US Bank Nat. Ass'n v. Villasenor (IL)

Summary: Lender was not a bona fide mortgagee without notice of another's adverse interest in the property because it had inquiry notice.

US Bank Nat. Ass'n v. Villasenor, 2012 IL App (1st) 120061.

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Facts:  Ruthie Lee Ellis (Ellis) owned the subject property from 1972, living there until 1985 when she left it with her son, Andre Ellis, followed by her grandson, Michael Ellis, who resided on the property from 2003 until 2009, and later another grandson, Martez Knox, who resided there from 2009 through the commencement of this action. In 2005, Benjamin Villasenor (Villasenor) acquired the property through fraudulent dealings with Ellis leading to a foreclosure action by Wells Fargo began against Villasenor, an action to which Ellis was an intervenor.

In 2004, Ellis learned she had unpaid real estate taxes from 2000 that were sold at a tax sale. To avoid losing the property, Ellis sought a loan to repay the taxes. She entered an agreement with Property Tax Counselors, Inc. (PTC) which Villasenor was associated, who required a warranty deed in trust to be executed, conveying title of the property to First Suburban Bank as trustee of a land trust. Ellis had no intention of giving up the property and believed she would own the property as long as she repaid the loan. She paid on the loan through 2007 and borrowed an additional sum from PTC in 2007 to pay water bills and more property taxes, making over $13,000 in payments to PTC. In October 2007, Ellis attempted to exercise her right to repurchase after satisfying her indebtedness but was unable to locate PTC after the U.S. Postal Service returned mail because PTC was no longer located at the address and left no forwarding address.

As Ellis continued making payments to PTC, Villasenor allegedly purchased the property from the First Suburban land trust and recorded the deed on August 3, 2005, though Ellis had never defaulted on the PTC loan. He then conveyed title to Wells Fargo by recording a mortgage securing a $99,000 loan. In December 2007, Villasenor defaulted on the Wells Fargo loan and Wells Fargo obtained an order of default and judgment for foreclosure when he failed to appear. Apparently before Ellis even knew she no longer owned her property, Wells Fargo purchased it at the judicial sale and the court approved the report of sale and ordered possession on April 24, 2008. Only after foreclosure and eviction notices were placed on the property from Villasenor’s default was Ellis alerted to the cloud on her title, at which time she motioned to intervene on April 28, 2008. The court granted her motioned to vacate the judgment for foreclosure and order confirming the sale which on August 7, 2008.

Sometime thereafter, Wells Fargo assigned the mortgage to US Bank, and on March 3, 2010, US Bank asserted itself as a good faith purchaser and sought summary judgment. US Bank claimed they had no actual or constructive notice of Ellis’s claim; therefore, Ellis could not defeat the bank’s priority because they had a prior recorded interest in the property. The trial court disagreed with US Bank and granted summary judgment in favor of Ellis, which US Bank appealed.


Holding:  Affirmed. The appellate court determined that US Bank could not be a bona fide purchaser because the circumstances put them on inquiry notice, and a diligent inquiry would have informed them that Ellis believed she was the owner and the transaction with PTC was fraudulent. Although US Bank had a prior recorded deed, the fact that US Bank purchased property in the possession of a third party means they took notice of whatever facts an inquiry as to the rights of such possession would lead. Existing case law holds that possession of premises by a landlord through tenant(s) is sufficient to provide notice to a buyer of the landlord’s rights in that property.

When US Bank conducted appraisals on the property, they did so with Michael Ellis present and currently residing in the dwelling as Ellis’ tenant. The court stated, “had US Bank, or their appraisers, dutifully inquired of Michael, he surely would have responded the he rented the property from his grandmother, Ellis, who was the owner of the home. Then US Bank would have searched the chain of title further to find the recorded conveyance with inadequate consideration. These facts in tandem would have led US Bank to learn of Ellis’s interest and PTC’s misrepresentation and fraud.” Regardless of whether an inquiry is actually carried out, the laws impute notice on the subsequent purchaser. The court further noted that “evidence of possession includes making improvements to the property, posting signs on the property, and possession of the property by a tenant of the person claiming possession.”

Opinion Year: 
By: ATG Underwriting Department | Posted on: Thu, 01/10/2013 - 9:20am