The opinion of the court was delivered by: JOHN F. GRADY
Before the court is plaintiff's motion for summary judgment. For the reasons explained in this opinion, the motion is granted.
Plaintiff North American Security Life Insurance Co. ("NASL") extended a $ 705,000 mortgage loan to defendant Harris Trust and Savings Bank as trustee of a trust ("the Trust"), of which defendant Equest Income Partnership ("Equest") was the sole beneficiary. Defendants Joseph Garafolo, Harold Lebovic, Marvin Siegel and Paul Theodosis (collectively "the Partners") were general partners in Equest. The mortgage concerned a piece of real property at 7756 West Madison Street in River Forest, Illinois. The loan granted NASL a security interest in the property and in certain other collateral. As part of the loan transaction, Equest also executed a Beneficiary Certificate ("the Certificate") and a Limited Recourse Agreement ("the Agreement"). The Certificate included warranties that: (1) the trust would own a fee simple interest in the property "free and clear of all liens, encumbrances and claims and charges except taxes not yet due and payable and others as may be approved by Lender," and (2) that Equest "will be the sole beneficiary of the Trust free and clear of all liens, encumbrances, claims and charges except taxes not yet due and payable." Complaint, Exh. 6 at P 1. The Agreement provided in relevant part:
Notwithstanding anything to the contrary contained in the Loan Documents, the undersigned shall be personally liable, jointly and severally, to Lender for and shall indemnify Lender against all liability, costs and damages incurred by or asserted against Lender arising out of any or all of the following:
(b) the commission of any waste on the property.
Complaint, Exh. 7 at P 2.
After the Trust failed to pay real estate taxes on the River Forest property for 1991 and parts of 1990 and 1992, NASL accelerated the loan and brought this diversity action to foreclose the mortgage and NASL's security interest in other collateral. NASL paid $ 114,461.49 to the Cook County Clerk to redeem the unpaid property taxes after the clerk had held a tax sale. By agreement of the parties, foreclosure orders were entered as to Counts I and II, effectively mooting those counts. All that remains of this action is Count III, in which NASL seeks a money judgment in the amount of the real estate taxes the Trust did not pay.
In its motion for summary judgment, NASL argues that when the Trust's nonpayment of real estate taxes caused a tax lien to be placed on the property, Equest breached its promise in the Certificate that the property would be kept free and clear of all liens. NASL also argues that Equest is liable for the unpaid taxes under the terms of the Agreement because the unpaid taxes constitute "waste" for which Equest had agreed to indemnify NASL.
Because the latter issue regarding the definition of "waste" is dispositive in this case, the court will forego an analysis of the defendants' liability under the Certificate.
Summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548, (1986). A "genuine issue of material fact exists only where 'there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party.'" Dribeck Importers, Inc. v. G. Heileman Brewing Co., 883 F.2d 569, 573 (7th Cir. 1989) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986)). In considering such a motion, the court must view all inferences in the light most favorable to the nonmoving party. See Regner v. City of Chicago, 789 F.2d 534, 536 (7th Cir. 1986).
I. Under Illinois Law, Waste Includes Nonpayment of Taxes.
Relatively few courts have had occasion to consider whether waste includes nonpayment of real estate taxes by the mortgagor or life tenant. But Illinois courts have discussed waste in broad terms as occurring "when someone who lawfully has possession of real estate . . . neglects it so that the interest of persons having a subsequent right to possession is prejudiced in some way or there is a diminution in the value of the land being wasted." Pasulka v. Koob, 170 Ill. App. 3d 191, 524 N.E.2d 1227, 1239, 121 Ill. Dec. 179 (3d Dist.), appeal denied, 122 Ill. 2d 579, 530 N.E.2d 250 (1988). The Illinois Appellate Court also has rejected the notion that the common-law definition of waste was limited to physical deterioration of property, referring to that notion as "a historical observation rather than a rule of law." Hausmann v. Hausmann, 231 Ill. App. 3d 361, 596 N.E.2d 216, 220, 172 Ill. Dec. 937 (5th Dist. 1992). In Hausmann, the court held that a life tenant's failure to pay real estate taxes on the life estate could give rise to a cause of action for waste, citing the above-quoted language in Pasulka giving a broad construction to the common-law meaning of waste. Id., 596 N.E.2d at 219-220.
Citing Hausmann and Pasulka, Judge Kocoras recently held, in a decision affirmed by the Seventh Circuit without a published opinion, that Illinois' common-law definition of waste included a mortgagor's failure to pay real estate taxes. Capitol Bankers Life Ins. Co. v. Amalgamated Trust & Sav. Bank, 1993 U.S. Dist. LEXIS 6032, No. 92 C 4480, 1993 WL 594103, at *5 (N.D. Ill. May 6, 1993), aff'd, 16 F.3d 1225 (7th Cir. 1994).
This broad conception of waste appears to be part of an emerging legal trend with roots dating to the 19th Century. See Travelers Ins. Co. v. 633 Third Assocs., 14 F.3d 114, 123 (2d Cir. 1994) (applying New York law to hold ...