mortgage. Lennartz and Ogle hold that, where any subsequent purchaser or mortgagee takes
its title or interest with notice of a breach of trust, the original lienholder’s rights will be
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superior. Lennartz, 191 Ill. at 179; Ogle, 102 Ill. 148; see also 735 ILCS 5/2-1901 (West
2010) (every such person acquiring an interest or lien on property, not in possession of
property and whose interest or lien is not shown of record at time of filing such notice, shall,
for purposes of this section, be deemed a subsequent purchaser).
¶ 24 We also note that Deutsche Bank’s mere filing of a foreclosure action and naming
“Unknown Owners” did not extinguish BONY’s lien interest as against subsequent
lienholders with constructive notice of the adverse lien. See, e.g., React Financial v. Long,
366 Ill. App. 3d 231, 234-36 (2006) (junior mortgagee not bound by senior mortgagee
foreclosure if not made a party).
¶ 25 Equitable Estoppel
¶ 26 Under equitable estoppel, where a person, by his or her statements or conduct, leads a
party to do something that said party would not have done but for such statements or
conduct, that person will not be allowed to deny his or her words or actions to the detriment
of the other party. Geddes v. Mill Creek Country Club, Inc., 196 Ill. 2d 302, 313 (2001). The
party claiming the benefit of estoppel cannot shut his eyes to obvious facts, or neglect to seek
information that is easily accessible, and then charge his ignorance to others. Trossman v.
Philipsborn, 373 Ill. App. 3d 1020, 1042 (2007).
¶ 27 JPM contends that BONY is equitably estopped from asserting its lien interest, because
it failed to record an affidavit of correction within a reasonable time once BONY’s servicer,
Select Portfolio Servicing, learned of the forged release in March 2006, or once BONY
obtained confirmation in June 2006. JPM claims that WaMu relied on the recorded release
and was misled by BONY’s silence into extending the mortgage. BONY contends that
WaMu’s reliance on the recorded release was unreasonable in light of BONY’s recorded
notice of foreclosure. We agree with BONY.
¶ 28 Initially, we observe that no Illinois case requires a property owner to record an affidavit
of correction in order to assert title. BONY’s notice of foreclosure, which was recorded prior
to WaMu’s mortgage and JPM’s assumption of same, put WaMu on notice that BONY
claimed an interest in the property, despite any purported “release” in the chain of title. See
735 ILCS 5/2-1901, 15-1503 (West 2010). After a party records a lis pendens, all subsequent
purchasers and lien claimants are bound and a plaintiff need not seek separate equitable
relief. Oxequip Health Industries, Inc. v. Canalmar, Inc., 94 Ill. App. 3d 955, 958 (1981).
“[F]rom the time the notice of lis pendens is filed, it serves as constructive notice to every
person subsequently acquiring an interest in the property, and *** the person acquiring the
subsequent interest shall be bound by the proceedings to the same extent and in the same
manner as if he were a party.” Security Savings & Loan Ass’n v. Hofmann, 181 Ill. App. 3d
419, 422 (1989). BONY filed its complaint for foreclosure on July 10, 2006, and recorded
a notice of foreclosure lis pendens on July 13, 2006. On August 1, 2006, two weeks after
BONY had recorded its notice of foreclosure, the Hamidanis entered into their mortgage with
WaMu. When BONY recorded its notice of foreclosure on July 13, 2006, WaMu was placed
on constructive notice of BONY’s adverse interest. Thus, WaMu, and by extension JPM,
could not reasonably claim that it relied on the forged release.
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¶ 29 Additionally, the cases that JPM cites clearly hold that equitable estoppel is not available
to a party that has notice of any adverse title or error in the record. Vogel, 232 Ill. at 487-88;
Lennartz, 191 Ill. at 179-80; Ogle, 102 Ill. 148. In Polish National Alliance, the court found
that the plaintiff could not rely on the defective release and should have inquired further
concerning any adverse interests. Polish National Alliance, 288 Ill. App. at 245. If BONY
had recorded nothing, subsequent purchasers would have had no reason to inquire about its
unknown lien. By recording its lis pendens foreclosure, BONY took the necessary steps to
place subsequent purchasers on notice. The notice was a ground for suspicion, which WaMu
ignored to its detriment.
¶ 30 Trial Court’s Reasoning
¶ 31 JPM last argues that the trial court’s reasoning was faulty. JPM believes that Langman
was capable of taking out more than one mortgage on the property and that the procedure
outlined by the trial court to determine any adverse interests could prove burdensome. We
need not analyze the trial court’s reasoning, as our review is de novo. Furthermore, we may
affirm on any basis appearing in the record, whether or not the trial court relied on that basis,
and even if the trial court’s reasoning was incorrect. Water Applications & Systems Corp. v.
Bituminous Casualty Corp., 2013 IL App (1st) 120983, ¶ 33.
¶ 32 CONCLUSION
¶ 33 For the preceding reasons, we affirm the judgment of the circuit court of Kane County.
¶ 34 Affirmed.
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