Real Estate Law

Seventh Circuit considered an appeal involving claims filed by investors attempting to recover their losses after the collapse of a real estate Ponzi scheme. Five properties were liquidated in conjunction with the legal proceedings and both individual investors as well as a private lender claimed priority over the proceeds. The district court followed the recommendation of the court-appointed receiver and awarded priority to the individual investors because their security interests were first in time and were not extinguished. The private lender appealed, arguing that a receipt of payment extinguished the individual investors’ mortgage liens and that the trial court erred when it found mortgage releases to be facially defective and invalid. The Seventh Circuit affirmed, finding that the district court did not err because payment cannot extinguish a preexisting security interest under the Illinois Mortgage Act and the releases were not valid. (JACKSON-AKIWUMI, concurring and EASTERBROOK, concurring separately)

Dist. Ct. did not err in dismissing plaintiff’s lawsuit seeking to overturn prior state-court decision that found in favor of banks seeking to foreclose on two parcels of land in Chicago. Record showed that at time instant action had been filed in federal court, state court had found that banks were entitled to foreclose on both parcels, but that neither parcel had been sold and state court had yet to apportion proceeds from any sale. Doctrine of claims preclusion, though, barred instant action, where, by time instant dismissal had been entered state court action with respect to one parcel was over, and state court action had been complete with respect to second parcel by time of oral argument in instant case. Also, Ct. of Appeals noted that plaintiff could have asserted arguments in instant action in prior state-court action, and that they could not file instant sequential action that concerned same claim as state-court action (i.e., who owned note and mortgage) even if instant action contained different arguments.