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In Re Estate of Donna Lynn Denten, A Disabled Person v. John Hoeper and James Hoeper

June 26, 2012

IN RE ESTATE OF DONNA LYNN DENTEN, A DISABLED PERSON
FIRST BANK AND TRUST COMPANY OF ILLINOIS,
PLAINTIFF-APPELLEE,
v.
JOHN HOEPER AND JAMES HOEPER, DEFENDANTS-APPELLANTS.



Appeal from the Circuit Court of Lake County. No. 08-P-660 Honorable Diane Winter, Judge, Presiding.

The opinion of the court was delivered by: Justice Birkett

JUSTICE BIRKETT delivered the judgment of the court, with opinion. Justices Bowman and Burke concurred in the judgment and opinion.

OPINION

¶ 1 The appellants, John and James Hoeper, as guardians for the estate of their mother, Donna Denten (Guardians), appeal from an order of the probate court granting a motion for turnover of assets by the appellee, First Bank and Trust Company of Illinois (Bank). In the order, the trial court ruled: (1) the Bank's act of recording a deficiency judgment against a property owned by Ms. Denten, along with the service of a citation on John Hoeper, as Guardian of the estate, created a security interest in the estate's assets; (2) the recording of a lis pendens notice of the guardianship against that property did not give judgments and orders of the probate court priority over the secured interest of the Bank; and (3) the Illinois Probate Act of 1975 (Probate Act) (755 ILCS 5/1-1 et seq. (West 2010)) did not require payment of administration expenses, including fees, over payment to a secured creditor. For the following reasons, we affirm.

¶ 2 I. FACTS

¶ 3 A. The Guardianship Estate

¶ 4 On July 23, 2008, this case was commenced in the probate court and a temporary guardianship estate was created for Ms. Denten, a temporarily disabled adult (Guardianship Estate).*fn1

On July 29, 2008, a lis pendens notice was recorded on property located at 405 Mayflower, Lake Forest, Illinois (Mayflower property) and property located at 799-801 Everett Road, Lake Forest, Illinois (Everett property). A copy of the lis pendens notice was mailed to the Bank.

¶ 5 On August 15, 2008, the probate court appointed Thomas Pasquesi as the guardian ad litem (GAL) for Ms. Denten. On October 16, 2008, a temporary guardian was appointed and given authority to list and sell the Mayflower property and the Everett property. On June 25, 2009, the probate court appointed Ms. Denten's sons, John and James Hoeper, as permanent limited guardians of the estate. The probate court gave the Guardians the duty to manage most, but not all, of the assets of the estate. Among other things, the probate court appointed the Guardians to "represent Donna Lynn Denten in all legal proceedings, including but not limited to appearing in and addressing all matters, rights, claims and defenses in the foreclosure proceeding filed by First Bank and Trust Company of Illinois." The Guardians were also given authority to sell the Mayflower and Everett properties and to manage and petition to sell Ms. Denten's tangible personal property as required.

¶ 6 On January 9, 2009, the probate court approved payment of the GAL fees in the amount of $17,876.14. On January 21, 2010, the probate court approved payment of the GAL fees in the amount of $9,772.50. On November 12, 2010, the probate court approved payment of the GAL fees in the amount of $4,545. The total fees awarded to the GAL were $29,193.64.

¶ 7 On July 30, 2009, the probate court approved payment of fees and costs of Chapman and Cutler LLP (Chapman and Cutler), counsel for the Guardians, in the amount of $39,056.08 for services in connection with the guardianship through June 25, 2009, and approved the fees and costs of Dr. Karen Wiviott in the amount of $16,864. On January 21, 2010, the probate court again approved payment to Chapman and Cutler, this time in the amount of $12,342.88 for services through December 31, 2009. On November 30, 2010, the probate court approved payment of $6,609.92 and $196,125 to Chapman and Cutler for services through October 31, 2010.

¶ 8 On November 4, 2010, the Guardians filed a petition for guardians' fees for services rendered through September 2010. The Guardians also filed a petition for approval of sales of tangibles. On November 10, 2010, the Bank filed a petition to intervene as an interested party in the guardianship proceedings. The Bank was given leave to intervene, and it filed responsive pleadings to the petition for guardians' fees, the petition for approval of sales of tangibles, and the petition for attorney fees through October 31, 2010. On November 30, 2010, as noted above, the court approved payments to Chapman and Cutler totaling $202,734.92. On January 2, 2011, the court approved a $2,400 fee to John Hoeper, a $1,500 fee to James Hoeper, and a $79,650 fee to Jackie Hoeper, Ms. Denten's daughter and guardian of the person.

¶ 9 B. The Foreclosure Proceedings and Deficiency Judgment ¶ 10 On January 26, 2009, the Bank filed a foreclosure proceeding against both the Mayflower and the Everett properties in case No. 09-CH-363. In the foreclosure action, the Bank sought to recover $9,490,893.82 owed to the Bank by Ms. Denten under a loan that was in default. The Bank sought to foreclose on both properties on the ground that they were both collateral for the defaulted loan. In amended pleadings in the foreclosure action, the Bank named the Guardians as defendants and the Guardians actively litigated the matter on behalf of the estate.

¶ 11 On July 29, 2010, the chancery court granted the Bank partial summary judgment in the foreclosure action, and on August 18, 2010, the court entered a judgment of foreclosure and sale of the Mayflower property. However, on October 19, 2010, the court granted summary judgment on the foreclosure claim against the Everett property on the ground that the language in the mortgage document on the Everett property that the Bank claimed made that property collateral for a loan taken out against the Mayflower property was inoperative because it appeared in the recitals of the Everett mortgage and not in its granting provisions.*fn2

¶ 12 On November 23, 2010, the Mayflower property was sold for $9 million. Following the sale of the Mayflower property, on December 1, 2010, the chancery court entered a deficiency judgment in the amount of $4,646,360.20 against Ms. Denten and the Guardianship Estate. The next day, the Bank recorded the deficiency judgment against the Everett property. On December 3, 2010, the Bank served a citation to discover assets upon Ms. Denten and John Hoeper, as Guardian (Citation). On December 6, 2010, Chapman and Cutler accepted service of the Citation. After conducting the Citation examinations, the Bank moved for a turnover order in the chancery court on February 23, 2011. The Guardians objected to the Bank's motion for turnover. The chancery court then transferred the motion to the probate court on February 28, 2011.

¶ 13 On April 6, 2011, a sheriff's sale of the Everett property was conducted in connection with the recorded deficiency judgment and sheriff's levy, and the Bank purchased the Everett property. The chancery court confirmed the sale on May 4, 2011, subject only to the estate's right to redeem the property, which expired on October 6, 2011. The estate did not redeem the property and the Guardians did not appeal the order confirming the sale.

¶ 14 C. Petition for Distribution and Motion for Turnover

¶ 15 On March 18, 2011, the Guardians filed a petition for disbursement of estate funds and their response to the Bank's motion for a turnover order. In the petition, the Guardians requested authorization to pay all administrative expenses of the estate first and to pay the expenses of the other creditors second. To the extent that the assets of the estate were insufficient to satisfy the foregoing, the Guardians requested that the probate court allocate the funds pro rata among the various creditors and claimants within each category.

¶ 16 On July 19, 2011, the probate court granted the motion for turnover and denied the Guardians' petition for distribution of estate funds. The court ruled that the Bank, by virtue of the judgment liens created by recording the deficiency judgment and serving the Citation, had "priority over the unperfected awards of attorney fees and other fees/expenses approved in the Guardianship Estate." The court also found that neither the recording of the lis pendens notice of the guardianship proceeding nor the Probate Act created a priority as to the allowances made by the probate court for the Guardians, the GAL, and the attorney fees and expenses.

¶ 17 II. ANALYSIS

¶ 18 On appeal, the Guardians contend that the trial court erred in granting the Bank's motion for turnover of the assets of the Guardianship Estate. Specifically, they make the following arguments:

(1) the probate court erred in finding that a judgment creditor can create a security interest in the assets of an estate by serving a citation and recording the judgment; and (2) even if the Bank had a security interest in the assets of the estate, the probate court's order failed to recognize that the allowances by the probate court have priority and/or are binding on the Bank.

¶ 19 A. Standard of Review

¶ 20 Since this appeal concerns the probate court's determination as to the priority in the payment of the assets of the estate among various parties, the matters before this court involve questions of law, in particular statutory interpretation. Accordingly, we will review the Guardians's appellate contentions de novo. In re Estate of Funk, 221 Ill. 2d 30 (2006).

¶ 21 B. Security Interest

ΒΆ 22 We will first address the Guardians' contention that the probate court erred when it found that the Bank's acts of recording the deficiency judgment and serving the Citation created a security ...


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