By Douglas J. Sury Shareholder, Keay & Costello, P.C.

The Illinois Supreme Court’s Recognition and Respect of Condominium Association Lien Rights

On December 3, 2015, the Illinois Supreme Court issued an opinion confirming the holding of the First District Appellate Court in the case of 1010 Lake Shore Association vs. Deutsche Bank National Trust Company. The case involved a foreclosed unit at 1010 Lake Shore that Deutsche Bank purchased at a foreclosure auction in June 2010. The foreclosed-out owner owed a substantial balance to the Association at the time the foreclosure sale took place. Upon taking ownership of the unit, Deutsche Bank failed to pay any assessments. The Association ultimately sued Deutsche Bank in circuit court in May 2012 and the court entered judgment against Deutsche Bank in an amount in excess of $70,000.00, a substantial portion of which was the unit’s pre-foreclosure balance. Deutsche Bank appealed the circuit court’s ruling and, on appeal, the First District Appellate Court held, and the Illinois Supreme Court subsequently confirmed, that under Section 9(g)(3) of the Illinois Condominium Property Act, a foreclosure purchaser must pay common expenses beginning the month after the sale. The Appellate Court and Supreme Court also held that if a foreclosure purchaser fails to pay assessments beginning the month after the foreclosure sale, the association’s lien for common expenses not paid by the foreclosed-out owner is not extinguished, and the foreclosure purchaser then becomes obligated to pay the entire pre-foreclosure balance.

This holding is of obvious importance for condominium associations and all purchasers of units at foreclosure auctions. A common approach by foreclosure purchasers, particularly foreclosing lenders (and governmental and quasi-governmental agencies), has been to fail to make timely payment of post-foreclosure assessments. The court’s holding now puts these parties on notice that if they choose to continue such a practice, they do so at their own peril. This holding also places purchasers of foreclosed units on equal footing with all other owners in the association: timely payment of assessments must be made. The holding in Spanish Court Two Condominium Association vs. Carlson finally confirmed that the obligation to pay assessments is an independent covenant charged to all the owners. Ancillary matters related to association governance or operation, not related to possession of the unit, are not proper for a court to consider when ruling on an owner’s assessment obligation and any amounts

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that may be due and owing. The holding in 1010 Lake Shore is another opinion from the Illinois Supreme Court that respects the statutory lien rights of condominiums created by Section 9(g) of the Condominium Property Act and recognizes the obligation of all owners to make timely payments of assessments.

The holding in this case presents a number of implications for associations and management:

MONITORING FORECLOSURES

Actively monitoring foreclosures continues to be important as an association must know the status of a pending foreclosure in order to appropriately protect its rights to collect unpaid common expenses. The holding in this case makes knowing whether a unit has recently been sold at foreclosure auction more critical than ever, as failing to be on top of the status of a sold unit could result in an association losing out on its right to collect pre-foreclosure amounts.

PRE-FORECLOSURE BALANCE WRITE-OFFS Don’t automatically write off pre-foreclosure balances. Writing off a pre-foreclosure balance without consulting with counsel could result in an association walking away from money it is legally entitled to recover.

THE NEW OWNER’S OBLIGATION TO TIMELY PAY ASSESSMENTS

If the purchaser of a unit at foreclosure (a lending institution, a quasi-governmental agency, or a third-party investor) fails to timely pay the assessment due the month after the foreclosure sale is conducted, associations should turn the account over to association counsel for collection. Do not wait 60, 90 or 120 days after confirmation of the foreclosure sale to turn the account over if there is a pre- foreclosure balance and the new owner has not paid any post-foreclosure assessments.

ACCEPTING PAYMENTS FROM A NEW OWNER Once an account has been turned over to counsel for collection, do not accept any payments without first discussing the matter with counsel. Accepting a payment will most likely preclude an association from collecting any portion of the pre-foreclosure balance.

A Publication of CAI-Illinois Chapter