Seventh Circuit considered an appeal involving claims filed by investors attempting to recover their losses after the collapse of a real estate Ponzi scheme. Five properties were liquidated in conjunction with the legal proceedings and both individual investors as well as a private lender claimed priority over the proceeds. The district court followed the recommendation of the court-appointed receiver and awarded priority to the individual investors because their security interests were first in time and were not extinguished. The private lender appealed, arguing that a receipt of payment extinguished the individual investors’ mortgage liens and that the trial court erred when it found mortgage releases to be facially defective and invalid. The Seventh Circuit affirmed, finding that the district court did not err because payment cannot extinguish a preexisting security interest under the Illinois Mortgage Act and the releases were not valid. (JACKSON-AKIWUMI, concurring and EASTERBROOK, concurring separately)
Federal 7th Circuit Court
Civil Court
Lien Priority