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Baldi v. Chicago Title & Trust Co.





Appeal from the Circuit Court of Cook County; the Hon. Richard L. Curry, Judge, presiding.


This is an appeal from an order denying plaintiff the right to foreclose a junior mortgage prior to redeeming from an earlier foreclosure of a senior encumbrance. Plaintiff contends that the trial court erred in (1) ruling that he had no right to foreclose; and (2) failing to determine the precise amount necessary to redeem from the senior encumbrance.

A promissory note which plaintiff holds is secured by a trust deed to Chicago Title and Trust Co., as trustee (the junior mortgage). At the time the junior mortgage was executed and recorded in 1977, the real estate was encumbered by a prior trust deed, also naming Chicago Title and Trust Co., as trustee (the senior mortgage), which secured a promissory note ultimately held by Alfred W. Israelstam (defendant).

Thereafter, defendant's predecessor in interest commenced an action to foreclose the senior mortgage. Neither plaintiff nor Chicago Title and Trust Co., as trustee, were made parties defendant in that action, although Chicago Title and Trust Co. was named as a defendant and served with process in its corporate capacity. A decree of sale was entered in that proceeding, and defendant herein purchased the property, receiving a sheriff's deed in May 1979.

Subsequently, plaintiff brought the present action, seeking to foreclose his trust deed or, in the alternative, to equitably redeem from defendant.

Plaintiff, the sole witness at trial, testified that he was the holder of a promissory note secured by a junior trust deed, and that he was neither served with summons in the prior foreclosure proceeding nor notified by Chicago Title and Trust Co. that it was a defendant therein. The trial court, taking judicial notice of the pleadings in the prior proceeding which disclosed that plaintiff had not been a party thereto, found that "plaintiff does not have the right to foreclose his mortgage" and "that plaintiff be and hereby is given within 90 days * * * to equitably redeem title." This appeal followed.


We first consider the contention of plaintiff that the court erred in ruling that he may not foreclose his trust deed before redeeming from the prior foreclosure.

• 1 A junior mortgage conveys to the mortgagee a lien on the mortgagor's equity of redemption (Gregory v. Suburban Realty Co. (1920), 292 Ill. 568, 127 N.E. 119), and in a foreclosure of the senior encumbrance, the junior mortgagee is a proper party to the action, but his presence is not necessary to a valid decree (Chandler v. O'Neil (1895), 62 Ill. App. 418); however, a foreclosure proceeding to which a junior mortgagee is not a party is not binding on him and he retains his right to redeem in equity but may not foreclose his mortgage prior to redemption (Rose v. Walk (1894), 149 Ill. 60, 36 N.E. 555; Hamalle v. Kimmel (1922), 224 Ill. App. 9), although after redeeming, he may foreclose and have the land sold for satisfaction of his mortgage debt as well as the amount paid in redemption (Harper v. Sallee (1941), 376 Ill. 540, 34 N.E.2d 860).

Plaintiff acknowledges the continued validity of these long-established principles, but argues that, under exceptional circumstances this court should allow, as an additional remedy, the right to foreclose without redeeming. He maintains, relying solely upon Callner v. Greenberg (1941), 376 Ill. 212, 33 N.E.2d 437, that when a junior mortgagee has been omitted through fraudulent conduct from an action to foreclose a senior encumbrance, he may elect any equitable remedy, including foreclosure.

In Callner, senior mortgagees fraudulently prevented the junior mortgagee from learning of their foreclosure proceeding and bidding at the sale. The mortgage debt under the senior mortgage was $50,000, but the purchaser at foreclosure, in collusion with the senior mortgagees, paid only $8,500 for the property. The junior mortgagee learned of the foreclosure after the statutory redemption period had expired, and sought to redeem from the sale rather than from the mortgage debt. The senior mortgagees argued that, since the junior mortgagee was not a party to the foreclosure, he had only his equitable right to redeem by paying the mortgage debt of $50,000, and had no statutory right to redeem from the sale for $8,500.

The court held that, because of the senior mortgagees' fraud, the junior mortgagee had a right to redeem from the sale rather than from the senior encumbrance. The court reasoned that "[e]quity gives him the right, as against the fraudulent conduct of appellees, of electing to select any remedy available. A court of equity has power to decree that a wrongdoer shall not enjoy an inequitable advantage by taking away the benefit obtained by fraud, [citation] and, as against parties participating, void the fraud by placing the parties in status quo." 376 Ill. 212, 218, 33 N.E.2d 437, 440.

It is the position of plaintiff here, as it was in the trial court, that a misrepresentation in the petition filed by defendant in the prior foreclosure proceeding "amounted to a fraud upon the rights of plaintiff" and thus, under Callner, he should have been permitted to foreclose without first redeeming from defendant.

In order to establish misrepresentation, plaintiff must show (1) that there has been a false statement of material fact made by defendant; (2) that defendant knew or believed the statement to be false; (3) that defendant intended to induce action by another party; (4) that action in justifiable reliance on that statement occurred; and (5) that injury resulted ...

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