Custom and practice in Illinois with respect to mortgages has been to incorporate the note or other debt instrument by reference, rather than to disclose all of the financial terms of a loan transaction in the mortgage. Then, in April 2012 (as previously reported in the Reed Smith Real Estate Legal Update), the Bankruptcy Court for the Central District of Illinois, in In re Crane, held that an Illinois mortgage must comply strictly with the form of mortgage as set out in the Illinois Conveyances Act, and that a mortgage that fails to include the maturity date and the interest rate of the underlying debt can be avoided in bankruptcy because it does not provide constructive notice to the bankruptcy trustee.
This harsh and unexpected result for the mortgage lender had lenders with Illinois mortgage loans scrambling to amend their mortgages to comply strictly with the statutory form, even while the appeal of In re Crane was pending and the state legislature was preparing legislation in response to the decision.
Now we can report that Illinois has taken action to reject In re Crane and its reasoning. On February 8, 2013, Gov. Pat Quinn signed Senate Bill 16 into law as Public Act 97-1164, which includes an amendment to the Conveyances Act that specifically provides that the form of mortgage (as set out in section 11 of the Conveyances Act) is permissive and not mandatory, and that the failure of a mortgage to conform to the statutory form (including failing to state the interest rate and/or the maturity date) does not affect the validity or priority of the mortgage.
Although the effective date of Public Act 97-1164 is June 1, 2013, the new law includes a specific statement of legislative intent that the form of mortgage has always been permissive, such that the law should serve to eliminate the prospect of the In re Crane reasoning being available to aggressive bankruptcy trustees seeking to find reasons to avoid Illinois mortgages.