Lourdes Guerrero v. Howard Bank ( 2023 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 22-3078
LOURDES GUERRERO, et al.,
Plaintiffs-Appellants,
v.
HOWARD BANK, a Maryland banking
corporation, now known as FIRST
NATIONAL BANK OF PENNSYLVANIA,
Defendant-Appellee.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:20-cv-02980 — Robert W. Gettleman, Judge.
____________________
ARGUED JUNE 2, 2023 — DECIDED JULY 19, 2023
____________________
Before FLAUM, BRENNAN, and ST. EVE, Circuit Judges.
BRENNAN, Circuit Judge. Plaintiffs are three siblings who,
through the scheme of another sibling, Yvonne Lesko, were
deprived of their interests in real property left in a land trust
by their deceased mother. After Yvonne became the sole trust
beneficiary with sole power of direction, she directed a trus-
tee’s deed of the property to issue to her daughter Amorous
2 No. 22-3078
Lesko. Using that deed, Amorous conveyed a mortgage to de-
fendant Howard Bank to secure a loan.
An Illinois state court later determined that plaintiffs were
entitled to the property and issued a judge’s deed in their fa-
vor. Plaintiffs then sought damages against Howard Bank in
federal court, claiming slander of title and unjust enrichment.
The district court dismissed their case.
Whether dismissal was correct turns on two questions.
First, did Howard Bank hold a valid mortgage? It did, so
Howard Bank did not publish a falsity by recording the mort-
gage, causing the slander claim to fail. Second, was Howard
Bank required to release the mortgage? It was not, so Howard
Bank did not continue to publish a falsity, nor did it unjustly
retain a benefit by not releasing the mortgage, dooming the
unjust enrichment claim. We affirm.
I. Background
Like the district court, we take judicial notice of the state
court opinions and record underlying this case. We accept as
true the facts as pleaded in the operative second amended
complaint, but we are not bound by legal conclusions
couched as factual allegations. Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009); Bonte v. U.S. Bank, N.A., 624 F.3d 461, 465 (7th Cir.
2010).
Yvonne Lesko and plaintiffs Lourdes Guerrero, Iris Rodri-
guez, and Manuel Guerrero are siblings and the children of
Mary O’Sucha. O’Sucha died in 2010, leaving real property
(the Kenmore property) in a land trust with the State Bank of
Illinois as trustee. The terms of the trust had provided that the
property would, on O’Sucha’s death, be divided in equal
shares among the four children. But on August 13, 2009,
No. 22-3078 3
Yvonne 1 caused her mother to amend the trust agreement to
make her the sole beneficiary upon O’Sucha’s death and to
grant her sole power of direction over the trust.
In 2011, plaintiffs sued Yvonne in Illinois state court for
undue influence and interference with expectation, alleging
that Yvonne fraudulently induced O’Sucha to amend the trust
agreement and that plaintiffs were the rightful beneficial
owners of 3/4 of the property. A bench trial occurred in 2015,
and on January 29, 2016, the state trial court issued an
amended trial decision and order in favor of plaintiffs, stating
the court would enter a money judgment for plaintiffs after
property appraisals were submitted and enjoining Yvonne
from encumbering the property. The injunction was vacated
on April 26, 2016, because the state trial court found that it
could not issue equitable remedies on legal claims.
While an appeal was pending, Yvonne attempted to obtain
a mortgage loan from Howard Bank, using the property as
collateral. Howard Bank informed Yvonne that it would not
extend a mortgage loan to her because of her poor credit and
the state court decision against her. But the bank said it would
approve a loan if Yvonne transferred ownership of the prop-
erty to her daughter, Amorous Lesko. So on July 1, 2016, at
Yvonne’s direction, the trustee issued a trustee’s deed of the
property to Amorous. And on August 11, 2016, Amorous con-
veyed a mortgage on the property to Howard Bank to secure
a loan of $130,000. Howard Bank recorded the mortgage on
December 22, 2016.
On August 6, 2018, the Illinois appellate court affirmed the
trial court’s award of monetary damages but reversed its
1 We refer to certain parties by their first names for ease of reference.
4 No. 22-3078
finding that it could not issue equitable remedies. The appel-
late court held that a constructive trust was a proper remedy
in the case. In so holding, the appellate court refused to rule
upon the impact of its order on rights “as between plaintiffs
and any third parties who have subsequently come to possess
or share an interest in the Kenmore property.”
Upon remand, the state trial court entered a money judg-
ment against Yvonne on May 21, 2019. It declared that “[a]
constructive trust was created for ownership of the real prop-
erty … on August 13, 2009 with Plaintiffs as 3/4 beneficiaries
and Defendant as 1/4 beneficiary.” The court also ordered
Yvonne and Amorous to convey all their interests in the prop-
erty, along with any profits from it, to plaintiffs. On March 27,
2020, the state trial court issued a judge’s deed, conveying all
interests of Amorous and Yvonne in the property to plaintiffs
in equal 1/3 shares as tenants in common. Before and after this
deed issued, plaintiffs demanded that Howard Bank release
the mortgage, but it did not.
On May 19, 2020, plaintiffs sued Howard Bank in federal
court and requested, among other relief, monetary damages
for slander of title.2 While the case was pending, on April 4,
2021, plaintiffs sold the property for $700,000 and paid the
$143,321.40 balance of the Howard Bank mortgage. Howard
Bank then unsuccessfully sought to dismiss the case for lack
of jurisdiction, and the district court granted plaintiffs leave
to amend. The district court dismissed plaintiffs’ first
amended complaint because, among other reasons, they
failed to plead any misconduct tied to Howard Bank with par-
ticularity. Plaintiffs were permitted to file a second amended
complaint in which they asserted slander of title and unjust
2 The parties invoked diversity jurisdiction, and we apply Illinois law.
No. 22-3078 5
enrichment claims. The district court dismissed that pleading
as well, and plaintiffs timely appeal that decision.
II. Analysis
The slander of title and unjust enrichment claims hinge on
two related questions:
1. Did Howard Bank hold a valid mortgage?
2. Was Howard Bank required to release the mortgage?
A chronology of key events helps answer these questions:
Yvonne causes O’Sucha to amend the land trust
August 13, 2009 to make her sole beneficiary and to give her sole
power of direction
State trial court amends its trial decision:
• ruling against Yvonne and stating that a
January 29, 2016 money judgment will be entered; and
• enjoining Yvonne from encumbering the
property
April 26, 2016 State trial court vacates its injunction order
Yvonne exercises power to direct the trustee to is-
July 1, 2016 sue a trustee’s deed to Amorous
Trustee conveys deed to Amorous
August 11, 2016 Amorous conveys mortgage to Howard Bank
December 22, 2016 Howard Bank records mortgage
State appellate court issues decision:
• affirming money damages against
Yvonne;
August 6, 2018
• holding that a constructive trust was a
proper remedy; and
• declining to rule upon third-party rights
6 No. 22-3078
State trial court enters judgment:
• recognizing a constructive trust since Au-
gust 13, 2009 with plaintiffs as 3/4 and
May 21, 2019
Yvonne as 1/4 beneficiaries; and
• ordering Yvonne and Amorous to convey
all interests in the property to plaintiffs
State trial court issues judge’s deed, conveying all
March 27, 2020 interests of Amorous and Yvonne to plaintiffs in
1/3 shares as tenants in common
Plaintiffs sell the property and pay the balance of
April 4, 2021
the Howard Bank mortgage from the proceeds
A. Slander of Title
To state a claim for slander of title, a plaintiff must plausi-
bly allege that “(1) the defendant made a false and malicious
publication, (2) the publication disparaged the plaintiff’s title
to property, and (3) the publication caused damages to the
plaintiff.” Bozek v. Bank of Am., N.A., 191 N.E.3d 709, 726 (Ill.
App. Ct. 2021). The false publication that plaintiffs allege
Howard Bank made is “[t]he mortgage lien on the Kenmore
property … recorded with the Cook County Recorder on De-
cember 22, 2016, putting the whole world on Notice that the
Kenmore property was and continued to be encumbered by
Howard Bank and not free and clear of liens.”
False Publication. The district court dismissed the slander
of title claim, finding “that plaintiffs have not pleaded facts to
suggest malice or other misconduct.” By lack of “miscon-
duct,” we understand the district court to refer to the lack of
a false publication. But the court did not explain why the pub-
lication here was not false—that is, why the mortgage on the
whole property was valid.
No. 22-3078 7
The district court seemed to take as given that Howard
Bank’s mortgage was valid only with respect to what would
have been Yvonne’s 1/4 interest in the property before the
trust amendment. It observed that, under Illinois law, a co-
tenant may mortgage her interest in jointly held property, but
when she attempts to mortgage the whole property, the mort-
gage is valid only as to the mortgagor’s actual interest. See
generally Harms v. Sprague, 473 N.E.2d 930, 934 (Ill. 1984); Cadle
Co. II, Inc. v. Stauffenberg, 581 N.E.2d 882, 884 (Ill. App. Ct.
1991). Although true, there was no co-tenancy here until the
March 2020 judge’s deed transferred all interests of Yvonne
and Amorous in the property to plaintiffs as tenants in com-
mon.
From O’Sucha’s death up to the issuance of the judge’s
deed, legal title to the property was held by the land trust,
Yvonne, or Amorous. Before a mortgage was conveyed to
Howard Bank, Yvonne directed the trustee to issue a trustee’s
deed to Amorous. Using that deed, Amorous conveyed the
mortgage to Howard Bank. One cannot grant a lien over prop-
erty one does not have title to, so a mortgage conveyed based
on a void deed is invalid. See Logue v. Von Almen, 40 N.E.2d
73, 81 (Ill. 1941); City of Chicago v. Collin, 134 N.E. 751, 753 (Ill.
1922). Accordingly, whether Howard Bank obtained a valid
mortgage over the whole property depends on whether the
trustee’s deed was void. Even if the trustee’s deed was voida-
ble, as opposed to void, Amorous would still be able to con-
vey a mortgage using it until the deed was set aside by a court
of competent jurisdiction. See City of Virginia v. Mitchell, 991
N.E.2d 936, 940 (Ill. App. Ct. 2013) (citing Logue, 40 N.E.2d at81–82).
To this point, plaintiffs assert that “the Land Trust could
not convey Plaintiffs’ property” by the trustee’s deed because
8 No. 22-3078
such a deed “could only convey such property as was owned
by the Trust.” Plaintiffs imply that the trust did not hold the
property and that the trustee’s deed—and thus the Howard
Bank mortgage—is void. Similarly, plaintiffs maintain that
the Illinois trial court’s amended trial decision and order
found that they “were in fact the legal owners of three fourths
of the Kenmore property.” We disagree. In plaintiffs’ own
words, they had filed in the state trial court undue influence
and interference with expectation claims against Yvonne, “as-
serting that they, the Plaintiffs, were in fact the rightful bene-
ficial owners of three fourths of the Kenmore property, with
Yvonne being the beneficial owner of only the remaining
fourth.” No decision of the state trial court impacted legal title
until the March 2020 judge’s deed issued.
Relevantly, the January 29, 2016 amended trial decision
stated the court would enter a money judgment in favor of
plaintiffs and enjoined Yvonne from encumbering the prop-
erty in any way. The injunction was vacated on April 26, 2016,
before Amorous received the trustee’s deed and conveyed the
mortgage. Contrary to plaintiffs’ suggestion, before the con-
veyance of the trustee’s deed on July 1, 2016, all property in-
terests, both legal and equitable, were held in the land trust.
So, the trustee’s deed conveyed valid title to Amorous. It fol-
lows that Amorous conveyed a valid mortgage over the entire
property and that Howard Bank did not record a false mort-
gage on December 22, 2016. As of that date, plaintiffs had no
title that Howard Bank could disparage. All they had was a
state trial court decision about a money judgment against
Yvonne.
Malice. As mentioned earlier, the district court also found
that plaintiffs had not pleaded facts to suggest Howard Bank
maliciously recorded the mortgage. Malice requires
No. 22-3078 9
knowledge of or reckless disregard as to the falsity of the pub-
lished statements. Chi. Title & Tr. Co. v. Levine, 789 N.E.2d 769,
772 (Ill. App. Ct. 2002); Cont. Dev. Corp. v. Beck, 627 N.E.2d 760,
764–65 (Ill. App. Ct. 1994). “[I]f the party who records the doc-
ument has reasonable grounds to believe that he has title or a
claim to the property, he has not acted with malice.” Whildin
v. Kovacs, 403 N.E.2d 694, 695 (Ill. App. Ct. 1980).
Plaintiffs make their case for malice by arguing that How-
ard Bank’s refusal to extend a loan to Yvonne shows that the
bank had actual knowledge of the state court judgment
against her. But for reasons explained above, the amended
trial decision against Yvonne did not invalidate Amorous’s
trustee’s deed. The bank had reasonable grounds to believe
that Amorous could convey a mortgage on the property. So,
plaintiffs fail to plausibly allege a false and malicious record-
ing of the mortgage.
Continuing Publication. Plaintiffs also plead that Howard
Bank slandered plaintiffs’ title “[b]y refusing to Release the
mortgage.” They claim “[t]he slander of title perpetrated by
Defendant was a continuing tort, affecting Plaintiffs’ title and
increasing their damages every single day from the date De-
fendant learned of the fraudulent mortgage until April 4,
2021, when, upon Plaintiffs’ sale of the property to a third
party, the defendant finally released the mortgage.” By “con-
tinuing tort,” plaintiffs suggest that recording the mortgage
was an ongoing publication that continued to harm them un-
til Howard Bank released the mortgage. They provide no sup-
port for this “continuing publication” theory, and we could
not locate any either. But, for the sake of completeness, we
address it.
Recall that the first time plaintiffs received an equitable in-
terest in the property was on May 21, 2019, when on remand
10 No. 22-3078
the state trial court recognized a constructive trust over the
property since August 13, 2009 with plaintiffs as 3/4 and
Yvonne as 1/4 beneficiaries. At the same time, the trial court
also ordered Yvonne and Amorous to convey all interests in
the property to plaintiffs. But it was not until March 27, 2020
that plaintiffs obtained legal title by the judge’s deed. The
question is: Did the retroactive constructive trust and/or the
issuance of the judge’s deed invalidate Howard Bank’s mort-
gage? That is, was Howard Bank required to release the mort-
gage (“unpublish”) at that point? This question merges with
whether Howard Bank unjustly retained a benefit by refusing
to release the mortgage, so we discuss the continuing publi-
cation theory along with the unjust enrichment claim next.
B. Unjust Enrichment
“To state a cause of action based on a theory of unjust en-
richment, a plaintiff must allege that the defendant has un-
justly retained a benefit to the plaintiff’s detriment, and that
defendant’s retention of the benefit violates the fundamental
principles of justice, equity, and good conscience.” HPI Health
Care Servs., Inc. v. Mt. Vernon Hosp., Inc., 545 N.E.2d 672, 679
(Ill. 1989) (citations omitted). Plaintiffs allege: “By unencum-
bering [sic] the property with a mortgage and refusing to re-
lease that mortgage once it learned of the circumstances,
Howard deprived Plaintiffs of the free and unencumbered use
of their property up until April 4, 2021 (when Plaintiffs sold
the property[,] paid off Amorous Lesko’s fraudulently ob-
tained mortgage, and received a release from the mortgage
lien).” So, the alleged benefit retained is the mortgage, but
more specifically, plaintiffs’ unjust enrichment theory de-
pends on Howard Bank’s “refusing to release that mortgage
once it learned of the circumstances.” If Howard Bank had a
No. 22-3078 11
duty to release the mortgage and did not, it would have un-
justly retained a benefit.
The pleadings do not explain what plaintiffs mean by “cir-
cumstances” triggering Howard Bank’s duty to release the
mortgage. But we can identify three key events that might
trigger a duty to release the mortgage: the amended trial de-
cision against Yvonne on January 29, 2016, the retroactive con-
structive trust recognized on May 21, 2019, and the issuance
of the judge’s deed on March 27, 2020.
The amended trial decision did not invalidate the trustee’s
deed or Howard Bank’s mortgage. So, the bank had no duty
to release the mortgage at that point. And while the construc-
tive trust imposed duties upon Yvonne and Amorous to
“transfer title and possession of the wrongfully acquired
property” to plaintiffs, Suttles v. Vogel, 533 N.E.2d 901, 904 (Ill.
1988), it did not impose a duty on Howard Bank to release the
mortgage. Any remedy for violation of constructive trust du-
ties would be against Yvonne or Amorous—not Howard
Bank. Even more, the state appellate court that directed the
recognition of a constructive trust explicitly refused to rule
upon the impact of its order on rights “as between plaintiffs
and any third parties who have subsequently come to possess
or share an interest in the Kenmore property,” which includes
Howard Bank.
So, all that is left is the March 2020 judge’s deed that trans-
ferred all interests of Amorous and Yvonne to plaintiffs. What
happened to Howard Bank’s mortgage when the judge’s deed
issued? When a grantee has “actual or constructive notice of
a prior lien, it will ordinarily take subject to that lien.” Skid-
more, Owings & Merrill v. Pathway Fin., 527 N.E.2d 1033, 1034
(Ill. App. Ct. 1988). Plaintiffs had record and actual notice of
the Howard Bank mortgage here, so they took title to the
12 No. 22-3078
property subject to the mortgage. The mortgage was a valid,
continuing security interest on the property, so Howard Bank
had no duty to release (“unpublish”) the mortgage. This fore-
closes the continuing publication theory for slander of title. It
also follows that Howard Bank did not unjustly retain the
mortgage, dooming the unjust enrichment claim.
Apparently under the incorrect belief that the Howard
Bank mortgage was invalid as to plaintiffs’ 3/4 of the property,
the district court found that plaintiffs voluntarily assumed the
mortgage when they received title to the property. Assump-
tion meant that plaintiffs were obligated to pay off the mort-
gage, so the court found that plaintiffs suffered no detriment
by paying off the Howard Bank mortgage from the property
sale proceeds.
But recall that, as a legal matter, Amorous had legal title
over the whole property before the judge’s deed issued. The
March 2020 judge’s deed was the first time plaintiffs obtained
legal title as tenants in common. Because plaintiffs’ newly ac-
quired title was subject to Howard Bank’s valid mortgage on
the whole property, the bank did not unjustly retain the mort-
gage, and the district court did not have to find an assumption
of the mortgage.
In any case, the pleadings do not support that plaintiffs
assumed the mortgage when they received title. Under Illi-
nois law, an assumption of a mortgage generally requires an
agreement or, in the case of a purchaser assuming a debt, the
amount of the assumption must be set off in the purchase
price such that the purchaser’s assumption is implied. Albers
v. Moe, 28 N.E.2d 178, 181 (Ill. App. Ct. 1940); Wilson v. Mundy,
238 Ill. App. 575, 586–87 (Ill. App. Ct. 1925). Even an express
assumption clause in a deed may not be enough. See Ludlum
v. Pinckard, 136 N.E. 725, 726 (Ill. 1922). Here, the judge’s deed
No. 22-3078 13
makes no mention of an assumption. There is no other agree-
ment in the record, express or implied, that suggests plaintiffs
voluntarily assumed the mortgage.
AFFIRMED.