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Partel, Inc. v. Harris Trust & Sav. Bk.





APPEAL from the Circuit Court of Cook County; the Hon. ALBERT S. PORTER, Judge, presiding.


PRESIDING JUSTICE SULLIVAN delivered the opinion of the court:

Plaintiff Mendel Margolis (Margolis) appeals from an order which denied his petition for certain escrowed insurance proceeds and reimbursement for maintenance and other costs, and which granted the counterpetition of plaintiff Partel, Incorporated (Partel), for those insurance proceeds. Margolis contends that (1) he is entitled to the proceeds under a mortgage providing that in case of foreclosure such proceeds are payable to the owner of the certificate of sale; and (2) he is entitled to reimbursement for the various costs he advanced.

It appears that Harris Trust and Savings Bank, as trustee (Harris Bank), as the owner and mortgagor of the commercial realty in question, defaulted on the payments of three mortgages — the first in order of priority being held by Chicago Federal Savings and Loan Association (Chicago Federal), the second by Margolis, and the third by Partel. The present dispute arose from consolidated mortgage foreclosure litigation involving those mortgages.

In an order entered on November 21, 1980, the trial court found that Partel's interest in the subject property was inferior to that of Chicago Federal and Margolis, respectively, and it entered a judgment of foreclosure and sale in favor of Chicago Federal and Partel and against Harris Bank. The adjudicated indebtedness to Chicago Federal totaled $160,551.61; that to Margolis was $207,952.37; and to Partel, $127,411.79. The order also provided that the trial court would reserve jurisdiction to enter a deficiency judgment in favor of Partel; that Partel's rights to the insurance proceeds in question were not affected; that public sale be stayed until after January 1, 1981, and that Stuart Kaiserman, who had been appointed managing agent for the premises by agreement of the parties and who managed the premises until the foreclosure sale, could present his petition for fees and costs.

Prior to the November 21 order, the mortgagees had been advised that there would be available to Harris Bank a casualty loss insurance check for $51,573 from a fire in November 1979 — before commencement of the instant litigation — and at the time of the foreclosure judgment the parties were directed to endorse the insurance check and place it in escrow, with counsel for Partel as escrowee, pending further court order. Thereafter, Margolis incurred costs of $9,264.35 for guard and maintenance services at the premises.

At the public foreclosure sale on January 6, 1981, Margolis as high bidder offered $392,726.76, which was the entire amount of his adjudicated lien plus the superior lien of Chicago Federal. The sale was approved on January 14, 1981, and a deficiency judgment of $129,171.31 was entered in favor of Partel and against Harris Bank on January 16, 1981.

Margolis moved for a turnover of the insurance proceeds on the basis that he was the successful bidder at the foreclosure sale and for reimbursement of the $9,264.35 advanced for guard and maintenance expenses. Partel counterpetitioned for the same proceeds and, on February 2, 1981, Partel was awarded the proceeds to be applied to the deficiency judgment against Harris Bank, the court holding that because Margolis had extinguished his debt by bidding his entire adjudicated lien, he had no further contractual rights. Finding, additionally, that Margolis' pleadings did not support his claim of partial reimbursement, the court denied the claim without prejudice. This appeal is from the February 25 order.


• 1 Margolis' principal contention is that, under the mortgage of Chicago Federal, he is entitled to the insurance proceeds in question as the successful bidder at the foreclosure sale. We disagree. Clause 3. A. of that mortgage provides in relevant part:

"The Mortgagor covenants:

(3) To keep the improvements now or hereafter situated upon said premises insured against loss or damage by fire, * * * as the Mortgagee may reasonably require to be insured against * * *; [S]uch insurance policies * * * shall contain a clause satisfactory to the Mortgagee making them payable to the Mortgagee, as its interest may appear, and in case of foreclosure sale payable to the owner of the certificate of sale, owner of any deficiency [or] any receiver * * *; and in case of loss under such policies, the Mortgagee is authorized to adjust, collect and compromise in its discretion, all claims thereunder * * *."

In Weiner v. Landry (1970), 131 Ill. App.2d 221, 264 N.E.2d 828, insurance proceeds became available as a result of fire damage to the mortgaged property. The damage occurred after foreclosure proceedings began but before the decree was entered and before the premises were sold to the first and paramount lienholder. At the direction and on behalf of the mortgagor, the first lienholder had placed the insurance on the property, paid premiums as an advance to the mortgagor, and received credit for the premises at the time of sale. At the foreclosure sale, the lien of the first lienholder was liquidated on its bid (except for a small deficiency sum). Citing Johnson v. Zahn (1942), 380 Ill. 320, 44 N.E.2d 15, as the source of a presumption that the bid placed on realty at a foreclosure sale by a first lienholder represents the fair cash value of the property, the court held that the subordinate lienholder was entitled to recover the excess insurance proceeds from the first lienholder.

We believe the facts before us compel the same result as in Weiner. Here, although the fire loss occurred before commencement of foreclosure proceedings, it also occurred before the judgment of foreclosure and sale. As Margolis does not argue to the contrary, it seems clear that his bid was made with full knowledge of the condition of the premises, of the existence of the insurance proceeds, and of the trial court's order placing the proceeds in escrow to be disbursed pursuant to further order. There also is no indication that Margolis, unlike the first lienholder in Weiner, placed insurance on the property, paid the premiums as an advance to Harris Bank, or sought to receive credit at the time of sale. Moreover, at the foreclosure sale, Margolis, like the first lienholder in Weiner, bid his entire ...

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