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11/07/96 COMERICA BANK-ILLINOIS v. HARRIS BANK

November 7, 1996

COMERICA BANK-ILLINOIS, AN ILLINOIS CORPORATION, AS SUCCESSOR IN INTEREST TO AFFILIATED BANK/NORTH SHORE NATIONAL, A NATIONAL BANKING ASSOCIATION, PLAINTIFF-APPELLANT/COUNTERDEFENDANT-APPELLEE,
v.
HARRIS BANK HINSDALE, NOT PERSONALLY BUT AS TRUSTEE UNDER A TRUST AGREEMENT DATED JANUARY 8, 1990, AND KNOWN AS ITS TRUST NO. L-2506; HILLSIDE-1 GENERAL PARTNERSHIP, AN ILLINOIS GENERAL PARTNERSHIP; MARK J. MARINELLO; SHELI Z. ROSENBERG; CARL M. DEFARIA AND METRO RESOURCE INVESTMENTS, INC., AN ILLINOIS CORPORATION, DEFENDANTS-APPELLEES/CROSS-APPELLEES, V. CHICAGO TITLE AND TRUST COMPANY, AN ILLINOIS CORPORATION, AS TRUSTEE UNDER A CERTAIN TRUST DATED JANUARY 31, 1990, BY AND BETWEEN SAID TRUSTEE AND HARRIS/BANK/HINSDALE, N.A., AS TRUSTEE UNDER TRUST NO. L-2506, DATED JANUARY 8, 1990, AS MORTGAGOR; AND GREENLEAF REALTY MANAGEMENT CO., INC., AN ILLINOIS CORPORATION, CROSS-APPELLANTS/COUNTERPLAINTIFFS-APPELLANTS.



Appeal from the Circuit Court of Cook County. Nos. 94-CH-4616, 94-CH-7059. Honorable Lester D. Foreman, Judge Presiding.

Released for Publication December 22, 1996.

The Honorable Justice Theis delivered the opinion of the court. Hoffman, P.j., and O'brien, J., concur.

The opinion of the court was delivered by: Theis

The Honorable Justice THEIS delivered the opinion of the court:

In this consolidated appeal, a first and second mortgagee ask this court to review the trial court's order awarding rents to a mortgagor who defaulted on its first and second mortgages. The trial court placed rents initially collected by the first mortgagee into the hands of a receiver. The court then ruled that the rents should be returned to the mortgagor because the mortgagor was in possession of the property at the time the rents were collected. We affirm.

Comerica Bank-Illinois, as the successor in interest to Affiliated Bank/North Shore National, issued a first mortgage on the Family Square Shopping Center in Hillside, Illinois. In addition, Comerica recorded both the mortgage and an assignment of rents and leases as security for the loan. The assignment of rents provided that Comerica could collect rents from the property without taking possession of the property, and without exercising its other options under the mortgage. Chicago Title and Trust Company, as trustee, issued a second mortgage on the same property. The trustee subordinated its interest to Comerica.

While the mortgagor paid the first installment of real estate taxes on the property in 1990, the mortgagor failed to make further payments. Comerica first learned of the delinquency in December of 1993, when a real estate tax buyer notified Comerica that it had purchased the property at a public sale. The property's tax obligation, including penalties, exceeds $600,000. While the mortgage required the mortgagor to make real estate tax payments to a Comerica escrow, Comerica waived the requirement.

As the mortgagor's failure to pay the taxes constituted a breach of the mortgages, Comerica and the trustee were free to foreclose their mortgages. In April of 1994, Comerica notified the mortgagor that it was in default and that Comerica would exercise its legal remedies if the mortgagor did not cure the default. The mortgagor failed to cure the default and Comerica chose to exercise its rights under the assignment of rents. Comerica began collecting rents from the property without foreclosing, seeking the appointment of a receiver, or obtaining authorization from a court. This option permitted Comerica to reduce the debt without assuming responsibility for the property or the large tax obligation.

On May 20, 1994, Comerica filed a complaint seeking an accounting and other relief against the mortgagor and the guarantors of the mortgage. The mortgagor filed a counterclaim seeking the appointment of a receiver and an injunction mandating Comerica's maintenance and operation of the property. The trial court dismissed the mortgagor's counterclaim on October 24, 1994, for failure to state a claim upon which relief could be granted.

On August 5, 1994, the trustee filed an action to foreclose its second mortgage. The trustee further sought an accounting, the appointment of a receiver, and a return of the rents from Comerica. On October 5, 1994, the trial court consolidated Comerica's and the trustee's actions. On December 22, 1994, the trial court granted the trustee's motion for an accounting and turned the collected rents over to a receiver. The trial court then heard the arguments of Comerica, the trustee and the mortgagor, each seeking turnover of the rents. Finding that the rents belonged to the possessor of the property, the court awarded the rents to the mortgagor.

Comerica filed an appeal seeking a review of the trial court's order granting the trustee's request for an accounting. Comerica claims that it was free to contract with the mortgagor for the assignment of the rents, despite the common law requirement of possession. The trustee also appealed the trial court's ruling. On appeal, the trustee claims that Comerica failed to take proper affirmative action against the property, and therefore is not entitled to the rents. The trustee argues that its foreclosure action, however, was appropriate and entitles the trustee to the rents.

After the parties filed their appeals, Comerica entered into a settlement agreement with the mortgagor. Pursuant to the settlement agreement, the mortgagor assigned its interest in the rents to Comerica in the event that this court rules in the mortgagor's favor. The trial court approved the settlement.

Initially, we find that the settlement agreement entered into between Comerica and the mortgagor moots Comerica's appeal. See generally In re Marriage of McCoy, 272 Ill. App. 3d 125, 650 N.E.2d 3, 208 Ill. Dec. 732 (1995). The trial court awarded the rents to the mortgagor. On appeal, Comerica claims that the trial court erred in awarding the rents to the mortgagor as Comerica should have been allowed to exercise its right to collect rents under the assignment of rents. Pursuant to the settlement agreement, however, Comerica will receive those rents regardless of whether we affirm the trial court's ruling, or reverse the trial court's ruling in its favor. Consequently, the issues raised in Comerica's appeal are moot. Therefore, we will address only the arguments raised by the trustee on appeal.

The trustee first argues that Comerica's assignment of rents, which permits Comerica to collect the rents without any other action, cannot supersede the common law requirement of possession. In resolving this issue, we have relied on Illinois case law. However, we have also found relevant bankruptcy decisions and Federal case law to be thorough and persuasive. Because the Supreme Court has required bankruptcy courts to apply State law in determining mortgagees' entitlements to rents, we find ...


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