Borrower did not reside in property as principal residence so it did not qualify as residential real estate under Illinois foreclosure law

In First Bank of Highland Park v. Sklarov, 2019 IL App (2d) 190210 (Sept. 18, 2019), following the borrower’s default, the bank moved to be appointed a mortgagee in possession. The borrower opposed the motion asserting the property was residential real estate and he was therefore presumptively entitled to maintain possession. The Appellate Court held that because he was not occupying the property as his principal residence, the property was not residential real estate and the presumption of possession favored the bank.

The subject property was held in an Illinois land trust. The borrower traveled extensively for work and had not resided in Illinois or at the property since before the foreclosure was filed. He informed the bank that he resided in Europe but the property was his only home in the United States and that he and his children stayed there when they were in the United States. At the time of the foreclosure, a tenant was residing at the property, but later moved out.

Illinois foreclosure law sets out two different presumptions for pre-judgment possession depending on whether the property at issue is “residential real estate”. If the property is residential, the borrower is entitled to remain in possession unless the bank can show good cause to be placed in possession. For nonresidential real estate, the bank is entitled to be placed in possession upon its request unless the borrower shows good cause why it should not be. 735 ILCS 5/15-1219.

On the substantive question, whether the property was residential real estate, the Appellate Court agreed with the trial court’s finding that it was. The statute defines “residential real estate” as “any real estate, * * * which * * * is occupied as a principal residence either (i) if a mortgagor is an individual, by that mortgagor, that mortgagor’s spouse or that mortgagor’s descendants, or (ii) if a mortgagor is a trustee of a trust * * *, by a beneficiary of that trust.”

The Appellate Court agreed that the evidence failed to show that borrower “occupied” the property “as a principal residence.” The borrower asserted he was an “occupant” because he had “lawful physical possession” of it—that is, he had the legal right to reside at and exercise control over the property. He further averred that the statute requires only the property be “a principal residence,” not necessarily the borrower’s only principal residence. He claimed he sufficiently established that the property was a principal residence because he owned no other house in the United States and he resided at the property when he was in Illinois.

The court noted that although the statute does not define the phrase “occupy as a principal residence,” the term “principal” means “chief, primary, or most important.” Thus, the ordinary meaning of “occupy as a principal residence” is “use as the primary place where one resides.” The facts were uncontested that the borrower did not reside at the property as his primary place of residence. Moreover, the statute’s narrow limitation on whose occupancy is required in order to qualify the mortgaged property as residential real estate indicates it must be the mortgagor, the mortgagor’s spouse or descendants, or (if the mortgagor is a trust) a trust beneficiary. Lessees are not on this list which means a tenant is not among those whose occupancy is sufficient to qualify property as residential real estate.

The facts showed that the borrower had not resided at the property for some time prior to foreclosure, and the property was vacant for most of the foreclosure proceedings, ever since the tenant moved out. To the fact that he owned no other house in the United States and that he resides at the property when he is in Illinois, was insufficient to show occupancy as a principal residence. “That he does not reside in any other house in the United States does not establish that he resides in this one”. There must be some evidence that the borrower is actually using the property as a principal residence at the time. That standard was not met by the assertion that the borrower resides at the property “when he is in Illinois,” given that there is no evidence as to when that last occurred or even how often he traveled to Illinois from Europe where he has lived for many years. Judgment for the bank was affirmed.

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