BMO Harris Bank N.A. v. Joe Contarino, Inc.
2017 IL App (2d) 160371
| Ill. App. Ct. | 2017Background
- BMO Harris obtained a $1.57M judgment against Joe Contarino, Inc. (JCI) and Joe Contarino and initiated supplementary proceedings (citations to discover assets) against JCI and Briargate Management LLC, which collected rents on JCI rental properties.
- Midwest, Rockford Bank & Trust, and Byron (Adverse Claimants) intervened asserting prior recorded assignment-of-rents clauses in their mortgages and subsequent forbearance agreements directing Briargate to remit rents directly to them.
- The trial court found the Adverse Claimants’ recorded assignments and preexisting forbearance/direct-payment arrangements gave them priority over BMO’s later citation liens; it relied on 765 ILCS 5/31.5 and alternative common-law principles requiring a judgment creditor to obtain possession or a receiver to supplant a mortgagee’s rent claim.
- BMO appealed, arguing (1) §31.5 did not supersede Comerica (which requires court authorization/possession to enforce an assignment of rents), (2) rents were commingled when collected and thus the assignments evaporated, and (3) Adverse Claimants had not proved up their claims (Rockford had completed a consent foreclosure).
- The appellate court affirmed: §31.5 perfects assignments upon recordation and, where parties contract otherwise (e.g., forbearance/direct-payment/lockbox arrangements), the assignee’s enforcement under that agreement can defeat later citation liens; commingling and consent-foreclosure arguments did not defeat the recorded/enforced assignments.
Issues
| Issue | Plaintiff's Argument (BMO) | Defendant's Argument (Adverse Claimants) | Held |
|---|---|---|---|
| Whether §31.5 displaced Comerica’s rule requiring court authorization/possession to enforce an assignment of rents | §31.5 concerns perfection only; Comerica still controls enforcement — a lender must obtain possession or a receiver to collect rents | §31.5 perfects assignments by recordation and subsection (d) allows parties to agree to enforce assignments other than by court possession (e.g., lockbox/forbearance) | Held: §31.5 governs; recordation perfects priority and parties may agree to alternative enforcement (forbearance/direct-payment) that defeats later citation liens |
| Whether Briargate’s collection and deposit of rents commingled funds and destroyed Adverse Claimants’ lien | Rents were paid into Briargate/JCI accounts, so the security interest evaporated when rents became debtor cash | Forbearance + management agreement and assignment provisions made Briargate act as agent/lockbox for lenders; §31.5(e) preserves priority even if assignor collects rents | Held: no evaporated lien — direct-payment/agency arrangement enforced assignments; commingling did not defeat perfected assignments |
| Effect of Rockford’s consent foreclosure on its lien to rents (prove-up) | Consent foreclosure satisfied debt and eliminated Rockford’s claim to rents; Adverse Claimants must prove indebtedness and remaining lien | An express pledge of rents survives foreclosure/merger; recorded assignment and prior enforcement preserved the rent interest | Held: foreclosure did not extinguish Rockford’s pledge of rents; prove-up not required where existence of forbearance/assignment was undisputed |
| Whether BMO’s citation to discover assets attached to rents held by Briargate | Citation perfected a lien on debtor assets upon service and thus BMO has priority over subsequent claims to collected rents | Citation reaches only assets in the debtor’s possession/control; where assignee enforced recorded assignment via direct-payment, rents were not JCI property and citation could not attach | Held: citation could not reach rents already controlled/transmitted under perfected and enforced assignments; BMO’s lien did not trump prior enforcement |
Key Cases Cited
- Comerica Bank-Illinois v. Harris Bank Hinsdale, 284 Ill. App. 3d 1030 (Ill. App. Ct.) (assignment-of-rents unenforceable absent actual or court-authorized constructive possession)
- Wheaton Oaks Office Partners Ltd. P’ship v. Alanis, 27 F.3d 1234 (7th Cir.) (assignment creates lien but lender must obtain possession or receiver to enforce post-default rents)
- Fidelity Mutual Life Ins. Co. v. Harris Trust & Sav. Bank, 71 F.3d 1306 (7th Cir.) (explains lien-theory limits on rent collection absent possession; distinguishes indemnity arrangements)
- West Bend Mut. Ins. Co. v. Belmont State Corp., 712 F.3d 1030 (7th Cir.) (lockbox/direct-payment or third-party possession can constitute enforcement of an assignment and preserve priority)
- In re J.D. Monarch Dev. Co., 153 B.R. 829 (Bankr. S.D. Ill.) (assignment of rents is perfected by recordation but enforcement requires possession or receiver absent agreement)
- In re Randall Plaza Ctr. Assocs., L.P., 326 B.R. 133 (Bankr. N.D. Ill.) (express pledge of rents survives foreclosure and merger of title and debt)