Applegate Apartments Ltd. Partnership v. Commercial Coin Laundry Systems

Page 1172

657 N.E.2d 1172

276 Ill.App.3d 433, 212 Ill.Dec. 827

APPLEGATE APARTMENTS LIMITED PARTNERSHIP, Plaintiff-Appellant, v. COMMERCIAL COIN LAUNDRY SYSTEMS, Defendant-Appellee/Cross-Appellant.

No. 1-94-2492.

Appellate Court of Illinois First District, Sixth Division.

Nov. 17, 1995.

Steven M. Ruffalo and Robert F. Fuchs of Fuchs & Roselli, Ltd., Chicago, for appellant.

August A. Pilati and Kenneth A. Fedinets of Gesas, Pilati and Gesas, Ltd., Chicago, and Russell G. Winick and Susan A. Ayres of Schultz & Winick, P.C., Chicago, for appellee.

Justice EGAN delivered the opinion of the court:

The issue in this case is the quality of notice required to be given to a tenant in possession by a mortgagee in a consent mortgage foreclosure proceeding.

The mortgagee is Home Savings of America (Home Savings), who sold the foreclosed property to the plaintiff, Applegate Apartments, which subsequently filed an action for forcible entry and detainer against the defendant, Commercial Coin Laundry Systems, a tenant of the mortgagor under a written lease. The trial judge granted summary judgment to the defendant and denied the plaintiff's motion for summary judgment. He also entered an order fixing the rate of rent the defendant was to pay under the lease. The plaintiff appeals from the orders granting the defendant's motion for summary judgment and denying its own motion for summary judgment. The defendant cross-appeals from the order fixing its rent.

On or about June 16, 1986, a mortgage was executed by Chicago Title & Trust Company, as trustee under a land trust, and Home Savings, as lender, for the property consisting of 192 apartments, commonly known as Applegate Apartments, located at 60 East Beech Drive, Schaumburg, Illinois. (It is now known as Beech Pointe Apartments.) The amount of the mortgage was 5.7 million dollars. An assignment of rents was also entered into between the mortgagor, as assignor, and the mortgagee, as assignee. The mortgagee recorded its mortgage and assignment of rents with the Cook County Registrar of Titles on or about July 8, 1986.

On or about June 7, 1988, a laundry room lease was executed by the defendant, as lessee, and Investors Realty Services, Inc., the mortgagor's authorized agent, as lessor. The laundry rooms and facilities were leased to the defendant for a period of five years. Pursuant to the lease, the defendant installed laundry equipment on the premises on October 1, 1988, and has operated that equipment since that time. The defendant did not record its lease with the Registrar of Titles. The mortgagee did not consent to the execution of the lease; the mortgage did not require the mortgagee's consent.

Under the terms of a rider to the lease, the 5-year lease would be expanded to an additional 10 years, unless the lessee gave notice 60 days before the expiration of the 5-year term of its intention not to extend the lease. Both the lessee and lessor could terminate the lease after the extended term began subject to certain time limitations. The rider provided that the lessor would pay rent in the sum of 55% of the receipts from the lessees' coin-operated equipment. The rider was to terminate "upon change of ownership or change of management or change of management company or sale of property or transfer or assignment of this lease." If the rider was terminated, the rent would revert to the terms of the lease itself, which provided for rent in the sum of 15% of the coin receipts.

The defendant installed laundry equipment which was identified as the defendant's property through attached labels. The labels also provided the defendant's telephone number. Identical information was displayed on several signs in the laundry facility; the signs measured 14 1/2 inches by 10 3/4 inches and were posted shortly after the commencement of the lease.

On March 6, 1992, the mortgagee filed a complaint for foreclosure in the Circuit Court of Cook County alleging an indebtedness of almost 6.2 million dollars, including an unpaid principal balance of almost 5.6 million dollars. On March 10, the mortgagee recorded its lis pendens notice with the Registrar of Titles. On April 29, 1992, a judgment of consent foreclosure was entered which vested absolute title to the property in the mortgagee. The judgment also provided that the mortgagor would not be liable for any deficiency judgment.

The defendant was not named in the complaint and did not appear in the foreclosure action. The complaint and the judgment of foreclosure did not identify the defendant's leasehold interest as one to be terminated in the foreclosure proceedings. The mortgagee filed its affidavit for service by publication as to all non-record claimants and unknown owners who were served by publication. The affidavit, which was on a Circuit Court of Cook County form, was signed by the attorney for the mortgagee and alleged "on information and belief [the non-record claimants and unknown owners] cannot be found so that process cannot be served upon defendant [sic]." The words, "on due inquiry," were crossed-out and the words, "upon information and belief," were substituted. The affidavit further alleged that the places of residence of the non-record claimants and unknown owners "cannot be ascertained and his [sic] last known place of residence is unknown." The words, "upon diligent inquiry," were crossed-out.

On May 20, 1992, 20 days after the entry of the judgment of consent foreclosure, the mortgagee's agent, Draper and Kramer, Inc., sent a letter of introduction to the defendant which made no mention of the foreclosure action, but it informed the defendant that Draper and Kramer was the new management company for the property. After being notified of the change in management, the defendant reduced its rental payments from 55% to 15% of the gross coin receipts generated by the laundry operation, pursuant to the terms of the rider to the lease.

In December 1992, the mortgagee, Home Savings, sold its interest in the property to a land trust of which the plaintiff is the beneficiary. The mortgagee sent the defendant a letter dated December 18, 1992, stating:

"Since the time that Home Savings of America entered upon and took exclusive possession of the Property pursuant to its Mortgage, Home Savings of America has neither accepted any rent payment from Commercial [the defendant] nor recognized Commercial as a tenant under the existing lease.

Therefore, the lease and your rights to possession are deemed void and terminated. We further demand that you immediately vacate possession of the premises occupied by you at the above-referenced Property."

The defendant responded by letter dated January 5, 1993, refusing to relinquish possession and asserting the continuing validity and enforceability of the lease. On January 11, the plaintiff filed its complaint for possession under the Forcible Entry and Detainer Act. 735 ILCS 5/9-101 et seq. (West 1992).

The defendant filed its appearance and later filed a motion for summary judgment asserting that, because the mortgagee failed to make the defendant a party to the foreclosure, the defendant had no actual notice of the proceedings, and therefore the proceedings did not become binding upon the plaintiff even though the lease was subordinate to the mortgage. The plaintiff then filed its cross-motion for summary judgment with supporting affidavits, stating that in the absence of any agreement between either the defendant and the plaintiff or the mortgagee, the defendant's junior lease was unenforceable against the mortgagee and, therefore, against the plaintiff.

The judge subsequently entered an order granting summary judgment to the defendant. The plaintiff then filed a motion to reconsider and raised, for the first time, the issue of the lis pendens notice recorded by the mortgagee. The judge denied the plaintiff's motion to reconsider and allowed the parties to file briefs on the question of the amount of rent due under the lease. The judge subsequently entered an order fixing the rent due at 55% of gross revenues and rejected the defendant's argument that the rent should have been restricted to 15% of gross revenues.

The parties have exhaustively briefed and argued this case both in the trial court and in this court and have cited many cases. Although we appreciate the industry and scholarship of the attorneys, we deem some of the arguments irrelevant. One example is the argument over whether, under present Illinois law, a mortgagee's interest is an interest in title or a lien interest. (Compare Kelley/Lehr & Associates, Inc. v. O'Brien (1990), 194 Ill.App.3d 380, 141 Ill.Dec. 426, 551 N.E.2d 419, with Silverstein v. Schak (1982), 107 Ill.App.3d 641, 63 Ill.Dec. 370, 437 N.E.2d 1292.) Another example is the argument over whether the Illinois Mortgage Foreclosure Law (the Act) (735 ILCS 5/15-1101 et seq. (West 1992)) is but a codification, or is a radical departure from, the existing common law. We have determined that this case depends upon our interpretation of the Act, but that we may consider cases decided before the Act was adopted in 1987 in making our interpretation. As an academic matter, we note that the Act does contain some modifications of the common law.

At this point we turn to the plaintiff's argument that under the Act a tenant in possession is not a necessary party. In support of that argument, the plaintiff refers to the language of section 15-1501(a). (735 ILCS 5/15-1501(a) (West 1992).) We agree that, under the express terms of section 15-1501(a), only the mortgagor and other persons who owe on indebtedness or obligations secured by the mortgage and against whom personal liability is asserted are necessary parties. That section further provides that the "court may proceed to adjudicate their respective interests, but any disposition of the mortgaged real estate shall be subject to (i) the interest of all other persons not made a party or (ii)...