An Accurate Legal Description is Vital to Enforce a Mortgage in Illinois

By: Lawrence J. Stark

Many lawyers in Illinois practice in the real estate area in some capacity. Lawyers may have as clients banks, title companies, mortgage lenders, surveyors, contractors, purchasers and sellers, the representation of which require various levels of real estate expertise. The typical real estate transaction usually involves the purchaser requiring a loan to be able to pay the full purchase price at the closing. Invariably, the loan is issued by a lending institution which Atakes back@ a security interest in the purchased real estate via a mortgage.

Thereafter, post closing, the mortgage document is recorded with the recorder of deeds in the county wherein the real estate is situated. It is very important to record the mortgage, because the effect of recording the mortgage is to give the world notice that as of a certain date, that particular lender has a lien on the real estate for a particular sum of money. The mortgage document is dated and signed by the borrowers and references the promissory note that is the promise to pay back the lending institution the full amount of the principal plus interest over a certain time period in specified installments. The mortgage document sets forth the common address of the mortgaged property, the so-called Aproperty index number@ and the legal description of the real estate.

In the unfortunate event that the borrower does not or cannot repay the lender, the security interest given to the lender through the mortgage allows the lender to initiate a mortgage foreclosure. If the borrower does not reinstate or redeem the mortgage, then the court can order that the property be sold and the proceeds of the sale be used to satisfy the amount due to the lender. In the mortgage foreclosure action, the lender must establish that there was a default under a promissory note secured by a valid mortgage on a particular parcel of real estate.

Many parcels of real estate are encumbered by more than one mortgage. When this happens, the usual rule is that the earlier mortgage to be recorded has seniority over later recorded mortgages, which means that when the property is sold through a foreclosure sale, the earlier mortgage is paid first from the proceeds. Therefore, it is very important to record a mortgage as soon as possible after it is executed by the borrowers. An unrecorded deed or mortgage is void and of no force or effect as against subsequent purchasers or mortgagees under the Illinois Conveyances Act. Harms v. Sprague (Ill. 1984) 105 Ill.2d 215, 473 N.E.2d 930. See also the Illinois Conveyances Act, 765 ILCS 5/30.

What is the effect if the mortgage document, although properly recorded, contains errors or omissions? Unfortunately for the secured party, such errors or omissions can be devastating for the rights of the lender, and may have the effect of making the mortgage a nullity. A deed or mortgage upon recording is notice to bonafide purchasers only so far as the premises or interest conveyed or pledged as collateral are correctly described in the mortgage or pledge. Smith v. Grubb (Ill., 1949) 402 Ill. 451, 84 N.E.2d 421. If there is a mistake in the legal description of the property in the mortgage, a purchaser without actual notice of the existence of that mortgage will take free and clear of the interest or lien created by that document. Harms v. Coryell (1898) 177 Ill.496, 59 N.E.2d 87.

A fairly recent Illinois decision held that a mortgage recorded without stating the amount of the note that was secured by the mortgage resulted in the mortgage failing to give notice to subsequent purchasers or lenders. Thus, junior mortgages could claim seniority over that prior recorded mortgage! The case law fairly uniformly supports the idea that the legal description must be accurate to give rights to the lender superior to subsequent purchasers or lien holders. Even if the property index number, the common address and the names of the lender and borrower are correct in the mortgage document, the cited cases seem to stand for the proposition that unless the subsequent lender or purchaser actually has knowledge of the prior lien, they can take free and clear of that prior lien due to the mistake in its legal description.

Common sense thus dictates that once an error or omission is discovered in the recorded mortgage, that it be corrected as soon as possible and the document re-recorded at the earliest opportunity.