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LLC v. American Chartered Bank

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

October 9, 2014

1756 W. LAKE STREET, LLC, Plaintiff,
v.
AMERICAN CHARTERED BANK and SCHERSTON REAL ESTATE INVESTMENTS, LLC, Defendants.

MEMORANDUM OPINION

CHARLES P. KOCORAS, District Judge.

This matter comes before the Court on the motion for summary judgment by Defendants American Chartered Bank ("American Chartered") and Scherston Real Estate Investments, LLC ("Scherston") (collectively "Defendants") pursuant to Federal Rule of Civil Procedure 56. For the reasons set forth below, Defendants' motion is granted.

BACKGROUND

The following facts are derived from the parties' respective statements and exhibits filed pursuant to Northern District of Illinois Rule 56.1 ("Local Rule 56.1"). The Court reviews each Local Rule 56.1 statement and disregards any argument, conclusion, or assertion unsupported by the evidence in the record.

Plaintiff 1756 W. Lake Street, LLC ("Lake Street") is the physical location of the property at issue in this case, and also an Illinois limited liability company. Lake Street was the borrower of several loans made by American Chartered between October 2006 and April 2008. American Chartered is an Illinois banking corporation. Scherston is also Illinois limited liability company and an affiliate of American Chartered.

On October 25, 2006 ("Closing Date"), American Chartered and Lake Street executed a promissory note in which Lake Street would borrow $1, 475, 000 ("Original Note"). The Original Note was evidenced and secured by a mortgage in favor of American Chartered for real property located at 1756 W. Lake Street, Chicago, Illinois ("Property"), certain assignments of rents as to the Property, and personal guaranties from Lake Street's principals were also included in the transaction. Lake Street retained the deed to the Property on the Closing Date.

On April 21, 2008, Lake Street executed another promissory note in favor of American Chartered in the amount of $100, 000 ("Note 2") (Original Note and Note 2 collectively referred to as "Loans"). On March 31, 2009, American Chartered and Lake Street, in conjunction with their affiliate 1800 W. Lake Street LLC, ("1800"), entered into a Forbearance Agreement ("Original Forbearance Agreement"). In accordance with the Original Forbearance Agreement, American Chartered agreed to forego enforcing their rights and remedies specified in the Loans. American Chartered agreed to extend the forbearance period through November 30, 2009.

A year later, on March 31, 2010, American Chartered and Lake Street, in conjunction with their affiliate 1800, entered into an Amended and Restated Forbearance Agreement ("A&R Forbearance Agreement"). Pursuant to the A&R Forbearance Agreement, American Chartered agreed to further extend the forbearance period through October 1, 2010, and if certain conditions were met, through October 1, 2011. Additionally, as part of the A&R Forbearance Agreement, American Chartered agreed to make a new loan to Lake Street's affiliate, 1800, in the amount of $299, 000, for the payment of past due real estate taxes on a specific commercial property owned by 1800. Over the course of the next three and a half years the parties executed eight more amendments to the A&R Forbearance Agreement.

In August 2010, American Chartered and Lake Street, in conjunction with 1800, entered into a second amendment to the A&R Forbearance Agreement ("Second A&R Forbearance Agreement"). Pursuant to the Second A&R Forbearance Agreement, American Chartered agreed to make a new $350, 000 loan to API Signs LLC, ("API"), an operating affiliate of Lake Street, provided that Lake Street gives American Chartered the deed for the Property to be placed in escrow, as collateral. A deed in lieu of foreclosure agreement for the Property ("1756 Lake Street Deed Agreement") was entered into, specifying the events that would trigger American Chartered enforcing the 1757 Lake Street Deed Agreement. The 1757 Lake Street Deed Agreement detailed the procedures American Chartered would take in the event of forbearance. Specifically, American Chartered would take possession of the Property by recording the deed.

On March 30, 2011, American Chartered and Lake Street, in conjunction with 1800, entered into a third amendment to the A&R Forbearance Agreement ("Third A&R Forbearance Agreement"). The accommodations made in favor of Lake Street in the Third A&R Forbearance Agreement were numerous. The Third A&R Forbearance Agreement provided: (1) an extension on the maturity dates of the Loans and the note executed by 1800; (2) a provision that converted payments under certain notes to interest only absent a default, thereby reducing the monthly payment; (3) the amortization schedule of several notes to be extended, reducing the required monthly payments; (4) additional financing under the 1800 tax note; and (5) for decreasing the interest rate under the Note 2.

The next several amendments to the A&R Forbearance Agreement only dealt with extending the maturity dates on the numerous loans made by American Chartered. Between July 2011 and May 2012 American Chartered and Lake Street, in conjunction with 1800 executed the fourth, fifth, sixth, and seventh amendments to the A&R Forbearance Agreement. The seventh amendment to the A&R Forbearance Agreement extend the maturity date under the Note to June 1, 2012.

On July 31, 2012, American Chartered and Lake Street in conjunction with their affiliate, 1800, entered into their eighth amendment to the A&R Forbearance Agreement ("Eighth A&R Forbearance Agreement"). In the Eighth A&R Forbearance Agreement, American Chartered agreed to: (1) further extend the maturity dates under all notes for one year, until July 31, 2013; and (2) extend the amortization schedule under all notes to allow for smaller required monthly principal payments.

On July 31, 2013, Lake Street and their affiliate 1800, amended the A&R Forbearance Agreement for the ninth and final time. The ninth amendment further extended the maturity dates under all notes until January 31, 2014. On October 1, 2013, Lake Street defaulted on their obligation under the A&R Forbearance Agreement. Pursuant to the terms of the A&R Forbearance Agreement, on October 15, 2013, American Chartered, through its affiliate, Scherston[1] recorded the deed with the Cook County Recorder of Deeds, in Chicago, Illinois ("Transfer Date"). The combined outstanding balance due under the Loans was approximately $1, 517, 506 as of October 18, 2013. In addition to the Loans, American Chartered made various loans to Lake Street's affiliates and principals totaling several million dollars, including nearly $2.3 million still outstanding as of the Transfer Date owed to American Chartered by Lake Street and its affiliates, 1800 and API.

On February 19, 2014, Lake Street filed for Chapter 11 bankruptcy in the Northern District of Illinois. On March 17, 2014, Lake Street filed a one-count complaint seeking to establish that Defendants' recording of the deed was a fraudulent transfer under 11 U.S.C. ยง 548 of the United States Bankruptcy Code ("Bankruptcy Code") and ...


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