Illinois Appellate Court holds there is no equitable mortgage without a written instrument

In Edward F. Paliatka v. Bush, et al., 2018 IL App (1st) 172435 (July 18, 2018) the Illinois Appellate Court affirmed the trial court’s order dismissing the mortgagee’s action to foreclose an equitable mortgage. The court held that an equitable mortgage does not exist without there being a written instrument.

The homeowners purchased the subject property with funding from a mortgage lender. The loan was secured by a mortgage and warranty deed. The equitable mortgagee filed a foreclosure complaint around the same time, asserting an “equitable lien and mortgage” against the property based on a payment he made to satisfy an outstanding mortgage loan on behalf of his grandson, who was a prior owner of the property. The homeowners and the mortgage lender moved to dismiss the action on the grounds that the equitable mortgagee had not stated a cause of action because there was no written agreement evidencing the alleged mortgage. The trial court granted the motion and the equitable mortgagee appealed.

The Appellate Court construed the equitable mortgagee’s claim of an “equitable lien and mortgage” as two separate claims and examined the claims for an equitable mortgage and an equitable lien separately as they are two separate concepts in the law.

An “equitable lien” is a remedy for a debt that cannot be legally enforced but should be recognized based on considerations of fairness and justice. The equitable mortgagee claimed that the court should impose an equitable lien because the homeowners received the benefit of the property being unencumbered by the mortgage he paid down and that they have an obligation to pay for receiving this benefit.

Under Illinois law, an “equitable mortgage” is a subtype of mortgage that is defined as a “consensual lien created by a written instrument.” By the equitable mortgagee’s admission, there was no written instrument regarding the payment the equitable mortgagee purportedly made. Based on this admission, the appellate court agreed that in the absence of a written instrument he does not hold an equitable mortgage against the property, so there are no circumstances where an action for an equitable mortgage could be maintained. The appellate court also rejected the claim for an equitable lien, noting that the homeowners had nothing to do with the execution of the mortgage and that it was the grandson who truly benefitted from the equitable mortgagee’s actions.

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