January 28, 2020

January 27, 2020

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Tenancy by Entirety Not Defense to Mortgage Foreclosure Case When Both Spouses Signed Letter of Direction to Trustee of Land Trust

In Marquette Bank v. Gesiakowski, et al., 2015 IL App (1st) 142627, the Illinois First District Appellate Court recently ruled in favor of a lender in a mortgage foreclosure case that resolved interesting issues regarding a mortgagor's ability to foreclose on real estate held in a land trust, with the beneficial interest in that land trust held by spouses as tenants by the entirety.

Lawrence Gesiakowski obtained a loan from Marquette Bank to support his business, and as security for the loan, granted Marquette Bank a mortgage on his business's real estate, as well as his residential real estate.  The residential real estate, however, was held in a land trust.  Mr. Gesiakowski and his wife owned the sole beneficial interest in the land trust in tenancy by the entirety. 

Tenancy by the entirety is a form of ownership available only to a husband and wife.  Unlike other forms of joint ownership, tenancy by the entirety offers an added level of protection from creditors.  Creditors may not use real estate held in tenancy by the entirety to satisfy a debt unless both husband and wife are obligated on the debt. 

In this case, under the land trust agreement, the trustee could not act without the direction of both Mr. and Mrs. Gesiakowski.  Consequently, both of the Gesiakowskis instructed the trustee to sign the mortgage by a written letter of direction when the mortgage was given as collateral to Marquette Bank.  The letter of direction stated that Mrs. Gesiakowski had read the mortgage, everything in it was true and correct, and that she desired the land trust trustee to execute the mortgage in favor of Marquette Bank.

The court focused on the letter of direction as evidence that Mrs. Gesiakowski agreed to pledge her interest in the real estate as collateral for Mr. Gesiakowski's debt.  Because the court held that both spouses had agreed to pledge the real estate as collateral, Marquette Bank was permitted to foreclose the mortgage lien.

The Takeaway: Land trusts and tenancy by the entirety can complicate the foreclosure process.  When real estate subject to a mortgage is held in tenancy by the entirety, both spouses should sign the note and mortgage.  When real estate held in a land trust is pledged as collateral, all beneficiaries of the land trust should be identified and all beneficiaries should sign the letter of direction to the trustee acknowledging their consent to place a mortgage on the real estate. 

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About this Author

Matthew R. Barrett, Horwood Marcus, creditors' rights disputes attorney, commercial foreclosures lawyer

Matthew R. Barrett, a member of HMB's Litigation Group, represents clients involved in various business disputes in both state and federal courts. Matt has successfully represented banks and financial institutions in creditors' rights disputes, in commercial foreclosures, and in claims involving the fraudulent transfer of assets. Having also represented small and mid-size businesses and their owners, Matt understands that every client's circumstances are unique and cannot be solved by a "one-size-fits-all" approach. Instead, each client deserves legal services that are...

Rick Rein, Creditor's Rights Attorney, Horwood Marcus & Berk Law Firm

RICK REIN is chair of Horwood Marcus & Berk's Litigation Group and focuses his practice on creditor's rights, loan enforcement and creditor bankruptcy representation. He regularly advises secured creditors in workout and restructuring transactions, including forbearance agreements. He also assists secured creditors in recovering pledged collateral through Uniform Commercial Code sales and commercial mortgage foreclosures, in prosecuting claims based on fraud, non-performing loans, intercreditor disputes and loan commitment litigation and in defending creditors against whom claims have been asserted. Additionally, Rick has extensive financial services litigation experience in state and federal venues at the trial and appellate level.

Rick also concentrates his practice in multijurisdictional litigation, specifically the recovery of foreign claims and assets. He is also well regarded for his knowledge of international legal systems and frequently serves as special counsel to the financial services industry, corporations, attorneys, accountants, trustees, receivers and high-net-worth individuals. He has handled complex international banking and fraud matters in more than 40 jurisdictions throughout North and South America, Asia, Africa, the Caribbean, and Europe. Rick was the first U.S. attorney to employ the Mutual Legal Assistance Treaty in Uruguay. He also was the first U.S. Attorney to obtain Norwich Pharmacal relief in Vancouver, British Columbia.

Rick is a well-sought-after interview source on the topic of international asset recovery and is frequently called upon by the media. He has been interviewed by the Associated Press, Bloomberg News, The Wall Street JournalForbes, CNNMoney, First BusinessLawyer Monthly and various industry trade publications. He also has authored several articles about the nuances of international litigation for legal publications such as the American Bankruptcy Institute Law ReviewNew York Law JournalBanking Law Journal, and Latin American Law and Business Report. Past speaking engagements include presentations to the Association of Certified Fraud Examiners, Turnaround Management Association, International Bar Association, American Bar Association, LawLine.com and the Florida and New York Bar Associations. Lawyer Monthly named Rick Asset Recovery Lawyer of the Year (2014).