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October 2010 Vol. 3, No. 8
 

Casenotes

Illinois

Mortgages; Subrogation

LaSalle Bank Nat.Ass'n v Cypress Creek 1, LP, 398 Ill App 3d 592, 925 NE2d 233, 338 Ill Dec 736 (3rd D, 2010).

Facts:LaSalle Bank National Association (LaSalle) made a loan to Cypress Creek, LLP (Cypress Creek). The $8,018,151 loan, intended to develop a 13-acre parcel of land into apartments, was secured by a mortgage and security agreement. The mortgaged was recorded on June 13, 2003. A series of agreements were then entered into by Cypress Creek with contractors for concrete, carpentry, plumbing, etc.

Cypress Creek defaulted on the mortgage in June 2005, and LaSalle filed a complaint to foreclose. Several contractors, including Eagle Concrete and Edon Construction, filed and recorded mechanic's liens through late 2005 and early 2006, following the initial complaint seeking foreclosure. A judgment of foreclosure was entered in April 2006, finding that the balance due on LaSalle's mortgage was $8,621,110.

A trial followed in 2007 attempting to resolve the issue of priority between the mechanics' lien claimants and LaSalle. LaSalle testified that it had paid $1,587,765 in construction and development costs and that it therefore deserved to be subrogated in that amount. The trial court agreed and granted LaSalle Bank $471,614 of the $1.3 million in proceeds from the sheriff's sale. The mechanic's claimants were all granted recovery in proportion to the value of their improvements to the property. Eagle Concrete and Edon Construction appealed. LaSalle cross-appealed the trial court's decision not to prioritize its attorney's fees.

Holding:Affirmed in part, reversed in part, remanded for further proceedings. Edon Construction and Eagle Concrete appealed on two grounds. Firstly, they claimed that the trial court erroneously concluded that they were not entitled to full satisfaction of their liens over the mortgage. The appellate court disagreed concluding that, because the Edon Construction and Eagle Concrete contracts were executed after the recording of the mortgage, the mechanics' liens were only preferred as to the value of the improvements as compared to the value of the land. The appellate court therefore affirmed the trial court's decision on this issue.

Edon Construction and Eagle Concrete also argued that the trial court had incorrectly subrogated LaSalle to the position of mechanics' lien claimant as to the $1.5 million that LaSalle spent on construction and development costs. The appellate court concluded that the fact that LaSalle made payments to contractors who enhanced the value of the property does not put it in the same legal position as one who made the actual improvements. What prevented LaSalle from inheriting the lien position of the contractors it had paid directly was the fact that none of those contractors had perfected liens.

The appellate court concluded that LaSalle could be subrogated only to the one perfected lien it had paid off, in the amount of $30,202. The appellate court further decided that the language of the mortgage and of the Illinois Code required that LaSalle attorneys' fees, incurred in foreclosing the mortgage, be prioritized over the mechanics' liens. The court therefore reversed the rulings regarding subrogation and attorney's fees, and remanded the case to the trial court for a redivision of the proceeeds of the sheriff's sale.

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