BMO Harris Bank N.A. v. Joe Contarino, Inc.

2017 IL App (2d) 160371 No. 2-16-0371
Opinion filed March 23, 2017
______________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
SECOND DISTRICT
______________________________________________________________________________
BMO HARRIS BANK N.A., f/k/a Harris N.A., ) Appeal from the Circuit Court
as Assignee of the Federal Deposit Insurance) of Winnebago County.
Corporation, as Receiver for Amcore Bank, )
N.A., )
)
Plaintiff-Appellant, )
)
v. ) No. 13-CH-1148
)
JOE CONTARINO, INC., d/b/a Contry )
Homes of Illinois, JOE CONTARINO, )
UNKNOWN OWNERS, and NONRECORD )
CLAIMANTS, )
)
Defendants )
)
(Joe Contarino, Inc., d/b/a Contry Homes of )
Illinois, and Joe Contarino, Defendants- )
Appellees; Midwest Community Bank, ) Honorable
Rockford Bank & Trust, and Byron Bank, ) Ronald A. Barch,
Intervenors-Appellees). ) Judge, Presiding.
______________________________________________________________________________
JUSTICE JORGENSEN delivered the judgment of the court, with opinion.
Justices McLaren and Burke concurred in the judgment and opinion.
OPINION
¶1 Plaintiff, BMO Harris Bank N.A., f/k/a Harris N.A., as assignee of the Federal Deposit
Insurance Corporation, as receiver for Amcore Bank, N.A., filed a mortgage-foreclosure
complaint against defendants, Joe Contarino, Inc., d/b/a Contry Homes of Illinois (JCI), Joe
2017 IL App (2d) 160371
Contarino, unknown owners, and nonrecord claimants. BMO obtained a $1.5 million judgment
against JCI and Contarino. As relevant here, in supplementary proceedings, BMO caused the
issuance of a citation to discover assets to JCI (JCI citation) and, subsequently, a third-party
citation to discover assets to Briargate Management LLC (Briargate citation), a property
management company that collected rents for the JCI properties. Midwest Community Bank
(Midwest), Rockford Bank & Trust (Rockford), and Byron Bank (Byron) (collectively Adverse
Claimants) sought to intervene in the supplementary proceedings, to assert adverse claims on
rents Briargate held. They claimed that their interests in the rents (via assignment-of-rents
provisions in their mortgages on JCI properties and separate forbearance agreements) were
superior to any interest BMO had by virtue of the JCI and Briargate citations.
¶2 The trial court ruled in Adverse Claimants’ favor and against BMO, finding that BMO
did not have priority as to the rents. Specifically, the court found, pursuant to section 31.5 of the
Conveyances Act (765 ILCS 5/31.5 (West 2014)), that rental agreements such as the forbearance
agreements here are beyond the reach of a third party such as BMO. BMO appeals. We affirm.
¶3 I. BACKGROUND
¶4 Contarino was sole owner and president of JCI. JCI’s assets included several income
properties that were managed by Briargate, which was owned by Contarino’s wife. Briargate
collected rents for the properties and transferred them to JCI.
¶5 On August 27, 2013, BMO filed a complaint against defendants, seeking to foreclose on
four mortgages on several lots in subdivisions in Rockford, Roscoe, and Machesney Park. The
complaint also included counts alleging breach of a promissory note (executed by JCI) and
breach of a guaranty (by Contarino). On April 11, 2014, the trial court entered foreclosure
judgments. On August 27, 2014, the trial court entered judgment in BMO’s favor and against
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JCI and Contarino in the amount of $1,569,610.45 each. It also confirmed sales of the lots and
issued orders of possession.
¶6 On November 7, 2014, BMO initiated supplementary proceedings to enforce the
judgment and filed the JCI citation. The citation was served on JCI on November 20, 2014, and
was subsequently extended several times. See Ill. S. Ct. R. 277(f) (eff. Jan. 4, 2013) (citation
automatically terminates six months from the date of the respondent’s personal appearance or
upon expiration of extensions entered “as justice may require”).
¶7 On August 20, 2015, BMO filed the Briargate citation, and Briargate was served on
August 28, 2015.
¶8 In its response, Briargate asserted that it did not hold any JCI assets and that it was a
mere management agent and conduit for Adverse Claimants, secured lenders that were entitled to
the rents. Subsequently, Adverse Claimants moved to intervene to assert their adverse claims,
based on rent-assignment agreements that predated BMO’s citations.
¶9 First, on September 29, 2015, Midwest moved to intervene in the supplementary
proceedings, to assert an adverse claim to certain rents held by Briargate. 735 ILCS 5/2-1402(g)
(West 2014). Midwest argued that, on September 15, 2015, it had filed a complaint in Boone
County to foreclose its mortgage (which was recorded on October 7, 2010, and contained an
assignment-of-rents clause) on real property at 413 Old Orchard Lane in Poplar Grove. In that
action, it had asserted that it was entitled to possession of the property for the purpose of
collecting rents. The trial court granted the motion to intervene on October 1, 2015, and, further,
gave Byron and Rockford seven days to file their claims. 1 Subsequently, as noted below,
Midwest asserted that, pursuant to a December 2014 forbearance agreement between it, JCI, and
1
Midwest filed its own responsive brief in this appeal.
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Briargate, Briargate began transmitting directly to Midwest the rents on the JCI-owned
properties subject to Midwest’s mortgages.
¶ 10 Second, on October 8, 2015, Byron moved to intervene, to assert an adverse claim on
rents Briargate held. Byron asserted that it had a superior interest in the rents by reason of its
mortgages (containing assignment-of-rents clauses) on JCI-owned properties and by reason of a
December 2014 forbearance agreement between Byron, JCI, and Briargate, according to which,
beginning December 1, 2014, Briargate began transmitting the rents on those JCI-owned
properties directly to Byron.
¶ 11 Third, also on October 8, Rockford moved to intervene, to assert an adverse claim on
rents held by Briargate, similarly arguing that its interest was superior by reason of its mortgages
on JCI-owned properties and by reason of an August 20, 2013, forbearance agreement between
it, JCI, and Briargate, according to which Briargate began transmitting the rents on those
properties directly to Rockford. 2
¶ 12 A. Trial Court Orders
¶ 13 On December 16, 2015, a hearing commenced on the adverse claims. On January 13,
2016, the trial court issued its memorandum of decision and order with respect to the Briargate
funds.
¶ 14 As to Rockford, the trial court rejected BMO’s claim that Briargate’s transmittal of rents
directly to Rockford violated the restraining component of the JCI and Briargate citations. It
found that the forbearance agreement between JCI, Briargate, and Rockford was an enforceable
contract modification that predated BMO’s judgment and the JCI and Briargate citations. The
court noted that, prior to BMO’s judgment, Rockford enjoyed the benefits of secured contract
2
Byron and Rockford jointly filed a responsive brief in this appeal.
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rights, including the right to foreclose on JCI properties in the event of a default. In 2013, rather
than pursue foreclosure, Rockford entered into a separate agreement—the forbearance
agreement—that contractually obligated Briargate to transmit rents from JCI properties directly
to Rockford. Rockford, the court found, forwent its right to foreclose and/or pursue receivership,
and JCI contracted away its right to receive rents on the properties implicated by the mortgages.
The court noted that the forbearance agreement did not run afoul of the rents-and-profit doctrine,
because the contract dictated that all management expenses were to be deducted before any net
rents were transmitted to Rockford. See Comerica Bank-Illinois v. Harris Bank Hinsdale, 284
Ill. App. 3d 1030, 1034-35 (1996) (rent assignment unenforceable absent actual or constructive
possession by lender, the latter of which must include court authorization; public policy seeks to
prevent mortgagee from leaving the mortgagor and tenants without resources for maintenance or
repair). Finally, the court rejected BMO’s assertion that the forbearance agreement violated the
restraining provisions of the JCI and Briargate citations, distinguishing case law BMO cited that
addressed rent assignments. See Comerica, 284 Ill. App. 3d at 1034-35; In re Wheaton Oaks
Office Partners Limited Partnership, 27 F.3d 1234, 1241, 1245 (7th Cir. 1994) (lender seeking to
enforce rent assignment will usually have to obtain preforeclosure possession by being placed in
actual possession or through appointment of receiver; mortgagee must take certain steps to
enforce lien; “failure to enforce an assignment of rents does not destroy the legal existence of an
effective, enforceable security interest in those rents which came into being upon execution and
was perfected upon recordation”); In re J.D. Monarch Development Co., 153 B.R. 829 (Bankr.
S.D. Ill. 1993) (lender seeking to enforce rent assignment must first pursue debtor-in-possession
status).
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¶ 15 Turning to Byron, the trial court overruled Briargate’s objection to document discovery
concerning rents it transmitted to Byron. The court determined that Byron’s adverse claim
reflected that its forbearance agreement with JCI was executed on December 1, 2014. The JCI
citation was filed on November 7, 2014, and JCI appeared of record no later than November 24,
2014. Thus, the forbearance agreement was executed after the JCI citation’s restraining
provision came into effect. The court ordered Briargate to supplement its citation production to
include records of all rent transmittals to Byron.
¶ 16 As to Midwest Bank, the trial court reserved ruling on Briargate’s objection to document
discovery concerning rental payments it transmitted to Midwest. The court noted that it was not
clear whether the forbearance agreement between JCI and Midwest was executed before or after
BMO filed the JCI citation. It directed JCI, Briargate, and Midwest to furnish to BMO all
documentation concerning the execution date of the forbearance agreement and directed
Briargate to supplement its citation production to include records of all rent transmittals to
Midwest.
¶ 17 Finally, the court overruled Briargate’s objection that the Briargate citation was untimely
under the six-month, automatic-termination provision in Rule 277(f).
¶ 18 B. Ruling on BMO’s Motion to Clarify and Reconsider
¶ 19 On February 12, 2016, BMO moved to clarify and reconsider, arguing that the court
misapprehended the facts. Specifically, it argued that: (1) as to Rockford, the court was mistaken
as to the timing of the receipt of funds, as BMO was the only party with a lien on the funds
currently held by Briargate; (2) as to Rockford, the court misstated the law in holding that a
forbearance agreement (which, BMO claimed, gives rise only to a contractual claim, not a lien,
on collected rents) takes priority over a lien right; and (3) as to Rockford, even if Rockford’s
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claim was superior to BMO’s claim, the forbearance obligations were never proved up and JCI
might not owe Rockford any funds, due to a subsequent consent foreclosure judgment.
¶ 20 On March 16, 2016, JCI and Briargate filed a response to BMO’s motion, noting that
section 31.5 of the Conveyances Act, which was enacted in 1996 (i.e., after BMO’s proffered
cases were decided), controlled the issue of priority between Adverse Claimants and BMO.
Specifically, they argued, the statute dictated that Adverse Claimants were entitled to the rents at
every juncture of the case, including postjudgment and postcitations, because Adverse Claimants
exercised their rights to collect the rents. JCI and Briargate argued that the issue was not about
priorities between forbearance agreements and citation liens. In their view, any agreement by
which a bank enforced a recorded assignment of rents trumped a citation lien. That is, so long as
Adverse Claimants established that they had recorded assignments of rents and then directed the
rents to be paid pursuant to the assignments, Adverse Claimants had priority over BMO. See
West Bend Mutual Insurance Co. v. Belmont State Corp., 712 F.3d 1030, 1034-35 (7th Cir. 2013)
(reviewing Illinois law and noting that a lockbox arrangement or other direct payment system
constitutes sufficient enforcement of an assignment of rents). JCI and Briargate also asserted
that a claim by BMO for rents due to Adverse Claimants could have arisen only if BMO had
sought a turnover order for the rents or sought its own receiver. Had it done so, they argued,
BMO’s claim would have jumped ahead until Adverse Claimants asserted their assignments.
¶ 21 In its response, Rockford relied on the Conveyances Act, as did Midwest (in its separate
response), which also noted that it had provided to BMO the court-ordered documentation. 3 As
3
Midwest asserted that, starting in December 2014, principal and interest payments were
paid directly to Midwest. After the Briargate citation (on August 20, 2015), the September
payment was placed on hold pending a court hearing. At a September 29, 2015, hearing,
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to lien priority, Midwest argued that, when it set up the direct-payment system, it was asserting
its rent assignment. At that time, BMO had not sought a turnover of any of the rents and,
therefore, Midwest’s lien was superior to BMO’s, because Midwest asserted its rights to the rents
before BMO perfected the citation lien. According to Midwest, since the recorded mortgage and
rent assignment gave it priority over a third party such as BMO, Midwest’s interest in the rents
was prior in both right and time to any claim by BMO based upon the citations. Midwest
requested that the court find that BMO had no right to the rents due to Midwest.
¶ 22 On April 21, 2016, the trial court issued a written order, denying the motion to clarify and
reconsider and finding that Adverse Claimants held liens superior to BMO’s. The court noted
that it previously addressed the cases upon which BMO relied. It also noted that there was no
authority addressing the effect of a citation lien on a previously executed forbearance agreement.
The court reiterated its previous finding that the forbearance agreements “were legally
enforceable contractual agreements manifestly distinct from the assignments of rent agreements
at issue in the cases relied upon by BMO.” As to the prove-up issue, the court rejected it, noting
that the existence of the forbearance agreements was not disputed and that BMO had cited no
authority in support of its argument, which it asserted for the first time in its motion to clarify
and reconsider. Further, case law instructed that “an express pledge of rents is not extinguished
by a foreclosure sale which merges the title and the debt in the same party.” In re Randall Plaza
Center Associates, L.P., 326 B.R. 133, 141 (Bankr. N.D. Ill. 2005). Accordingly, the court
denied BMO’s motion to clarify and reconsider.
Midwest asserted, Midwest was placed in possession and it demanded (and was given) the
September payment.
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¶ 23 The court granted JCI and Briargate’s request for clarification, finding that section 31.5
was added to the Conveyances Act in 1996 to address the holdings in Wheaton Oaks, J.D.
Monarch, and Comerica. According to the court, those cases held that a lender may not collect
rents directly under a rent-assignment agreement until the lender has first attained mortgagee-in­
possession status or secured the appointment of a receiver. Section 31.5, the court determined,
declares that rent-collection agreements, such as lockbox arrangements or the forbearance
agreements in this case, “are beyond the reach of any third-party claims that are perfected or
arise thereafter.” Furthermore, the court found that, even if the statute is ambiguous on this
point, the legislative history dictated that the legislature intended to override the case law finding
that the recording of an assignment of rents alone is insufficient to defeat priority claims by
subsequent lenders and lien claimants. See 89th Ill. Gen. Assem., House Proceedings, May 8,
1995, at 180-81 (statements of Representative Biggert) (noting that “court decisions have been
highly inconsistent” and that most, but not all, courts have held that recording is sufficient).
¶ 24 The court summarized that, pursuant to section 31.5, Adverse Claimants’ claims
“trumped” BMO’s claim to the rents generated by the JCI-owned properties (prior to BMO’s
judgment, between the judgment and the JCI and Briargate citations, and between the JCI and
Briargate citations and Adverse Claimants’ securing mortgagee-in-possession status).
¶ 25 Next, the trial court addressed, in the alternative, the effect of a ruling that the
forbearance agreements here are indistinguishable from the rent-assignment agreements in
Wheaton Oaks, J.D. Monarch, and Comerica. The trial court found that those cases stand for the
proposition that a judgment creditor can establish an entitlement to collect rents by obtaining
possession of a mortgagor’s property before the mortgagee holding a previously recorded rent
assignment takes steps to enforce its rights through foreclosure or the appointment of a receiver.
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It further noted that, to unseat a priority lienholder’s right to receive rents, the judgment creditor
or subordinate lienholder must gain possessor status or secure the appointment of a receiver. In
this case, the trial court found, BMO secured a judgment and thereafter issued citations to
discover assets. Its efforts to collect rents, however, did not progress any further, such as by
seeking the appointment of a receiver or seeking possession of the JCI rental properties. Thus,
the trial court determined in the alternative (i.e., if section 31.5 does not control) that BMO does
not have a superior interest in the rents, because it “did not do all that was necessary, as a junior
lienholder, to supplant the right of any of the lender banks, the undisputed senior lienholders, to
the rental streams associated with the JCI properties, even on a temporary basis.” Finally, the
trial court found that there was no just reason to delay enforcement or appeal of its order. Ill. S.
Ct. R. 304(a) (eff. Mar. 8, 2016). BMO appeals.
¶ 26 II. ANALYSIS
¶ 27 BMO argues that the trial court erred in finding that Adverse Claimants hold a superior
lien on the rents Briargate collects. It contends that Adverse Claimants have no lien on the
collected funds, while BMO has the only perfected judgment lien. Adverse Claimants’
mortgages and rent-assignment agreements are not relevant to this case, BMO argues, until
Adverse Claimants have been granted constructive or actual possession, through the appointment
of a receiver or as mortgagees in possession. For the following reasons, we find BMO’s claims
unavailing.
¶ 28 A. Background
¶ 29 1. Citations to Discover Assets/Supplementary Proceedings
¶ 30 “A citation to discover assets, also known as a supplementary proceeding, is the
predominant procedure for enforcing judgments. Robert G. Markoff, Jeffrey A. Albert, Steven
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A. Markoff & Christopher J. McGeehan, Citations to Discover Assets, in Creditors’ Rights in
Illinois § 2.42 (Ill. Inst. for Cont. Legal Educ. 2014) (citing 735 ILCS 5/2-1402(c)). That
procedure, found in section 2-1402 of the Code, provides judgment creditors with a mechanism
to initiate supplementary proceedings against a judgment debtor or third party in order to
discover the judgment debtor’s assets and apply them to satisfy the underlying judgment.
Eclipse Manufacturing Co. v. United States Compliance Co., 381 Ill. App. 3d 127, 133 (2007).
To that end, this statute provides a circuit court with broad powers to compel parties to satisfy a
judgment with discovered assets. Stonecrafters, Inc. v. Wholesale Life Insurance Brokerage,
Inc., 393 Ill. App. 3d 951, 958 (2009). Actions that a creditor may accomplish by another type
of enforcement may be accomplished in supplemental proceedings, as a citation to discover
assets has features of a creditor’s bill, execution, garnishment, levy and sale. Robert G. Markoff,
Jeffrey A. Albert, Steven A. Markoff & Christopher J. McGeehan, Citation to Discover Assets,
in Creditors’ Rights in Illinois § 2.42 (Ill. Inst. for Cont. Legal Educ. 2014). Additionally,
supplemental proceedings are intended to be expeditious and efficient. In re FBN Food Services,
Inc., 158 B.R. 756, 761 (Bankr. N.D. Ill. 1993). The debtor bears the burden of demonstrating
that property is exempt from being applied to satisfy a judgment. See In re Marriage of Takata,
383 Ill. App. 3d 782, 788 (2008).” Wells Fargo Bank Minnesota, NA v. Envirobusiness, Inc.,
2014 IL App (1st) 133575, ¶ 13.
¶ 31 During the course of supplementary proceedings, a judgment creditor may serve a
citation to discover assets on a third party, requiring it to freeze assets. 735 ILCS 5/2-1402(f)
(West 2014). After the citation is served, the judgment becomes a lien on the judgment debtor’s
assets. 735 ILCS 5/2-1402(m) (West 2014). At the same time, the prohibition in a third-party
citation is not an injunction but, rather, serves to warn the third party of sanctions it could incur if
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it transfers the judgment debtor’s assets. Bank of Aspen v. Fox Cartage, Inc., 126 Ill. 2d 307,
314-15 (1989).
¶ 32 The only relevant inquiries in supplementary proceedings are: (1) whether the judgment
debtor possesses assets that should be applied to satisfy the judgment; and (2) whether a third
party is holding assets of the judgment debtor that should be applied to satisfy the judgment.
Schak v. Blom, 334 Ill. App. 3d 129, 133 (2002).
¶ 33 2. Assignment of Rents and the Common-Law Rents-and-Profits Doctrine
¶ 34 Generally in Illinois, “a mortgagor[/debtor], as the party in possession and owner of [a]
statutory right of redemption, is entitled to any rents generated from the property as long as [the
mortgagor] retains possession, without having to account for them to the mortgagee[/lender].”
Wheaton Oaks, 27 F.3d at 1241. This can be problematic for a lender if a debtor defaults and the
lender would like to access the rents from the property to apply them to the deficiencies under
the note. Id. Thus, “Illinois allows mortgagees to include in their mortgages assignment[-]of[­
]rents clauses, giving them[, preforeclosure,] a sufficient interest in the rents to authorize the
appointment of a receiver through whom the mortgagee can begin collecting rents.” Id. at 1242.
But the mortgagee must obtain preforeclosure possession through the courts, by being placed in
either actual or constructive possession and, again, only if so authorized by the mortgage
instrument. Id. at 1241-42; see also Fidelity Mutual Life Insurance Co. v. Harris Trust &
Savings Bank, 71 F.3d 1306, 1308 (7th Cir. 1995) (under Illinois common law, the rents-and­
profits doctrine “forbids a mortgagee to enforce a provision of the mortgage assigning the rents
or other income of the mortgaged property to [it] until the mortgagee takes possession of the
property (presumably having bought in at the foreclosure sale) or a receiver is appointed to
operate the property”).
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¶ 35 Reviewing the historical development of this concept, the Fidelity court noted that, as
real estate financing law developed, courts decreed that, when lenders took land to ensure the
repayment of loans, they did not take title to the land but “only a security interest equal to what
the borrower owe[d], an interest that [shrunk], therefore, as the borrower repa[id].” Fidelity, 71
F.3d at 1309. A security interest does not constitute title and is not a possessory interest, and,
therefore, “it does not entitle the lender to receive the rent or other income that the property
throws off.” Id. An assignment of rents to the lender is “inconsistent with the character of the
lender’s interest in the property generating the rents, as it would give the lender a right associated
with ownership.” Id. This is the view in “lien-theory” states such as Illinois. 4 Id.; see also
Monarch, 153 B.R. at 833 (assignment of rents is different from other security interests;
typically, “a perfected lien gives the creditor an interest in a specific piece of property, whereas
an assignment of rents allows the mortgagee to collect rents that come due after the mortgagee
takes control of the property”).
¶ 36 The public policies underlying this framework ensure that mortgagees’ interests are
protected, while also ensuring proper maintenance of the properties at issue. Wheaton Oaks, 27
F.3d at 1242 (assignment-of-rents provisions allow creditors to reach the rents prior to
completion of foreclosure proceedings and prevent a mortgagor from collecting rents after
default and not making payments under the mortgage agreement); Comerica, 284 Ill. App. 3d at
1034 (but the possession requirement—actual, or constructive with court authorization—reflects
4
In “title-theory” states, which retain some of the early-English legal concept of a
mortgage as a conveyance, “the rents of a mortgaged property are considered an important part
of the mortgagee’s security.” Id.
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a policy that seeks to prevent mortgagees from stripping the rents from the property and leaving
the mortgagor and tenants without resources for maintenance or repair).
¶ 37 3. Comerica
¶ 38 The Comerica court was the first to hold that constructive possession to enforce an
assignment-of-rents provision must include court authorization. Comerica, 284 Ill. App. 3d at
1034-35; see also Robert C. Feldmeier, Enforcing Assignment-of-Rents Provisions in Illinois, 86
Ill. B.J. 436, 438 (Aug. 1998). The case does not address section 31.5 of the Conveyances Act.
¶ 39 In Comerica, upon which BMO primarily relies, two lenders, Comerica and a trustee,
sought an award of rents after the borrower defaulted on its mortgages by failing to pay real
estate taxes. After the borrower defaulted, Comerica exercised its rights under its assignment of
rents and began collecting rents for the property without foreclosing on the first mortgage,
seeking the appointment of a receiver, or obtaining court authorization. (This option apparently
permitted it to reduce the debt without assuming responsibility for the property or the tax
burden.) Comerica then filed a complaint, seeking an accounting and other relief against the
borrower and the mortgage guarantors. Separately, the trustee filed an action to foreclose on the
second mortgage, seeking an accounting, the appointment of a receiver, and a return of the rents
from Comerica. The trial court found that the rents belonged to the possessor of the property and
awarded them to the borrower. It also granted the trustee’s request for an accounting.
(Subsequently, the borrower settled with Comerica, assigning its interest in the rents to Comerica
in the event that the appellate court ruled in the borrower’s favor. The appellate court, thus,
found Comerica’s appeal moot and addressed only the trustee’s appeal. Comerica, 284 Ill. App.
3d at 1033.)
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¶ 40 On appeal, the Comerica court reviewed the history of and policy behind assignments of
rents, noting that, at common law, a mortgagee/lender had to take actual possession before it was
entitled to rents. Id. This rule reflected a public policy seeking “to prevent mortgagees from
stripping the rents from the property and leaving the mortgagor[/debtor] and the tenants without
resources for maintenance or repair.” Id. The Comerica court quoted a bankruptcy case:
“ ‘To obtain the benefits of possession in the form of rents, the mortgagee must also
accept the burdens associated with possession[―]the responsibilities and potential
liability that follow whenever a mortgage goes into default. The mortgagee’s right to
rents, then, is not automatic but arises only when the mortgagee has affirmatively sought
possession with its attendant benefits and burdens.’ ” Id. at 1033-34 (quoting Monarch,
153 B.R. at 833).
¶ 41 The Comerica court also acknowledged a “modern trend” that permitted a mortgagee to
collect rents once it had taken constructive, as opposed to actual, possession, such as by a
judicial award of injunctive relief or appointment of a receiver. Id. at 1034 (citing cases). Thus,
a mortgagee must take some affirmative action to gain possession of the property. Id. The
Comerica court held that neither Comerica nor the trustee was entitled to the rents, because
neither had taken actual or constructive possession of the property. Id. As to Comerica, the
court noted that “a mortgagee still needs to obtain a court’s authorization before [it] may collect
rents without taking possession.” (Emphasis added.) Id. This ensures that all parties’ interests
are before the court. Id. The Comerica court refused to recognize the assignment-of-rents
provision in Comerica’s agreement. Id. As to the trustee, the Comerica court held that the
trustee’s filing of certain pleadings, such as the foreclosure action or the request for the
appointment of a receiver, was not sufficient to trigger the mortgagee’s right to collect rents,
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where the trustee did not obtain prejudgment possession of the property and where the rents were
collected while the mortgagor was in possession and before the receiver was appointed. Id.
Rather, the court concluded, it is a “trial court’s affirmative ruling on such filings [that] entitles
the mortgagee to the rents.” Id. at 1035. In a foreclosure action, a mortgagee is not entitled to
rents until a judgment has been entered, unless the mortgage agreement permits the mortgagee to
obtain prejudgment possession. Id. at 1034-35. Similarly, a request for the appointment of a
receiver is not sufficient; rather, a receiver must be appointed on the mortgagee’s behalf and take
actual possession of the property. Id. at 1035. Accordingly, the Comerica court affirmed the
trial court’s ruling that the rents collected belonged to the mortgagor. Id.
¶ 42 In sum, Comerica held that: (1) assignment-of-rents provisions are enforceable only
when lenders take actual or constructive possession of the mortgaged property; and (2)
constructive possession requires affirmative action that must include court authorization (such as
the appointment of a receiver) to collect the rents. Id. at 1034-35; see also In re Callas, No. 13 B
43900, 2015 WL 1850260, at *7 (Bankr. N.D. Ill. Apr. 23, 2015) (reviewing case law and noting
that, “under Illinois law, a security interest in rents arising under an assignment of rents, while
perfected against third parties upon recordation, does not grant an interest in particular amounts,
paid after default and constituting rents from the property, until affirmative steps are taken by the
mortgagee to acquire possession of the property through either foreclosure or the appointment of
a receiver pending foreclosure”); cf. Fidelity, 71 F.3d at 1309-10 (rents-and-profits doctrine does
not apply to agreements involving the recovery of postdefault rent that are not assignment-of­
rents agreements; specifically, an indemnity agreement, under which a borrower agreed to turn
over postdefault rents to the lender upon receipt, was not an assignment-of-rents agreement,
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because it did not involve an outright assignment of the rents to the lender and only required the
borrower to pay over rents it collected upon receipt; it was in the nature of a guarantee).
¶ 43 4. Perfection and Enforcement
¶ 44 The common law distinguishes between perfection and enforcement of assignment-of­
rents interests. An assignment of rents creates a security interest/lien in the rental income.
Monarch, 153 B.R. at 833. That security interest is perfected upon recordation. Id.; see also
West Bend, 712 F.3d at 1034-35; Callas, 2015 WL 1850260, at *7.
¶ 45 Taking possession constitutes enforcement of the lien (i.e., when a party takes affirmative
steps to start collecting the rents, it is enforcing its lien). The lien is not one on specific rents
held by the mortgagor; rather, “an assignment[-]of[-]rents provision allows the mortgagee to take
certain steps [i.e., enforce], after default *** to obtain possession of the property and start
collecting the rents; but until [it] takes such steps the mortgagor is entitled to keep the rents.”
(Emphasis added.) Wheaton Oaks, 27 F.3d at 1242; see Monarch, 153 B.R. at 833 (“[t]he
requirement that a mortgagee enforce its lien on rents by possession of the real estate renders an
assignment of rents different from security interests in other property” (emphasis added)); see
also Wheaton Oaks, 27 F.3d at 1241 (an assignment of rents creates a lien upon the rents of the
property “that may be enforced upon default by taking affirmative steps to acquire possession of
the land by the mortgagee or a receiver appointed on the mortgagee’s behalf” (emphasis added));
Callas, 2015 WL 1850260, at *7 (“a security interest in rents arising under an assignment of
rents, while perfected against third parties upon recordation, does not grant an interest in
particular amounts, paid after default and constituting rents from the property, until affirmative
steps are taken by the mortgagee to acquire possession of the property [(i.e., enforce the lien)]
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through either foreclosure or the appointment of a receiver pending foreclosure” (emphasis
added)); 27A Ill. L. & Prac., Mortgages § 80 (Nov. 2016).
¶ 46 There is some authority for the proposition that a lockbox arrangement or other direct-
payment system constitutes sufficient enforcement of an assignment of rents; thus, under this
view, court authorization is not the only enforcement mechanism. West Bend, 712 F.3d at 1035
(reviewing Illinois case law). In West Bend, a creditor sought to enforce a judgment against a
bank where the judgment debtor had an account and had borrowed on the security of some
commercial real estate. However, the bank “did not enforce a direct-payment system or appoint
a receiver to collect the rents on its behalf” and some funds flowed to the judgment debtor. Id. at
1034. The court first noted that the bank’s interest was senior to the creditor’s interest because
an assignment is perfected when it is recorded. Id. at 1034-35. However, it continued, when
rents are paid directly to the debtor, the security interest evaporates. Id. at 1035. To enforce the
assignment, “a creditor must arrange for the tenants to pay it directly through a lockbox, or for a
third party such as a receiver to take possession for the lender’s benefit.” Id. (citing Comerica,
284 Ill. App. 3d at 1035). In that case, the funds flowed to the debtor’s account (i.e., not to the
bank, through a direct-payment system), whereupon the bank’s security interest evaporated. Id.
¶ 47 We further note that, in 1995, the Fidelity court contemplated this possibility and noted
that it was unclear if the rents-and-profits doctrine forbids “enforcing the mortgagor’s agreeing
to place a portion of the rents in escrow (the type of ‘lockbox’ arrangement that is common in
commercial lending secured by personal rather than real property) to be available to the
mortgagee in the event of a default, an issue on which we cannot find any cases.” Fidelity, 71
F.3d at 1309-10. Of course, in 2013, the West Bend court read Illinois law to permit this option.
¶ 48 5. Section 31.5 of the Conveyances Act
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¶ 49 Section 31.5 of the Conveyances Act became effective on January 1, 1996. Pub. Act 89­
39, § 5 (eff. Jan. 1, 1996) (adding 765 ILCS 5/31.5). The provision states, in relevant part:
“(b) If an instrument assigning the interest of the assignor in rents arising from the
real property described in the instrument is recorded, pursuant to this Act, in the county
in which the real property is situated, then the interest of the assignee in those rents is
perfected upon that recordation without the assignee taking any other affirmative action.
The recordation is constructive notice to subsequent purchasers, creditors, and
third parties of the content and effect of the assignment with the same force and effect as
any other duly recorded instrument or conveyance of an interest in real property under
Sections 30 and 31 of this Act. From the time of the recordation, the assignee has a
superior claim to the rents that are subjected to the assignment, as against all parties
whose claims or interests arise or are perfected thereafter.
(c) This Section applies whether the assignment is absolute, conditional, or
intended as security.
(d) Unless otherwise agreed to by the parties, the mere recordation of an
assignment does not affect who is entitled, as between the assignor and the assignee, to
collect or receive rents until the assignee enforces the assignment under applicable law.
(e) The fact that the assignee may permit the assignor to collect rents under the
terms of an assignment does not affect the validity, enforceability, or priority of an
assignment perfected in the manner set forth in subsection (b).” (Emphases added.) 765
ILCS 5/31.5(b), (c), (d), (e) (West 2014).
¶ 50 Although section 31.5 became effective just prior to the Comerica decision, the Comerica
court did not address the statute. Thus, the statute’s impact on Comerica is an open question.
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Robert C. Feldmeier, Enforcing Assignment-of-Rents Provisions in Illinois, 86 Ill. B.J. 436, 439
(Aug. 1998).
¶ 51 B. Issues
¶ 52 1. Effect of Section 31.5 on Comerica
¶ 53 Turning to BMO’s first argument, BMO argues that Comerica is binding and was not
superseded by section 31.5. Adverse Claimants and the trial court, according to BMO, mistake
perfection for enforcement, and the trial court’s interpretation: (1) is inconsistent with, and
renders meaningless, legislative enactments concerning a creditor’s ability to collect rents; and
(2) is in derogation of common law and violates public policy. BMO maintains that this case is
not a priority dispute between secured parties but, rather, a dispute between a party with a
perfected citation lien (BMO) and other parties (Adverse Claimants) who are unsecured due to
their failure to obtain court authorization to collect the rents for the JCI properties. It argues that,
because Adverse Claimants did not have possession of the properties and did not obtain court
authorization to collect the rents, their arrangements are void as against public policy under the
rents-and-profits doctrine. BMO maintains that it is arguing not that it is entitled to collect the
rents but that, once they were collected: (1) they simply became funds held by Briargate; (2)
Adverse Claimants had no lien on the funds because, once the rents were collected, Adverse
Claimants’ liens evaporated; and (3) BMO maintained its perfected citation lien on the funds.
For the following reasons, we reject BMO’s argument and hold that the Briargate citation cannot
reach the assigned rents. Through the forbearance agreements, which predated the Briargate
citation, Adverse Claimants enforced the recorded/perfected assignment-of-rents provisions in
their mortgages and, thus, the rents were no longer in JCI’s, the debtor’s, possession or control.
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¶ 54 We review de novo issues of statutory construction. Wells Fargo Bank, N.A. v.
McCluskey, 2013 IL 115469, ¶ 10. The primary rule of statutory construction requires that we
give effect to the legislature’s intent. Advincula v. United Blood Services, 176 Ill. 2d 1, 16
(1996). In ascertaining the legislature’s intent, we begin by examining the plain language of the
statute, reading the statute as a whole and construing it so that no word or phrase is rendered
meaningless or superfluous. Kraft, Inc. v. Edgar, 138 Ill. 2d 178, 189 (1990). “Where the
language is clear and unambiguous, the statute must be given effect as written without resort to
further aids of statutory construction.” Alvarez v. Pappas, 229 Ill. 2d 217, 228 (2008).
¶ 55 The trial court found that, under section 31.5, Adverse Claimants hold a superior lien on
the Briargate funds. The forbearance agreements, the court further found, are enforceable, are
like the lockbox or other direct-payment arrangements specified in the case law, and are beyond
the reach of any third-party claims that are perfected or arise thereafter.
¶ 56 We conclude that section 31.5 unambiguously provides that an assignment of rents is
perfected upon recording and provides that the assignee has a superior claim to the rents “as
against all parties whose claims or interests arise or are perfected thereafter.” 765 ILCS
5/31.5(b) (West 2014). The statute further provides, unambiguously, that, as between assignor
(such as JCI/Briargate) and assignee (Adverse Claimants), the mere recording does not affect
who is entitled to the rents until the assignee (Adverse Claimants) enforces the assignment
“under applicable law,” unless, as is critical here, the parties agree otherwise. 765 ILCS
5/31.5(d) (West 2014).
¶ 57 BMO contends that this reading of section 31.5 puts the statute in direct contrast with
other statutes and renders them meaningless. BMO argues that section 31.5 is not ambiguous
and that subsection (d) clearly incorporates enforcement through applicable law, which, in
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BMO’s view, reflects the legislature’s intent that the statute controls perfection, not enforcement.
Next, BMO contends that, even if the legislature “disposed” of the rents-and-profits doctrine in
section 31.5, the statute still requires that an agreement to collect rents be reflected in the
recorded document that gives rise to the lien. Here, it notes, the trial court never found that any
recorded document provided Adverse Claimants the right to collect rents. Instead, the court
relied upon unsigned agreements that were not recorded, in violation of the statute. BMO further
argues that the trial court’s reading departs from Comerica and other case law. BMO’s second
point is that, if Adverse Claimants are allowed to collect rents without court authority, this would
violate common law, which applies because the statute does not state that rents can be collected
without such authority.
¶ 58 We disagree with BMO that section 31.5 controls only perfection of an assignment of
rents. The statute explicitly provides in subsection (d) that rent entitlement is determined once
an assignment is enforced, unless otherwise agreed to by the parties. Id. We also disagree with
BMO’s assertion that, even if parties may agree otherwise, there were no signed and recorded
documents here that enforced Adverse Claimants’ assignments. It is undisputed that the
assignment-of-rents provisions upon which Adverse Claimants rely are contained in recorded
mortgage instruments (indeed, they were recorded prior to either the Briargate or the JCI citation
and even prior to BMO’s judgment). Adverse Claimants perfected these liens when they
recorded the instruments. 765 ILCS 5/31.5(b) (West 2014). The assignments were properly
enforced when, by electing to agree “otherwise” and enforce them other than under applicable
law, the parties, prior to the Briargate citation, entered into the forbearance agreements to
transmit the rents Briargate collected directly to Adverse Claimants (after payment of the
properties’ expenses). 765 ILCS 5/31.5(d) (West 2014). There is no dispute that Adverse
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Claimants entered into these agreements, and there is no statutory requirement that the
forbearance agreements be recorded. Thus, Adverse Claimants properly enforced their
assignments.
¶ 59 As to Comerica, the court in that case did not address section 31.5 and its language in
subsection (d) allowing parties to contract to enforce an assignment other than pursuant to
applicable law. Comerica might remain viable in cases where the parties have not agreed to
“otherwise” enforce assignments of rents. But that is not the case here. West Bend recognized a
mechanism—a lockbox arrangement or other direct-payment system—by which parties can
enforce assignments of rents other than through court authorization. West Bend, 712 F.3d at
1035. Here, JCI contracted away in the forbearance agreements its right to receive the rents,
which, after deduction of property expenses, Briargate directly forwarded to Adverse Claimants. 5
As JCI and Briargate note, at no point did BMO take the required steps—seeking a turnover of
the rents or the appointment of a receiver—to supplant Adverse Claimants’ priority positions.
BMO, in their view, has an unenforced citation lien that cannot trump an assignment of rents.
We agree.
5
Rockford notes that, under its forbearance agreement, rent payments received by check
and money order were signed over to Rockford to be deposited into a bank-controlled account.
Only credit card payments were deposited by Briargate and then remitted to Rockford. After
deduction of escrow payments and loan payments, any remaining funds were released back to
Briargate for payment of expenses for the property. No funds collected by Briargate were to be
paid to JCI. The Byron agreement similarly provided that rents collected by Briargate, minus
expenses and management fees, would be turned over to Byron with a rent roll report.
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¶ 60 Furthermore, as Rockford and Byron note, the supplementary-proceedings statute
provides that citations can reach only those assets in the possession or control of the judgment
debtor (or belonging to the judgment debtor but in the possession or control of the third-party
citation respondent). 6 735 ILCS 5/2-1402(a) (West 2014); see also 735 ILCS 5/2-1402(m) (West
2014) (lien established by service of citation does not affect the citation respondents’ rights in
property prior to the service of the citation upon them, and the lien created does not affect the
rights of bona fide purchasers or lenders without notice of the citation). Thus, given Adverse
Claimants’ control over the rents pursuant to the forbearance agreements between themselves,
JCI, and Briargate, no citation lien can attach to the rents collected by Briargate.
¶ 61 BMO next points to several sections of the Illinois Mortgage Foreclosure Law
(Foreclosure Law). 735 ILCS 5/15-1701, 15-1703, 15-1704, 15-1706 (West 2014) (addressing
the right to possession during foreclosure). 7 It reads these provisions as establishing
requirements before a lender can collect rents to the exclusion of other parties who may claim an
interest. BMO argues that the trial court’s ruling usurps the legislature’s statutory protections
6
At oral argument, BMO conceded that, if the funds Briargate collected were not JCI’s
property, its argument failed.
7
The procedures for obtaining possession are contained in the article of the Foreclosure
Law addressing possession during foreclosure. 735 ILCS 5/15-1701 et seq. (West 2014);
Monarch, 153 B.R. at 832-33 n.3; see 735 ILCS 5/15-1706(a) (West 2014) (request that a
mortgagee be placed in possession or that a receiver be appointed must be made by motion); 735
ILCS 5/15-1703(a)(1) (West 2014) (a mortgagee in possession has the right to receive rents); 735
ILCS 5/1704(b)(2) (West 2014) (a receiver appointed for the mortgaged property has the power
and authority to collect rents).
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and disregards its statutory predicates. It suggests that, if the law is as the trial court interpreted
it, then no creditor would ever go to court to enforce its right to collect rents. The legislature’s
detailed mortgagee-in-possession and receivership rules, BMO urges, should not be interpreted
in a manner that renders them superfluous.
¶ 62 We reject BMO’s argument. Section 31.5(d) of the Conveyances Act, the more specific
statute, applies here. Adverse Claimants did not file foreclosure actions. Rather, they entered
into agreements to enforce assignments of rents. Section 31.5(d), not the foreclosure statute,
specifically addresses that scenario.
¶ 63 BMO next argues in the alternative that, if the statute is ambiguous, the legislative history
nevertheless reflects that the General Assembly was merely clarifying the law concerning how
an assignment of rents is perfected, such as where a junior lender is allowed to continue to
collect rents after a senior lienholder attempted to enforce it.
¶ 64 Again, section 31.5 is not ambiguous. But even assuming, arguendo, that it is, our
holding remains the same. We disagree with BMO that the legislative history reflects that
section 31.5 merely clarifies the law on perfection. We find the legislative history unhelpful
because it focuses on perfection of assignments-of-rent interests, not enforcement, and the statute
distinguishes between the two concepts. The legislative history of section 31.5 reflects that the
General Assembly intended the statute to “provide procedures for perfecting an assignment of
rents by recordation” and that such an assignment “will be perfected from the time it is recorded
and without requiring the assignee to take any other action.” 89th Ill. Gen. Assem., House
Proceedings, May 8, 1995, at 180 (statements of Representative Biggert). The House sponsor
noted that there was no statute that set forth how to perfect a security interest in rents, that “court
decisions have been highly inconsistent,” and that most, but not all, courts have held that
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recording is sufficient. Id. at 180-81 (further noting that some cases had held that the second
mortgagee had top priority). “So, this really is a clarification of the law.” Id. at 181. In the
Senate, the sponsor also noted that there was no statute on the matter and that the enactment
would “simply codify common[-]law rules.” 89th Ill. Gen. Assem., Senate Proceedings, Mar.
24, 1995, at 31 (statements of Senator Fitzgerald).
¶ 65 Assuming, arguendo, that section 31.5 is ambiguous, we find that public policy
considerations weigh in favor of our reading. As noted, the public policies underlying the rents-
and-profits doctrine ensure that mortgagees’ interests are protected, while also ensuring proper
maintenance of the properties at issue. Wheaton Oaks, 27 F.3d at 1242 (assignment-of-rents
provisions allow creditors to reach the rents prior to completion of foreclosure proceedings and
prevent a mortgagor from collecting rents after default and not making payments under the
mortgage agreement); Comerica, 284 Ill. App. 3d at 1034 (but the possession requirement—
actual, or constructive with court authorization—reflects a policy that seeks to prevent
mortgagees from stripping the rents from the property and leaving the mortgagor and tenants
without resources for maintenance or repair). The forbearance agreements here allow for the
expenses of maintenance, management, and repair of the properties to be paid from the rents.
Thus, the public policy to be advanced by requiring a mortgagee to take actual or constructive
possession of the property through court action, as addressed in Comerica, is not implicated,
because the agreements require Adverse Claimants to accept both the benefits and the
maintenance and repair burdens of the properties. In this way, the tenants’ needs were met by
Briargate’s active management of the properties and Adverse Claimants received the net rents.
Indeed, if the forbearance agreements had not accounted for management expenses, as further
specified in the leases, it is arguable that they would have been void as against public policy.
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¶ 66 2. Commingling
¶ 67 Next, BMO argues that, assuming, arguendo, that a secured lender may collect rents
without court authorization, Adverse Claimants still do not have a lien on the Briargate funds
because any such lien evaporated when Briargate (as mortgagor JCI’s agent) collected the funds
and deposited them into its bank account, thereby commingling them with its assets. West Bend,
712 F.3d at 1035 (“when rentals are paid directly to the debtor, the security interest evaporates”).
BMO argues that there was no evidence that Briargate acted as Adverse Claimants’ agent, as
opposed to JCI’s agent. BMO points to the January 1, 2014, JCI-Briargate management
agreement, noting that it states, in section 5(b), that all funds collected by Briargate will remain
JCI’s property. 8
¶ 68 JCI and Briargate respond that the rents were not JCI’s cash assets commingled with
Briargate’s operating account, because, pursuant to the assignment of rents, Briargate managed
the properties for Adverse Claimants, not JCI. They point to a different portion of the JCI-
Briargate management agreement, section 9(j), which allows for the assignment of the agreement
to the lender and which they argue was exercised via the actual assignment of the rents. 9 Thus,
they reason, Briargate became Adverse Claimants’ agent.
8
Section 5(b) of that agreement addresses the operating account into which Briargate is
to deposit all funds it collects, noting that the account shall be segregated and be in the
“Manager’s name as custodian for Owner” and that “[a]ll funds deposited into the Operating
Account shall be and remain Owner’s property.”
9
Section 9(j) of the agreement addresses lender agreements and provides, in relevant
part:
“Manager shall sign and deliver such agreements related to the subject matter
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¶ 69 We find BMO’s argument unavailing and disagree that no agreement such as that
contemplated in section 9(j) of the management agreement is in the record or was alleged by
Adverse Claimants. The forbearance agreements, which are in the record, effectuated the
enforcement of Adverse Claimants’ liens. We also disagree with BMO’s additional assertion
that there were factual issues that the trial court should have resolved. BMO points to
Contarino’s deposition testimony that Briargate started paying Adverse Claimants directly in
order to avoid the JCI citation. Whether or not the forbearance agreements were entered into to
protect JCI’s interests, the contracts speak for themselves and unambiguously reflect that JCI
contracted away its right to receive the rents. The parties’ intent beyond that is not relevant to
interpreting the unambiguous agreements.
¶ 70 Further, as Rockford and Byron note, West Bend is distinguishable because there the
funds used by the judgment debtor to pay the bank were rent payments collected by the debtor
and deposited into his bank account after service of the citation upon him. Here, Briargate, a
third party, collects the rents and they are not paid over to or into JCI’s account. The West Bend
court acknowledged such an option as an enforceable means of continuing the interest in the
rents. Id. at 1034-35 (“a creditor must arrange for the tenants to pay it directly through a
lockbox, or for a third party such as a receiver to take possession for the lender’s benefit”).
hereof as any of Owner’s lenders may reasonably require, including, without limit
thereto, *** [1] lender’s right to terminate this Agreement in the event Owner is in
material default of an obligation owed lender, *** and [2] assignment of this Agreement
to the lender and agreement to perform services for the lender (any such agreement being
a ‘Lender Agreement’)[.]” (Emphasis in original.)
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¶ 71 We agree with Midwest that BMO’s reasoning would lead to the ridiculous result that a
lender would have a lien on unpaid rents but would lose the lien once it turns into cash. Further,
section 31.5(e) of the Conveyances Act specifically provides that the priority of a perfected
assignment is unaffected by whether an assignee permits an assignor to collect rents under the
terms of an assignment. 765 ILCS 5/31.5(e) (West 2014).
¶ 72 3. Prove-up
¶ 73 Next, BMO argues that, even if the trial court did not err in finding that Adverse
Claimants’ lien was superior to BMO’s, the trial court erred in failing to require that Adverse
Claimants prove up the existence or amount of the indebtedness and corresponding liens. BMO
focuses on the fact that, prior to the trial court’s ruling, Rockford, which apparently claims more
than 75% of the funds here, entered into a consent foreclosure in which it accepted title to the
properties in exchange for satisfaction of the indebtedness owed to it by, as relevant here, JCI.
BMO argues that Rockford was awarded double satisfaction of its claims, because Rockford no
longer was owed any debts at the time of the trial court’s ruling.
¶ 74 The trial court rejected the prove-up issue, noting that the existence of the forbearance
agreements was not disputed and that BMO had cited no authority in support of its argument,
which it asserted for the first time in its motion to clarify and reconsider. As to Rockford’s
consent foreclosure, the court also noted that case law instructed that “[a]n express pledge of
rents is not extinguished by a foreclosure sale which merges the title and the debt in the same
party.” (Emphasis added.) Randall Plaza, 326 B.R. at 141.
¶ 75 We find BMO’s argument unavailing. BMO argues that Randall Plaza is distinguishable
because it merely permitted a creditor that had taken title to the property to collect outstanding
rents from the tenants and stated that the foreclosure did not affect that creditor’s ability to
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collect future and outstanding rents as the property owner. We disagree with BMO’s reading, as
the court’s holding encompassed rents from the time of default to any time thereafter. Id. The
Randall Plaza court held that the creditor had a valid assignment of rents and had taken
appropriate steps to enforce it prior to foreclosure. Id. at 140. The creditor both initiated
foreclosure proceedings and obtained the appointment of a receiver, thus commencing
proceedings under which it could gain possession of the property for purposes of collecting rent.
Id. at 141. The court noted that the assigned rents included “all rents that were unpaid at the time
[the creditor] gave notice of the default” or any time thereafter. Id. Critically, the court also held
that the creditor’s purchase of the property after foreclosure did not extinguish both the mortgage
and the lien on the rents, but extinguished only the mortgage. Id. The rents were unaffected
because “[a]n express pledge of rents is not extinguished by a foreclosure sale which merges the
title and the debt in the same property.” Id. (citing cases). Pursuant to Randall Plaza, the
consent foreclosure judgment did not act to waive Rockford’s lien on the rents.
¶ 76 Furthermore, the prove-up issue is unavailing because, as Adverse Claimants note, the
facts asserted in their adverse claims are undisputed and, at all stages of these proceedings, they
asserted their contractual and lien rights to the funds and consistently maintained that the funds,
which Briargate collected as JCI’s management agent, were no longer JCI’s property; rather, by
agreement (the forbearance agreements), which the trial court correctly found to be enforceable,
they had become Adverse Claimants’ property.
¶ 77 We note that BMO never asked for a hearing below to address any factual issues, nor did
it request additional discovery. Further, it framed the prove-up issue as a question of law,
namely, whether the consent foreclosure judgment waived Rockford’s lien on the rents.
Specifically, in its motion to clarify and reconsider, BMO argued that Adverse Claimants “must
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first prove up their claims against JCI, as a matter of law.” Given our holding that the consent
foreclosure judgment did not waive Rockford’s lien, there is no factual question to be resolved.
¶ 78 III. CONCLUSION
¶ 79 For the reasons stated, the judgment of the circuit court of Winnebago County is
affirmed.
¶ 80 Affirmed.
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