2012 IL App (1st) 120061
SIXTH DIVISION
OCTOBER 5, 2012

US BANK NATIONAL ASSOCIATION, as Trustee for
WFALT 2005-02,
Plaintiff and Cross-Defendant-Appellant,

v.

BENJAMIN VILLASENOR JR. a/k/a Benjamin S.
Villasenor Jr., UNKNOWN OWNERS and
NONRECORD CLAIMANTS,
Defendants and Cross-Defendants

(Ruthie Lee Ellis, )
Intervenor and Cross-Plaintiff-Appellee

Property Tax Counselors, Inc., a
Dissolved Illinois
Corporation, and Unknown Shareholders of Property Tax
Counselors, Inc.,
Cross-Defendants

EXCERPT:

Ellis alleges that when PTC required her to execute a
warranty deed and then later sold the property to Villasenor, it committed fraud in the
inducement. However, Ellis alleges that US Bank is also at fault for ignoring facts that would
have led a diligent lender to conclude that Villasenor did not have merchantable title. Thus, Ellis
alleges that US Bank was never a bona fide mortgagee because it had constructive notice of
Ellis’s adverse interest and therefore her interest should be considered an equitable mortgage.

¶ 38 In support of her argument for an equitable mortgage, both in the trial court and before us,
Ellis relies on section 5 of the Mortgage Act, 765 ILCS 905/5 (West 2004). The Mortgage Act
reads, “Every deed conveying real estate, which shall appear to have been intended only as a
security in the nature of a mortgage, though it be an absolute conveyance in terms, shall be
considered as a mortgage.” 765 ILCS 905/5 (West 2004). Ellis alleges that the Illinois Mortgage
Foreclosure Law section 15-1207(c) also addresses a deed intended as security for a loan but
executed as an absolute conveyances on its face. Ellis alleges that these statutes should apply to
her mortgage. US Bank requests that we consider the Conveyances Act, section 30 to bind Ellis
in her conveyance. 765 ILCS 5/30 (West 2004). The statute pertinently reads, “creditors and
subsequent purchasers, without notice; and all such deeds and title papers shall be adjudged void
as to all such creditors and subsequent purchasers, without notice, until the same shall be filed for
record.” 765 ILCS 5/30 (West 2004). Ellis alleges that the Illinois Mortgage Foreclosure Law
and the Mortgage Act should apply to her deed because those statutes are written more broadly.
She alleges that if we rely on the Conveyances Act and call her deed a conveyance, the courts
would render the Illinois Mortgage Foreclosure Law and the Mortgage Act inapplicable in the
exact situation the legislature intended them to apply. Thus, she urges that the deed be called an
equitable mortgage.

¶ 39 V. Trial Court’s Written Memorandum on August 30, 2010

¶ 40 After a hearing on the motions for summary judgment, the court issued a written
memorandum opinion and order on August 30, 2010. First, the trial court stated that it would not
consider the real estate contract or loan application submitted by Ellis because they were not
authenticated. Next, the court found that Ellis’s 2004 and 2007 loans from PTC would operate
as equitable mortgages, but only against PTC. In reaching this conclusion, the court relied on the
four factors set out in Silas v. Robinson to determine whether the deed was a conveyance or a
mortgage: “Relevant factors to determine whether the deed absolute in form was intended to be a
mortgage include [(1)] the relation of the parties, [(2)] the circumstances surrounding the
transaction, [(3)] the adequacy of consideration, and [(4)] the situation of the parties after the
transaction.” Silas v. Robinson, 131 Ill. App. 3d 1058, 1062 (1985). Despite Ellis’s argument
that the Illinois Mortgage Foreclosure Law “trumped” the Conveyances Act, the court found no
legal basis for this claim. The court found that since there is a third party involved, the
Conveyances Act must be applied. For this reason the court found the PTC agreement to be an
equitable mortgage between Ellis and PTC, and a conveyance as to the rest of the world.
Subsequent purchasers and mortgagees must be able to rely on the record.

[…]

¶ 47 The court reviewed its prior decision that a material issue of fact remained to be decided
regarding US Bank’s status as a bona fide mortgagee. The court noted that the facts
demonstrated that the seller was not in possession of the home, which placed a duty upon US
Bank to inquire further as to the possessor’s interest in the home. The trial court found that had
Michael been questioned, he would have led US Bank to Ellis.

¶ 48 The court also found that since the public record revealed that the most recent deed was
exempt from transfer taxes, indicating the transfer between the two First Suburban trusts, there
was no evidence of a sale between the trusts managed by First Suburban. The court noted that
this should have led US Bank to review the next deed in the chain of title, which would have
revealed Ellis’s alleged sale to the land trust at a value significantly less than the market value.
This examination of the chain of title was also imputed to US Bank and, if discovered through
due diligence, would have resulted in a question of consistency: Why was Ellis acting as landlord
for a property that she had apparently sold years earlier? The court concluded that the only
logical inference was that Ellis believed she still owned the property, and US Bank was on
constructive notice to make an inquiry of this interest. Since US Bank was on constructive notice
of Ellis’s interest, the bank was never a bona fide mortgagee. Consequently, the court
reconsidered its order denying the cross-motions for summary judgment and then denied US
Bank’s motion for summary judgment and granted Ellis’s.

[…]

US Bank urges us to find that Ellis should be held responsible
for placing the power in PTC to commit fraud. However, we find that that US Bank is not
without fault for the reasons noted. Thus US Bank is not a bona fide mortgagee without notice.
We come to this conclusion without considering Villasenor’s role in any fraud that may have
been committed upon Ellis.

¶ 72 III. Conclusion

¶ 73 For the reasons noted above, US Bank is not a bona fide mortgagee without notice.
Therefore we affirm the trial court in denying the US Bank’s motion to reconsider and affirm the
grant of summary judgment in favor of Ruthie Lee Ellis.

¶ 74 Affirmed.

[ipaper docId=110495893 access_key=key-17eagjaeed8u2t6rrfqf height=600 width=600 /]

Comments

comments