BMO Harris Bank N.A. v. Joe Contarino, Inc.

2017 IL App (2d) 160371

• Court: Appellate Court of Illinois
• Decided: March 27, 2017
• Docket: 2-16-0371
• Status: Unpublished

Opinion

2017 IL App (2d) 160371

No. 2-16-0371

Opinion filed March 23, 2017

______________________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT ______________________________________________________________________________

BMO HARRIS BANK N.A., f/k/a Harris N.A., ) Appeal from the Circuit Court

as Assignee of the Federal Deposit Insurance) of Winnebago County.

Corporation, as Receiver for Amcore Bank, )

N.A., )

)

Plaintiff-Appellant, )

v. ) No. 13-CH-1148 )

JOE CONTARINO, INC., d/b/a Contry )

Homes of Illinois, JOE CONTARINO, )

UNKNOWN OWNERS, and NONRECORD )

CLAIMANTS, )

Defendants )

) (Joe Contarino, Inc., d/b/a Contry Homes of ) Illinois, and Joe Contarino, Defendants- ) Appellees; Midwest Community Bank, ) Honorable Rockford Bank & Trust, and Byron Bank, ) Ronald A. Barch, Intervenors-Appellees). ) Judge, Presiding. ______________________________________________________________________________

JUSTICE JORGENSEN delivered the judgment of the court, with opinion. Justices McLaren and Burke concurred in the judgment and opinion.

OPINION

¶1 Plaintiff, BMO Harris Bank N.A., f/k/a Harris N.A., as assignee of the Federal Deposit

Insurance Corporation, as receiver for Amcore Bank, N.A., filed a mortgage-foreclosure

complaint against defendants, Joe Contarino, Inc., d/b/a Contry Homes of Illinois (JCI), Joe 2017 IL App (2d) 160371

Contarino, unknown owners, and nonrecord claimants. BMO obtained a $1.5 million judgment

against JCI and Contarino. As relevant here, in supplementary proceedings, BMO caused the

issuance of a citation to discover assets to JCI (JCI citation) and, subsequently, a third-party

citation to discover assets to Briargate Management LLC (Briargate citation), a property

management company that collected rents for the JCI properties. Midwest Community Bank

(Midwest), Rockford Bank & Trust (Rockford), and Byron Bank (Byron) (collectively Adverse

Claimants) sought to intervene in the supplementary proceedings, to assert adverse claims on

rents Briargate held. They claimed that their interests in the rents (via assignment-of-rents

provisions in their mortgages on JCI properties and separate forbearance agreements) were

superior to any interest BMO had by virtue of the JCI and Briargate citations.

¶2 The trial court ruled in Adverse Claimants’ favor and against BMO, finding that BMO

did not have priority as to the rents. Specifically, the court found, pursuant to section 31.5 of the

Conveyances Act (765 ILCS 5/31.5 (West 2014)), that rental agreements such as the forbearance

agreements here are beyond the reach of a third party such as BMO. BMO appeals. We affirm.

¶3 I. BACKGROUND

¶4 Contarino was sole owner and president of JCI. JCI’s assets included several income

properties that were managed by Briargate, which was owned by Contarino’s wife. Briargate

collected rents for the properties and transferred them to JCI.

¶5 On August 27, 2013, BMO filed a complaint against defendants, seeking to foreclose on

four mortgages on several lots in subdivisions in Rockford, Roscoe, and Machesney Park. The

complaint also included counts alleging breach of a promissory note (executed by JCI) and

breach of a guaranty (by Contarino). On April 11, 2014, the trial court entered foreclosure

judgments. On August 27, 2014, the trial court entered judgment in BMO’s favor and against

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JCI and Contarino in the amount of $1,569,610.45 each. It also confirmed sales of the lots and

issued orders of possession.

¶6 On November 7, 2014, BMO initiated supplementary proceedings to enforce the

judgment and filed the JCI citation. The citation was served on JCI on November 20, 2014, and

was subsequently extended several times. See Ill. S. Ct. R. 277(f) (eff. Jan. 4, 2013) (citation

automatically terminates six months from the date of the respondent’s personal appearance or

upon expiration of extensions entered “as justice may require”).

¶7 On August 20, 2015, BMO filed the Briargate citation, and Briargate was served on

August 28, 2015.

¶8 In its response, Briargate asserted that it did not hold any JCI assets and that it was a

mere management agent and conduit for Adverse Claimants, secured lenders that were entitled to

the rents. Subsequently, Adverse Claimants moved to intervene to assert their adverse claims,

based on rent-assignment agreements that predated BMO’s citations.

¶9 First, on September 29, 2015, Midwest moved to intervene in the supplementary

proceedings, to assert an adverse claim to certain rents held by Briargate. 735 ILCS 5/2-1402(g)

(West 2014). Midwest argued that, on September 15, 2015, it had filed a complaint in Boone

County to foreclose its mortgage (which was recorded on October 7, 2010, and contained an

assignment-of-rents clause) on real property at 413 Old Orchard Lane in Poplar Grove. In that

action, it had asserted that it was entitled to possession of the property for the purpose of

collecting rents. The trial court granted the motion to intervene on October 1, 2015, and, further,

gave Byron and Rockford seven days to file their claims. 1 Subsequently, as noted below,

Midwest asserted that, pursuant to a December 2014 forbearance agreement between it, JCI, and

1 Midwest filed its own responsive brief in this appeal.

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Briargate, Briargate began transmitting directly to Midwest the rents on the JCI-owned

properties subject to Midwest’s mortgages.

¶ 10 Second, on October 8, 2015, Byron moved to intervene, to assert an adverse claim on

rents Briargate held. Byron asserted that it had a superior interest in the rents by reason of its

mortgages (containing assignment-of-rents clauses) on JCI-owned properties and by reason of a

December 2014 forbearance agreement between Byron, JCI, and Briargate, according to which,

beginning December 1, 2014, Briargate began transmitting the rents on those JCI-owned

properties directly to Byron.

¶ 11 Third, also on October 8, Rockford moved to intervene, to assert an adverse claim on

rents held by Briargate, similarly arguing that its interest was superior by reason of its mortgages

on JCI-owned properties and by reason of an August 20, 2013, forbearance agreement between

it, JCI, and Briargate, according to which Briargate began transmitting the rents on those

properties directly to Rockford. 2

¶ 12 A. Trial Court Orders

¶ 13 On December 16, 2015, a hearing commenced on the adverse claims. On January 13,

2016, the trial court issued its memorandum of decision and order with respect to the Briargate

funds.

¶ 14 As to Rockford, the trial court rejected BMO’s claim that Briargate’s transmittal of rents

directly to Rockford violated the restraining component of the JCI and Briargate citations. It

found that the forbearance agreement between JCI, Briargate, and Rockford was an enforceable

contract modification that predated BMO’s judgment and the JCI and Briargate citations. The

court noted that, prior to BMO’s judgment, Rockford enjoyed the benefits of secured contract

2 Byron and Rockford jointly filed a responsive brief in this appeal.

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rights, including the right to foreclose on JCI properties in the event of a default. In 2013, rather

than pursue foreclosure, Rockford entered into a separate agreement—the forbearance

agreement—that contractually obligated Briargate to transmit rents from JCI properties directly

to Rockford. Rockford, the court found, forwent its right to foreclose and/or pursue receivership,

and JCI contracted away its right to receive rents on the properties implicated by the mortgages.

The court noted that the forbearance agreement did not run afoul of the rents-and-profit doctrine,

because the contract dictated that all management expenses were to be deducted before any net

rents were transmitted to Rockford. See Comerica Bank-Illinois v. Harris Bank Hinsdale, 284

Ill. App. 3d 1030, 1034-35 (1996) (rent assignment unenforceable absent actual or constructive

possession by lender, the latter of which must include court authorization; public policy seeks to

prevent mortgagee from leaving the mortgagor and tenants without resources for maintenance or

repair). Finally, the court rejected BMO’s assertion that the forbearance agreement violated the

restraining provisions of the JCI and Briargate citations, distinguishing case law BMO cited that

addressed rent assignments. See Comerica, 284 Ill. App. 3d at 1034-35; In re Wheaton Oaks

Office Partners Limited Partnership, 27 F.3d 1234, 1241, 1245 (7th Cir. 1994) (lender seeking to

enforce rent assignment will usually have to obtain preforeclosure possession by being placed in

actual possession or through appointment of receiver; mortgagee must take certain steps to

enforce lien; “failure to enforce an assignment of rents does not destroy the legal existence of an

effective, enforceable security interest in those rents which came into being upon execution and

was perfected upon recordation”); In re J.D. Monarch Development Co., 153 B.R. 829 (Bankr.

S.D. Ill. 1993) (lender seeking to enforce rent assignment must first pursue debtor-in-possession

status).

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¶ 15 Turning to Byron, the trial court overruled Briargate’s objection to document discovery

concerning rents it transmitted to Byron. The court determined that Byron’s adverse claim

reflected that its forbearance agreement with JCI was executed on December 1, 2014. The JCI

citation was filed on November 7, 2014, and JCI appeared of record no later than November 24,

2014. Thus, the forbearance agreement was executed after the JCI citation’s restraining

provision came into effect. The court ordered Briargate to supplement its citation production to

include records of all rent transmittals to Byron.

¶ 16 As to Midwest Bank, the trial court reserved ruling on Briargate’s objection to document

discovery concerning rental payments it transmitted to Midwest. The court noted that it was not

clear whether the forbearance agreement between JCI and Midwest was executed before or after

BMO filed the JCI citation. It directed JCI, Briargate, and Midwest to furnish to BMO all

documentation concerning the execution date of the forbearance agreement and directed

Briargate to supplement its citation production to include records of all rent transmittals to

Midwest.

¶ 17 Finally, the court overruled Briargate’s objection that the Briargate citation was untimely

under the six-month, automatic-termination provision in Rule 277(f).

¶ 18 B. Ruling on BMO’s Motion to Clarify and Reconsider

¶ 19 On February 12, 2016, BMO moved to clarify and reconsider, arguing that the court

misapprehended the facts. Specifically, it argued that: (1) as to Rockford, the court was mistaken

as to the timing of the receipt of funds, as BMO was the only party with a lien on the funds

currently held by Briargate; (2) as to Rockford, the court misstated the law in holding that a

forbearance agreement (which, BMO claimed, gives rise only to a contractual claim, not a lien,

on collected rents) takes priority over a lien right; and (3) as to Rockford, even if Rockford’s

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claim was superior to BMO’s claim, the forbearance obligations were never proved up and JCI

might not owe Rockford any funds, due to a subsequent consent foreclosure judgment.

¶ 20 On March 16, 2016, JCI and Briargate filed a response to BMO’s motion, noting that

section 31.5 of the Conveyances Act, which was enacted in 1996 (i.e., after BMO’s proffered

cases were decided), controlled the issue of priority between Adverse Claimants and BMO.

Specifically, they argued, the statute dictated that Adverse Claimants were entitled to the rents at

every juncture of the case, including postjudgment and postcitations, because Adverse Claimants

exercised their rights to collect the rents. JCI and Briargate argued that the issue was not about

priorities between forbearance agreements and citation liens. In their view, any agreement by

which a bank enforced a recorded assignment of rents trumped a citation lien. That is, so long as

Adverse Claimants established that they had recorded assignments of rents and then directed the

rents to be paid pursuant to the assignments, Adverse Claimants had priority over BMO. See

West Bend Mutual Insurance Co. v. Belmont State Corp., 712 F.3d 1030, 1034-35 (7th Cir. 2013)

(reviewing Illinois law and noting that a lockbox arrangement or other direct payment system

constitutes sufficient enforcement of an assignment of rents). JCI and Briargate also asserted

that a claim by BMO for rents due to Adverse Claimants could have arisen only if BMO had

sought a turnover order for the rents or sought its own receiver. Had it done so, they argued,

BMO’s claim would have jumped ahead until Adverse Claimants asserted their assignments.

¶ 21 In its response, Rockford relied on the Conveyances Act, as did Midwest (in its separate

response), which also noted that it had provided to BMO the court-ordered documentation. 3 As

3 Midwest asserted that, starting in December 2014, principal and interest payments were

paid directly to Midwest. After the Briargate citation (on August 20, 2015), the September

payment was placed on hold pending a court hearing. At a September 29, 2015, hearing,

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to lien priority, Midwest argued that, when it set up the direct-payment system, it was asserting

its rent assignment. At that time, BMO had not sought a turnover of any of the rents and,

therefore, Midwest’s lien was superior to BMO’s, because Midwest asserted its rights to the rents

before BMO perfected the citation lien. According to Midwest, since the recorded mortgage and

rent assignment gave it priority over a third party such as BMO, Midwest’s interest in the rents

was prior in both right and time to any claim by BMO based upon the citations. Midwest

requested that the court find that BMO had no right to the rents due to Midwest.

¶ 22 On April 21, 2016, the trial court issued a written order, denying the motion to clarify and

reconsider and finding that Adverse Claimants held liens superior to BMO’s. The court noted

that it previously addressed the cases upon which BMO relied. It also noted that there was no

authority addressing the effect of a citation lien on a previously executed forbearance agreement.

The court reiterated its previous finding that the forbearance agreements “were legally

enforceable contractual agreements manifestly distinct from the assignments of rent agreements

at issue in the cases relied upon by BMO.” As to the prove-up issue, the court rejected it, noting

that the existence of the forbearance agreements was not disputed and that BMO had cited no

authority in support of its argument, which it asserted for the first time in its motion to clarify

and reconsider. Further, case law instructed that “an express pledge of rents is not extinguished

by a foreclosure sale which merges the title and the debt in the same party.” In re Randall Plaza

Center Associates, L.P., 326 B.R. 133, 141 (Bankr. N.D. Ill. 2005). Accordingly, the court

denied BMO’s motion to clarify and reconsider.

Midwest asserted, Midwest was placed in possession and it demanded (and was given) the

September payment.

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¶ 23 The court granted JCI and Briargate’s request for clarification, finding that section 31.5

was added to the Conveyances Act in 1996 to address the holdings in Wheaton Oaks, J.D.

Monarch, and Comerica. According to the court, those cases held that a lender may not collect

rents directly under a rent-assignment agreement until the lender has first attained mortgagee-in­

possession status or secured the appointment of a receiver. Section 31.5, the court determined,

declares that rent-collection agreements, such as lockbox arrangements or the forbearance

agreements in this case, “are beyond the reach of any third-party claims that are perfected or

arise thereafter.” Furthermore, the court found that, even if the statute is ambiguous on this

point, the legislative history dictated that the legislature intended to override the case law finding

that the recording of an assignment of rents alone is insufficient to defeat priority claims by

subsequent lenders and lien claimants. See 89th Ill. Gen. Assem., House Proceedings, May 8,

1995, at 180-81 (statements of Representative Biggert) (noting that “court decisions have been

highly inconsistent” and that most, but not all, courts have held that recording is sufficient).

¶ 24 The court summarized that, pursuant to section 31.5, Adverse Claimants’ claims

“trumped” BMO’s claim to the rents generated by the JCI-owned properties (prior to BMO’s

judgment, between the judgment and the JCI and Briargate citations, and between the JCI and

Briargate citations and Adverse Claimants’ securing mortgagee-in-possession status).

¶ 25 Next, the trial court addressed, in the alternative, the effect of a ruling that the

forbearance agreements here are indistinguishable from the rent-assignment agreements in

Wheaton Oaks, J.D. Monarch, and Comerica. The trial court found that those cases stand for the

proposition that a judgment creditor can establish an entitlement to collect rents by obtaining

possession of a mortgagor’s property before the mortgagee holding a previously recorded rent

assignment takes steps to enforce its rights through foreclosure or the appointment of a receiver.

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It further noted that, to unseat a priority lienholder’s right to receive rents, the judgment creditor

or subordinate lienholder must gain possessor status or secure the appointment of a receiver. In

this case, the trial court found, BMO secured a judgment and thereafter issued citations to

discover assets. Its efforts to collect rents, however, did not progress any further, such as by

seeking the appointment of a receiver or seeking possession of the JCI rental properties. Thus,

the trial court determined in the alternative (i.e., if section 31.5 does not control) that BMO does

not have a superior interest in the rents, because it “did not do all that was necessary, as a junior

lienholder, to supplant the right of any of the lender banks, the undisputed senior lienholders, to

the rental streams associated with the JCI properties, even on a temporary basis.” Finally, the

trial court found that there was no just reason to delay enforcement or appeal of its order. Ill. S.

Ct. R. 304(a) (eff. Mar. 8, 2016). BMO appeals.

¶ 26 II. ANALYSIS

¶ 27 BMO argues that the trial court erred in finding that Adverse Claimants hold a superior

lien on the rents Briargate collects. It contends that Adverse Claimants have no lien on the

collected funds, while BMO has the only perfected judgment lien. Adverse Claimants’

mortgages and rent-assignment agreements are not relevant to this case, BMO argues, until

Adverse Claimants have been granted constructive or actual possession, through the appointment

of a receiver or as mortgagees in possession. For the following reasons, we find BMO’s claims

unavailing.

¶ 28 A. Background

¶ 29 1. Citations to Discover Assets/Supplementary Proceedings

¶ 30 “A citation to discover assets, also known as a supplementary proceeding, is the

predominant procedure for enforcing judgments. Robert G. Markoff, Jeffrey A. Albert, Steven

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A. Markoff & Christopher J. McGeehan, Citations to Discover Assets, in Creditors’ Rights in

Illinois § 2.42 (Ill. Inst. for Cont. Legal Educ. 2014) (citing 735 ILCS 5/2-1402(c)). That

procedure, found in section 2-1402 of the Code, provides judgment creditors with a mechanism

to initiate supplementary proceedings against a judgment debtor or third party in order to

discover the judgment debtor’s assets and apply them to satisfy the underlying judgment.

Eclipse Manufacturing Co. v. United States Compliance Co., 381 Ill. App. 3d 127, 133 (2007).

To that end, this statute provides a circuit court with broad powers to compel parties to satisfy a

judgment with discovered assets. Stonecrafters, Inc. v. Wholesale Life Insurance Brokerage,

Inc., 393 Ill. App. 3d 951, 958 (2009). Actions that a creditor may accomplish by another type

of enforcement may be accomplished in supplemental proceedings, as a citation to discover

assets has features of a creditor’s bill, execution, garnishment, levy and sale. Robert G. Markoff,

Jeffrey A. Albert, Steven A. Markoff & Christopher J. McGeehan, Citation to Discover Assets,

in Creditors’ Rights in Illinois § 2.42 (Ill. Inst. for Cont. Legal Educ. 2014). Additionally,

supplemental proceedings are intended to be expeditious and efficient. In re FBN Food Services,

Inc., 158 B.R. 756, 761 (Bankr. N.D. Ill. 1993). The debtor bears the burden of demonstrating

that property is exempt from being applied to satisfy a judgment. See In re Marriage of Takata,

383 Ill. App. 3d 782, 788 (2008).” Wells Fargo Bank Minnesota, NA v. Envirobusiness, Inc.,

2014 IL App (1st) 133575, ¶ 13.

¶ 31 During the course of supplementary proceedings, a judgment creditor may serve a

citation to discover assets on a third party, requiring it to freeze assets. 735 ILCS 5/2-1402(f)

(West 2014). After the citation is served, the judgment becomes a lien on the judgment debtor’s

assets. 735 ILCS 5/2-1402(m) (West 2014). At the same time, the prohibition in a third-party

citation is not an injunction but, rather, serves to warn the third party of sanctions it could incur if

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it transfers the judgment debtor’s assets. Bank of Aspen v. Fox Cartage, Inc., 126 Ill. 2d 307,

314-15 (1989).

¶ 32 The only relevant inquiries in supplementary proceedings are: (1) whether the judgment

debtor possesses assets that should be applied to satisfy the judgment; and (2) whether a third

party is holding assets of the judgment debtor that should be applied to satisfy the judgment.

Schak v. Blom, 334 Ill. App. 3d 129, 133 (2002).

¶ 33 2. Assignment of Rents and the Common-Law Rents-and-Profits Doctrine

¶ 34 Generally in Illinois, “a mortgagor[/debtor], as the party in possession and owner of [a]

statutory right of redemption, is entitled to any rents generated from the property as long as [the

mortgagor] retains possession, without having to account for them to the mortgagee[/lender].”

Wheaton Oaks, 27 F.3d at 1241. This can be problematic for a lender if a debtor defaults and the

lender would like to access the rents from the property to apply them to the deficiencies under

the note. Id. Thus, “Illinois allows mortgagees to include in their mortgages assignment[-]of[­

]rents clauses, giving them[, preforeclosure,] a sufficient interest in the rents to authorize the

appointment of a receiver through whom the mortgagee can begin collecting rents.” Id. at 1242.

But the mortgagee must obtain preforeclosure possession through the courts, by being placed in

either actual or constructive possession and, again, only if so authorized by the mortgage

instrument. Id. at 1241-42; see also Fidelity Mutual Life Insurance Co. v. Harris Trust &

Savings Bank, 71 F.3d 1306, 1308 (7th Cir. 1995) (under Illinois common law, the rents-and­

profits doctrine “forbids a mortgagee to enforce a provision of the mortgage assigning the rents

or other income of the mortgaged property to [it] until the mortgagee takes possession of the

property (presumably having bought in at the foreclosure sale) or a receiver is appointed to

operate the property”).

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¶ 35 Reviewing the historical development of this concept, the Fidelity court noted that, as

real estate financing law developed, courts decreed that, when lenders took land to ensure the

repayment of loans, they did not take title to the land but “only a security interest equal to what

the borrower owe[d], an interest that [shrunk], therefore, as the borrower repa[id].” Fidelity, 71

F.3d at 1309. A security interest does not constitute title and is not a possessory interest, and,

therefore, “it does not entitle the lender to receive the rent or other income that the property

throws off.” Id. An assignment of rents to the lender is “inconsistent with the character of the

lender’s interest in the property generating the rents, as it would give the lender a right associated

with ownership.” Id. This is the view in “lien-theory” states such as Illinois. 4 Id.; see also

Monarch, 153 B.R. at 833 (assignment of rents is different from other security interests;

typically, “a perfected lien gives the creditor an interest in a specific piece of property, whereas

an assignment of rents allows the mortgagee to collect rents that come due after the mortgagee

takes control of the property”).

¶ 36 The public policies underlying this framework ensure that mortgagees’ interests are

protected, while also ensuring proper maintenance of the properties at issue. Wheaton Oaks, 27

F.3d at 1242 (assignment-of-rents provisions allow creditors to reach the rents prior to

completion of foreclosure proceedings and prevent a mortgagor from collecting rents after

default and not making payments under the mortgage agreement); Comerica, 284 Ill. App. 3d at

1034 (but the possession requirement—actual, or constructive with court authorization—reflects

4 In “title-theory” states, which retain some of the early-English legal concept of a

mortgage as a conveyance, “the rents of a mortgaged property are considered an important part

of the mortgagee’s security.” Id.

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a policy that seeks to prevent mortgagees from stripping the rents from the property and leaving

the mortgagor and tenants without resources for maintenance or repair).

¶ 37 3. Comerica

¶ 38 The Comerica court was the first to hold that constructive possession to enforce an

assignment-of-rents provision must include court authorization. Comerica, 284 Ill. App. 3d at

1034-35; see also Robert C. Feldmeier, Enforcing Assignment-of-Rents Provisions in Illinois, 86

Ill. B.J. 436, 438 (Aug. 1998). The case does not address section 31.5 of the Conveyances Act.

¶ 39 In Comerica, upon which BMO primarily relies, two lenders, Comerica and a trustee,

sought an award of rents after the borrower defaulted on its mortgages by failing to pay real

estate taxes. After the borrower defaulted, Comerica exercised its rights under its assignment of

rents and began collecting rents for the property without foreclosing on the first mortgage,

seeking the appointment of a receiver, or obtaining court authorization. (This option apparently

permitted it to reduce the debt without assuming responsibility for the property or the tax

burden.) Comerica then filed a complaint, seeking an accounting and other relief against the

borrower and the mortgage guarantors. Separately, the trustee filed an action to foreclose on the

second mortgage, seeking an accounting, the appointment of a receiver, and a return of the rents

from Comerica. The trial court found that the rents belonged to the possessor of the property and

awarded them to the borrower. It also granted the trustee’s request for an accounting.

(Subsequently, the borrower settled with Comerica, assigning its interest in the rents to Comerica

in the event that the appellate court ruled in the borrower’s favor. The appellate court, thus,

found Comerica’s appeal moot and addressed only the trustee’s appeal. Comerica, 284 Ill. App.

3d at 1033.)

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¶ 40 On appeal, the Comerica court reviewed the history of and policy behind assignments of

rents, noting that, at common law, a mortgagee/lender had to take actual possession before it was

entitled to rents. Id. This rule reflected a public policy seeking “to prevent mortgagees from

stripping the rents from the property and leaving the mortgagor[/debtor] and the tenants without

resources for maintenance or repair.” Id. The Comerica court quoted a bankruptcy case:

“ ‘To obtain the benefits of possession in the form of rents, the mortgagee must also

accept the burdens associated with possession[―]the responsibilities and potential

liability that follow whenever a mortgage goes into default. The mortgagee’s right to

rents, then, is not automatic but arises only when the mortgagee has affirmatively sought

possession with its attendant benefits and burdens.’ ” Id. at 1033-34 (quoting Monarch,

153 B.R. at 833).

¶ 41 The Comerica court also acknowledged a “modern trend” that permitted a mortgagee to

collect rents once it had taken constructive, as opposed to actual, possession, such as by a

judicial award of injunctive relief or appointment of a receiver. Id. at 1034 (citing cases). Thus,

a mortgagee must take some affirmative action to gain possession of the property. Id. The

Comerica court held that neither Comerica nor the trustee was entitled to the rents, because

neither had taken actual or constructive possession of the property. Id. As to Comerica, the

court noted that “a mortgagee still needs to obtain a court’s authorization before [it] may collect

rents without taking possession.” (Emphasis added.) Id. This ensures that all parties’ interests

are before the court. Id. The Comerica court refused to recognize the assignment-of-rents

provision in Comerica’s agreement. Id. As to the trustee, the Comerica court held that the

trustee’s filing of certain pleadings, such as the foreclosure action or the request for the

appointment of a receiver, was not sufficient to trigger the mortgagee’s right to collect rents,

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where the trustee did not obtain prejudgment possession of the property and where the rents were

collected while the mortgagor was in possession and before the receiver was appointed. Id.

Rather, the court concluded, it is a “trial court’s affirmative ruling on such filings [that] entitles

the mortgagee to the rents.” Id. at 1035. In a foreclosure action, a mortgagee is not entitled to

rents until a judgment has been entered, unless the mortgage agreement permits the mortgagee to

obtain prejudgment possession. Id. at 1034-35. Similarly, a request for the appointment of a

receiver is not sufficient; rather, a receiver must be appointed on the mortgagee’s behalf and take

actual possession of the property. Id. at 1035. Accordingly, the Comerica court affirmed the

trial court’s ruling that the rents collected belonged to the mortgagor. Id.

¶ 42 In sum, Comerica held that: (1) assignment-of-rents provisions are enforceable only

when lenders take actual or constructive possession of the mortgaged property; and (2)

constructive possession requires affirmative action that must include court authorization (such as

the appointment of a receiver) to collect the rents. Id. at 1034-35; see also In re Callas, No. 13 B

43900, 2015 WL 1850260, at *7 (Bankr. N.D. Ill. Apr. 23, 2015) (reviewing case law and noting

that, “under Illinois law, a security interest in rents arising under an assignment of rents, while

perfected against third parties upon recordation, does not grant an interest in particular amounts,

paid after default and constituting rents from the property, until affirmative steps are taken by the

mortgagee to acquire possession of the property through either foreclosure or the appointment of

a receiver pending foreclosure”); cf. Fidelity, 71 F.3d at 1309-10 (rents-and-profits doctrine does

not apply to agreements involving the recovery of postdefault rent that are not assignment-of­

rents agreements; specifically, an indemnity agreement, under which a borrower agreed to turn

over postdefault rents to the lender upon receipt, was not an assignment-of-rents agreement,

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because it did not involve an outright assignment of the rents to the lender and only required the

borrower to pay over rents it collected upon receipt; it was in the nature of a guarantee).

¶ 43 4. Perfection and Enforcement

¶ 44 The common law distinguishes between perfection and enforcement of assignment-of­

rents interests. An assignment of rents creates a security interest/lien in the rental income.

Monarch, 153 B.R. at 833. That security interest is perfected upon recordation. Id.; see also

West Bend, 712 F.3d at 1034-35; Callas, 2015 WL 1850260, at *7.

¶ 45 Taking possession constitutes enforcement of the lien (i.e., when a party takes affirmative

steps to start collecting the rents, it is enforcing its lien). The lien is not one on specific rents

held by the mortgagor; rather, “an assignment[-]of[-]rents provision allows the mortgagee to take

certain steps [i.e., enforce], after default *** to obtain possession of the property and start

collecting the rents; but until [it] takes such steps the mortgagor is entitled to keep the rents.”

(Emphasis added.) Wheaton Oaks, 27 F.3d at 1242; see Monarch, 153 B.R. at 833 (“[t]he

requirement that a mortgagee enforce its lien on rents by possession of the real estate renders an

assignment of rents different from security interests in other property” (emphasis added)); see

also Wheaton Oaks, 27 F.3d at 1241 (an assignment of rents creates a lien upon the rents of the

property “that may be enforced upon default by taking affirmative steps to acquire possession of

the land by the mortgagee or a receiver appointed on the mortgagee’s behalf” (emphasis added));

Callas, 2015 WL 1850260, at *7 (“a security interest in rents arising under an assignment of

rents, while perfected against third parties upon recordation, does not grant an interest in

particular amounts, paid after default and constituting rents from the property, until affirmative

steps are taken by the mortgagee to acquire possession of the property [(i.e., enforce the lien)]

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through either foreclosure or the appointment of a receiver pending foreclosure” (emphasis

added)); 27A Ill. L. & Prac., Mortgages § 80 (Nov. 2016).

¶ 46 There is some authority for the proposition that a lockbox arrangement or other direct-

payment system constitutes sufficient enforcement of an assignment of rents; thus, under this

view, court authorization is not the only enforcement mechanism. West Bend, 712 F.3d at 1035

(reviewing Illinois case law). In West Bend, a creditor sought to enforce a judgment against a

bank where the judgment debtor had an account and had borrowed on the security of some

commercial real estate. However, the bank “did not enforce a direct-payment system or appoint

a receiver to collect the rents on its behalf” and some funds flowed to the judgment debtor. Id. at

1034. The court first noted that the bank’s interest was senior to the creditor’s interest because

an assignment is perfected when it is recorded. Id. at 1034-35. However, it continued, when

rents are paid directly to the debtor, the security interest evaporates. Id. at 1035. To enforce the

assignment, “a creditor must arrange for the tenants to pay it directly through a lockbox, or for a

third party such as a receiver to take possession for the lender’s benefit.” Id. (citing Comerica,

284 Ill. App. 3d at 1035). In that case, the funds flowed to the debtor’s account (i.e., not to the

bank, through a direct-payment system), whereupon the bank’s security interest evaporated. Id.

¶ 47 We further note that, in 1995, the Fidelity court contemplated this possibility and noted

that it was unclear if the rents-and-profits doctrine forbids “enforcing the mortgagor’s agreeing

to place a portion of the rents in escrow (the type of ‘lockbox’ arrangement that is common in

commercial lending secured by personal rather than real property) to be available to the

mortgagee in the event of a default, an issue on which we cannot find any cases.” Fidelity, 71

F.3d at 1309-10. Of course, in 2013, the West Bend court read Illinois law to permit this option.

¶ 48 5. Section 31.5 of the Conveyances Act

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¶ 49 Section 31.5 of the Conveyances Act became effective on January 1, 1996. Pub. Act 89­

39, § 5 (eff. Jan. 1, 1996) (adding 765 ILCS 5/31.5). The provision states, in relevant part:

“(b) If an instrument assigning the interest of the assignor in rents arising from the

real property described in the instrument is recorded, pursuant to this Act, in the county

in which the real property is situated, then the interest of the assignee in those rents is

perfected upon that recordation without the assignee taking any other affirmative action.

The recordation is constructive notice to subsequent purchasers, creditors, and

third parties of the content and effect of the assignment with the same force and effect as

any other duly recorded instrument or conveyance of an interest in real property under

Sections 30 and 31 of this Act. From the time of the recordation, the assignee has a

superior claim to the rents that are subjected to the assignment, as against all parties

whose claims or interests arise or are perfected thereafter.

(c) This Section applies whether the assignment is absolute, conditional, or

intended as security.

(d) Unless otherwise agreed to by the parties, the mere recordation of an

assignment does not affect who is entitled, as between the assignor and the assignee, to

collect or receive rents until the assignee enforces the assignment under applicable law.

(e) The fact that the assignee may permit the assignor to collect rents under the

terms of an assignment does not affect the validity, enforceability, or priority of an

assignment perfected in the manner set forth in subsection (b).” (Emphases added.) 765

ILCS 5/31.5(b), (c), (d), (e) (West 2014).

¶ 50 Although section 31.5 became effective just prior to the Comerica decision, the Comerica

court did not address the statute. Thus, the statute’s impact on Comerica is an open question.

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Robert C. Feldmeier, Enforcing Assignment-of-Rents Provisions in Illinois, 86 Ill. B.J. 436, 439

(Aug. 1998).

¶ 51 B. Issues

¶ 52 1. Effect of Section 31.5 on Comerica

¶ 53 Turning to BMO’s first argument, BMO argues that Comerica is binding and was not

superseded by section 31.5. Adverse Claimants and the trial court, according to BMO, mistake

perfection for enforcement, and the trial court’s interpretation: (1) is inconsistent with, and

renders meaningless, legislative enactments concerning a creditor’s ability to collect rents; and

(2) is in derogation of common law and violates public policy. BMO maintains that this case is

not a priority dispute between secured parties but, rather, a dispute between a party with a

perfected citation lien (BMO) and other parties (Adverse Claimants) who are unsecured due to

their failure to obtain court authorization to collect the rents for the JCI properties. It argues that,

because Adverse Claimants did not have possession of the properties and did not obtain court

authorization to collect the rents, their arrangements are void as against public policy under the

rents-and-profits doctrine. BMO maintains that it is arguing not that it is entitled to collect the

rents but that, once they were collected: (1) they simply became funds held by Briargate; (2)

Adverse Claimants had no lien on the funds because, once the rents were collected, Adverse

Claimants’ liens evaporated; and (3) BMO maintained its perfected citation lien on the funds.

For the following reasons, we reject BMO’s argument and hold that the Briargate citation cannot

reach the assigned rents. Through the forbearance agreements, which predated the Briargate

citation, Adverse Claimants enforced the recorded/perfected assignment-of-rents provisions in

their mortgages and, thus, the rents were no longer in JCI’s, the debtor’s, possession or control.

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¶ 54 We review de novo issues of statutory construction. Wells Fargo Bank, N.A. v.

McCluskey, 2013 IL 115469, ¶ 10. The primary rule of statutory construction requires that we

give effect to the legislature’s intent. Advincula v. United Blood Services, 176 Ill. 2d 1, 16

(1996). In ascertaining the legislature’s intent, we begin by examining the plain language of the

statute, reading the statute as a whole and construing it so that no word or phrase is rendered

meaningless or superfluous. Kraft, Inc. v. Edgar, 138 Ill. 2d 178, 189 (1990). “Where the

language is clear and unambiguous, the statute must be given effect as written without resort to

further aids of statutory construction.” Alvarez v. Pappas, 229 Ill. 2d 217, 228 (2008).

¶ 55 The trial court found that, under section 31.5, Adverse Claimants hold a superior lien on

the Briargate funds. The forbearance agreements, the court further found, are enforceable, are

like the lockbox or other direct-payment arrangements specified in the case law, and are beyond

the reach of any third-party claims that are perfected or arise thereafter.

¶ 56 We conclude that section 31.5 unambiguously provides that an assignment of rents is

perfected upon recording and provides that the assignee has a superior claim to the rents “as

against all parties whose claims or interests arise or are perfected thereafter.” 765 ILCS

5/31.5(b) (West 2014). The statute further provides, unambiguously, that, as between assignor

(such as JCI/Briargate) and assignee (Adverse Claimants), the mere recording does not affect

who is entitled to the rents until the assignee (Adverse Claimants) enforces the assignment

“under applicable law,” unless, as is critical here, the parties agree otherwise. 765 ILCS

5/31.5(d) (West 2014).

¶ 57 BMO contends that this reading of section 31.5 puts the statute in direct contrast with

other statutes and renders them meaningless. BMO argues that section 31.5 is not ambiguous

and that subsection (d) clearly incorporates enforcement through applicable law, which, in

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BMO’s view, reflects the legislature’s intent that the statute controls perfection, not enforcement.

Next, BMO contends that, even if the legislature “disposed” of the rents-and-profits doctrine in

section 31.5, the statute still requires that an agreement to collect rents be reflected in the

recorded document that gives rise to the lien. Here, it notes, the trial court never found that any

recorded document provided Adverse Claimants the right to collect rents. Instead, the court

relied upon unsigned agreements that were not recorded, in violation of the statute. BMO further

argues that the trial court’s reading departs from Comerica and other case law. BMO’s second

point is that, if Adverse Claimants are allowed to collect rents without court authority, this would

violate common law, which applies because the statute does not state that rents can be collected

without such authority.

¶ 58 We disagree with BMO that section 31.5 controls only perfection of an assignment of

rents. The statute explicitly provides in subsection (d) that rent entitlement is determined once

an assignment is enforced, unless otherwise agreed to by the parties. Id. We also disagree with

BMO’s assertion that, even if parties may agree otherwise, there were no signed and recorded

documents here that enforced Adverse Claimants’ assignments. It is undisputed that the

assignment-of-rents provisions upon which Adverse Claimants rely are contained in recorded

mortgage instruments (indeed, they were recorded prior to either the Briargate or the JCI citation

and even prior to BMO’s judgment). Adverse Claimants perfected these liens when they

recorded the instruments. 765 ILCS 5/31.5(b) (West 2014). The assignments were properly

enforced when, by electing to agree “otherwise” and enforce them other than under applicable

law, the parties, prior to the Briargate citation, entered into the forbearance agreements to

transmit the rents Briargate collected directly to Adverse Claimants (after payment of the

properties’ expenses). 765 ILCS 5/31.5(d) (West 2014). There is no dispute that Adverse

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Claimants entered into these agreements, and there is no statutory requirement that the

forbearance agreements be recorded. Thus, Adverse Claimants properly enforced their

assignments.

¶ 59 As to Comerica, the court in that case did not address section 31.5 and its language in

subsection (d) allowing parties to contract to enforce an assignment other than pursuant to

applicable law. Comerica might remain viable in cases where the parties have not agreed to

“otherwise” enforce assignments of rents. But that is not the case here. West Bend recognized a

mechanism—a lockbox arrangement or other direct-payment system—by which parties can

enforce assignments of rents other than through court authorization. West Bend, 712 F.3d at

1035. Here, JCI contracted away in the forbearance agreements its right to receive the rents,

which, after deduction of property expenses, Briargate directly forwarded to Adverse Claimants. 5

As JCI and Briargate note, at no point did BMO take the required steps—seeking a turnover of

the rents or the appointment of a receiver—to supplant Adverse Claimants’ priority positions.

BMO, in their view, has an unenforced citation lien that cannot trump an assignment of rents.

We agree.

5 Rockford notes that, under its forbearance agreement, rent payments received by check

and money order were signed over to Rockford to be deposited into a bank-controlled account.

Only credit card payments were deposited by Briargate and then remitted to Rockford. After

deduction of escrow payments and loan payments, any remaining funds were released back to

Briargate for payment of expenses for the property. No funds collected by Briargate were to be

paid to JCI. The Byron agreement similarly provided that rents collected by Briargate, minus

expenses and management fees, would be turned over to Byron with a rent roll report.

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¶ 60 Furthermore, as Rockford and Byron note, the supplementary-proceedings statute

provides that citations can reach only those assets in the possession or control of the judgment

debtor (or belonging to the judgment debtor but in the possession or control of the third-party

citation respondent). 6 735 ILCS 5/2-1402(a) (West 2014); see also 735 ILCS 5/2-1402(m) (West

2014) (lien established by service of citation does not affect the citation respondents’ rights in

property prior to the service of the citation upon them, and the lien created does not affect the

rights of bona fide purchasers or lenders without notice of the citation). Thus, given Adverse

Claimants’ control over the rents pursuant to the forbearance agreements between themselves,

JCI, and Briargate, no citation lien can attach to the rents collected by Briargate.

¶ 61 BMO next points to several sections of the Illinois Mortgage Foreclosure Law

(Foreclosure Law). 735 ILCS 5/15-1701, 15-1703, 15-1704, 15-1706 (West 2014) (addressing

the right to possession during foreclosure). 7 It reads these provisions as establishing

requirements before a lender can collect rents to the exclusion of other parties who may claim an

interest. BMO argues that the trial court’s ruling usurps the legislature’s statutory protections

6 At oral argument, BMO conceded that, if the funds Briargate collected were not JCI’s

property, its argument failed. 7 The procedures for obtaining possession are contained in the article of the Foreclosure

Law addressing possession during foreclosure. 735 ILCS 5/15-1701 et seq. (West 2014);

Monarch, 153 B.R. at 832-33 n.3; see 735 ILCS 5/15-1706(a) (West 2014) (request that a

mortgagee be placed in possession or that a receiver be appointed must be made by motion); 735

ILCS 5/15-1703(a)(1) (West 2014) (a mortgagee in possession has the right to receive rents); 735

ILCS 5/1704(b)(2) (West 2014) (a receiver appointed for the mortgaged property has the power

and authority to collect rents).

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and disregards its statutory predicates. It suggests that, if the law is as the trial court interpreted

it, then no creditor would ever go to court to enforce its right to collect rents. The legislature’s

detailed mortgagee-in-possession and receivership rules, BMO urges, should not be interpreted

in a manner that renders them superfluous.

¶ 62 We reject BMO’s argument. Section 31.5(d) of the Conveyances Act, the more specific

statute, applies here. Adverse Claimants did not file foreclosure actions. Rather, they entered

into agreements to enforce assignments of rents. Section 31.5(d), not the foreclosure statute,

specifically addresses that scenario.

¶ 63 BMO next argues in the alternative that, if the statute is ambiguous, the legislative history

nevertheless reflects that the General Assembly was merely clarifying the law concerning how

an assignment of rents is perfected, such as where a junior lender is allowed to continue to

collect rents after a senior lienholder attempted to enforce it.

¶ 64 Again, section 31.5 is not ambiguous. But even assuming, arguendo, that it is, our

holding remains the same. We disagree with BMO that the legislative history reflects that

section 31.5 merely clarifies the law on perfection. We find the legislative history unhelpful

because it focuses on perfection of assignments-of-rent interests, not enforcement, and the statute

distinguishes between the two concepts. The legislative history of section 31.5 reflects that the

General Assembly intended the statute to “provide procedures for perfecting an assignment of

rents by recordation” and that such an assignment “will be perfected from the time it is recorded

and without requiring the assignee to take any other action.” 89th Ill. Gen. Assem., House

Proceedings, May 8, 1995, at 180 (statements of Representative Biggert). The House sponsor

noted that there was no statute that set forth how to perfect a security interest in rents, that “court

decisions have been highly inconsistent,” and that most, but not all, courts have held that

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recording is sufficient. Id. at 180-81 (further noting that some cases had held that the second

mortgagee had top priority). “So, this really is a clarification of the law.” Id. at 181. In the

Senate, the sponsor also noted that there was no statute on the matter and that the enactment

would “simply codify common[-]law rules.” 89th Ill. Gen. Assem., Senate Proceedings, Mar.

24, 1995, at 31 (statements of Senator Fitzgerald).

¶ 65 Assuming, arguendo, that section 31.5 is ambiguous, we find that public policy

considerations weigh in favor of our reading. As noted, the public policies underlying the rents-

and-profits doctrine ensure that mortgagees’ interests are protected, while also ensuring proper

maintenance of the properties at issue. Wheaton Oaks, 27 F.3d at 1242 (assignment-of-rents

provisions allow creditors to reach the rents prior to completion of foreclosure proceedings and

prevent a mortgagor from collecting rents after default and not making payments under the

mortgage agreement); Comerica, 284 Ill. App. 3d at 1034 (but the possession requirement—

actual, or constructive with court authorization—reflects a policy that seeks to prevent

mortgagees from stripping the rents from the property and leaving the mortgagor and tenants

without resources for maintenance or repair). The forbearance agreements here allow for the

expenses of maintenance, management, and repair of the properties to be paid from the rents.

Thus, the public policy to be advanced by requiring a mortgagee to take actual or constructive

possession of the property through court action, as addressed in Comerica, is not implicated,

because the agreements require Adverse Claimants to accept both the benefits and the

maintenance and repair burdens of the properties. In this way, the tenants’ needs were met by

Briargate’s active management of the properties and Adverse Claimants received the net rents.

Indeed, if the forbearance agreements had not accounted for management expenses, as further

specified in the leases, it is arguable that they would have been void as against public policy.

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¶ 66 2. Commingling

¶ 67 Next, BMO argues that, assuming, arguendo, that a secured lender may collect rents

without court authorization, Adverse Claimants still do not have a lien on the Briargate funds

because any such lien evaporated when Briargate (as mortgagor JCI’s agent) collected the funds

and deposited them into its bank account, thereby commingling them with its assets. West Bend,

712 F.3d at 1035 (“when rentals are paid directly to the debtor, the security interest evaporates”).

BMO argues that there was no evidence that Briargate acted as Adverse Claimants’ agent, as

opposed to JCI’s agent. BMO points to the January 1, 2014, JCI-Briargate management

agreement, noting that it states, in section 5(b), that all funds collected by Briargate will remain

JCI’s property. 8

¶ 68 JCI and Briargate respond that the rents were not JCI’s cash assets commingled with

Briargate’s operating account, because, pursuant to the assignment of rents, Briargate managed

the properties for Adverse Claimants, not JCI. They point to a different portion of the JCI-

Briargate management agreement, section 9(j), which allows for the assignment of the agreement

to the lender and which they argue was exercised via the actual assignment of the rents. 9 Thus,

they reason, Briargate became Adverse Claimants’ agent.

8 Section 5(b) of that agreement addresses the operating account into which Briargate is

to deposit all funds it collects, noting that the account shall be segregated and be in the

“Manager’s name as custodian for Owner” and that “[a]ll funds deposited into the Operating

Account shall be and remain Owner’s property.” 9 Section 9(j) of the agreement addresses lender agreements and provides, in relevant

part:

“Manager shall sign and deliver such agreements related to the subject matter

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¶ 69 We find BMO’s argument unavailing and disagree that no agreement such as that

contemplated in section 9(j) of the management agreement is in the record or was alleged by

Adverse Claimants. The forbearance agreements, which are in the record, effectuated the

enforcement of Adverse Claimants’ liens. We also disagree with BMO’s additional assertion

that there were factual issues that the trial court should have resolved. BMO points to

Contarino’s deposition testimony that Briargate started paying Adverse Claimants directly in

order to avoid the JCI citation. Whether or not the forbearance agreements were entered into to

protect JCI’s interests, the contracts speak for themselves and unambiguously reflect that JCI

contracted away its right to receive the rents. The parties’ intent beyond that is not relevant to

interpreting the unambiguous agreements.

¶ 70 Further, as Rockford and Byron note, West Bend is distinguishable because there the

funds used by the judgment debtor to pay the bank were rent payments collected by the debtor

and deposited into his bank account after service of the citation upon him. Here, Briargate, a

third party, collects the rents and they are not paid over to or into JCI’s account. The West Bend

court acknowledged such an option as an enforceable means of continuing the interest in the

rents. Id. at 1034-35 (“a creditor must arrange for the tenants to pay it directly through a

lockbox, or for a third party such as a receiver to take possession for the lender’s benefit”).

hereof as any of Owner’s lenders may reasonably require, including, without limit

thereto, *** [1] lender’s right to terminate this Agreement in the event Owner is in

material default of an obligation owed lender, *** and [2] assignment of this Agreement

to the lender and agreement to perform services for the lender (any such agreement being

a ‘Lender Agreement’)[.]” (Emphasis in original.)

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¶ 71 We agree with Midwest that BMO’s reasoning would lead to the ridiculous result that a

lender would have a lien on unpaid rents but would lose the lien once it turns into cash. Further,

section 31.5(e) of the Conveyances Act specifically provides that the priority of a perfected

assignment is unaffected by whether an assignee permits an assignor to collect rents under the

terms of an assignment. 765 ILCS 5/31.5(e) (West 2014).

¶ 72 3. Prove-up

¶ 73 Next, BMO argues that, even if the trial court did not err in finding that Adverse

Claimants’ lien was superior to BMO’s, the trial court erred in failing to require that Adverse

Claimants prove up the existence or amount of the indebtedness and corresponding liens. BMO

focuses on the fact that, prior to the trial court’s ruling, Rockford, which apparently claims more

than 75% of the funds here, entered into a consent foreclosure in which it accepted title to the

properties in exchange for satisfaction of the indebtedness owed to it by, as relevant here, JCI.

BMO argues that Rockford was awarded double satisfaction of its claims, because Rockford no

longer was owed any debts at the time of the trial court’s ruling.

¶ 74 The trial court rejected the prove-up issue, noting that the existence of the forbearance

agreements was not disputed and that BMO had cited no authority in support of its argument,

which it asserted for the first time in its motion to clarify and reconsider. As to Rockford’s

consent foreclosure, the court also noted that case law instructed that “[a]n express pledge of

rents is not extinguished by a foreclosure sale which merges the title and the debt in the same

party.” (Emphasis added.) Randall Plaza, 326 B.R. at 141.

¶ 75 We find BMO’s argument unavailing. BMO argues that Randall Plaza is distinguishable

because it merely permitted a creditor that had taken title to the property to collect outstanding

rents from the tenants and stated that the foreclosure did not affect that creditor’s ability to

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collect future and outstanding rents as the property owner. We disagree with BMO’s reading, as

the court’s holding encompassed rents from the time of default to any time thereafter. Id. The

Randall Plaza court held that the creditor had a valid assignment of rents and had taken

appropriate steps to enforce it prior to foreclosure. Id. at 140. The creditor both initiated

foreclosure proceedings and obtained the appointment of a receiver, thus commencing

proceedings under which it could gain possession of the property for purposes of collecting rent.

Id. at 141. The court noted that the assigned rents included “all rents that were unpaid at the time

[the creditor] gave notice of the default” or any time thereafter. Id. Critically, the court also held

that the creditor’s purchase of the property after foreclosure did not extinguish both the mortgage

and the lien on the rents, but extinguished only the mortgage. Id. The rents were unaffected

because “[a]n express pledge of rents is not extinguished by a foreclosure sale which merges the

title and the debt in the same property.” Id. (citing cases). Pursuant to Randall Plaza, the

consent foreclosure judgment did not act to waive Rockford’s lien on the rents.

¶ 76 Furthermore, the prove-up issue is unavailing because, as Adverse Claimants note, the

facts asserted in their adverse claims are undisputed and, at all stages of these proceedings, they

asserted their contractual and lien rights to the funds and consistently maintained that the funds,

which Briargate collected as JCI’s management agent, were no longer JCI’s property; rather, by

agreement (the forbearance agreements), which the trial court correctly found to be enforceable,

they had become Adverse Claimants’ property.

¶ 77 We note that BMO never asked for a hearing below to address any factual issues, nor did

it request additional discovery. Further, it framed the prove-up issue as a question of law,

namely, whether the consent foreclosure judgment waived Rockford’s lien on the rents.

Specifically, in its motion to clarify and reconsider, BMO argued that Adverse Claimants “must

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first prove up their claims against JCI, as a matter of law.” Given our holding that the consent

foreclosure judgment did not waive Rockford’s lien, there is no factual question to be resolved.

¶ 78 III. CONCLUSION

¶ 79 For the reasons stated, the judgment of the circuit court of Winnebago County is

affirmed.

¶ 80 Affirmed.

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