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Blackburne & Sons Realty Capital Corp. v. Royal Fox Country Club II, L.P.

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

April 17, 2017

BLACKBURNE & SONS REALTY CAPITAL CORPORATION, Plaintiff,
v.
ROYAL FOX COUNTRY CLUB II, L.P.; JOHN D. WEISS; NANCY WEISS; and MICHAEL MAGEE, Defendants.

          MEMORANDUM OPINION AND ORDER

          AMY J. ST. EVE United States District Court Judge.

         On February 27, 2017, Plaintiff Blackburne & Sons Realty Capital Corporation filed a motion, pursuant to the Illinois Mortgage Foreclosure Law, 735 ILCS 5/15-1701, et seq., for the appointment of a receiver over the property that is the subject of this litigation. (R. 31, Pl.'s Mot. to Appoint Receiver.) Specifically, Plaintiff seeks to appoint R. Baker Thompson (“Thompson”) of RBT Advisors, LLC, to manage the property. Defendants Royal Fox Country Club, John Weiss, Nancy Weiss, and Michael Magee, collectively “Defendants, ” oppose this request. (R. 35, Defs.' Resp. to Mot. to Appoint Receiver.) For the following reasons, the Court grants Plaintiff's motion for receivership.

         BACKGROUND

         On May 24, 2016, Defendant John Weiss, as General Partner of Royal Fox, executed a Fixed Rate Promissory Note (“the Note”) in favor of a group of entities (“the Lenders”), care of Plaintiff, [1] in the original principal amount of $2.7 million. (R. 1, Compl. ¶ 10.) To secure the indebtedness of the Note, Defendant Weiss executed a Mortgage and Assignment of Rents in favor of the Lenders (“the Mortgage”). (Id. ¶ 11.) The Mortgage pledged to the Lenders the property commonly known as 5N748 Burr Road, St. Charles, IL 60175 (“the Property”). (Id.) The Property is a private country club with a golf course, and it is not a residential property. (Mot. to Appoint Receiver ¶ 8.) As additional security for the Note, Defendants executed a Security Agreement (“the Security Agreement”) in favor of the Lenders that pledged the assets of Royal Fox to the Lenders. (Compl. ¶ 12.) The Mortgage also entitles Plaintiff to possession and receivership after giving notice of the breach to Defendants, stating, “Lender shall be entitled to have a receiver appointed and take possession of the Property and collect the Rents and profits from the Property without any showing as to the inadequacy of the Property as security.” (R.1, Ex. C ¶ 30.) As additional security for the Note, John and Nancy Weiss (“the Guarantors”), individually executed a Personal Guaranty of Loan (“the Guaranty”) in favor of the Lenders, thereby unconditionally guarantying prompt and full repayment of all principal and interest owed to the Lenders under the Note. (Compl. ¶ 13.) The Note, the Mortgage, the Security Agreement, and the Guaranty are collectively, “the Loan Documents.”

         On August 23, 2016, Plaintiff filed its Complaint to Foreclosure Mortgage. (Id.) Plaintiff alleges that Defendants are and have been in default under the terms and conditions of the Loan Documents due their (1) failure to make timely payments as required by the Note and (2) their creation of a subordinate lien in excess of 80% of the Property's value via a mortgage Defendant Weiss executed in favor of Michael Magee. (Id. ¶ 14.) The Guarantors have breached their obligations to Plaintiff by failing to promptly pay all amounts owed to Plaintiff under the terms of the Note. (Id. ¶ 17.) According to Plaintiff, Defendants owe $2.7 million in principal, $88, 612 in interest, and $6, 255 in late charges. (Id. ¶ 18.)

         LEGAL STANDARD

         The Illinois Mortgage Foreclosure Law (“IMFL”) states that, prior to the entry of the Judgment of Foreclosure:

[I]f (i) the mortgagee is so authorized by the terms of the mortgage or other written instrument, and (ii) the court is satisfied that there is a reasonable probability that the mortgagee will prevail on a final hearing of the cause, the mortgagee shall upon request be placed in possession of the real estate, except that if the mortgagor shall object and show good cause, the court shall allow the mortgagor to remain in possession.

735 ILCS 5/15-1701(b)(2). The law also provides that if the mortgagee is entitled to possession and requests it, the Court “shall appoint a Receiver, ” and the mortgagee is “entitled to designate the Receiver.” 735 ILCS 5/15-1702(a)-(b). “[A]ccording to section 15-1105 of the Foreclosure Law, ‘shall' means mandatory and not permissive.” Bank of Am., N.A. v. 108 N. State Retail LLC, 401 Ill.App.3d 158, 164 (2010) (citing 735 ILCS 5/15-1105(b)). “Therefore . . . the Foreclosure Law creates a presumption in favor of the mortgagee's right to possession of nonresidential property during the pendency of a mortgage foreclosure proceeding.” Id. See also PNC Bank, N.A. v. Janiga, No. 12-CV-9383, 2013 WL 1787499, at *1-2 (N.D. Ill. Apr. 24, 2013) (stating same). A mortgagor can only retain possession if it can show “good cause” for permitting it to do so.” Bank of Am., 401 Ill.App.3d at 164.

         ANALYSIS

         Defendants concede that they are in default and do not dispute that Plaintiffs are entitled under the terms of the Mortgage to possession of the Property and to appoint a receiver. (Defs.' Resp. to Pl.'s Mot. to Appoint Receiver 2.) Defendants instead argue (1) that there is not a reasonable probability that Plaintiff will prevail on the merits of the foreclosure action and (2) that there is good cause not to appoint a receiver. The Court addresses each argument in turn.

         I. Reasonable Probability of Plaintiff Prevailing in the Foreclosure

         Defendants concede that “there is a technical default” under the Mortgage, but argue that the default is not sufficient to warrant appointment of a receiver. (Id.) It is, however, well-established in Illinois that “a proven default establishes a reasonable probability of success in a mortgage foreclosure action.” CenterPoint Properties Trust v. Olde Prairie Block Owner, LLC, 923 N.E.2d 878, 883 (2010) (citing Brown County State Bank v. Kendrick, 488 N.E.2d 1079 (1986)). Given that Defendants have admittedly defaulted on the Note, there is a “reasonable probability” that Plaintiff will prevail on a final hearing in this case. Accordingly, Plaintiff is entitled to possession of the property and the appointment of a receiver unless Defendants can establish good cause for permitting them to retain possession.

         II. Good Cause for Defendants ...


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