Justia U.S. 7th Circuit Court of Appeals Opinion Summaries

The plaintiffs invested $3 million in a multi‐use real‐estate project in Caseyville, Illinois, called Forest Lake, having previously worked with the developers. Their agreement with the developers promised a first‐priority mortgage, but they received only a junior mortgage. Meridian Bank had acquired a mortgage on Forest Lakes ($20 million) in 2005. When the bank foreclosed in 2009, the plaintiffs lost everything. They sued Belco, which had been created to carry out title work for the Forest Lakes transactions, including the Meridian mortgage. None of the plaintiffs’ $3 million were ever escrowed with Belco, but went directly to the developer. Belco never contacted the plaintiffs, before, during, or after the closing. After the development failed, the plaintiffs alleged Illinois state‐law claims of breach of fiduciary duty against Belco, claiming that as the “closing agent” for the transaction, Belco owed a duty to disclose that they were not receiving the first‐priority mortgage. The magistrate judge granted summary judgment for Belco, finding that Belco was the plaintiffs’ agent for the purposes of the escrow and closing, but, under Illinois law, owed only the very limited duty “to act only according to the terms of the escrow instructions.” Belco complied with the terms of the escrow agreement in that the funds were disbursed according to the agreement. The Seventh Circuit affirmed. View "Edelman v. Belco Title & Escrow, L.L.C." on Justia Law

Based on a real estate financing fraud scheme during the housing bubble, Brunt, Farano, Murphy, and Scullark were charged with mail and wire fraud; Brunt and Scullark with money laundering and Farano with theft of federal government funds, 18 U.S.C. 641, 1341, 1343, 1957(a). The scheme involved buying HUD-owned properties at a discount by using a “front” nonprofit corporation that received kickbacks. The properties were resold, with false promises that the defendants would rehabilitate the properties and find tenants. The defendants obtained the mortgages for buyers by submitting false information regarding the conditions of the properties and buyers’ assets, income, employment, and intentions to occupy the properties. A loan officer and appraisers were bribed. The judge refused to severe the trials. A jury convicted the defendants, and the judge sentenced Brunt to 151 months in prison, Farano to 108, Murphy to 72, and Scullark to 78. He ordered them all to pay restitution. The Seventh Circuit affirmed except regarding an order of restitution to refinancing lenders, which it vacated for consideration of whether the refinancing banks that are seeking restitution had based their refinancing decisions on fraudulent representations by the defendants. The court expressed concern about how long the case has taken.View "United States v. Scullark" on Justia Law

Rymtech, a mortgage reduction program, purported to provide financial assistance to homeowners facing foreclosure. Daniel, its Vice President, recruited homeowners to place their properties in the program and instructed them to sign over title to straw purchasers called “A buyers.” Homeowners were told that title would be placed in trust, that A buyers would obtain financing to pay off the mortgage, and that they would regain clear title in five years. Daniel instructed loan officers to prepare fraudulent loan applications on behalf of A buyers. Even if Rymtech had invested all of the owners’ equity, implausibly high rates of return would have been required to make the mortgage payments. The equity was actually primarily used to operate Rymtech. When its finances started to disintegrate, Daniel continued to recruit homeowners. After the program failed Daniel was convicted of wire fraud, 18 U.S.C. 1343 and mail fraud, 18 U.S.C. 1341. The Seventh Circuit affirmed, rejecting a challenge to the sufficiency of the evidence and an argument that the court erred in rejecting his proposed instruction, requiring the jury to agree unanimously on a specific fraudulent representation, pretense, promise, or act. Unanimity is only required for the existence of the scheme itself and not in regard to a specific false representation. View "United States v. Daniel" on Justia Law

As a mortgage broker, Chandler was able to falsify documents, close fraudulent loans, and judge what a house would appraise for after cosmetic work. In 2005, Causey and Rainey founded a construction company to make minimal changes to houses. They recruited real estate novices to buy houses. Chandler would fill out a mortgage application, falsifying income, down payments and other information to make the buyer a viable loan candidate. She would order appraisals, title work and pre‐approval from the lender. A “trainee” appraiser reported a greatly inflated price. Chandler gave false information to the lenders on HUD‐1 statements. Chandler made up false construction invoices for the remainder of the loan after expenses were paid. Before the participants were arrested, they had executed the mortgage scheme 25 times. Causey, the only co‐conspirator who did not plead guilty, was convicted. The Seventh Circuit affirmed, rejecting arguments that the court improperly admitted prejudicial photographs taken of the houses around the time of trial rather than at the time of the sale and evidence of a fraudulent sale that took place outside of the conspiracy. A defense witness’s testimony was properly excluded as undisclosed expert testimony. The court also upheld admission of testimony by a co-conspirator and a two‐level sentencing enhancement for being an “organizer, leader, manager, or supervisor.”View "United States v. Causey" on Justia Law

In a previous suit, an Illinois county claimed that a mortgage services company (MERSCORP) and banks doing business with it violated an Illinois statute that requires every mortgage to be recorded with the county in which the property is located. MERSCORP operates an online system for registration and assignment of mortgages by banks. Although MERSCORP becomes the mortgagee of record for purposes of recording, the assignments are not substantive. The purpose is to enable repeated assignments of the lender’s promissory note to successive holders. These assignments are not recorded in the county land registries. Only MERSCORP pays a recording fee. Subsequent “assignees” do not have a mortgage to record because they are assignees, not of the property interest that secures the homeowner’s debt, but only of the promissory note. The Seventh Circuit rejected the county’s claim that the defendants were unjustly enriched by using system to claim the valuable protection of recording, using MERSCORP as a placeholder mortgagee and a legal fiction that mortgage transfers are not assignments. The court affirmed the district court’s subsequent dismissal of a similar suit, by another county, again noting that the system is not unlawful.View "Macon Cnty v. MERSCORP, Inc." on Justia Law

IMCC loaned Harbins $60 million to buy Georgia land to construct a shopping center. In addition to a mortgage, IMCC obtained a guaranty from Chivas, providing that if IMCC “forecloses … the amount of the debt may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price.” Harbins defaulted; IMCC foreclosed in a nonjudicial proceeding, involving a public auction conducted by the sheriff after public notice. IMCC successfully bid $7 million and filed a petition to confirm the auction. Unless such a petition is granted, a mortgagee who obtains property in a nonjudicial foreclosure cannot obtain a deficiency judgment if the property is worth less than the mortgage balance owed. A Georgia court denied confirmation. Chivas refused to honor the guaranty. A district court in Chicago awarded IMCC $17 million. The Seventh Circuit affirmed, noting that the Georgia statute “is odd by modern standards,” but does not prevent a suit against a guarantor. The agreement guaranteed IMCC the difference between what it paid for the land and the unpaid balance of the loan, even if the land is worth more than what IMCC paid for it. The agreement is lawful under Georgia and Illinois law. View "Inland Mortg. Capital Corp v. Chivas Retail Partners, LLC" on Justia Law

In 1983 Bitler leased gas stations to Marathon. The Environmental Protection Agency adopted new regulations so that that underground petroleum tanks and pipes at the gas stations had to be removed, upgraded, or replaced, 40 C.F.R. 280.21(a). In 1992 the parties amended the leases to make Marathon “fully responsible for removing” the tanks and pipes, filling holes created by the removal, complying with all environmental laws, “leav[ing] the Premises in a condition reasonably useful for future commercial use,” and “replac[ing] any asphalt, concrete, or other surface, including landscaping.” Marathon agreed to return the Premises “as nearly as possible in the same condition as it was in prior to such remediation work,” and to be responsible “for any and all liability, losses, damages, costs and expenses,” and to continue paying rent. The properties can be restored as gas stations with above‐ground storage tanks, and may be suitable for other commercial outlets. After completion of the work Bitler sued Marathon, alleging breach of contract and “waste.” The Seventh Circuit vacated to waste regarding Michigan properties, with directions to double those damages. The court affirmed dismissal of some of the contract claims. It would not conform to the reasonable expectations of the parties to limit liability for waste or other misconduct by a tenant simply because a lease had to be extended for an indefinite period to allow a response to unforeseen changes. View "Bitler Inv. Venture II v. Marathon Petroleum Co. LP" on Justia Law

An asbestos survey showed that the Kankakee building contained 2,200 linear feet of asbestos‐containing insulation around pipes. The owner hired Origin Fire Protection, to modify its sprinkler system. O’Malley, who operated Origin, offered to properly remove the pipe insulation for a cash payment ($12,000) and dispose of it in a lawful landfill. O’Malley provided no written contract for the removal work, but provided a written contract for the sprinkler system. O’Malley and Origin were not licensed to remove asbestos. O’Malley hired untrained workers, who stripped dry asbestos insulation off the pipes using a circular saw and other equipment provided by O’Malley. The workers were given paint suits, simple dust masks, and respirators with missing filters. They stopped working after inhaling dust that made them sick. Asbestos insulation was packed into garbage bags and taken to abandoned properties and a store dumpster. The Illinois EPA discovered the dumping; Superfund contractors began cleanup. O’Malley attempted to mislead federal agents. O’Malley was convicted of removing, transporting, and dumping asbestos‐containing insulation. The Seventh Circuit affirmed, rejecting an argument that the government did not prove the appropriate mens rea for Clean Air Act violations. O’Malley argued that the government was required to prove that he knew that the asbestos in the building was a regulated type of asbestos. View "United States v. O'Malley" on Justia Law

If an owner of Illinois real estate does not timely pay county property taxes, the county may “sell” the property to a tax purchaser. The tax purchaser does not receive title to the property, but receives a “Certificate of Purchase” which can be used to obtain title if the delinquent taxpayer does not redeem his property within about two years. In this case, the property owner entered bankruptcy during the redemption period. The bankruptcy court held that, if there is still time to redeem, the tax purchaser’s interest is a secured claim that is treatable in bankruptcy and modifiable in a Chapter 13 plan. The district court and Seventh Circuit affirmed, first noting that the owner’s Chapter 13 plan was a success; because the tax purchaser’s interest was properly treated as a secured claim, the owner has satisfied the obligation, 11 U.S.C. 1327. Because Illinois courts call a Certificate of Purchase a lien or a species of personal property, the court rejected the purchaser’s argument that it was a future interest or an executory interest in real property. In effect, the tax sale procedure sells the county’s equitable remedy to the tax purchaser. View "Alexandrov v. LaMont" on Justia Law

Menzies, an air cargo handling business, leased CenterPoint’s 185,280-square-foot warehouse near O’Hare Airport. Another tenant used the building to store airplane parts until 2006. Under the lease, Menzies is responsible for repairing the “floor,” while CenterPoint is responsible for repairing the “foundation.” CenterPoint constructed improvements costing $1.4 million, at Menzies’ request, including increasing the number of dock doors from two to 38 and installing 45,000‐pound dock levelers. When Menzies began moving its operations into the building in November 2007, the six‐inch concrete slab did not exhibit any visible damage. By January 2009, the slab had begun to deteriorate. The damage was not consistent with typical wear and tear. The slab could not support Menzies’ equipment. CenterPoint paid $92,000 for repairs, then stopped doing so and did not submit an insurance claim. The slab is so damaged that it must be replaced, at an estimated cost of $966,000 to $1.23 million. Menzies sued CenterPoint for breach and CenterPoint counterclaimed. The district court held that neither party was entitled to recover because the slab had a “dual nature as both floor and foundation,” but “the damage at issue was related to the slab’s function as a floor.” The Seventh Circuit affirmed. View "Aeroground, Inc. v. CenterPoint Props. Trust" on Justia Law