Bank of America, N.A. v. Cannonball LLC (IL)
Summary: Tax reimbursement and lien rights on real estate constitute covenants that run with the land, if the parties so intend, and cannot be extinguished by subsequent mortgage foreclosure.
Bank of America, N.A. v. Cannonball LLC, 2014 IL App (2d) 130858.
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Facts: In 2007, Cannonball LLC entered into various agreements to develop a shopping center. One was a construction loan agreement with LaSalle Bank, which merged with Bank of America (BOA), in order to obtain financing to purchase the real estate and construct the shopping center. In addition to BOA's financial support to Cannonball, the city where the shopping center was being built sold bonds to assist in the development of the shopping center. In order to recover on its assistance, the city imposed a special tax on the tracts of land within the shopping center.
Subsequently, Cannonball entered into a purchase agreement with Home Depot in which Home Depot agreed to purchase approximately ten half-acres of land in the shopping center from Cannonball and in return, Cannonball would reimburse Home Depot for part of the special taxes that Home Depot paid. The agreement included language that Cannonball’s failure to reimburse a part of the special taxes would constitute a lien in favor of Home Depot and should run with the land.
In mid-2007, Cannonball, Home Depot and BOA entered into a payment and priority agreement which insulated BOA from any obligation to the city or Home Depot in case of default. Then, all the aforementioned agreements were recorded on the same day with the county recorder. Cannonball eventually defaulted and BOA moved for summary judgment in foreclosure and filed a complaint against Home Depot alleging their lien was inferior to the mortgage and therefore subordinated. The trial court ruled in BOA’s favor.
Holding: Reverse and Remanded. On appeal, the appellate court found that the trial courted erred in granting summary judgment for BOA. First, the agreement between Home Depot and Cannonball ran with the land because both parties intended the covenants in the lending agreement to touch and concern the land and privity of estate existed. Second, the court denied BOA’s argument that their subordination rights during a foreclosure extinguished all liens on the foreclosed property. The court held this because the document containing the tax reimbursement and lien rights of Home Depot were recorded on the same day but before the mortgage, and BOA had knowledge of the other agreements. Last, the court denied BOA’s argument that language in the agreements between Home Depot and Cannonball was indicative that Home Depot subordinated its lien rights to BOA. They reasoned that the agreements on their face did not contain any language or phrases that suggested Home Depot extinguished its tax reimbursement or lien rights.
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