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Firstmerit Bank, N.A v. Anchor Properties, Inc.

United States District Court, N.D. Illinois, Eastern Division

February 14, 2014



JAMES F. HOLDERMAN, District Judge.

Plaintiff FirstMerit Bank, N.A. ("FirstMerit") has filed a sixteen count "Complaint for Foreclosure and Other Relief" (Dkt. No. 2, "Compl.") against defendants Anchor Properties, Inc. ("Anchor") and Emin Tuluce ("Tuluce") (collectively "Defendants"). FirstMerit brings claims for breach of contract, foreclosure on actual mortgages, and foreclosure on equitable mortgages, based on a labyrinth of contracts between Defendants and Midwest Bank and Trust Company ("Midwest"). FirstMerit purchased Midwest from the Federal Deposit Insurance Corporation, which had placed Midwest into receivership. (Compl. ¶ 2.)

Before the court is "Defendants' Motion to Dismiss Pursuant to Fed.R.Civ.P. 12(b)(6)" (Dkt. No. 20, the "MTD"). Defendants seek to dismiss Counts II, IV, and VI of the Complaint, claiming that Midwest and Defendant Anchor did not enter into valid mortgages capable of supporting a foreclosure. (MTD at 8.) Defendants argue that Counts X, XI, and XII should be dismissed, arguing that FirstMerit seeks to enforce fraudulent and ambiguous agreements between Midwest and Anchor. ( Id. at 7.) For the reasons stated in this order, the court denies Defendants' motion.


When ruling on a motion to dismiss, a court must accept as true all well-pleaded allegations in the complaint, drawing all reasonable inferences in favor of the plaintiff. Cole v. Milwaukee Area Tech. Coll. Dist., 634 F.3d 901, 903 (7th Cir. 2011) (quoting Justice v. Town of Cicero, 577 F.3d 768, 771 (7th Cir. 2009)). Accordingly, this court accepts the allegations in FirstMerit's Complaint as true in articulating the relevant background facts below.

In May and August, 2007, Midwest entered into three loan agreements with entities not involved in this lawsuit (the "Entities"). (Compl. ¶ 8.) Under these loan agreements, Midwest loaned the Entities $4, 040, 000.00, and the Entities granted Midwest mortgages on three properties: 4471 Lawn Avenue in Western Springs; 187-191 North York Road in Elmhurst; and 410 Chestnut Street in Hinsdale (collectively the "Properties"). ( Id. ¶¶ 8-10.) The Entities failed to repay this loan, and Midwest instituted foreclosure proceedings against the Properties. ( Id. ¶ 19.)

With these foreclosures pending, Midwest in June 2008 entered into an agreement with Defendant Anchor, where Midwest loaned $4, 027, 550.68 to Anchor. ( Id. ¶ 12.) Anchor in turn used these proceeds to purchase from Midwest the loan documents the Entities entered into for the Properties. ( Id. ¶¶ 11-12.) In essence, Midwest loaned Anchor the funds to step into Midwest's shoes and hold the mortgages for the Properties.

The transactions between Midwest and Anchor were memorialized in multiple loan documents. First, the parties entered into a Business Loan Agreement where Midwest loaned $4, 027, 550.68 to Anchor. ( Id. ¶ 12.) Second, Anchor executed a Promissory Note in favor of Midwest for $4, 027, 550.68 (the "$4.027 Note"). ( Id. ¶ 13.) Third, the parties entered into an agreement where Anchor purchased the Entities' loan documents for the Properties from Midwest at a price of $4, 027, 550.68. ( Id. ¶ 11.) Finally, Anchor executed Collateral Assignments of Note and Mortgage Documents ("Collateral Assignments" or "Assignments"). In the Collateral Assignments, Anchor secured the $4.027 Note, by granting Midwest a security interest in the Entities' notes and mortgages for the Properties. ( Id. ¶ 15.)

Following the execution of these documents, Anchor took over for Midwest the pending foreclosures of the Entities' mortgages. ( Id. ¶ 20.) Under the Collateral Assignments, once Anchor could sell the property at a foreclosure sale, Anchor had to first obtain Midwest's written consent to the transaction. ( Id. ¶ 17 (quoting Compl., Exs. G, H, I ¶ 6).) Midwest could condition its consent upon a demand to receive a first priority mortgage on the Properties after the sale. ( Id. ) In the event Anchor purchased the Properties in foreclosure, Anchor was required to deliver first priority mortgages to Midwest. ( Id. ) If Anchor failed to grant Midwest first priority mortgages, the Collateral Assignments themselves, by their own terms, were to be deemed mortgages on the Properties in favor of Midwest. ( Id. )

Anchor did obtain a judgment of foreclosure and sale against the Properties; however, Anchor did not seek Midwest's consent to these sales. ( Id. ¶¶ 21-23, 26.) Anchor was the high bidder and obtained possession of the Properties at these sales; however, Anchor failed to execute or deliver the contemplated first priority mortgages on the Properties. ( Id. ¶¶ 25-27.)

Counts II, IV, and VI of FirstMerit's Complaint (Dkt. No. 20) seek to foreclose on each of the respective Properties. FirstMerit argues the Collateral Assignments converted into enforceable mortgages, because Anchor sold and purchased the Properties in foreclosure and failed to grant Midwest first priority mortgages. (Pl's Opp'n to Defs' MTD, Dkt. No. 28, at 7, the "Opp'n".) Defendants respond by largely arguing that provisions in the Collateral Agreements cannot convert the agreements to mortgages capable of being foreclosed upon.

Additionally, in June 2008, Midwest loaned another $400, 000.00 to Anchor. ( Id. ¶ 28.) This loan was evidenced by a promissory note that was restated by later promissory notes. ( Id. ) The last of these notes (May 5, 2010) included a provision requiring Anchor to perfect security interests in the Properties (the "$400, 000 Note"). ( Id. (citing Compl., Ex. J).) On the same day, Anchor executed second priority mortgages on the Properties in favor of Midwest. ( Id. ¶ 31.) These second priority Mortgages clarify that they secure the $400, 000 Note. ( Id. (citing Compl., Exs. M, N, 0).)

Counts X, XI, and XII of the Complaint seek to foreclose upon the Properties, because Defendants failed to pay back the $400, 000 Note. (Opp'n at 2.) Defendants argue that these claims should be dismissed because Defendant Tuluce never intended to secure the $400, 000 Note with mortgages on the Properties. (MTD at 14-15.) Defendants also argue that whether the $400, 000 Note secures the properties is ambiguous and that this ambiguity should be resolved against FirstMerit as successor to the note's drafter Midwest. (MTD at 15.)


As stated earlier, under the Federal Rules of Civil Procedure, when deciding a Rule 12(b)(6) motion, the court "construe[s] the... [c]omplaint in the light most favorable to Plaintiff, accepting as true all well-pleaded facts and drawing all possible inferences in his favor." Cole, 634 F.3d at 903. A complaint need contain only "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2).

However, the complaint must "give the defendant fair notice of what the... claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). Though "detailed factual allegations" are not required, "labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555.

The complaint must "include sufficient facts to state a claim for relief that is plausible on its face.'" Cole, 634 F.3d at 903. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable ...

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