Illinois Business Records: Getting Them In at Trial

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I’ve learned from painful experience to always have evidentiary foundation and authenticity considerations at the forefront of my trial preparation plan. 

I’ve also found that having a working knowledge of Illinois Supreme Court Rule 236 (SCR 236), as well as Federal and Illinois Evidence Rules 803(6) and 902(11) (hearsay exception and self-authentication rules for business records, respectively) is essential to preparing for and proving my client’s breach of contract case at trial.

Bank of America v. Land, 2013 IL App (5th) 120283 serves as a good case law illustration of the business records rule.  

The plaintiff bank sued to foreclose a mortgage and later moved for summary judgment.  The bank supported its summary judgment motion with a bank officer’s affidavit who testified that she reviewed the bank’s books and records of the mortgage holders, reviewed the borrowers’ payment history and certified a payment history attached to the affidavit. Land, ¶ 5. 

The trial court granted the bank’s motion awarding it money damages of over $100,000 and a judgment of foreclosure.  Land, ¶ 6.  Defendant appealed.

Result: Trial Court affirmed.  The bank’s supporting affidavit meets the requirements of SCR 236.

Reasoning:  The defendant’s chief argument on appeal was that the bank officer’s supporting affidavit was inadmissible hearsay since the underlying mortgage didn’t originate with the plaintiff and because the affidavit relied on a third party’s (another mortgage company) loan records. 

The Court rejected the argument and held that the affidavit met the requirements of SCR 236, which codifies the hearsay exception for business records (a link to the Rule’s text follows this post).

SCR 236 provides that any record of a monetary transaction is admissible as evidence of that transaction if the record is made in the regular course of business and the business’s regular practice was to make a record of a transaction at or near the time of the transaction;

– The rationale for the rule is that business records exist to aid in the proper transaction of business and so records are “useless for that purpose unless accurate.” 

– Lack of personal knowledge by the maker may affect the evidence’s weight, but not its admissibility;

A third party’s records can also be admitted where that third party is authorized to generate the record on behalf of the offering party.

¶ 13.

Applying these rules, the Court found that plaintiff satisfied SCR 236 requirements where the affiant/bank officer testified

(i) that she was familiar with the bank’s business records creation and maintenance practices,

(ii) that the records pertaining to the defendants were made at or near the time of the occurrences giving rise to the records,

(iii) were made by individuals with personal knowledge of the information contained in the business record, and

(iv) the records were kept in the regular course of the bank’s business.  ¶ 13.

Take-aways: Illinois litigants now have a slew of evidence rules – SCR 236, IRE 803(6), IRE 902(11) – at their disposal that streamline the process of getting business records into evidence at trial and eliminate many of the logistical and hearsay headaches that trial practice formerly entailed.  

The case underscores the importance of knowing the rules for business record admissions at trial and on summary judgment.  A key holding of Land is that the business records relied on can be those of a third party; as long as the witness can testify to her familiarity with the records and can establish that the third party records were integral to the witness’s business.  This obviously obviates the need to subpoena a third party to testify concerning the third-party records.

 

Illinois Mechanics Lien Basics

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The Statute: The Illinois Mechanics’ Lien Act, 770 ILCS 60/1 et seq.

Purpose: to provide a remedy to a contractor who provides valuable improvements to real estate by allowing him to lien the property (place a hold on the property to secure payment).

Once the lien is in place (or perfected), the lien clouds the property’s title and the contractor can sue to foreclose his lien and force a sale of the property.

Without this lien remedy, the contractor is at the mercy of the general contractor or owner.  If either runs out of money, the contractor gets nothing for his labor, materials, time and effort.

Cast of characters:

Owner = developer, person or entity that owns real estate

General Contractor (or Prime Contractor or Original Contractor or “GC”) = party that contracts with Owner

Subcontractor = party that contracts with General Contractor

Sub-subcontractor = party that contracts with Subcontractor

Lender (Mortgagee, Incumbrancer) = mortgage lender that funds construction activities on real estate

Notice and Timing Rules

General Contractor: “4 months/2 year rule”.  770 ILCS 60/7.  The GC must record lien within 4 months of last date of performance and must file suit to foreclose his mechanics’ lien within 2 years of last performance on the project.

Subcontractor: “90 days/4 months/2 years”.  770 ILCS 60/24.  The Subcontractor must serve notice to Owner within 90 days of last performance, must record its lien within 4 months of last performance, and must file suit to foreclose within 2 years of last performance.

Subcontractor on owner-occupied, single-family residential property: “60 days/90 days/4 months/2 years”.  770 ILCS 60/5.  A subcontractor on this type of property must serve notice on owner within 60 days of his commencement of work that he is a subcontractor on the property.  He then must serve notice on the owner of his intent to lien within 90 days of his last performance, record his lien in the Recorder’s offices within 4 months of last performance and file suit within 2 years of his last performance.

Venue (where to file): the lien is filed in the Recorder of Deeds for county where property is located (e.g. Chicago property = Cook County Recorder of Deeds; Waukegan property = Lake County Recorder of Deeds; Wheaton = DuPage County Recorder of Deeds).  770 ILCS 60/9.

Elements of a Mechanics Lien Claim (the Complaint):

A general contractor mechanic’s lien claimant must establish: (1) a valid contract; (2) with the owner of the property or someone authorized to contract on behalf of the owner; (3) for the furnishing of services or materials; and (4) performance of the contract or a valid excuse for non-performance.

A contractor can enforce a mechanic’s lien by proving that he substantially performed the contract in a workmanlike manner.

To perfect a mechanics lien, the subcontractor must serve the 90-day notice and record his lien within 4 months while  a general contractor must record his lien within 4 months of last performance.

A properly perfected lien will “relate back” and attach as of the date of the owner-general contractor prime contract.  This is important when the issue of priorities arises (e.g. when two liens are recorded against the same property, what takes priority?)

The general contractor does not have to serve a 90-day notice because he has contracted directly with the owner and so the owner presumably knows the general contractor’s identity.

Filing Suit to Foreclose the Lien

While recording the lien will certainly blemish the owner’s title and make it difficult to sell or refinance the property, to really go for the jugular, the contractor must file suit to foreclose his lien.  This sets in motion an eventual judicial sale of the property and provide sales proceeds from which to compensate the lien claimant.

To that end, a contractor suing to foreclose his lien must allege (a) a brief statement of the contract, (b) the date of the contract, (c) the date of last performance under the contract, (d) the amount unpaid, (e) a description of the premises, and (f) any other necessary facts.  770 ILCS 60/11(a).

The  contractor should name as defendants the owner, general, all other lien claimants and mortgage lenders on the property.  My experience is the vast majority of mechanics’ lien cases settle before trial.  However, the end-game is a foreclosure sale of the property with the court divvying up the sale proceeds among the various competing claimants (typically, the mortgage lender, general contractor, and at least one subcontractor).’

If You Didn’t Record the Lien On Time

If you fail to record a lien (such as in a situation where a client doesn’t tell you about its claim until more than 4 months have passed – it happens), you can still sue for breach of contract and alternatively for quantum meruit/unjust enrichment.  The limitations period for written contracts is 10 years (measured from the date of breach); for oral contracts, 4 years and for quantum meruit – 5 years.  Obviously, with these remedies, you run the risk of an insolvent or judgment-proof defendant.

Collecting Your Cook County (IL) Judgment: A Primer

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735 ILCS 5/2-1402 and Supreme Court Rule 277 govern post-judgment or supplementary proceedings in Illinois. 735 ILCS 5/12-101 through 12-183 provide additional post-judgment specifics like the mechanics of levying on a debtor’s property, the seven-year period to enforce a judgment (12-108), the lien on debtor’s real estate and personal property, enforcement in other counties, etc.

The Citation to Discover Assets

The first step is to issue a Citation to Discover Assets and Citation Notice.  The Citation and Notice of Citation are pre-printed fillable forms found on the Cook County website.

On the form, I list the name of the creditor (my client), the debtor (the person we got a judgment against), the date and amount of judgment and address of debtor.  I attach a copy of the underlying judgment and include a Rider to the Citation asking for documents relating to the debtor’s assets.

In the Rider, I usually ask for State and Federal tax returns for the past 2-3 years, a years’ worth of bank statements, six most recent paystubs, title papers to cars and real estate, and a signed statement of personal and real assets.  I may also request documents pertaining to any stocks, bonds, securities, furnishings or electronic equipment.  The larger the judgment, the more painstaking I am in my Citation Rider requests.

Section 2-1402(b-1) now requires a creditor to include an Income and Asset Form with the Citation. The debtor is supposed to fill out and bring it to the Citation hearing.  A sample Income and Asset Form is included in the statutory text.

To “issue” the Citation, I take it to the 6th floor (Muni cases) or 8th floor (Law Division) pay $80 (usually) and get it certified by the Clerk.  I am then given the “return date” which is the day it is set for hearing.

The Citation hearing will be in Room 1401 of the Daley Center (if judgment is less than $30K) or Room 2503 if the judgment is over $30K (or for judgments entered in Law Division cases).  Chancery money judgment citations are scheduled before the Chancery judge.

Serving the Citation

Once the Citation is issued, I either place it with the Sheriff or a Special Process Server (SPS).  A citation can be served in the first instance by a process server (unlike a complaint and summons – which must first be placed with the county sheriff).  I’ve found that an SPS is usually more persistent and able to track down evasive debtors with better success than the county sheriff. For this reason, I almost always serve a Citation through an SPS.

But with a corporate debtor that usually has a registered agent, I will usually serve through the sheriff (since there is less chance of dodging service).

The Citation Examination

The examination often takes place in the glamorous Daley Center hallway!  Sometimes, the judge will allow you to do the exam in a jury room.  I’ve also agreed to conduct examinations at my office or opposing counsel’s office.  However, to avoid the stonewalling debtor situation, I usually prefer to do the examination at the courthouse so I can ask the judge to intervene if necessary.

On the Citation return date, if the debtor shows up, he is sworn in by the Clerk and I conduct the examination.  I ask myself: “If this person owed me money, and I really wanted it, what would I ask this person?”  Simple as that.

I first ask if the debtor brought the requested Rider documents – such as their  tax returns, bank records, motor vehicle title, pay stubs, etc.  More often than not, the debtor brings  nothing and I have to continue the hearing for another date.  Even if the debtor shows up empty-handed, I still conduct the examination but in the continuance order, I specify which documents the debtor must produce within 7 or 14 days.  I then continue the citation hearing for 3-4 weeks.  I also reserve the right to re-examine the debtor if the documents he produces raises additional questions.

If the debtor or his/her counsel is uncooperative, threatening  or verbally abusive during the citation exam (I’ve experienced all three), I stop the exam and simply say “I’m going to have the case called”.  Usually, that results in some cooperation.  If not, and the debtor persists in not cooperating (giving “I don’t know” answers to every question) I let the judge scold the debtor for being obstructionist. In my experience, collection judges have little tolerance for a debtor that is not taking the citation proceeding seriously.

At the examination, three key questions I focus on before I look through the debtors’ documents are: (1) is he/she employed?; (2) Does he/she have bank accounts?; and (3) does the debtor own real estate?

(1) Employment: If the debtor answers yes to Item 1 (debtor has job) – I issue a wage deduction against the debtor’s employer.  You can have 15% of debtors’ gross, pre-tax wages under Illinois law under the Wage Deduction statute: 735 ILCS 5/12-801 et seq.

(2) Bank Account: If debtor has a bank account, I find out where and immediately issue and send a third-party citation to the bank’s Keeper of Records and serve it by certified mail.

Once the debtor’s bank receives the third-party citation, the bank must freeze the debtor’s account until further order of court.  I usually wait 2-3 days to send the debtor notice of the third-party citation.  Otherwise, if the debtor catches wind of the third-party citation, he/she can race to the bank, empty his/her accounts and you will get nothing (and NOT like it).

(2)(a) The Third-Party Citation

I have found a third-party citation to be a very  powerful enforcement tool.  People don’t like it when they can’t withdraw money from their account (individual) or make payroll (corporate debtor).

But, more often than not, the debtor’s bank account has little or no money in it.

Illinois law also has a $4,000 catch-all exemption: a debtor can declare up to $4,000 in his account as exempt (this is good information for someone representing a judgment debtor).

Example: debtor’s bank answers the third-party citation that the debtor has $4,050 in his/her checking account.  The debtor could declare $4,000 exempt and you (the creditor) would only get a paltry $50.  The burden is clearly on the debtor to claim this exemption.

The third-party citation will have a separate “return date”.  I try to schedule both the underlying “first party” citation (the one against the debtor) and third-party citation (against the debtor’s bank, e.g.) on the same day.

If the bank (or other third party respondent) files an answer stating that the debtor does have funds on deposit, I request a Turnover Order.  This is a court order which requires the bank/third-party to remit funds to the creditor’s counsel.

Once the turnover order issues, I send it to the bank/third-party with a letter saying “enclosed please find a copy of today’s order requiring you to turn over the sum of $____ within 7 days.  Please remit to the undersigned and make your check payable to_____”.  If the bank fails to pay (a rarity), I move to vacate the dismissal of the third-party citation and request that a conditional judgment enter against the bank. This almost always gets the bank’s attention since it doesn’t want to deal with a money judgment against it.

(3) Real Estate

If the debtor owns real estate, I record a Memorandum of Judgment against the property.

The Memorandum of Judgment must be signed by the judge that entered the underlying judgment (not the 1401 judge).  So, if a Muni judge entered it (on the 11th floor), you must have that judge sign the Memorandum.  If you forget at the time of judgment, simply file a motion requesting the judge to sign the Memorandum.

I attach a legal description to the Memorandum of Judgment along with the real estate PIN number.  Then, I record the Memorandum in the Recorder of Deeds.  For a Chicago-land debtor, I record in the Cook County Recorder of Deeds.  This puts a cloud on the debtor’s title.  The lien will interfere with the debtor’s attempts to refinance or sell his property.

If there is equity in the real estate, I can file suit to foreclose the lien and force a sale of debtor’s property.  But, before I do this, I run a title search – or at least check Cook County Assessor’s and Recorder of Deeds site to determine any prior recorded liens on the property.

A prior mortgage or other lien will trump my judgment lien and can make foreclosing the lien ( forcing a sale of the property) cost-prohibitive.

If the debtor answers that he has non-exempt personal property (e.g. car, jewelry, furniture, etc)., I explore whether the client wants to levy on the property.  Usually, it involves placing documents with the Sheriff and posting a bond.  This is where 735 ILCS 5/12-101-183 comes into play.  Levying on personalty can be time-consuming and expensive.

Other exemptions a debtor can assert in citation/supplementary proceedings are found at Section 2-1402(b)(1) and include unemployment benefits, Social Security benefits, worker’s comp benefits, $2,400 in car, $15,000 in home, $4,000 catch-all exemption among others.

Conclusion

There are many more details and nuances to collecting on a judgment.  But the above steps are a good starting point for a collection attorney trying to enforce a judgment for his client.  I can tell you this: when you are able to recover monies in citation proceedings through dogged efforts, clients are very appreciative which is very gratifying.