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Decaro v. M. Felix

March 9, 2007

LAKESHORE DECARO, F/K/A LAKESHORE INC., PLAINTIFF-APPELLEE AND DEFENDANT-IN-INTERVENTION-APPELLEE,
v.
M. FELIX, INC., D/B/A LAKE SHORE DIGITAL IMAGING, INC. AND COLOR COM, MICHAEL FELIX, AND GENARO FELIX, DEFENDANTS
STEWART TITLE GUARANTY COMPANY, PLAINTIFFS-IN-INTERVENTION-APPELLANT.



Appeal from the Digital Imaging, Circuit Court of Cook County. No. 02 CH 13773 Honorable Sophia Hall, Judge Presiding.

The opinion of the court was delivered by: Presiding Justice O'brien

Genaro Felix (Felix) owned some real property for which there were two existing mortgage liens. Lakeshore Decaro (Lakeshore) subsequently obtained an $80,000 arbitration award against Felix and recorded a memorandum of judgment against the property. After Lakeshore recorded its judgment, Felix entered into a contract to sell the property to Burke Chaney Builders (Burke Chaney). In connection with the purchase and sale of the property, the First National Bank of Brookfield (the Bank) lent Burke Chaney $104,8000 and received a mortgage on the property in the same amount. A portion of the loan proceeds was used to pay off the two prior mortgages and Cook County real estate taxes. The primary question on appeal is whether the Bank's mortgage lien was subrogated to the lien position of those earlier mortgages and taxes ahead of the judgment lien of Lakeshore. We answer the question in the affirmative, holding that the Bank's mortgage lien on the property is superior to Lakeshore's judgment lien.

This matter relates to real property at 8015 Christie Avenue in Lyons, which was owned by Felix and encumbered by two pre-existing mortgages, each of which had been duly recorded. On November 8, 2002, Lakeshore recorded its memorandum of judgment in the amount of $80,000 against the property.

On December 6, 2002, Felix closed the sale of the property to Burke Chaney. The purchase price was $131,000. In connection with the purchase and sale of the property, the Bank made a mortgage loan to Burke Chaney in the amount of $104,800. The proceeds of the Bank's mortgage loan were used to pay off the two prior mortgages in the amounts of $57,468.32 and $25,278.60. The proceeds of the mortgage loan also were used to pay off Cook County real estate taxes in the amount of $3,294.60. At the closing, Felix received $36,798.23 from the sale of the property to Burke Chaney.

Prior to closing, Burke Chaney and the Bank obtained commitments for title insurance from Stewart Title. Neither the commitments nor the owner's and lender's policies eventually issued by Stewart Title to Burke Chaney and the Bank disclosed Lakeshore's memorandum of judgment.

In January 2003, Lakeshore instituted postjudgment proceedings against Felix. In November 2003, Lakeshore sent Burke Chaney, the Bank, and Stewart Title notice of a sheriff's levy sale of the property scheduled for December 16, 2003. On December 12, 2003, Burke Chaney and the Bank filed an emergency petition to intervene in this matter, as well as an emergency motion to stay the scheduled sheriff's sale. In the emergency petition to intervene, Burke Chaney and the Bank sought a determination that the Bank's mortgage lien on the property was superior to Lakeshore's judgment lien by virtue of subrogation, on the theory that proceeds from its mortgage loan had been used to pay off the two senior mortgages and the Cook County real estate taxes. Burke Chaney and the Bank sought to stay or temporarily restrain the sheriff's levy sale until the lien priority issues could be determined.

The trial court denied the motion to stay or restrain the sheriff's sale. Lakeshore then purchased the property at a sheriff's sale on December 16, 2003, for the sum of $83,000.

Following the sheriff's sale, Burke Chaney and the Bank decided to redeem the property. Prior to redeeming the property, though, they filed a motion to allocate the proceeds of redemption. In the motion to allocate, they argued that Lakeshore was not entitled to the entire redemption amount, but that, at best, Lakeshore was only entitled to the net proceeds Felix received from the sale of the property, in the amount of $36,798.23. They further contended that a hearing may be necessary to determine whether the property was Felix's homestead; if Felix had homestead rights in the property, then Lakeshore was only entitled to $29,298.23 (which represented the difference between $36,798.23 and the $7,500 homestead exemption.)

On June 8, 2004, the trial court denied the motion to allocate the proceeds of redemption. On June 15, 2004, Stewart Title, acting under both the owner's policy of title insurance issued to Burke Chaney and the lender's policy of title insurance issued to the Bank, provided the funds necessary to redeem the property. Such funds amount to $87, 143.18.

On May 5, 2005, Stewart Title was allowed to substitute as plaintiff in intervention, in place of its insureds, Burke Chaney and the Bank. The reason for the substitution was that Stewart Title had provided the funds for the redemption of the property and had become the real party in interest.

Stewart Title filed an amended complaint in intervention, alleging that the trial court had erred in denying the motion to stay and the motion to allocate the proceeds of redemption. Stewart Title alleged that Lakeshore had been unjustly enriched in the amount of $53, 701.77, which represented the difference between the $83,000 which Lakeshore received from the redemption of the property, and the $29,298.23 which Lakeshore should have received.

The trial court dismissed Stewart Title's amended complaint in intervention for failure to state a cause of action. Stewart Title filed a notice of appeal seeking review of the order denying the motion to stay, the order denying the motion to allocate the proceeds of redemption, and the order dismissing its amended complaint in intervention.

The appeal of the order denying the motion to stay or restrain the sheriff's sale is moot, as the sheriff's sale has been made, and the parties are now disputing the allocation of the proceeds. Accordingly, we address the appeal of the order denying the motion to allocate and ...


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