IBA Compliance Connection

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One of our commercial loan customers is behind on his payments. The borrower owns farmland together with two of his brothers, and we would like to take out a mortgage on the land to protect the bank. We have not seen the deed, but our understanding is that the three brothers own the land jointly. Can we establish a lien on the land with just the one brother’s signature? We do not need more than 1/3 of the value of the land to secure the past due loan.

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Yes, Illinois law permits a joint tenant to mortgage his interest in property without the other joint tenant's consent or knowledge. However, the lien does not sever joint tenancy. In other words, upon the mortgagor’s death, the lien is extinguished, and the surviving joint tenants will take their interest free of that encumbrance.  

For resources related to our guidance, please see:

  • Cadle Co. II, Inc. v. Stauffenberg, 581 N.E.2d 882, 884 (Ill. App. 3d Dist. 1991) (“It is well settled that a co-tenant may mortgage his interest in jointly held property. Where a cotenant who owns less than the entire interest attempts to mortgage the whole, the mortgage is valid as to the actual interest of the mortgagor.”) (internal citations omitted)

    Harms v. Sprague, 473 N.E.2d 930, 934 (Ill. 1984) (“The property right of the mortgaging joint tenant is extinguished at the moment of his death. . . . While [the co-tenant] was alive, the mortgage existed as a lien on his interest in the joint tenancy. Upon his death, his interest ceased to exist and along with it the lien of the mortgage.”)

  • U.S. v. Sosa, 77 F.3d 484 (7th Cir. 1996) (“Illinois . . . permits a joint tenant to mortgage his interest in property without the other joint tenant’s consent or knowledge, and without severing the joint tenancy.”) (unpublished opinion)