provisions. But in summary, an association can recover from a third-party purchaser (either a third-party bidder at the mortgage foreclosure sale or, more typically, a party which purchases the unit from the foreclosing mortgage lender) the common expenses for the six months immediately preceding institution of an action to enforce the collection of unpaid assessments. In order to solidify the association’s ability to recover the six months’ assessments and clarify the window of time which constitutes the six months, it is usually advantageous for an association to initiate assessment collection action even in the presence of a mortgage foreclosure case.
Also Don’t Ignore Bankruptcy Cases
While a homeowner bankruptcy case also will complicate an association’s collection efforts, the bankruptcy will not necessarily preclude association recovery of delinquent common expenses. If a homeowner files a Chapter 13 Bankruptcy case (where the homeowner’s debt is paid over time to creditors through a repayment plan administered by a bankruptcy trustee), the association should ensure that the pre-bankruptcy petition debt is properly included in the Chapter 13 repayment plan. The association also should file a proof of claim in the Chapter 13 case. If a homeowner fails to pay post-petition assessments while a Chapter 13 case is pending, an association can file a motion to lift the automatic stay. If an association’s motion to lift the automatic stay is successful, the association can then proceed with normal collection efforts as if there was no bankruptcy. If a homeowner files a Chapter 7 Bankruptcy case (where the homeowner’s debt is eliminated through a discharge), the association will be unable to pursue the homeowner personally for the pre-petition debt. However, the pre-petition debt generally will remain as a lien on the unit and may be collected when the current homeowner sells the unit.
Consider Lien Foreclosure as an Option
As discussed above, eviction generally is the preferred collection remedy for Illinois associations. Nonetheless, under certain factual circumstances, initiation of lien foreclosure proceedings could be beneficial for an association. Again, in an eviction lawsuit, an association seeks only temporary possession of a unit. In a lien foreclosure lawsuit, the association pursues a judicial sale of the unit and will acquire title to the unit if no third party submits the highest bid at the judicial sale.
When evaluating whether to file a lien foreclosure lawsuit, an association should consider a variety of factors. Most importantly, the association should conduct a title and property tax search to determine whether the association’s assessment lien is subject to superior liens (such as one or more mortgages and unpaid property taxes). If there is a significant amount of mortgage or property tax debt for the unit, association ownership of the unit would be subject to such senior debt, and lien foreclosure may not be financially
worthwhile. Other relevant factors will include whether the unit appears to have been abandoned, the physical condition of the unit, and the expected market (resale and leasing) value of the unit.
Depending on how community instruments are drafted, homebuilders or other owners of unimproved lots in a non-condominium common interest community can have an obligation to pay assessments. Similarly, developers or other owners of condominium units which have been submitted to a condominium declaration but have unfinished interiors also are obligated to pay assessments. As a practical matter, taking possession of a vacant lot or unfinished unit through the eviction process usually would not be useful to an association. Therefore, lien foreclosure can be an appropriate remedy in such cases.
Conclusion
Even if an association already has solid collection practices and skilled legal counsel in place, it is worthwhile for the association to periodically reevaluate whether it should refine its collection policy or employ additional collection measures when necessary. Implementing a few small steps can help an association minimize the impact of assessment delinquencies upon the association and its membership during both difficult and prosperous economic periods.
Available and accountable Timely and informative communication Clearly presented financial statements Experienced and dedicated staff
to discuss your Association’s needs.
lflanagan@bcmltd.com
1240 Meadow Rd., 4th Floor Northbrook, IL 60062
www.cai-illinois.org • 847.301.7505 | 43
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