1030 W.North Ave, Bldg., LLC v. The Firm

2022 IL App (1st) 200588-UFIFTH DIVISION
April 29, 2022
No. 1-20-0588
NOTICE: This order was filed under Supreme Court Rule 23 and may not be cited as precedent
by any party except in the limited circumstances allowed under Rule 23(e)(1).
IN THE
APPELLATE COURT OF ILLINOIS
FIRST JUDICIAL DISTRICT
1030 W. NORTH AVE. BLDG., LLC, ) Appeal from the Circuit Court of
an Illinois limited liability company, ) Cook County.
)
Plaintiff-Appellee, )
)
v. )
) No. 19 L 4649
THE FIRM, LLC, d/b/a HI FI PERSONAL )
FITNESS, an Illinois limited liability )
company, )
) Honorable Jerry A. Esrig,
Defendant-Appellant. ) Judge Presiding.
JUSTICE CONNORS delivered the judgment of the court.
Justices Hoffman and Cunningham concurred in the judgment.
ORDER
¶1 Held: Provisions in assignments of rents that allowed assignee to collect rents without
possession were severable; lien created by assignments survived the foreclosure;
plaintiff did not have standing to pursue unpaid rent from tenant; affirmed.
¶2 Plaintiff, 1030 W. North Ave. Bldg., LLC, appeals an order of the circuit court that entered
summary judgment for defendant, The Firm, LLC. Plaintiff sued defendant for payments that were
due under a lease agreement. Defendant asserted that plaintiff did not have standing because
No. 1-20-0588
plaintiff assigned its commercial leases and rents to its lender as security for a mortgage and lost
the property in a 2011 foreclosure judgment and subsequent sheriff’s sale, which left a deficiency.
On appeal, plaintiff contends that (1) the assignments of rents should not be enforced because they
are void as against public policy, and (2) the lien on rents created by the assignments was
extinguished by the foreclosure. We affirm.
¶3 I. BACKGROUND
¶4 Plaintiff initially filed its action to collect unpaid rent in 2010, but it was voluntarily
dismissed without prejudice in 2013. Plaintiff refiled its complaint in 2014, stating that beginning
in December 2004, defendant failed to make required payments under a lease, including rents,
utilities, and construction costs. The total amount allegedly due was $233,196.55.
¶5 On May 11, 2016, defendant filed a motion to dismiss due to plaintiff’s lack of standing.
Defendant stated that plaintiff lost the property in a previous foreclosure proceeding. The subject
mortgage included an assignment of leases and rents, and plaintiff and its lender also executed a
separate assignment of leases and rents. Defendant asserted that due to the foreclosure and
subsequent $12 million deficiency judgment that remained unpaid, plaintiff lost all rights to the
rents. Defendant clarified that it was not asserting the rights of plaintiff’s lender, and was only
demonstrating that it was the lender who held all lease, contract, and other rights associated with
the property.
¶6 The record indicates that plaintiff failed to make payments to its lender starting in June
2010. Plaintiff was served with a summons and foreclosure complaint in October 2010. On January
26, 2011, the court entered an order appointing a receiver for the property. A judgment of
foreclosure was entered on March 23, 2011. On June 1, 2011, the court entered an order approving
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the sheriff’s report of sale and confirming sale, which provided for a deficiency judgment of around
$12 million. The property was conveyed and title transferred to the lender by a judicial sales deed.
¶7 Plaintiff’s mortgage was recorded in 2004. A section of the mortgage titled “Assignment
of Rents; Appointment of Receiver; Lender in Possession” stated in part:
“As part of the consideration for the indebtedness evidenced by the Note, Borrower
hereby presently, absolutely and unconditionally assigns and transfers to Lender all
the rents and revenues of the Property, including those now due, past due, or to
become due by virtue of any lease or other agreement for the occupancy or use of
all or any part of the Property *** [P]rior to an Event of Default, Borrower shall
collect and receive all rents and revenues of the Property as trustee for the benefit
of Lender and Borrower, *** it being intended by Borrower and Lender that this
assignment of rents constitutes an absolute assignment and not an assignment for
additional security only. Upon occurrence of an Event of Default, and without the
necessity of Lender entering upon and taking and maintaining full control of the
Property in person, by agent or by a court-appointed receiver, Borrower’s license
to collect the rents and revenues shall immediately cease and terminate, and Lender
shall immediately be entitled to possession of all rents and revenues of the Property
as specified in this Section as the same become due and payable, including, but not
limited to, rents due and unpaid ***.
***
Upon occurrence of an Event of Default, *** Lender shall be entitled to
the appointment of a receiver for the Property *** and Lender may in person, by
agent or by a court-appointed receiver, *** enter upon and take and maintain full
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control of the Property in order to perform all acts necessary and appropriate for
the operation and maintenance thereof ***.
All rents and revenues *** shall be applied first to the costs, if any, of
taking control of and managing the Property and collecting the rents, including
*** costs of repairs to the Property ***.”
¶8 The mortgage referred to the Illinois Mortgage Foreclosure Law (Foreclosure Law) (735
ILCS 5/15-1101 et seq.) (West 2010)), stating in part:
“It is the express intention of the Borrower and Lender that the
rights, remedies, powers and authorities conferred upon the Lender pursuant
to this Instrument shall include all rights, remedies, powers and authorities
that a mortgagor may confer upon a lender under the Illinois Mortgage
Foreclosure Law [citation] *** and/or as otherwise permitted by applicable
law, as if they were expressly provided for herein. In the event that any
provision in this Instrument shall be inconsistent with any provision in the
[Foreclosure Law], the provisions of the [Foreclosure Law] shall take
precedent over the provisions of this Instrument, but shall not invalidate or
render unenforceable any other provision of this Instrument that can be
construed in a manner consistent with the [Foreclosure Law].
***
To the extent the [Foreclosure Law] may limit the powers, authorities and
duties purportedly conferred hereby, such power, authorities and duties
shall include those allowed, and be limited as proscribed by the
[Foreclosure Law] at the time of their exercise or discharge.”
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¶9 The mortgage further contained a provision that addressed severability:
“In the event that any provision of this Instrument or the Note conflicts with
applicable law, such conflict shall not affect other provisions of this
Instrument or the Note which can be given effect without the conflicting
provisions, and to this end the provisions of this Instrument and the Note
are declared to be severable.”
¶ 10 As noted above, plaintiff and its lender also executed a separate assignment of leases and
rents, which was recorded in 2004. The assignment stated in part:
“Assignor does hereby and absolutely and unconditionally grant ***
as security for the indebtedness secured by the Instrument, all of the right,
title and interest of the Assignor in, to and under the Leases, together with
all rents, earnings, income, profits, benefits and advantages arising from the
Property and from said Leases and all other sums due or to become due
under and pursuant thereto, and *** the immediate and continuing right to
receive and collect all rents, income, revenues, issues, profits,
condemnation awards, insurance proceeds, moneys and security payable or
receivable under the Leases *** It is intended by Assignor that this
Assignment constitute a present, absolute assignment of the Leases, and not
an assignment for additional security only. *** [S]o long as no Event of
Default has occurred, Assignor shall have the revocable right and revocable
license to occupy the Property as landlord or otherwise and to collect, use
and enjoy the rents, issues and profits and other sums payable under and by
virtue of any Lease *** provided that after any such Event of Default, any
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amounts collected by Assignor shall be held by Assignor in trust for the
benefit of Assignee for use in the payment of all sums due on the Loan.
This Assignment is made and given and shall remain in full force
and effect until: (a) the payment in full of all principal, interest and other
sums due under the Note; and (b) the performance and observance by
Assignor of all the terms, covenants and conditions to be performed or
observed by Assignor under the Note and the other Loan Documents.
***
Upon the occurrence of an Event of Default, *** Assignee, at its
option, shall have the complete right, power, and authority (a) without
taking possession, to demand, collect and receive and sue for the rents and
other sums payable under the Leases and, after deducting all reasonable
costs and expenses of collection *** as determined by Assignee, apply the
net proceeds thereof to the payment of any indebtedness secured hereby
*** and (c) without regard to the adequacy of the security, with or without
process or law, personally or by agent or attorney, or by a receiver to be
appointed by court, then and thereafter to enter upon, take and maintain
possession of and operate the Property, or any part thereof, *** and hold,
operate, manage and control the Property, *** and at the expense of
Assignor, from time to time cause to be made all necessary or proper
repairs, renewals, replacements, useful alterations, additions, betterments
and improvements to the Property ***.
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After payment of all proper charges and expenses, including the
just and reasonable compensation for the services of Assignee *** in
connection with the operation, management and control of the Property
and the conduct of the business thereof, *** Assignee may *** credit the
net amount of income which Assignee may receive by virtue of this
Assignment and from the Property to any and all amounts due or owing to
Assignee from Assignor under the terms and provisions of the Note and
the Loan Documents.”
***
The rights and remedies of Assignee hereunder are cumulative and
not in lieu of, but are in addition to, any rights or remedies which Assignee
shall have under the Note, any of the Loan Documents, or at law or in
equity ***.
***
In addition to the above, upon the occurrence of an Event of
Default, Assignor expressly consents to the appointment of a receiver for
the Property, without notice, either by the Assignee or a court of
competent jurisdiction, to take all acts in connection with the Property
permitted by law or in equity and to deduct from any and all rents received
from the Leases an amount approved by the court to compensate such
receiver for its actions.
***
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If any one or more of the provisions of this Assignment, or the
applicability of any such provision to a specific situation, shall be held
invalid or unenforceable, such provision shall be modified to the minimum
extent necessary to make it or its application valid and enforceable, and
the validity and enforceability of all other provisions of this Assignment
and all other applications of any such provision shall not be affected
thereby.
***
If there is any conflict between the terms of this Assignment and
the provisions pertaining to assignment of rents and leases in the
Instrument, Assignee shall have the right to select the applicable
provision.”
¶ 11 In response to defendant’s motion to dismiss, plaintiff asserted that it had the right to any
rent owed while it was in possession. Further, only the mortgagee could enforce the lien created
by the assignment of rents, and further, the lien created by the assignment was extinguished after
the foreclosure judgment was entered.
¶ 12 On July 6, 2016, the court denied defendant’s motion to dismiss. The court stated in a
written order that plaintiff had the right to collect any rent that was due before January 2011, and
plaintiff’s lender could recover rent that accrued after the receiver took possession. The court later
denied defendant’s motion to reconsider in part because the court was “not convinced that the lien
established when Plaintiff’s lender perfected its assignment in the foreclosure action continues in
perpetuity.”
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¶ 13 Defendant moved for a Rule 308 finding and certification (Ill. S. Ct. R. 308 (eff. Jan. 1,
2016)), asserting that there was no clear guidance from the appellate court on the standing matter
at issue. The court granted the motion on November 4, 2016, and certified the following question
for appeal:
“Does a mortgage lender which has perfected its assignment of
leases and rents lien by foreclosing on and taking possession of the pledged
real estate, or its borrower against whom the foreclosure was entered, have
standing to sue under one of the assigned leases to collect rent which
allegedly accrued prior to the date the mortgage lender took possession of
the real estate?”
¶ 14 This court denied defendant’s petition for leave to appeal, whereupon defendant filed a
petition for leave to appeal to the Illinois Supreme Court. On May 24, 2017, our supreme court
denied the petition for leave to appeal and entered a supervisory order that instructed this court to
allow leave to appeal and consider the appeal on the merits.
¶ 15 On August 3, 2018, this court issued a Rule 23 order (Ill. S. Ct. R. 23 (eff. Apr. 1, 2018))
that dismissed the appeal and remanded the case to the circuit court for further proceedings. 1030
W. North Ave. Bldg., LLC v. The Firm, LLC, 2018 IL App (1st) 163221-U. In part, this court found
that the certified question was improperly worded because it confused the perfection and
enforcement of a lien. Id. ¶ 13. Also, answering the certified question would have required this
court to examine the language of the assignment and apply the law to it, which was beyond the
scope of a Rule 308 appeal. Id. ¶ 16. We further noted that the assignment may violate public
policy because it allowed the lender to collect rents and revenues without possession, but that issue
was not briefed by the parties. Id. ¶ 17.
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¶ 16 Returning to the circuit court, defendant filed a motion to reconsider the refusal to dismiss
for lack of standing. Defendant stated that BMO Harris Bank N.A. v. Joe Contarino, Inc., 2017 IL
App (2d) 160371, resolved any uncertainty about the viability of the assignment lien held by
plaintiff’s lender.
¶ 17 Per the court’s request, defendant presented its arguments in a motion for summary
judgment. In part, defendant asserted that the assignments were consistent with Illinois public
policy. Even if the assignments included problematic self-help language, the lender properly
enforced the assignments through court-supervised foreclosure proceedings. Also, any offending
language in the assignments should be severed or disregarded.
¶ 18 In response, plaintiff stated in part that there was no evidence that the receiver took any
action to collect rent. Further, the judgment of foreclosure and the sheriff’s sale of the property
extinguished all liens on the property, including the assignment of rents.
¶ 19 At a hearing on March 4, 2020, the court stated that a mortgagee’s enforcement of its rights
does not depend on whether the receiver discharges its duty to collect rents because the receiver’s
actions are outside the mortgagee’s control. Also, rather than invalidate assignment of rents clauses
that offend public policy, courts impose restrictions to protect the public interest. Even an
offending assignment will be enforced if the assignee actually exercised its rights consistent with
the public interest, which occurred here. Also, the documents here included severability clauses.
The court found that plaintiff did not have standing to bring its claim for unpaid rent, and granted
defendant’s motion for summary judgment. Judgment was entered in favor of defendant and
against plaintiff.
¶ 20 Plaintiff timely appealed.
¶ 21 II. ANALYSIS
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¶ 22 On appeal, plaintiff contends that the assignment of rents is void as against public policy
and the assignment did not survive the foreclosure. Thus, plaintiff still has an interest in the unpaid
rents and has standing to maintain its suit.
¶ 23 This is an appeal from a grant of summary judgment, which is proper where, when viewed
in the light most favorable to the nonmoving party, the pleadings, depositions, and admissions on
file, along with any affidavits, show that there is no genuine issue as to any material fact and the
moving party is entitled to judgment as a matter of law. Gold Realty Group Corp. v. Kismet Café,
Inc., 358 Ill. App. 3d 675, 678-79 (2005). Standing, the grounds on which summary judgment was
granted, requires some injury in fact to a legally cognizable interest. Nationwide Advantage
Mortgage Co. v. Ortiz, 2012 IL App (1st) 112755, ¶ 24. The doctrine of standing is designed to
preclude people and entities with no interest in a controversy from bringing suit. Deutsche Bank
National Trust Co. v. Gilbert, 2012 IL App (2d) 120164, ¶ 15. A lack of standing is an affirmative
defense that is the defendant’s burden to plead and prove. Nationwide Advantage Mortgage Co.,
2012 IL App (1st) 112755, ¶ 24. Whether a party has standing is a question of law that we review
de novo. Cashman v. Coopers & Lybrand, 251 Ill. App. 3d 730, 733 (1993).
¶ 24 A party’s standing is assessed as of the time the suit is filed. Deutsche Bank National Trust
Co. v. Iordanov, 2016 IL App (1st) 152656, ¶ 34. Plaintiff’s first action was voluntarily dismissed
without prejudice in 2013. Plaintiff refiled its complaint in 2014. Because a refiling after a
voluntarily dismissal without prejudice is a separate cause of action (Kahle v. John Deere Co., 104
Ill. 2d 302, 306 (1984)), we will examine plaintiff’s standing as of when it filed its 2014 complaint.
¶ 25 Plaintiff’s standing depends on whether it lost the right to collect unpaid rents via the
assignment in the mortgage and the separate assignment. As background on those documents,
Illinois has adopted the lien theory of mortgages (Kelly/Lehr & Associates, Inc. v. O’Brien, 194
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Ill. App. 3d 380, 386 (1990)), in which the mortgage is only a lien on the property, rather than a
conveyance of title from the mortgagor to the mortgagee (In re Cadwell’s Corners Partnership,
174 B.R. 744, 750 (Bankr. N.D. Ill. 1994)). For nonresidential property, a mortgage often includes
an assignment of rents, “which creates a lien on rents and profits generated from the mortgaged
property as additional security for the debt.” Id. at 752. Assignments allow creditors to reach rents
sooner than the completion of foreclosure proceedings. Matter of Wheaton Oaks Office Partners
Ltd. Partnership, 27 F.3d 1234, 1242 (7th Cir. 1994). Most lien theory jurisdictions do not
recognize absolute assignments of rent, in which the assignor presently sells and disposes of all of
its title and interest in a property’s rents and profits. M. Ecker & Co. v. LaSalle National Bank,
268 Ill. App. 3d 874, 879 (1994).
¶ 26 Illinois requires mortgagees to take possession of the property before collecting rents,
which reflects the public 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.”
Comerica Bank-Illinois v. Harris Bank Hinsdale, 284 Ill. App. 3d 1030, 1033 (1996). Possession
may be actual or constructive. Id. at 1034. Constructive possession includes a circuit court’s
affirmative ruling on a request to appoint a receiver. Id. at 1035. The security interest created by
the assignment is enforced when the mortgagee takes possession. BMO Harris Bank N.A. v. Joe
Contarino, Inc., 2017 IL App (2d) 160371, ¶ 44.
¶ 27 With these principles in mind, we turn to the two assignments at issue. The assignment in
the mortgage states in part that as part of the consideration for the indebtedness evidenced by the
note, the borrower “absolutely and unconditionally assigns and transfers” to the lender “all the
rents and revenues of the property.” The assignment permits the lender to collect rents without
possession, but also states that the lender “shall be entitled to the appointment of a receiver” for
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the property, who can take and maintain full control of the property “to perform all acts necessary
and appropriate for the operation and maintenance thereof.” Similar to the assignment in the
mortgage, the separate assignment states that it is “a present, absolute assignment of the Leases.”
On default, the assignee may collect rent without taking possession, but a receiver may be
appointed by the court to take possession and operate the property.
¶ 28 Both assignments state that they are absolute, which as stated above, are not recognized in
most lien theory states. See M. Ecker & Co., 268 Ill. App. 3d at 879. And, the assignments contain
language that runs afoul of the requirement that the assignee take actual or constructive possession
before collecting rents. See Comerica Bank, 284 Ill. App. 3d at 1034. But those matters do not
invalidate the entire assignment.
¶ 29 The validity of absolute assignments and the possession requirement set out in Comerica
Bank may both be affected by section 31.5 of the Conveyances Act (765 ILCS 5/31.5 (West 2012)),
which was made effective in 1996 and states in 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.
***
(c) This Section applies whether the assignment is absolute, conditional, or intended
as security.
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(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.”
Because they are included in section 31.5(c), absolute assignments may indeed be valid in Illinois.
Also, the language “[u]nless otherwise agreed to by the parties” in section 31.5(d) “could be
construed to mean that if agreed to by the parties, recording an assignment-of-rents agreement can
‘affect who is entitled, as between the assignor and the assignee, to collect or receive rents,’ ”
which would be inconsistent with Comerica Bank. Robert C. Feldmeier, Enforcing Assignment-
of-Rents Provisions in Illinois, 86 Ill. B.J. 436, 439 (1998). Under Comerica Bank—which was
issued after section 31.5 became effective, but did not address its impact—just recording an
assignment is insufficient to collect rents on default. The assignee must take actual or constructive
possession. In contrast, section 31.5(d) allows parties to enforce an assignment other than pursuant
to applicable law (Joe Contarino, Inc., 2017 IL App (2d) 160371, ¶ 59), and so a provision that
allows for rent without possession may be valid.
¶ 30 Still, when however parties agree to enforce an assignment, it must be consistent with the
public policy requiring assignees to accept the benefits and the maintenance and repair burdens of
the property. See id. ¶ 65 (if agreements to collect rent without court authority had not accounted
for management expenses, arguable that agreements would have been void as against public
policy). Both assignments here addressed that policy goal. The assignment in the mortgage stated
that all rents and revenues would first be applied to the costs of taking control of and managing
the property, including the costs of repairs. The separate assignment stated that before paying the
assignee what is due under the note, the assignee first pays for expenses “in connection with the
operation, management and control of the Property.”
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¶ 31 Defendant also asserts that problematic language in an assignment may be disregarded as
long as the lender followed proper enforcement procedure, which the lender did here by having
the court appoint a receiver and transfer title away from plaintiff.
¶ 32 In Comerica Bank, 284 Ill. App. 3d at 1034, after stating that it would not recognize a
provision of an assignment agreement that allowed the mortgagee to collect rents without
possession, the court considered an argument from the party seeking to uphold the assignment that
it took proper steps to enforce the assignment. However, the party’s actions fell short of what was
required—it requested a receiver, but a court did not grant that request. Id. So, Comerica Bank
does not definitively resolve the question of whether problematic language that allows for
collecting rents without possession can be disregarded as long as the lender follows the proper
enforcement procedure.
¶ 33 Ultimately, we do not need to resolve with certainty the questions about the impact of
section 31.5 of the Conveyances Act and whether an assignee’s actions can save a problematic
assignment that allows for collecting rents without possession. Even if the provisions allowing
rents without possession are invalid, that language is severable from both documents. When a
portion of a contract is unenforceable as against public policy, “a court may nevertheless enforce
the rest of the agreement in favor of a party who did not engage in serious misconduct if the
performance as to which the agreement is unenforceable is not an essential part of the agreed
exchange.” (Internal quotation marks omitted.) Kepple & Co. v. Cardiac, Thoracic &
Endovascular Therapies, S.C., 396 Ill. App. 3d 1061, 1066 (2009) (quoting Restatement (Second)
of Contracts, § 184(1), at 30 (1981)). An enforceable provision is severable unless it is so closely
connected with the rest of the contract that to enforce the valid provisions of the contract without
it “would be tantamount to rewriting the agreement.” (Internal quotation marks omitted.)
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Wigginton v. Dell, Inc., 382 Ill. App. 3d 1189, 1198 (2008) (quoting Abbott-Interfast Corp. v.
Harkabus, 250 Ill. App. 3d 13, 21 (1993)).
¶ 34 Here, both the mortgage and separate assignment had severability clauses, which “certainly
strengthens the case for the severance of the unenforceable provisions because [they] indicate that
the parties intended for the lawful portions of the contract to be enforced in the absence of the
unlawful portions.” Abbott-Interfast Corp., 250 Ill. App. 3d at 21. As defendant notes, plaintiff’s
lender followed the proper procedure to enforce the assignment by having a court authorize the
appointment of a receiver. The mortgage also provides that the Foreclosure Law takes precedence
over any inconsistent provisions, so the protections of the Foreclosure Law are part of the
mortgage. Sections 15-1704(c) and (d) of the Foreclosure Law list the duties of a receiver
appointed during foreclosure proceedings, which includes a number of steps to maintain the
property. 735 ILCS 5/15-1704(c), (d) (West 2010)). As for the separate assignment, even in
Comerica Bank, 284 Ill. App. 3d at 1034, the court did not invalidate the entire assignment
agreement due to its problematic language—it refused to recognize “that provision of the
agreement.” Both the mortgage and separate assignment have numerous provisions that are
unrelated to the assignee collecting rents without possession. We will not give effect to the
language that allows collecting rents without possession, but the rest of the assignments are
unaffected.
¶ 35 The next question is whether, once the assignments were enforced, plaintiff had an interest
in the past due rents that accrued before default. An assignment is a contract and is construed
according to the rules of contract construction, including that the parties’ intent is discerned from
the contract language. CNA International, Inc. v. Baer, 2012 IL App (1st) 112174, ¶ 48.
Unambiguous language is given its plain and ordinary meaning. Id. The mortgage assigned to the
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lender “all rents and revenues ***, including those now due, past due, or to become due by virtue
of any lease or other agreement.” On default, the lender was entitled to “all rents and revenues
***, including, but not limited to, rents then due and unpaid.” The separate assignment covered
“all rents, earnings, income, profits, *** and all other sums due or to become due” under the leases.
Based on the plain language of the assignments, on default, the assignee—plaintiff’s lender—was
entitled to unpaid rent that accrued before default, which included the rent that plaintiff sought in
its complaint. See In re Randall Plaza Center Associates, L.P., 326 B.R. 133, 141 (Bankr. N.D.
Ill. 2005) (where mortgage provided that on default, mortgagee had the right to collect the rents
and profits, “including those past due and unpaid,” the mortgagee could collect any unpaid rent
that was due on the date of the notice of default or anytime thereafter).
¶ 36 Plaintiff asserts that it nonetheless has standing because the equitable lien on rent was
extinguished by the foreclosure. Plaintiff argues that if an assignment of rents is a lien recorded to
support the mortgage, then the lien dies once the security to which it is attached ceases to exist.
Plaintiff states that the debt merged into the deficiency judgment and there are no other rents to
collect to pay down the debt.
¶ 37 Plaintiff is incorrect. “An express pledge of rents is not extinguished by a foreclosure sale
which merges the title and the debt in the same party.” Id. (citing Liss v. Harris, 304 Ill. App. 173(1940)). In Randall Plaza, a creditor’s purchase of a property after a foreclosure extinguished the
mortgage debt, but not the lien on the rents. Id. We are aware, as plaintiff notes, that lower federal
court decisions are not binding on Illinois courts, but those decisions may be considered persuasive
authority. Asset Exchange II, LLC v. First Choice Bank, 2011 IL App (1st) 103718, ¶ 19. Randall
Plaza has been cited in an Illinois case, Joe Contarino, Inc., 2017 IL App (2d) 160371, ¶ 75, where
a consent foreclosure did not waive a lien on rents. We are unpersuaded by plaintiff’s insistence
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that the case on which Randall Plaza relied, Liss, 304 Ill. App., was wrongly decided. Liss has
been cited approvingly by other cases. See Matter of Wheaton Oaks Office Partners Ltd.
Partnership, 27 F.3d at 1243; Chicago Title & Trust Co. v. National Bank of Albany Park in
Chicago, 17 Ill. App. 3d 721, 727-28 (1974). We see no reason to depart from Randall Plaza’s
and Joe Contarino’s statements that a lien on rents is not extinguished by a foreclosure.
¶ 38 In a further attempt to argue that the lien was extinguished, plaintiff cites to cases applying
the merger doctrine. See BAC Home Loans Servicing, LP v. Popa, 2015 IL App (1st) 142053,
¶ 36 (on entry of a foreclosure judgment, the mortgage merges into the judgment and eliminates
the contract); Poilevey v. Spivack, 368 Ill. App. 3d 412, 414 (2006) (when a judgment based on a
contract or instrument is obtained, the instrument is entirely merged into the judgment). Plaintiff
overlooks that the merger doctrine only applies “to causes of action to bar relitigation of the same
cause.” (Internal quotation marks omitted.) Kenny v. Kenny Industries, Inc., 2012 IL App (1st)
111782, ¶ 16 (quoting Stein v. Spainhour, 196 Ill. App. 3d 65, 70 (1990)). The merger doctrine
would not apply to the lien created by the assignments because the assignments were not
necessarily at issue in the foreclosure proceeding. See State Bank of Piper City v. A Way, Inc., 135
Ill. App. 3d 1010, 1012-13 (1985) (merger did not extinguish right to enforce lien created by
security agreements where it did not appear that documents securing notes were necessarily at
issue in the earlier action). Plaintiff also states that an assignment of rights is a lien that must attach
to a res. However, an assignment of rents is different from a perfected lien that gives a creditor an
interest in a specific piece of property. In re J.D. Monarch Development Co., 153 B.R. 829, 833
(Bankr. S.D. Ill. 1993). The lien created by the assignments of rents survived the foreclosure, and
after default, plaintiff lost its interest in the rents due and unpaid under the lease with defendant.
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¶ 39 Plaintiff further contends that defendant does not have standing to raise the assignment of
rents issue. According to plaintiff, defendant is trying to borrow the shoes of the mortgagee to bar
this action, but defendant is not a third-party beneficiary under the assignments. Plaintiff
misconstrues defendant’s position. Defendant is not trying to collect the rents. Rather, defendant
is asserting that plaintiff has no legally cognizable interest in the rents because it lost that interest
through the assignments. See Nationwide Advantage Mortgage Co., 2012 IL App (1st) 112755,
¶ 24 (standing requires an injury in fact to a legally cognizable interest).
¶ 40 Lastly, plaintiff asserts that it has sufficient standing because rental debt that matured
before a transfer of title is owed to the former landlord, citing A.M. Realty Western, L.L.C. v.
MSMC Realty, L.L.C., 2012 IL App (1st) 121183. In that case, the plaintiff had standing to sue for
payments from a tenant that accrued before the building was sold. Id. ¶ 43. The tenant’s debt did
not pass on to the subsequent owners of the property. Id. ¶ 45. The tenant’s lease ended before the
building was sold and the lease was not assigned to the subsequent owners of the property.
Id. ¶ 47. A.M. Realty did not involve a foreclosure and assignment of rents and leases, which as
explained above, transferred the right to collect unpaid rents to the assignee on default. A.M. Realty
concerns an entirely different scenario.
¶ 41 III. CONCLUSION
¶ 42 For the foregoing reasons, the judgment of the circuit court is affirmed.
¶ 43 Affirmed.
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