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09/21/88 Lincoln Park Federal v. Drg

September 21, 1988

LINCOLN PARK FEDERAL SAVINGS & LOAN ASSOCIATION, PLAINTIFF-APPELLANT

v.

DRG, INC., ET AL., DEFENDANTS-APPELLEES



APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, THIRD DIVISION

529 N.E.2d 771, 175 Ill. App. 3d 176, 124 Ill. Dec. 790 1988.IL.1393

Appeal from the Circuit Court of Cook County; the Hon. Robert Sklowdowski, Judge, presiding.

APPELLATE Judges:

JUSTICE McNAMARA delivered the opinion of the court. WHITE, P.J., and FREEMAN, J., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE MCNAMARA

Plaintiff Lincoln Park Federal Savings & Loan Association sought to foreclose its unrecorded 1970 mortgage of certain residential property which defendant DRG, Inc., had taken in fee simple by a recorded tax deed in 1975 and sold to defendants Jerry and Kathleen Wilson in 1983. The trial court denied foreclosure after finding that plaintiff's mortgage had been equitably converted and that the Wilsons' interest was superior to that of plaintiff. Plaintiff appeals.

Albert and Vesser Lawrence owned a single-family home in Chicago, and on March 18, 1970, they procured a first mortgage from plaintiff in the amount of $6,000.

On December 9, 1975, the county clerk executed and delivered a tax deed to DRG. Title was recorded on January 16, 1976, in the office of the recorder of deeds.

On November 16, 1976, the Lawrences procured an unrecorded mortgage from plaintiff in the amount of $11,750, in order to repurchase the property from DRG. DRG then delivered an unrecorded deed to the Lawrences. Subsequently, plaintiff filed a foreclosure of the 1970 mortgage and a lis pendens was recorded on August 15, 1978. The minutes of the foreclosure showed DRG as titleholder of record.

On October 17, 1983, DRG sold the property to the Wilsons. Before execution of the real estate installment contract, the Wilsons examined the records in the office of the recorder of deeds. The records showed that the Lawrences lost title when DRG was given title by tax deed in December 1975. The records also showed the 1970 mortgage to plaintiff and the lis pendens notice filed August 15, 1978.

On April 12, 1984, DRG filed a motion to dismiss plaintiff's present foreclosure suit. Plaintiff subsequently recorded the deed from DRG to the Lawrences. Plaintiff amended the complaint to foreclose an equitable lien. The Wilsons were impleaded and they maintained that they were bona fide purchasers for value without notice or, in the alternative, that plaintiff's lien was equitably converted. The Wilsons are in possession of the property. They make contract payments to DRG. On June 23, 1987, the trial court entered a directed finding in favor of the Wilsons and denied the foreclosure.

The 1970 mortgage lien which existed prior to the issuance of the tax deed to DRG became void in 1975. Tax deeds issued pursuant to section 266 of the Revenue Act of 1939 convey merchantable title. (Ill. Rev. Stat. 1975, ch. 120, par. 747.) Any prior existing lien becomes void upon issuance of that tax deed. (Urban v. Lois, Inc. (1963), 29 Ill. 2d 542, 194 N.E.2d 294.) Moreover, reconveyance of title from the tax titleholder to a party with a pretax-sale interest does not affect the validity of the tax deed. (See Vulcan Materials Co. v. Bee Construction (1983), 96 Ill. 2d 159, 449 N.E.2d 812.) We find, therefore, that plaintiff could not foreclose the 1970 mortgage following the issuance of the tax deed in 1975.

Having found that its interest cannot be superior, we turn to plaintiff's contention that the Wilsons do not have a superior interest because DRG was not the owner and the Wilsons have not paid the entire purchase price under the contract.

On October 17, 1983, the office of the recorder of deeds showed that DRG owned the property in fee simple. Equitable conversion treats land as personalty in certain situations. Thus, as between the parties and those claiming through them, a conversion takes place at the time they enter into the contract such that the owner continues to hold legal title, but in trust for the buyer. The buyer, in turn, becomes the equitable owner and holds the purchase money in trust for the buyer. (Shay v. Penrose (1962), 25 ...


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