BMO Harris Bank N.A. v. Joe Contarino, Inc.
2017 IL App (2d) 160371
| Ill. App. Ct. | 2017Background
- BMO Harris obtained a $1.569M 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 properties.
- Three banks (Midwest, Rockford, Byron) intervened claiming priority to rents via recorded assignment-of-rents provisions in mortgages and subsequent forbearance agreements directing Briargate to pay rents directly to them.
- The trial court held the adverse-claimant banks had superior rights to the rents, relying on 765 ILCS 5/31.5 (Conveyances Act §31.5) and, alternatively, on common-law principles requiring a junior lienholder to obtain possession or a receiver to displace a senior rent assignee.
- BMO appealed, arguing (1) §31.5 governs perfection not enforcement and cannot displace the rents-and-profits doctrine in Comerica; (2) the banks lacked court-authorized possession so their assignments couldn’t reach collected rents; (3) any lien evaporated when Briargate collected and commingled rents; and (4) banks had not proved up indebtedness given a consent foreclosure.
- The appellate court affirmed: it read §31.5 to permit enforcement by contract (e.g., lockbox/forbearance) that makes recorded assignments superior to later-arising citation liens and held the forbearance/direct-payment arrangements here valid and beyond reach of BMO’s citation.
Issues
| Issue | Plaintiff's Argument (BMO) | Defendant's Argument (Banks/JCI/Briargate) | Held |
|---|---|---|---|
| Whether a recorded assignment of rents enforced by preexisting forbearance/direct-payment agreements is subordinate to a later judgment-creditor citation | §31.5 only perfects assignments; enforcement still requires possession or court authorization, so BMO’s citation (perfected judgment lien) reaches collected rents | §31.5 perfects assignment upon recordation and §31.5(d)/(e) allows parties to agree to enforce assignments otherwise (e.g., lockbox/forbearance), placing banks ahead of later citations | Banks’ recorded assignments, enforced via preexisting forbearance/direct-payment agreements, have priority over BMO’s later citation lien under §31.5 and related principles |
| Whether common-law rents-and-profits doctrine (Comerica) prevents collection by assignee absent judicial possession/receiver | Comerica remains controlling; assignments do not entitle collection absent actual or court-authorized constructive possession | §31.5 and parties’ agreements (lockbox/forbearance) authorize enforcement without court possession; agreements account for expenses and burdens, satisfying Comerica’s policy concerns | §31.5 and the parties’ direct-payment agreements permit enforcement without court possession; Comerica does not control where parties contract otherwise |
| Whether collected rents lost priority by being deposited/commingled by Briargate | Once Briargate collected and commingled rents, banks’ lien evaporated and BMO’s citation attaches to funds | Briargate acted pursuant to assignments/forbearance as agent; funds were directed to banks (or lockbox) so lien survived; §31.5(e) preserves priority even if assignor collects | Priority survived; commingling argument fails because funds were collected and directed per enforceable agreements and §31.5 protects priority |
| Whether banks needed to "prove up" amounts or lost lien via consent foreclosure | Banks must prove indebtedness and lien; Rockford’s consent foreclosure extinguished debt and thus any lien to rents | Foreclosure does not extinguish an express pledge of rents; consent foreclosure did not waive banks’ rent lien | Trial court correctly refused to require additional "prove-up"; foreclosure did not extinguish the pledge of rents |
Key Cases Cited
- Comerica Bank-Illinois v. Harris Bank Hinsdale, 284 Ill. App. 3d 1030 (Ill. App. Ct.) (assignment-of-rents enforceable only after actual or court-authorized constructive possession)
- In re Wheaton Oaks Office Partners Ltd. Partnership, 27 F.3d 1234 (7th Cir.) (mortgagee needs possession or receiver to collect rents under assignment)
- Fidelity Mutual Life Ins. Co. v. Harris Trust & Savings Bank, 71 F.3d 1306 (7th Cir.) (discussion of lien-theory states and limits on mortgagee’s right to rents without possession)
- West Bend Mutual Ins. Co. v. Belmont State Corp., 712 F.3d 1030 (7th Cir.) (lockbox/direct-payment arrangements can constitute enforcement of assignment and preserve assignee priority)
- In re J.D. Monarch Dev. Co., 153 B.R. 829 (Bankr. S.D. Ill.) (assignment of rents perfected by recordation but enforcement requires steps to obtain possession or receiver)
- In re Randall Plaza Ctr. Assocs., L.P., 326 B.R. 133 (Bankr. N.D. Ill.) (foreclosure sale merging title and debt does not extinguish an express pledge of rents)