Illinois Bar Journal

July 2013Volume 101Number 7Page 330

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County recorders can investigate fraud, bill provides

The controversial bill would empower recorders to red-flag deeds and other documents that appear fraudulent. Wary real estate practitioners have a wait-and-see attitude.

Your county recorder of deeds will gain new prosecutorial powers to launch investigations into potentially fraudulent title-transfer documents if a newly passed bill becomes a law.

The Illinois General Assembly sent House Bill 2832 to the governor's desk for final approval. The bill passed the house on April 18 and the senate on May 22.

The proposed legislation would allow a county recorder of deeds to establish a "fraud referral and review process" by which the recorder could red-flag deeds and other property-transferring documents that appear to be unlawfully altered or fraudulent. The recorder would then refer the suspect documents to an administrative law judge for further review.

The ALJ would then have authority to conduct investigations, hold evidentiary hearings, and declare deeds and other similar documents legally void if clear and convincing evidence showed them to be fraudulent. Recorders would be authorized to contract with law enforcement officials to help with investigations, and they could request further assistance from the secretary of the Department of Financial and Professional Regulation.

Counties with a population of three million or more (i.e., Cook) would be required to adopt the new procedures, but for others it would be optional.

Amendment raises the burden of proof

Schaumburg-based real estate attorney Ralph J. Schumann, who chairs the ISBA Real Estate Law Section Council, said the legislation was controversial among his section members, yet they officially took a neutral stance so as not to wear out their welcome with proponents of the bill when discussions about future amendments are required.

"The most diplomatically worded comments I have on this bill are pretty incendiary," Schumann said, "but we took a neutral position because we want to be well situated to help with any corrective work on this one - and we think there will be plenty of corrective work to be done."

Schumann said two of his most pressing concerns dealt with the burden of proof required to reach a finding of fraud and the apparent lack of accountability for the recorders who refer documents out for review and adjudication.

"The statute completely absolves the recorder's office of any liability," Schumann said. "The recorder's office has carte blanche to do this on any filing, because they have no liability….There was a whole lot of corruption with the Torrens System [which existed in Illinois from 1897 to 1992], and now we're looking at some of the same risks again."

Schumann said one of those risks may have been avoided thanks to some last-minute lobbying by the ISBA's Real Estate Section members and other real estate practitioners with concerns about the bill.

When the legislation was first introduced on February 22 of this year, the burden of proof required for the ALJ to enter a judgment of fraud was a preponderance of the evidence. But Schumann said virtually all other bodies of law involving claims of fraud include stringent pleading requirements and a heightened burden of proof.

"We made a push, and senate floor amendment two did adjust the burden of proof to require [the heightened standard of] clear and convincing evidence," Schumann said. That amendment was tacked on the morning of May 22, the same day the senate voted in favor of the bill.

In determining whether to refer a document to an ALJ for review, the proposed law instructs recorders to consider any number of 19 expressly enumerated factors that could indicate a deed or other title document was unlawfully altered or otherwise fraudulent.

Some of those factors would involve subjective analysis that could cause erroneous findings and abuses of the recorder's discretion, Schumann said. Other factors might be common occurrences on legitimate documents.

For example, one proposed factor that could arise when a corporate entity such as "@properties" buys a parcel is "whether the filer's name has a copyright attached to it or the property owner's name has nonstandard punctuation attached to it." A factor that could require subjective interpretation is "whether the document is filed with the intent to harass or defraud the person identified in the record or any other person."

A 'curious piece[] of legislation'

"People used to joke that you can write down a purchase price on a napkin, take it into the recorder's office and they would record it. It was a ministerial duty," Schumann said. "But now we're making all these categories they're supposed to investigate, with discretion … It involves legal analysis that probably will not be done, at least initially, by lawyers."

Although the bill requires a recorder to make such determinations only "after review by legal staff and counsel," it does not appear to prohibit lay persons from making initial recommendations. Furthermore, Schumann said the new process of having an ALJ pass judgment on matters that are currently handled in the circuit court could muddy the waters of what qualifies as a fraudulent deed, and what does not.

The bill expressly would not put an end to any existing causes of action to contest the validity of title-transferring documents in a court of law, but it certainly paves the way for recorders to initiate numerous actions in an administrative, quasi-judicial forum.

"In a court of equity, the judges are familiar with property law, foreclosures, clouds on title and other issues," Schumann said. "Now, instead of all that, we're sending it off to an administrative law judge, which could result in an entire body of case law that's potentially inconsistent with what the circuit courts are doing."

When an ALJ enters a judgment of fraud under the proposed system, he must send notice of the judgment to the recorder who, within five business days, must then record a "new document" that includes a copy of the judgment and notice. The new document must state that the deed at issue was found to be fraudulent and that it shall not be considered to affect the chain of title of the subject property.

The ALJ's judgment could be appealed to the circuit court pursuant to the Administrative Review Law.

Despite strong support from the legislature - the house passed the bill 103 to 11, and the senate voted 54 to 3 in favor of it - Schumann said that, for the most part, realtors and title companies also took a neutral position, suggesting that many professionals in the real estate industry are leery of the proposals.

"There are so many permutations here as to how this system might work," Schumann said. "It's just one of the more curious pieces of legislation that's come through in a while, from our point of view."

Adam W. Lasker <> is a lawyer in the Chicago office of Ancel, Glink, Diamond, Bush, DiCanni & Krafthefer.

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