In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 23-1870
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff-Appellee,
and
KEVIN B. DUFF, Receiver, et al.,
Appellees,
v.
EQUITYBUILD, INC., et al.,
Defendants,
APPEAL OF: BC57, LLC.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 18-cv-5587 — Manish S. Shah, Judge.
____________________
ARGUED JANUARY 22, 2024 — DECIDED MAY 6, 2024
____________________
Before EASTERBROOK, ST. EVE, and JACKSON-AKIWUMI, Cir-
cuit Judges.
2 No. 23-1870
ST. EVE, Circuit Judge. After the collapse of a real estate
Ponzi scheme, investors filed claims in hopes of getting their
money back. This appeal concerns the proceeds from the liq-
uidation of five properties over which individual investor-
claimants and a private lender, BC57, both claim priority. Fol-
lowing the court-appointed receiver’s recommendation, the
district court awarded priority to the individual investors be-
cause their security interests were first in time and were never
extinguished. BC57 now appeals that decision, and we affirm.
I. Background
A. The Scheme
Jerome and Shaun Cohen ran a Ponzi scheme through
their real estate companies EquityBuild, Inc. and EquityBuild
Finance, LLC (“EBF”) from at least 2010 to 2018. The scheme
began with the Cohens, through EquityBuild, selling promis-
sory notes to investors, each note representing a fractional in-
terest in a specific real estate property. They promised interest
rates ranging from 12% to 20%. A mortgage on the respective
properties, mostly located in underdeveloped areas of Chi-
cago, secured each of the notes.
As part of their transactions with investors, the Cohens
drafted, and the investors executed, a Collateral Agent and
Servicing Agreement (“CAS”). The CAS granted certain
rights and powers to EBF, which was to act as a “collateral
agent” and service the loans. Thus, the mortgages were struc-
tured as between EquityBuild (the borrower) and the individ-
ual investors (the lenders), “care of” EBF—an entity distinct
from EquityBuild despite the similar names.
The CAS authorized EBF to issue monthly statements and
payoff demands, and to demand, receive, and collect loan
No. 23-1870 3
payments. It also limited EBF’s powers, including by requir-
ing written instructions from the individual investors prior to
foreclosure, amendment or termination of the mortgage, or
other actions.
In addition to a CAS, many of the investors also signed an
untitled document listing the investor’s name, amount in-
vested, percent ownership of the total loan, and monthly in-
terest payment the investor would receive. Beneath the
lender’s signature line appeared a statement that purported
to provide EBF with the authority to receive payment on be-
half of the investor and issue and execute a release of the
mortgage.
By overvaluing the properties involved in the scheme, the
Cohens generated money that they pocketed as undisclosed
fees and used to pay earlier investments. The overvaluation
also meant that, contrary to representations, the investments
were not fully secured.
As it became more difficult for the Cohens to sustain mak-
ing interest payments to investors, they found ways to put off
those payments and continue their scheme. That mischief re-
sulted in a new business model in 2017. Instead of offering
investors promissory notes, the Cohens began offering oppor-
tunities to invest in real estate funds. As before, they told in-
vestors that EquityBuild would pool investments to buy and
renovate properties at exceptional rates of return. The Cohens
apparently used much of these later investments to make pay-
ments to earlier investors.
At that stage, BC57, LLC, a private lender and investor,
lent roughly $5.3 million to EquityBuild, allegedly in ex-
change for a first mortgage on the five properties at issue, all
4 No. 23-1870
on the south side of Chicago. Those five properties were al-
ready owned by EquityBuild and were subject to preexisting
liens from the individual investors here. To deal with the
problem of competing security interests, EBF provided false
payoff letters to BC57 at closing purporting to pay the existing
loans secured by existing liens on the five properties with
BC57’s investment. BC57’s settlement agent, Near North Na-
tional Title Company, received the payoff letters as escrowee.
Near North also received executed releases for each property,
with Shaun Cohen signing off as EBF manager on all five re-
leases. 1 The releases stated:
Know all men by these presents, that
EQUITYBUILD, INC. for and in consideration of
TEN DOLLARS ($10.00) and for other good and val-
uable considerations, the receipt of which is hereby
confessed, does hereby remise, convey, release, and
quit-claims unto EQUITYBUILD FINANCE, LLC of
the County of COLLIN, State of TEXAS, all rights, ti-
tle, interest, claim or demand whatsoever he/she
may have acquired in, through or by a certain Mort-
gage bearing the date of [2/21/2014 or 12/30/2014].
Each release included the address and a description of the re-
leased property. Each was notarized and recorded. Individual
investors did not sign any of the releases, however, nor did
they receive any money from BC57’s payment.
1 The mortgage for one of the properties, 7752 S. Muskegon Ave, listed
the lender as the individual investors “c/o Hard Money Company, LLC,”
not EBF. Yet Cohen signed this release on behalf of EBF, not Hard Money
Company.
No. 23-1870 5
The scheme collapsed in 2018 after the Cohens admitted
that EquityBuild had funded investor interest payments with
later investments. The Securities and Exchange Commission
(“SEC”) filed suit shortly thereafter against the Cohens, Equi-
tyBuild, and EBF, alleging violations of various sections of the
Securities Exchange Act of 1934 and Securities Act of 1933.
B. Procedural Background
The SEC obtained a temporary restraining order against
the Cohens, and the district court appointed a receiver to de-
velop a plan for the recovery and liquidation of all remaining,
recoverable receivership assets. The receiver later filed a liq-
uidation plan identifying the properties owned by Equi-
tyBuild. Among them are the five properties at issue in this
appeal. With approval from the district court, the receiver
sold the five properties and now holds the proceeds, over $3
million, pending the resolution of the claims process at issue
here.
The individual investors whose loans BC57’s investment
purportedly paid off claim priority to those proceeds, arguing
that they never received payment or released their interests,
despite the releases signed by Shaun Cohen. BC57 disagrees
and asserts that it has priority. The district court ultimately
awarded priority to the individual investors, finding that the
mortgage releases were facially defective and that EBF lacked
the authority to execute them. The court also found that
BC57’s payment in full did not, on its own, extinguish the in-
dividual investors’ mortgage liens. After entering the final
distribution plan, the district court stayed distribution of the
proceeds pending the outcome of this appeal.
6 No. 23-1870
II. Analysis
Appealing the interlocutory order, BC57 argues the dis-
trict court erred by concluding that EBF’s receipt of payment
did not extinguish prior mortgage liens and by finding the re-
leases of those mortgage liens facially defective and invalid. 2
We take each issue in turn.
A. BC57’s Payment
BC57 claims that its $5.3 million payment in exchange for
a mortgage with first priority extinguished the existing liens
on the properties, regardless of the validity of the releases
signed by Shaun Cohen. Whether BC57 is correct—and is
therefore the creditor with first priority over the proceeds
from the sale of those properties—depends in part on whether
the Illinois Mortgage Act, 765 ILCS 905/2, abrogated the Illi-
nois common law rule that payment of a debt underlying a
mortgage automatically extinguishes that security interest.
Generally, we review questions of law de novo. See Tsareff
v. ManWeb Servs., Inc., 794 F.3d 841, 848 (7th Cir. 2015). Alt-
hough we have not explicitly applied that standard of review
to a district court’s application of law in receivership proceed-
ings, we have done so implicitly. See Wealth Mgmt., 628 F.3d
at 334–35. Several of our sister circuits similarly apply de novo
review to legal questions in receivership proceedings. See, e.g.,
United States v. Acorn Tech. Fund, L.P., 429 F.3d 438, 442 (3d
2 We have jurisdiction to consider an interlocutory appeal of a district
court’s distribution plan under the collateral order doctrine. See SEC v.
Wealth Mgmt. LLC, 628 F.3d 323, 330–31 (7th Cir. 2010) (holding that a dis-
trict court order approving a receiver’s distribution plan satisfies all re-
quirements for interlocutory review under Cohen v. Beneficial Indus. Loan
Corp., 337 U.S. 541 (1949), and its progeny).
No. 23-1870 7
Cir. 2005); FTC v. Assail, Inc., 410 F.3d 256, 262 (5th Cir. 2005);
SEC v. Wells Fargo Bank, N.A., 848 F.3d 1339, 1343 (11th Cir.
2017); Slattery v. Roth, 710 F.3d 1336 (Fed. Cir. 2013). We agree.
Under Illinois common law, the payment of a debt under-
lying a mortgage automatically extinguishes the security in-
terest belonging to the holder of that debt. See, e.g., Bradley v.
Lightcap, 66 N.E. 546, 548 (Ill. 1903) (“[T]he title conveyed to
the mortgagee is a mere incident of the mortgage debt, … and
when the debt is paid, discharged, released, or barred by lim-
itation, the mortgagee’s title is extinguished by operation of
law.”). BC57 contends that under this common law rule, its
payment of the debt alone, regardless of the validity of the
releases, extinguished those interests. This common law rule
remains in full effect, BC57 argues, because Section 2 of the
Illinois Mortgage Act (“the Act”), passed in 1961, did not ab-
rogate the rule.
The first step Illinois courts take when considering
whether a statute has abrogated a common law rule is to ask
whether the statute contains a “plainly and clearly stated” ex-
pression of abrogation. Rush Univ. Med. Ctr. v. Sessions, 980
N.E.2d 45, 50 (Ill. 2012). We therefore first turn to the text of
the statute. Section 2 of the Illinois Mortgage Act provides:
Every mortgagee of real property, his or her assignee
of record, or other legal representative, having re-
ceived full satisfaction and payment of all such sum
or sums of money as are really due to him or her
from the mortgagor… shall, at the request of the
mortgagor, … in case such mortgage or trust deed
has been recorded or registered, make, execute and
deliver to the mortgagor or grantor in a deed of trust
in the nature of a mortgage, … an instrument in
8 No. 23-1870
writing executed in conformity with the provisions
of this Section releasing such mortgage or deed of
trust in the nature of a mortgage, which release shall
be entitled to be recorded or registered and the re-
corder or registrar upon receipt of such a release and
the payment of the recording fee therefor shall rec-
ord or register the same.
Mortgages of real property and deeds of trust in the
nature of a mortgage shall be released of record only
in the manner provided herein or as provided in the
Mortgage Certificate of Release Act.
765 ILCS 905/2. While the Act obligates a mortgagee to issue
a release of the mortgage upon full satisfaction of the debt un-
derlying the lien, it does not expressly abrogate the common
law rule that payment automatically extinguishes the lien. It
does not even mention the common law rule, let alone pro-
vide a “plain and clear statement” rejecting automatic extin-
guishment of a security interest upon payment of a debt un-
derlying a mortgage.
But the absence of an express statement does not end the
inquiry. The Act nevertheless abrogates the common law rule
if there is “an ‘irreconcilable repugnancy’ between the statute
and the common law right such that both cannot be carried
into effect.” Rush, 980 N.E.2d at 51 (quoting People ex rel. Nel-
son v. W. Englewood Tr. & Sav. Bank, 187 N.E. 525, 529 (1933)).
Although the Illinois Supreme Court has not spoken on
this issue, we are not writing on a blank slate. See Nationwide
Agribusiness Ins. Co. v. Dugan, 810 F.3d 446, 450 (7th Cir. 2015)
(noting that when we exercise diversity jurisdiction, we apply
Illinois state law as the Illinois Supreme Court has interpreted
No. 23-1870 9
it). Without guidance from the state’s highest court, “deci-
sions of the Illinois Appellate Courts control, unless there are
persuasive indications that the Illinois Supreme Court would
decide the issue differently.” Id.
Illinois Appellate Courts have applied the Act to mean
that “a perfected mortgage lien remains in effect unless released
pursuant to the Mortgage Act.” Fed. Nat’l Mortg. Ass’n v. Kuipers,
732 N.E.2d 723, 728 (Ill. App. Ct. 2000) (emphasis added); see
also N. Shore Cmty. Bank & Tr. Co. v. Sheffield Wellington LLC,
20 N.E.3d 104, 117–19 (Ill. App. Ct. 2014). In Kuipers, the court
found that the assignment of a mortgage does not extinguish
the original lien, reasoning that under Section 2 of the Mort-
gage Act, a mortgage lien remains in effect until it is released.
732 N.E.2d at 727. Without a properly executed and delivered
release, the lien persists. Id. at 728.
North Shore similarly held that a mortgage lien is only ex-
tinguished upon the delivery of a written release. 20 N.E.3d at
118 (citing 765 ILCS 905/2). It reasoned that, “[w]hile the plain
language of section 2 [of the Act] does indicate that full pay-
ment is a necessary condition before a mortgagee is obligated
to release a mortgage, it does not suggest that full payment,
by itself, is a sufficient condition to release a mortgage.” Id. The
court concluded:
[The] challenge to the Bank’s standing rests entirely
on the theory that the Bank released its mortgage by
receiving full payment. However, even if there was
full payment, the plain language of the Mortgage
Act indicates that delivery is necessary before a
mortgage is released. Since it is undisputed that
there was no delivery, the mortgage has not been re-
leased.
10 No. 23-1870
Id. at 118–19. In other words, payment alone is not enough.
Due to the deference we owe Illinois Appellate Courts on
matters of Illinois state law, we interpret Kuipers and North
Shore to mean that the Act abrogated the common law rule:
there must be payment and delivery of the release to extin-
guish a mortgage lien.
Rockford Life Insurance Co. v. Rios, cited by BC57, is not to
the contrary. See 261 N.E.2d 530 (Ill. App. Ct. 1970). In Rock-
ford, the Illinois Appellate Court ordered the release of a mort-
gage after it determined that the note securing the mortgage
had been properly paid to the mortgagee’s authorized agent.
Id. at 531–32. At no point did the court find that payment alone
extinguished any security interest; indeed, the order to release
the mortgage suggests that only upon release is that interest
extinguished. In fact, BC57 cannot identify a single decision
by an Illinois court applying the common law rule to a trans-
action occurring after the passage of the Mortgage Act, nor
could we find one ourselves.
Finding that under the Illinois Mortgage Act, payment
alone does not extinguish any pre-existing interest absent a
valid release, we consider whether the release purportedly ex-
ecuted by EBF was valid.
B. EBF’s Release
The district court found that discrepancies in the releases
granted by EBF when BC57 closed the loan rendered those re-
leases facially invalid. It specifically found that those discrep-
ancies were not mere scrivener’s errors. BC57 argues this de-
cision was erroneous, claiming that any discrepancies do not
No. 23-1870 11
invalidate the releases because they fall under the doctrine of
mutual mistake. 3
In Illinois, the party arguing mutual mistake has the bur-
den of proving by “clear and convincing evidence” that the
parties to a transaction committed a mutual mistake in their
written agreement. Fisher v. State Bank of Annawan, 643 N.E.2d
811, 814 (Ill. 1994); see also Wheeler-Dealer, Ltd. v. Christ, 885
N.E.2d 350, 355 (Ill. App. Ct. 2008). Whether that party has
met its burden “is a question of fact” to be resolved by the
lower court, whose “decision in the matter will not be dis-
turbed on review unless it is against the manifest weight of
the evidence.” Wheeler-Dealer, 885 N.E.2d at 355.
No party disputes that the releases contain fundamental
errors that give rise to uncertainty over who granted them.
The releases, purportedly granted by EBF (and signed by
Shaun Cohen acting as EBF manager), list EquityBuild as the
party issuing the release, even though EquityBuild was the
borrower, not the lender or the lender’s agent. The signature
line, in contrast, lists EBF as the party issuing the release.
Contrary to BC57’s arguments, while documents may
show that EBF was the correct issuer of the releases, BC57 does
not present clear and convincing evidence that both parties
intended for EBF to be the issuer. Nor does BC57 demonstrate
that the discrepancies in the releases were merely mutual mis-
takes. The district court concluded the opposite, a conclusion
that is not against the manifest weight of the evidence. We
3 On appeal, the investors argue that BC57 waived any argument as to
mutual mistake by not raising it below. But Illinois courts treat mutual
mistake as a type of scrivener’s error, which BC57 did argue to the district
court. See Roots v. Uppole, 400 N.E.2d 1003, 1006 (Ill. App. Ct. 1980).
12 No. 23-1870
find it particularly difficult to fault that determination when
the Cohens’ entire business model operated to purposefully
obfuscate responsibility and ownership. In fact, some of the
evidence indicates that EquityBuild, not EBF, exercised con-
trol over the releases by directing their contents. An Equi-
tyBuild employee set the dollar amounts for payoff quotes.
And when the original releases directed BC57 to send pay-
ment directly to EquityBuild, that same employee explained
that payment should go to EBF instead, not because it was au-
thorized to receive payment on behalf of the individual inves-
tors, but because “the optics aren’t good.” This evidence sup-
ports that the release named EquityBuild because it directed
the process, not due to a mutual mistake.
The conclusion that the releases were facially invalid is not
against the manifest weight of the evidence, so we need not
decide whether EBF had the authority to release the mort-
gages. The releases had no effect, and the individual investors
maintain their interests in these five properties.
III. Conclusion
Because payment alone cannot extinguish a preexisting se-
curity interest without a valid release under the Illinois Mort-
gage Act, and because no valid release occurred, we AFFIRM.
No. 23-1870 13
EASTERBROOK, Circuit Judge, concurring. I question the ex-
istence of appellate jurisdiction. The district court allowed the
receiver to sell five properties and distribute the proceeds to
a set of investors; it denied BC57’s claim to priority. This order
ends the litigation for these investors and BC57. But it does
not wrap up the suit. Although all properties in the receiver-
ship estate have been sold, other investors’ competing claims
to the undistributed funds must be resolved. Normally an ap-
peal under 28 U.S.C. §1291 awaits the final decision—i.e., res-
olution of all claims by and against all parties. Interlocutory
appeals from some orders in receiverships are authorized by
28 U.S.C. §1292(a)(2), but no one contends that the district
court’s order in this case qualifies.
The court today says that the collateral-order doctrine
supports an immediate appeal. Slip op. 6 n.2. This reflects a
holding of SEC v. Wealth Management LLC, 628 F.3d 323, 330–
31 (7th Cir. 2010), so I do not dissent. But I doubt that Wealth
Management is correctly decided.
Appealable collateral orders are orders “that are conclu-
sive, that resolve important questions separate from the mer-
its, and that are effectively unreviewable on appeal from the
final judgment in the underlying action.” Swint v. Chambers
County Commission, 514 U.S. 35, 42 (1995). The Court has
stressed that this doctrine must not be allowed to displace the
norm that appeal under §1291 is not proper until the district
court has finished with the case. See, e.g., Mohawk Industries,
Inc. v. Carpenter, 558 U.S. 100 (2009).
Did the district court in this case resolve questions “sepa-
rate from the merits”? Far from being “collateral” to the mer-
its, a decision about who receives how much of the proceeds
from a sale is the merits. The goal of a receivership is to
14 No. 23-1870
marshal and distribute assets. A distribution order such as the
one at issue here is the end of the process for the claimants
involved, rather than collateral to something else.
Liberty Mutual Insurance Co. v. Wetzel, 424 U.S. 737 (1976),
tells us that a disposition that resolves both liability and dam-
ages equals a decision on the merits. In this litigation, liability
for this Ponzi scheme was established years ago, and the
court’s decision about who gets what supplies the remedy (or,
for BC57, sends it away without a remedy). There’s nothing
more to do in the district court with respect to any of these
claimants, and a terminal order can’t be “collateral” to the
merits.
How about whether the order is “effectively unreviewable
on appeal from the final judgment in the underlying action”?
That requirement, too, is not satisfied. Once the district court
has specified the final distribution, BC57 could present on ap-
peal the same arguments that we resolve today.
BC57 would be unable to enjoy the fruits of an appellate
victory if the investors who receive the funds dissipated them
in the interim. But that potential problem has multiple solu-
tions. (1) The district court could order the receiver to retain
the funds, investing them while the case continues. (2) Distri-
bution to the investors could be conditioned on the posting of
security so that the money remains available if a competing
claimant prevails on appeal from the final decision. (3) The
district court could enter a partial final judgment under Fed.
R. Civ. P. 54(b).
The third of these is the most common. Once a district
court has resolved all claims by or against a particular litigant,
it may enter a partial judgment to facilitate an immediate
No. 23-1870 15
appeal. That could have been done here, but apparently no
one asked the district judge. Instead BC57 appealed, assert-
edly as of right, preventing the district judge from exercising
discretion to manage the litigation. See Curtiss-Wright Corp. v.
General Electric Co., 446 U.S. 1, 7–8 (1980) (discussing district
judges’ discretion under Rule 54(b)).
Wealth Management did not address any of this. The panel
took as given that a distribution order in a receivership is col-
lateral to the merits. It did not explain why. Instead it fol-
lowed SEC v. Forex Asset Management LLC, 242 F.3d 325, 330–
31 (5th Cir. 2001), and SEC v. Basic Energy & Affiliated Re-
sources, Inc., 273 F.3d 657, 666–67 (6th Cir. 2001). Forex is the
first in a line of decisions that includes Basic Energy and SEC
v. Torchia, 922 F.3d 1307, 1315–16 (11th Cir. 2019), as well as a
handful of nonprecedential decisions. Forex did not justify
treating a distribution order as “collateral” when it is the final
decision on the merits with respect to particular litigants. Nor
did it discuss the relation between this supposedly “collat-
eral” order and Rule 54(b). Wealth Management and some other
circuits followed Forex without much elaboration.
All but one. SEC v. Capital Consultants LLC, 453 F.3d 1166,
1171–72 (9th Cir. 2006), disagrees with Forex and Basic Energy.
Capital Consultants explains why a distribution order of the
kind under review today is a decision on the merits. The panel
in Wealth Management did not cite Capital Consultants and ap-
parently did not recognize that it was choosing sides in a con-
flict among the circuits. (Wealth Management did cite an earlier
decision in the Capital Consultants litigation, but not the deci-
sion that discusses the collateral-order doctrine. That earlier
appeal reviewed a partial final judgment entered under Rule
54(b). SEC v. Capital Consultants, LLC, 397 F.3d 733, 737 n.4
16 No. 23-1870
(9th Cir. 2005). The fact that review was possible under Rule
54(b) excludes calling the order “collateral”.)
Appellate courts should not use the collateral-order doc-
trine to nullify the discretion that district judges possess un-
der Rule 54(b) and override the limitations on receivership ap-
peals under §1292(a)(2). Still, there is an established conflict
among the circuits, and it is rarely prudent to move from one
side of a conflict to the other. The Supreme Court or the Judi-
cial Conference (through its power under 28 U.S.C. §2072(c)
to define final decisions) could resolve the conflict. We cannot.
I therefore join my colleagues’ opinion, which accurately re-
solves the substance of the litigants’ dispute.