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Lasalle Bank v. First American Bank

September 12, 2000


The opinion of the court was delivered by: Justice McBRIDE

Appeal from the Circuit Court of Cook County. The Honorable Dorothy Kirie Kinnaird, Judge Presiding.

This mortgage foreclosure action was initiated by appellee LaSalle Bank, N.I. (LaSalle), formerly known as LaSalle Bank Northbrook, which had a mortgage lien on property commonly known as 828 Pony Lane, in Northbrook, Illinois (the subject premises). Appellant Daniel Lopez, who had signed a purchase contract on the subject premises and had advanced a sum of money to the now bankrupt legal owner, filed an answer and counterclaim. LaSalle and Lopez disagreed as to the priority of their respective liens on the subject premises. Lopez moved for summary judgment. His motion was denied and LaSalle then moved for summary judgment. The court granted summary judgment for LaSalle, finding that LaSalle's mortgage lien had priority over any vendee's lien Lopez might have in the subject premises. Lopez filed separate appeals from the judgment of foreclosure and sale entered by the trial court on March 23, 1998, and from the court's July 31, 1998, order approving the report of sale and distribution, confirming sale and order for possession. The two separate appeals have been consolidated before this court.

The facts are not in dispute. The disagreement in this case centers on the priority of claimed liens related to the subject premises. Legal title to the subject premises was held by First American Bank (First American), as trustee of a land trust in which the subject premises were held. The sole beneficiary of the land trust was Brandess Home Builders (Brandess), a custom home builder. In 1990, Parkway Bank and Trust Company (Parkway) obtained an interest in the subject premises through recorded mortgages (the Parkway mortgage).

Lopez entered into a written purchase contract with Brandess on May 9, 1995 (the purchase contract). Under the purchase contract, Brandess agreed to convey the subject premises, improved with a custom home, to Lopez in return for the sum of $519,042. Lopez subsequently paid Brandess $120,933 in earnest money and partial payment. Lopez, to satisfy a contract contingency, also obtained and delivered to Brandess a mortgage end loan commitment from Sunbelt National Mortgage.

Upon receipt of the above, Brandess applied to LaSalle for a construction loan to finance construction of a custom home on the subject premises. A LaSalle loan committee approved a secured construction loan of up to $385,000 on August 21, 1995. The request for loan approval prepared by a LaSalle loan officer noted that the property had been sold to Lopez for $519,042. At the time it made the loan, LaSalle had copies of the Brandess/Lopez purchase contract, Lopez' end-loan commitment, and was aware that Lopez had deposited earnest money with Brandess.

On August 21, 1995, First American, as borrower, executed a promissory note to LaSalle in the original principal sum of $385,000. The note was secured with the conveyance of a construction mortgage on the subject premises between First American as grantor and LaSalle as lender. The mortgage was recorded by LaSalle on August 24, 1995.

The construction loan agreement between LaSalle and Brandess provided, under a section entitled "Conditions Precedent to Each Advance," in pertinent part:

"TITLE INSURANCE - Borrower shall have provided to Lender an ALTA Lender's Extended Coverage Policy of Title Insurance with such endorsement as Lender may require, issued by a title insurance company acceptable to Lender and in a form, amount, and content satisfactory to Lender insuring or agreeing to insure that Lender's Mortgage or Deed of Trust on the Property is or will be upon recordation a valid first lien on the property free and clear of all defects, liens, encumbrances, and exceptions, except those as specifically accepted by Lender in writing." (Emphasis added).

The mortgage, in a section entitled "Further Assurances; Attorney-In-Fact," provided, in pertinent part:

"Further Assurances - At any time, and from time to time, upon request of Lender, Grantor will make, execute and deliver, or will cause to be made, executed or delivered, to Lender or to Lender's designee, and when requested by Lender, cause to be filed, recorded, refiled, or re-recorded, as the case may be, at such times and in such offices and places as Lender may deem appropriate, any and all such mortgages, deeds of trust, security deeds, security agreements, financing statements, continuation statements, instruments of further assurance, certificates, and other documents as may, in the sole opinion of Lender, be necessary or desirable in order to effectuate, complete, perfect, continue, or preserve *** (b) the liens and security interest created by this Mortgage as first and prior liens on the Property, whether now owned or hereafter acquired by Grantor." (Emphasis added).

LaSalle approved an initial disbursement to Brandess in the amount of $199,400, which was deposited in an escrow account at Chicago Title & Trust. $150,000 of that amount was used to pay off the Parkway mortgage. Upon receiving the $150,000, Parkway released its mortgage in the subject premises. A total of $203,565 was eventually advanced by LaSalle to Brandess.

Brandess stopped construction on the home when it was approximately 50% complete. Brandess filed for bankruptcy on November 1, 1996, and was subsequently adjudicated bankrupt.

The LaSalle mortgage loan was in default and, on May 14, 1996, LaSalle filed suit to foreclose on the mortgage. Lopez answered the complaint and filed a counterclaim seeking specific performance of the purchase contract between himself and Brandess and requested that the court find his vendee's lien prior, superior, and paramount to LaSalle's mortgage lien. Several subcontractors and tradesman also asserted mechanic's lien claims against the subject premises.

Lopez moved for summary judgment on his amended counterclaim, arguing that the doctrine of equitable conversion gave him an interest in the subject premises that was superior to LaSalle's interest. The trial court, in denying Lopez' motion for summary judgment, found that the equitable doctrine of conventional subrogation applied. The court found that pursuant to the construction loan agreement, there was an agreement between Brandess and LaSalle that LaSalle's mortgage was to have priority over all other lien claimants. The trial court, in applying the doctrine of conventional subrogation, determined that under FirstMark Standard Life Insurance Co. v. Superior Bank FSB, 271 Ill. App. 3d 435, 649 N.E.2d 465 (1995), LaSalle stood in the position of Parkway for purposes of lien priority because of the payoff of the Parkway mortgage and the language of the construction loan agreement with Brandess.

On September 18, 1997, LaSalle filed its own motion for summary judgment on its amended complaint. The court, relying on the same reasoning it had used in denying Lopez' motion, granted LaSalle's motion. In so doing, the court found that as a matter of law, LaSalle's mortgage, to the extent it paid off the ...

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