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HOME LIFE INS. CO. v. AMERICAN NATL. BANK & TRUST

October 21, 1991

HOME LIFE INSURANCE COMPANY, a New York corporation, Plaintiff,
v.
AMERICAN NATIONAL BANK AND TRUST COMPANY, as Trustee under a Trust Agreement dated June 20, 1980 and known as Trust No. 49971, and 300 MICHIGAN ASSOCIATES LIMITED PARTNERSHIP, an Illinois Limited Partnership, Defendants


Ilana Diamond Rovner, United States District Judge.


The opinion of the court was delivered by: ROVNER

I. INTRODUCTION

 Plaintiff Home Life Insurance Company ("Home Life") has filed a complaint for foreclosure relating to property located at 300 North Michigan Avenue in Chicago, Illinois. Plaintiff alleges that defendants American National Bank and Trust Company ("American National") and 300 Michigan Associates Limited Partnership have defaulted on a Mortgage and Security Agreement and the Mortgage Note secured thereby. Plaintiff now has moved for the appointment of a receiver for the property. The Court will grant plaintiff's motion.

 II. ANALYSIS

 As authority for its request for the appointment of a receiver, plaintiff relies upon para. 15-1701(b)(2) of the Illinois Mortgage Foreclosure Law ("IMFL"), Ill. Rev. Stat. ch. 110, paras. 15-1101 through 15-1706. That statute provides that in cases involving non-residential real property,

 . . . if (i) the mortgagee is so authorized by the terms of the mortgage or other written instrument, and (ii) the court is satisfied that there is a reasonable probability that the mortgagee will prevail on a final hearing of the cause, the mortgagee shall upon request be placed in possession of the real estate, except that if the mortgagor shall object and show good cause, the court shall allow the mortgagor to remain in possession.

 Ill. Rev. Stat. ch. 110, para. 15-1701(b)(2). Moreover, para. 15-1702(a) of the IMFL provides that "whenever a mortgagee entitled to possession so requests, the court shall appoint a receiver." (emphasis added.) Thus, the IMFL creates a presumption in favor of the mortgagee's right to possession of nonresidential real property during the pendency of a mortgage foreclosure proceeding. See Travelers Insurance Co. v. LaSalle National Bank, 200 Ill. App. 3d 139, 146 Ill. Dec. 616, 618, 558 N.E.2d 579, 581 (2d Dist. 1990); see also Resolution Trust Corp. v. American National Bank, 1991 U.S. Dist. LEXIS 9481,*2 (N.D. Ill. July 11, 1991) (Conlon, J.); Federal Home Loan Mortgage Corp. v. Dearborn Street Building Associates, Ltd., 1991 U.S. Dist. LEXIS 1286, * 8 (N.D. Ill. Feb. 6, 1991) (Gottschall, U.S. Mag.). To obtain possession of such property, the mortgagee is not required either to allege or to prove "misdeeds or omissions on the part of the mortgagors." Travelers Insurance Co., 146 Ill. Dec. at 619, 558 N.E.2d at 582.

 Plaintiff contends that the appointment of a receiver is authorized by the terms of the mortgage in this case. Paragraph 2.03(a) of the Mortgage and Security Agreement provides that in the event of a default and upon the demand of the mortgagee, the mortgagor is required to surrender possession of the property to the mortgagee. (Complaint, Ex. A para. 2.03.) In addition, pursuant to para. 2.05 of the Mortgage and Security Agreement, Home Life also is entitled to the appointment of a receiver "to take possession of and to operate the Mortgaged Property and to collect and apply the rents, issues, profits and revenues thereof." (Id. para. 2.05.) Thus, plaintiff has satisfied the first requirement for appointment of a receiver under § 15-1701(b)(2) of the IMFL, in that it is authorized by the terms of the mortgage to take possession of the property in the event of a default.

 Plaintiff also has shown that there is a reasonable probability that it will prevail on a final hearing in this case. Plaintiff has established, and in fact defendants admit, that they have failed to pay the monthly installments of interest, late charges, and real estate tax escrow payments due under the terms of the mortgage on and after June 1, 1991. (Aff. of Dawn Robertson para. 2; Answer at 6.) This is sufficient to establish a reasonable probability of prevailing under § 15-1701(b)(2). See Federal Home Loan Mortgage Corp., 1991 U.S. Dist. LEXIS 1286, at*9. Having satisfied the conditions for the appointment of a receiver pursuant to the IMFL, plaintiff is afforded the benefit of that statute's presumption in favor of such an appointment. Unless defendants can show "good cause" why their right to possession should not be disturbed, plaintiff's motion for appointment of a receiver must be granted.

 Defendants have objected to plaintiff's motion, insisting that there is good cause to keep them in possession of the premises. The Illinois courts have not precisely defined the meaning of "good cause" under § 15-1701(b)(2) (see Resolution Trust Corp, 1991 U.S. Dist. LEXIS 9481, at*3), and as a result, defendants submit a number of alleged grounds for "good cause" in this case. First, defendants maintain that there is no more qualified manager for the 300 North Michigan Avenue property than the current manager -- U.S. Equities Realty, Inc. ("U.S. Equities"). (Aff. of Robert A. Wislow para. 8.) Even assuming that such is the case, however, the qualifications of current property management are not an important consideration under the IMFL when the property is in default. Plaintiff is not required to show that the current manager is unqualified or that it is guilty of some misdeed in order to obtain the appointment of a receiver. Such a requirement would be tantamount to shifting the burden of showing good cause onto the mortgagee. Travelers Insurance Co., 146 Ill. Dec. at 619, 558 N.E.2d at 582. It is the mortgagor's burden under the statute to establish that it should remain in possession of the premises, not the mortgagee's burden to show good cause for the appointment of a receiver. The fact that U.S. Equities may be a qualified and experienced property manager does not establish "good cause" where plaintiff has made a showing that the property is in default.

 Next, defendants suggest that sensitive negotiations with a prospective tenant for a portion of the property would be jeopardized by the appointment of a receiver. Specifically, defendants represent that U.S. Equities currently is in negotiations with an educational institution and that those negotiations may lead to an equity investment and a commitment for space in the building. (Wislow Aff. para. 6.) Defendants contend that if a receiver is appointed, "there is a substantial likelihood that the on-going negotiations with the educational institution will terminate" because the price that the institution would be willing to pay "will be substantially reduced in a foreclosure context." (Id. at para. 9.) *fn1" The alleged possibility of threatened lease negotiations is insufficient to overcome the statutory presumption in favor of the appointment of a receiver. Defendants have produced no evidence to support their assertion that appointment of a receiver would jeopardize pending negotiations. Moreover, the Court agrees with plaintiff that the acceptance of defendants' argument of pending lease negotiations would make it extremely difficult for a mortgagee ever to obtain appointment of a receiver because such an assertion could be made in every case. There similarly has been no showing that plaintiff's designated receiver, Rubloff, Inc. ("Rubloff"), would not adequately manage the property and conduct existing and future lease negotiations on behalf of the property. The mere possibility of existing lease negotiations does not overcome the statutory presumption in favor of the appointment of a receiver. See Travelers Insurance Co. v. 100 LaSalle Associates, 1990 U.S. Dist. LEXIS 13308,*7-8 (N.D. Ill. Oct. 9, 1990) (Plunkett, J.) (bald assertion that efforts to sell the property would be threatened by appointment of a receiver "is not good cause for the retention of possession in the face of the IMFL's presumption that the mortgagee of non-residential real estate shall be placed in possession" of the property).

 The statutory provision relied on by defendants to establish their right to a hearing, § 15-1706(c), provides as follows:

 After reasonable notice has been given to all other parties, the court shall promptly hold a hearing and promptly rule on a request that a mortgagee be placed in possession or that a receiver be appointed, except that, if no objection to the request is made prior to the ...


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