                               In the

    United States Court of Appeals
                 For the Seventh Circuit
No. 13-1518

IN RE:
GARY CRANE and MARSA S. CRANE, Debtors.

APPEAL OF: JEFFREY D. RICHARDSON, Chapter 7 Trustee

         Appeal from the United States District Court for the
                     Central District of Illinois.
   No. 2:12-CV-02146-MPM-DGB — Michael P. McCuskey, Judge.


No. 13-1277

IN RE: KLASI PROPERTIES, LLC, Debtor.

APPEAL OF: ROBERT T. BRUEGGE, Trustee of the Estate of Klasi
Properties, LLC

          Appeal from the United States Bankruptcy Court
                 for the Southern District of Illinois.
Nos. 12-60013 and 12-6028 — Laura K. Grandy, Chief Bankruptcy Judge.


  ARGUED OCTOBER 1, 2013 — DECIDED DECEMBER 23, 2013


   Before CUDAHY, RIPPLE, and HAMILTON, Circuit Judges.
2                                     Nos. 13-1518 and 13-1277

    HAMILTON, Circuit Judge. Under 11 U.S.C. § 544(a)(3), a
trustee in bankruptcy has the so-called “strong-arm” power to
“avoid … any obligation incurred by the debtor that is
voidable by—a bona fide purchaser of real property … from
the debtor … .” In these two appeals, we address a question
that has divided bankruptcy courts in Illinois and pitted
mortgage lenders against unsecured creditors. The question is
whether, before a 2013 amendment to the Illinois mortgage
recording statute, a bankruptcy trustee could use the strong-
arm power to avoid a mortgage recorded in Illinois on the
ground that the mortgage did not state on its face either a
maturity date or an interest rate. Our answer is no. The Illinois
statute on the form for recorded mortgages upon which the
trustees base their strong-arm efforts, 765 Ill. Comp. Stat. 5/11
(2012), was written in permissive rather than mandatory terms.
The absence of a maturity date and/or an interest rate did not
allow a bankruptcy trustee to avoid a mortgage under the pre-
amendment version of 765 ILCS 5/11. Accordingly, we affirm
the judgment of the district court in the Crane case, No. 13-
1518, and the judgment of the bankruptcy court in the Klasi
Properties case, No. 13-1277.
I. Factual and Procedural Background
   The debtors in both appeals, Gary and Marsa Crane and
Klasi Properties, LLC, borrowed money secured by mortgages
on real estate. In both cases, the mortgages were recorded by
the lenders to ensure the priority of their mortgage liens. In
both cases, the recorded mortgages did not state the maturity
date of the secured debt or the applicable interest rate. Those
terms were included in the promissory notes, of course, which
were fully incorporated by reference in the mortgages.
Nos. 13-1518 and 13-1277                                                     3

    The Cranes sought bankruptcy protection in the Central
District of Illinois, and Klasi Properties sought bankruptcy
protection in the Southern District of Illinois. In both cases, the
trustees filed adversary complaints under 11 U.S.C. § 544(a)(3)
seeking to avoid the mortgages because they did not state the
maturity dates or interest rates for the secured debts. In the
Crane case, the bankruptcy court granted summary judgment
in favor of the trustee, Crane v. Richardson (In re Crane), 2012
WL 669595, at *2 (Bankr. C.D. Ill. Feb. 29, 2012), but the district
court reversed and granted judgment for the mortgage lender.
Crane v. Richardson (In re Crane), 487 B.R. 906, 915–16 (C.D. Ill.
2013). In the Klasi Properties case, the bankruptcy court granted
summary judgment in favor of the mortgage lender. Bruegge v.
Farmers State Bank of Hoffman (In re Klasi Properties, LLC), 2013
WL 211111, at *8 (Bankr. S.D. Ill. Jan. 18, 2013). In light of the
Crane case and other conflicting decisions among bankruptcy
courts in Illinois, we accepted the trustee’s request for direct
review under 28 U.S.C. §158(d)(2)(B).1


1
  For cases holding that mortgages were enforceable despite the absence of
some terms listed in the statute, see Bruegge v. WBCMT 2007-C33 Mid
America Lodging, LLC (In re HIE of Effingham, LLC), 490 B.R. 800, 818–20
(Bankr. S.D. Ill. 2013) (mortgage missing interest rate and maturity date);
Banbury Metrolofts, LLC v. BMO Harris Bank, N.A. (In re Banbury Metrolofts,
LLC), 2013 WL 1191230, at *4 (Bankr. N.D. Ill. March 25, 2013) (same); Bank
of Ill. v. Covey (In re Shara Manning Props., Inc.), 475 B.R. 898, 910 (Bankr.
C.D. Ill. 2010) (construction lender’s mortgage was valid and enforceable
against debtor and second lender even if it omitted the debt amount,
interest rate, and maturity date where second lender had actual notice of
construction lender’s mortgage; 765 ILCS 5/11 creates a “safe harbor” for
mortgagees); Richardson v. Good (In re Good), 2006 WL 2458817, at *2 (Bankr.
                                                                 (continued...)
4                                              Nos. 13-1518 and 13-1277

II. Analysis
   Our analysis begins with a bankruptcy trustee’s “strong-
arm” powers under 11 U.S.C. § 544(a)(3), which provides:
        The trustee shall have, as of the commencement
        of the case, and without regard to any
        knowledge of the trustee or of any creditor, the
        rights and powers of, or may avoid any transfer
        of property of the debtor or any obligation
        incurred by the debtor that is voidable by … a
        bona fide purchaser of real property, other than
        fixtures, from the debtor, against whom
        applicable law permits such transfer to be
        perfected, that obtains the status of a bona fide
        purchaser and has perfected such transfer at the


1
   (...continued)
C.D. Ill. Aug. 23, 2006) (mortgage that omitted interest rate and maturity
date of underlying debt was valid under 765 ILCS 5/11 and could not be
avoided under bankruptcy trustee’s strong-arm powers); see also Citizens
Sav. Bank v. Covey (In re Pak Builders), 284 B.R. 650, 654–60, 662–63 (Bankr.
C.D. Ill. 2002) (mortgages that incorrectly identified debtor as a corporation
rather than a partnership and nature of secured debt did not prevent
mortgages from giving constructive notice of mortgagee’s interest sufficient
to preclude trustee from avoiding mortgage under strong-arm powers). For
cases holding that mortgages were not enforceable if they lacked any terms
listed in the statute, see People’s Nat’l Bank N.A. v. Jones, 482 B.R. 257, 263
(S.D. Ill. 2012) (765 ILCS 5/11 elements of form mortgage were requirements
under Illinois law), rev’d on other grounds, People’s Nat’l Bank N.A. v. Banterra
Bank, 719 F.3d 608 (7th Cir. 2013); Peterson v. Berg (In re Berg), 387 B.R. 524,
559–61 (Bankr. N.D. Ill. 2008) (mortgage that did not state debt amount,
interest rate, or maturity date of loan was insufficient under 765 ILCS 5/11
and could be avoided by Chapter 7 trustee).
Nos. 13-1518 and 13-1277                                           5

       time of the commencement of the case, whether
       or not such a purchaser exists.
    For present purposes, the key is that a bankruptcy trustee
may avoid any obligation or transfer of the debtor’s property
that a hypothetical bona fide purchaser could avoid, “without
regard to any knowledge of the trustee or of any creditor.”
State law governs who would count as a bona fide purchaser
and what constitutes constructive notice sufficient to defeat a
bankruptcy trustee’s section 544(a)(3) power. See Sandy Ridge
Oil Co. v. Centerre Bank N.A. (In re Sandy Ridge Oil Co.), 807 F.2d
1332, 1336 (7th Cir. 1986); Brown v. Job (In re Polo Builders, Inc.),
433 B.R. 700, 707 (Bankr. N.D. Ill. 2010).
     The question before us is therefore at bottom a question of
Illinois state law. We review de novo the conclusions of law
reached by both the district court and the bankruptcy court.
Illinois v. Chiplease, Inc. (In re Resource Technology Corp.),
721 F.3d 796, 799–800 (7th Cir. 2013); Ojeda v. Goldberg, 599 F.3d
712, 716 (7th Cir. 2010).
   A bona fide purchaser in Illinois is one who acquires an
“interest in [the] property for valuable consideration without
actual or constructive notice of another’s adverse interest in the
property.” U.S. Bank N.A. v. Villasenor, 979 N.E.2d 451, 464 (Ill.
App. 2012), quoting Goldberg v. Ehrlich (In re Ehrlich), 59 B.R.
646, 650 (Bankr. N.D. Ill. 1986). Actual notice is knowledge the
purchaser had at the time of the conveyance, U.S. Bank,
979 N.E.2d at 465, but the terms of section 544(a)(3) provide
that a bankruptcy trustee cannot be charged with actual notice.
A trustee can be charged with constructive notice, however.
Sandy Ridge Oil Co. v. Centerre Bank N.A. (In re Sandy Ridge Oil
6                                             Nos. 13-1518 and 13-1277

Co.), 832 F.2d 75 (7th Cir. 1987) (defectively recorded mortgage
was sufficient under Indiana law to serve as constructive notice
and to defeat debtor-in-possession’s strong-arm claim under §
544(a)(3)).
    Illinois defines constructive notice as knowledge that the
law imputes to a purchaser, whether or not the purchaser had
actual knowledge at the time of the conveyance. U.S. Bank,
979 N.E.2d at 465. There are two kinds of constructive notice:
record notice and inquiry notice. LaSalle Bank v. Ferone,
892 N.E.2d 585, 590 (Ill. 2008), citing Ehrlich, 59 B.R. at 650.
Record notice “imputes to a purchaser knowledge that could
be gained from an examination of the grantor-grantee index in
the office of the Recorder of Deeds, as well as the probate,
circuit, and county court records for the county in which the
land is situated.” Ehrlich, 59 B.R. at 650.
    The trustees argue here that the mortgages were legally
insufficient to give constructive notice to hypothetical bona
fide purchasers because they failed to satisfy what the trustees
call the formal “requirements” in the mortgage recording
statute as it existed when these debtors filed their bankruptcy
petitions, 765 ILCS 5/11 (2012).2

2
  Illinois amended 765 ILCS 5/11 effective June 1, 2013 to state that the
provisions regarding the form of a mortgage “are, and have always been,
permissive and not mandatory,” and that the failure to include the interest
rate and/or the maturity date does not affect the validity or priority of the
mortgage. See 2012 Ill. Legis. Serv. P.A. 97-1164, § 20. The bankruptcies
underlying these appeals were filed prior to the effective date, so we apply
the 2012 version of the statute. See Miller v. La Salle Bank N.A., 595 F.3d 782,
788 (7th Cir. 2010) (resolving similar question involving amendments to
                                                                  (continued...)
Nos. 13-1518 and 13-1277                                                  7

   Before the 2013 amendment, the statute said in relevant
part:
        Mortgages of lands may be substantially in the
        following form:
        The Mortgagor (here insert name or names),
        mortgages and warrants to (here insert name or
        names of mortgagee or mortgagees), to secure
        the payment of (here recite the nature and
        amount of indebtedness, showing when due and
        the rate of interest, and whether secured by note
        or otherwise), the following described real estate
        (here insert description thereof), situated in the
        County of …, in the State of Illinois.
        Dated (insert date).
        (signature of mortgagor or mortgagors)
        …
        Such mortgage, when otherwise properly
        executed, shall be deemed and held a good and
        sufficient mortgage in fee to secure the payment
        of the moneys therein specified … .
   The recorded mortgages at issue in these appeals accurately
disclosed the mortgagors, the mortgagees, the amounts of


2
   (...continued)
Indiana recording statute). We do not decide whether the 2013 amendment
should be treated as merely clarifying and applied here. We reach the same
result under the 2012 version of the statute because we agree that the terms
listed in section 5/11 have always been permissive rather than mandatory.
8                                      Nos. 13-1518 and 13-1277

indebtedness, the descriptions of the properties subject to the
mortgages, and the dates of the mortgages. The mortgages also
stated that the underlying debts were secured by separate but
contemporaneously-signed promissory notes. The recorded
mortgages did not set forth the maturity dates or the interest
rates of the underlying loans.
    If all the elements set forth by in the pre-amendment form
of 765 ILCS 5/11, including the interest rate and maturity date,
were mandatory, the trustees would have a stronger argument
that each element listed in the mortgage “form” set forth in
that section, including the interest rate and maturity date of the
underlying debt, would need to appear on the face of the
recorded mortgage for that document to serve as effective
notice of the mortgage to a potential buyer of the property. If
the elements listed in section 5/11’s “form” were permissive, a
recording may be deemed sufficient if it contains the
indispensable elements of a mortgage even if the recorded
document does not include every element listed in the
recording statute.
    Statutory interpretation here is a question of state law, and
our role is to predict how the Illinois Supreme Court would
decide the question. E.g., Pippen v. NBCUniversal Media, LLC,
734 F.3d 610, 615 (7th Cir. 2013) (our role in diversity action ”is
to predict how the state’s highest court would answer the
question if asked“); Bogie v. Rosenberg, 705 F.3d 603, 609 (7th
Cir. 2013) (because state law applied to plaintiff’s claims, “our
task is to interpret the state’s law as we predict the state’s
highest court would”).
Nos. 13-1518 and 13-1277                                       9

    This particular question of state law has an unusually
hypothetical flavor to it. We find it hard to imagine that any
prospective buyers or mortgage lenders for these properties
would, upon discovering the recorded mortgages in the chain
of title in the county land records, conclude that the mortgages
could not be enforced because the maturity dates and interest
rates were missing, and go forward with a purchase or new
loan without ensuring that the existing mortgages would be
paid off as part of the transaction. Nevertheless, that
hypothetical question of state law is the one we must answer
to apply section 544(a)(3), so we proceed on that basis.
    We believe the better view, and the one most likely to be
adopted by the Illinois Supreme Court, is that the form set
forth in section 5/11 has always been a permissive safe harbor,
that the mortgages recorded in these cases supplied the
indispensable elements of a mortgage under Illinois common
law, and that the recorded mortgages were effective to give
constructive record notice of the mortgages to potential buyers.
Thus, the trustees’ section 544 strong-arm powers cannot avoid
the banks’ recorded mortgage liens.
    We begin with the language of the statute. When the
language of the statute is plain, we enforce it according to its
terms. Greenfield Mills, Inc. v. Macklin, 361 F.3d 934, 954 (7th
Cir. 2004); Unzicker v. Kraft Food Ingredients Corp., 783 N.E.2d
1024, 1031 (Ill. 2002). Here the statute’s operative language is
plainly permissive, not mandatory: “Mortgages of lands may
be substantially in the following form.” 765 ILCS 5/11 (emphasis
added). The statute simply does not say that a recorded
mortgage must set forth every element listed for the recording
to be effective against third parties. Strict compliance with the
10                                    Nos. 13-1518 and 13-1277

suggested form is not required to ensure a valid mortgage
enforceable against subsequent lenders and purchasers.
     The trustees have not cited, and we have not found, any
Illinois cases actually holding that a recorded mortgage must
state the maturity date and/or the interest rate to ensure
priority over later claims. Nevertheless, the trustees find some
support for their argument that the section 5/11 elements were
requirements before the 2013 amendment in a few Illinois state
court opinions that have referred to the section 5/11 formal
elements as “requirements.” For example, in Caraway v. Sly,
78 N.E. 588, 589 (Ill. 1906), the Illinois Supreme Court wrote:
“Where the conveyance is in the form of a debt or obligation
secured by it, and [a predecessor to 765 ILCS 5/11], which
provides for a statutory form of mortgage, requires that a
mortgage in that form shall recite the nature and amount of the
indebtedness, showing when due and the rate of interest, and
whether secured by note or otherwise.” (Emphasis added.)
Similarly, in Bullock v. Battenhousen, 108 Ill. 28, 37 (1883), the
same court wrote: “The policy, though not the letter, of our
statutes requires, in all cases, a statement upon the record of
the amount secured. Thus, in [a predecessor to 765 ILCS 5/11],
the form of the mortgage there given requires the mortgage to
‘recite the nature and amount of indebtedness.’” (Emphasis
added.)
    These uses of the word “requires” do not persuade us to
adopt the trustees’ view. First, the elements can be described
as “required” for lenders wishing to take advantage of the
statute’s permissive safe harbor. With that understanding, a
mortgage that failed to include all statutory elements would
not be entitled to the statutory safe harbor but could still
Nos. 13-1518 and 13-1277                                      11

qualify for priority under the more general common law of
Illinois. And in Caraway, the reference to the statutory elements
as requirements was non-binding dictum that simply did not
address the permissive statutory language. The question the
court actually decided there was whether the document was a
deed giving the seller an option to repurchase or was instead
a mortgage. And in deciding that question, the Caraway court
recognized that “the essential things” in a mortgage “are the
existence of a debt and the intention to secure its payment.”
78 N.E. at 589. Those “essential things” are present in the
mortgages in these cases. In Bullock, the problem was that the
document in question did not state or otherwise indicate the
principal amount of the debt, which Illinois courts have always
treated as essential for a valid mortgage.
    Several other Illinois cases refer to some of the statutory
elements—other than maturity date and interest rate—as
“requirements.” Those cases, however, do not support the
trustees’ contention that a recorded mortgage must include the
interest rate and maturity date to give constructive record
notice to a potential buyer. Though the Illinois courts have said
that mortgages that did not set forth one or the other—the
interest rate or the maturity date—were insufficient to provide
notice, the mortgages in those cases also failed to set forth the
amounts of the underlying debts, which has always been
deemed essential. See, e.g., Flexter v. Woomer, 197 N.E.2d 161,
163 (Ill. App. 1964) (recording was not sufficient where
mortgage did not set forth amount of the underlying debt or
maturity date); Bergman v. Boda, 46 Ill. App. 351, 357 (1892)
(mortgage that did not recite the amount of the debt it secured
did not provide record notice); cf. Gardner v. Cohn, 61 N.E. 492,
12                                    Nos. 13-1518 and 13-1277

493 (Ill. 1901) (mortgage was sufficient to charge subsequent
mortgagee with constructive notice; although the amount of
the debt was not expressly stated, it could be ascertained easily
from the other information provided in the recording); Skach v.
Gee, 484 N.E.2d 441, 443 (Ill. App. 1985) (trust deeds that did
not state correct principal amounts or maturity dates were
valid against subsequent purchasers because they “knew what
the cap was” and were therefore “on notice”). We recognize
that these statements in Flexter and Bergman provide some
support for the trustees’ position, but in the end, we are not
persuaded that the Illinois courts would have done under the
prior statute what they never actually did: disregard the
permissive statutory language and hold that a missing interest
rate and/or missing maturity date was alone sufficient to avoid
a mortgage where the essential common law elements of the
mortgage were included.
    Illinois statutes and cases show beyond doubt that the debt
amount is an indispensable element of a mortgage and must be
included in a recording, in at least some way, for the recording
to be effective against a third party. See 735 ILCS 5/15-1207
(defining mortgage as “any consensual lien created by a
written instrument which grants or retains an interest in real
estate to secure a debt or other obligation,” without reference
to interest rate or maturity date); Peterson v. Berg (In re Berg),
387 B.R. 524, 561 (Bankr. N.D. Ill. 2008) (mortgage did not
include principal amount of indebtedness; “without some
recorded indicia of reliability tying the [ ] Mortgage to the [ ]
Note it is impossible to say … that it is in fact the note secured
by the recorded Mortgage”); Bullock, 108 Ill. at 37 (explaining
requirement that mortgage set out the “amount claimed to be
Nos. 13-1518 and 13-1277                                      13

due” is needed to prevent “secret conspiracies between
mortgagors and mortgagees”).
    That reasoning simply does not apply to interest rates or
maturity dates, and Illinois courts have not applied it to avoid
mortgages that were silent on those terms. Even if the
mortgage is silent regarding the maturity date, the Illinois
legislature has set thirty years as the default maturity date for
mortgages. 735 ILCS 5/13-116(b) (“the lien of every
mortgage … in which no due date is stated upon the
face … shall cease by limitation after the expiration of 30 years
from the date of the instrument creating the lien … .”). And a
prospective buyer or new lender would not need to know the
interest rate for the prior loan to decide whether to go forward
with a new purchase or loan and what the terms should be.
    The trustees have not pointed to any controlling Illinois
authority indicating that a recorded mortgage that did not set
forth the interest rate or the maturity date of the underlying
indebtedness was not sufficient to give constructive record
notice of the mortgage to a third party, and we have found
none. We hold that the trustees had constructive record notice
of the mortgages in both the Crane and Klasi Properties cases
and were not entitled to avoid the mortgages.
   To tie up a few loose ends, the mortgage lenders presented
several arguments in the alternative, including whether the
maturity date and interest rate were incorporated into the
mortgages by reference to the associated promissory notes, and
whether the mortgages were sufficient under Illinois law to
give the trustees constructive inquiry notice. Because the
recorded mortgages were sufficient to supply constructive
14                                     Nos. 13-1518 and 13-1277

record notice, we do not address these alternative arguments.
Also, the lender in the Klasi Properties case argued before the
bankruptcy court that the trustee had waived the right to
attempt to avoid the mortgage under §544(a)(3). When the
lender moved for relief from the automatic stay so that it could
foreclose, the trustee entered into an agreed order “conceding”
that his interest was subordinate. The bankruptcy court did not
address the waiver argument, but the lender renewed its
argument on appeal. We reject it. An order granting a creditor
relief from the automatic stay does not have preclusive effect
and is not an adjudication of the substantive rights of the
parties. In re Vitreous Steel Products Co., 911 F.2d 1223, 1234 (7th
Cir. 1990). The trustee’s participation in the agreed order lifting
the automatic stay was not a concession and did not operate as
waiver.
                               *   *   *
    To conclude, the recorded mortgages at issue in these
appeals failed to state the interest rates and maturity dates of
the underlying debts. Even so, the mortgages supplied the
essential terms of a mortgage under Illinois law and were
sufficient to satisfy the common law and the permissive terms
of 765 ILCS 5/11. Thus, the mortgages provided constructive
record notice of the mortgages to the trustees, so the trustees
may not avoid the mortgages under 11 U.S.C. §544(a)(3). The
judgments of the district court in Crane, No. 13-1518, and the
bankruptcy court in Klasi Properties, No. 13-1277, are AFFIRMED.
