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St. Charles Sav. & Loan v. Est. of Sundberg

OPINION FILED NOVEMBER 24, 1986.

ST. CHARLES SAVINGS & LOAN ASSOCIATION, PLAINTIFF,

v.

THE ESTATE OF WALTER J. SUNDBERG, DECEASED, ET AL., DEFENDANTS (UNITED STATES, DEFENDANT-APPELLANT; BETTY SUNDBERG ET AL., DEFENDANTS-APPELLEES).



Appeal from the Circuit Court of Kane County; the Hon. John Nickels, Judge, presiding.

JUSTICE STROUSE DELIVERED THE OPINION OF THE COURT:

This action was brought by the Small Business Administration (SBA) to recover the $75,000 proceeds of a foreclosure sale which were paid to the widow of an SBA-guaranteed borrower instead of to the United States. Following the entry of an order for foreclosure and the denials of the United States' petition for a turnover order and motion for reconsideration, the United States appealed.

In 1975 a $400,000 SBA-guaranteed loan was made by the Aurora National Bank (bank) to K & E Industries, Inc. (K & E Industries). This loan was personally guaranteed by Mr. Walter Sundberg (who was the president of K & E Industries), who assigned to the bank, as collateral, the beneficial interest in a land trust which held title to his residence. Mr. Sundberg was the sole owner of the beneficial interest in the land trust, subject only to the first mortgage held by plaintiff, St. Charles Savings & Loan Association (plaintiff). The trustee of the land trust was Chicago Title & Trust Company (trustee).

Sometime in 1982, K & E Industries defaulted on the note. On July 16, 1982, following the default, the SBA reimbursed the bank pursuant to its guarantee, and the bank assigned the note to the SBA. However, no assignment of the beneficial interest in the land trust on the Sundberg residence was made.

Almost one year later, on April 6, 1983, Mr. Sundberg died. The first mortgage on his home went into default, and, on March 8, 1984, the plaintiff filed its complaint in foreclosure naming the estate of Walter Sundberg, the trustee, the United States of America, and unknown owners, as defendants. After Walter Sundberg's death, Esther E. Johnson, his sister, as the successor beneficiary under the original trust agreement and now owner of the entire beneficial interest, assigned her interest to Mrs. Sundberg. Appropriate service was made on the United States Attorney's office. The United States was joined on the basis of the government guarantee of the loans.

On May 2, 1984, defendants Sundberg and the trustee filed their answer and affirmative defense objecting to the foreclosure and denying the interest of the United States. The bank, upon discovering that it had not transferred the assignment of the beneficial interest in the land trust, executed an assignment of Mr. Sundberg's interest to the United States on May 9, 1984. This assignment inadvertently bore the legend "For Collateral Purposes Only" and was rejected by the trustee.

On May 25, 1984, defendant, the United States of America, filed its answer on behalf of the SBA. The United States stated that it had a lien against the real estate "in the nature of a mortgage" and alleged its interest as a creditor of Walter Sundberg, who, they alleged, owed the United States $303,202.04 in principal, and $112,044.93 in accrued interest. In its prayer for relief, the United States asked the court to "find, adjudge and determine the amount, validity and priority of all liens claimed upon the real estate in question."

On May 29, 1984, the court heard plaintiff's motion for summary judgment. No attorney for the United States appeared. Plaintiff's motion included a paragraph recognizing the interest of the United States, but no evidence of the amount of the debt owed the United States was presented. Counsel for co-defendants objected to the inclusion of the interest of the United States and the following colloquy ensued:

"MR. GAFFNEY [counsel for plaintiff St. Charles Savings & Loan]: One aspect of it, Judge, which is nevertheless uncertain, I just — I expected that the United States of America would appear and file an affidavit and they have not. Now I've left a blank at Paragraph 15, which provides that they have a second lien, but quite frankly, I have no figure to put in there because they haven't appeared giving me a figure.

MR. SERAPHIN [counsel for defendants Sundberg and Chicago Title]: In all honesty, your Honor, with respect to this second lien, we feel that they have failed, again, to comply with some technical provisions of the assignment and they really don't have a valid interest at this point."

The trial court, that same day, ordered that the paragraph reciting the interest of the United States be deleted; that the estate of Mr. Sundberg be dismissed as a party defendant; that the unknown owners be found in default; that the mortgage be adjudged foreclosed; and that the Chicago Title and Trust Company have the sole right of redemption. The trial court ordered the real estate to be sold at a public auction to the highest bidder.

On August 1, 1984, the bank executed an assignment of the beneficial interest to the United States.

Subsequently, on August 2, 1984, the United States filed a motion for entry of amended judgment of foreclosure and sale, claiming the beneficial interest. Because it was filed more than 30 days from the judgment of foreclosure, the motion was denied on October 25, 1984.

The foreclosure sale was held on November 1, 1984, and the SBA was the successful bidder at a price of $130,000. After payment of the first mortgage to plaintiff, a surplus of approximately $75,000 remained with the sheriff. The court instructed the sheriff to ...


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