In response to the now infamous In re Crane decision, the Illinois legislature yesterday passed SB 16. The relevant language appears at the end of the enrolled bill at the following link: SB0016
The bill will become law effective June 1, 2013, if signed by Governor Quinn.
In In re Crane, an Illinois Bankruptcy Court held a mortgage avoidable in bankruptcy if it fails to include the maturity date and the interest rate of the underlying debt within the mortgage document as recorded. In re Crane, Case No. 11-90592, U.S. Dist. Ct. C.D. Ill., February 29, 2012; Supplemental Opinion and Order, April 5, 2012. The Debtors, Gary and Marsa Crane, filed for relief under Chapter 7 of the Bankruptcy Code, and a trustee was appointed. The Gifford State Bank claimed a mortgage lien on various parcels of real estate owned by the Debtors. In an adversary proceeding, the trustee claimed that the mortgages were defective and subject to avoidance pursuant to 11 U.S.C. § 544, because both mortgages failed to state the interest rate and the maturity date thereof, in violation of the Illinois conveyancing statutes, specifically 765 ILCS Sec. 5/11. This failure to comply with Illinois statutes, argued the trustee, meant that the mortgages did not give constructive notice to subsequent bona fide purchasers, and that the trustee had the power to avoid the mortgages per 11 U.S.C. § 544(a)(3). The bankruptcy court agreed with the trustee and found that the failure to include the maturity date and the interest rate in the mortgage violated the express requirements of Illinois conveyancing statutes, and thus did not provide the constructive notice to the trustee necessary to prevent the avoidance. The Crane decision is currently on appeal with several amicus filing, including by the Illinois Land Title Association.
SB16 proposes to modify the Conveyances Act, found in Section 765 ILCS 5/11, by adding the following language:
Sec. 11. (a) Mortgages of lands may be substantially in the following form:
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The provisions of subsection (a) regarding the form of a mortgage are, and have always been, permissive and not mandatory. Accordingly, the failure of an otherwise lawfully executed and recorded mortgage to be in the form described in subsection (a) in one or more respects, in cluding the failure to state the interest rate or the mature date, or both, shall not affect the validity or priority of the mortgage, nor shall its recordation be innefective for notice purposes regardless of when the mortgage was recorded.