An Illinois appellate court recently held that a provision of the Illinois Probate Act (Act) relating to the disposition of a deceased mortgagor’s real estate trumps the state foreclosure law. The executor in In re Estate of LaPlume, 2014 IL App (2d) 130945 (Dec. 4, 2014) petitioned to sell the decedent’s real estate in a probate action, which was subject to a mortgage held by the defendant mortgagee, free and clear of any liens. The mortgagee, which had previously filed a foreclosure, counterclaimed to foreclose the mortgage and obtain satisfaction of its lien from the sale of the property. The circuit court sided with the mortgagee. On holding for the executor, the reviewing court noted that in the universe of mortgaged property subject to probate proceedings, the Act sets two conditions: either the mortgage on the property is due at the time of the hearing, or it is not due at that time. If it is due – which it construed to mean that the loan is in default – and the executor has petitioned to sell the property, (1) the court may direct the sale of the property free and clear of any existing encumbrances; (2) the existing encumbrances will be satisfied from the proceeds of the sale of the property; and (3) the court will determine and adjust the priorities of the claimants to the encumbrances. If the loan is not due – meaning it is current- the court may with the assent of the owner of a mortgage lien that is not due, direct that the property be sold and provide for the satisfaction of the lien out of the proceeds of the sale. Thus, where the loan is in default the Act empowers the probate court to direct the sale of the decedent’s property free and clear of all encumbrances, to adjust the existing encumbrances, and to satisfy the adjusted encumbrances from the proceeds of the sale. The appellate court was careful not to draw a hard line, though: disposition of the proceeds is subject to the discretion of the court. The mortgagee argued that because it filed its foreclosure action before the probate petition means that the foreclosure should have priority over the probate action. According to the mortgagee, it has the right to choose how the property is to be sold and by filing the foreclosure first it chose to sell the property under the auspices of the foreclosure law. The court agreed that filing first is relevant but only as a factor the probate court should consider in disposing of the property under the Act. The Act and the foreclosure law are similar in that they protect the rights of other lienholders of the property, but the focus of each statute is different. In a foreclosure, the focus is on maximizing the mortgagee’s recovery; in the probate action, the focus is on maximizing and properly administering the decedent-mortgagor’s estate. The appellate court reversed because in finding for the mortgagee, the circuit court did not focus on the issue of the proper administration of the estate in regard’s with the petition to sell.
Author
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Solomon has nearly two decades of experience representing financial institutions, real estate investors and privately owned business entities. Solomon concentrates his practice in the areas of banking, consumer financial services, real estate, business law and related litigation and appellate practice.
