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HOA Talk: Illinois — The 1010 Lake Shore Ass’n Case and the Need to Pay Post-Judicial Sale Condominium Assessments on Time

Posted By USFN, Monday, November 9, 2015
Updated: Wednesday, November 11, 2015

November 9, 2015

 

by Michael Anselmo and Thomas Anselmo
Anselmo Lindberg Oliver, LLC
USFN Member (Illinois)

The Appellate Court of Illinois, First District, Second Division, decided a case [1010 Lake Shore Association v. Deutsche Bank National Trust Co., No. 1-13-0962 (Ill. App. Ct. Aug. 12, 2014)] that compels servicers to reevaluate the way they view unpaid condominium assessments that became due prior to the foreclosure sale.

Under the Condominium Property Act [765 ILCS 605/9(g)(3)], a lender (or any other party) that purchases a condominium at a judicial foreclosure sale is responsible for payment of the unit’s proportionate share of common expenses assessed from the first day of the month following the sale. The question then becomes “what happens to those unpaid assessments that became due prior to the sale?” It has commonly been presumed, and common sense dictates, that having named the condominium association in the foreclosure extinguished this lien with no further action. The First District, however, disagreed. [Justice Liu, in a well-written dissent, also takes the position that naming the association extinguishes their lien and bars them from any further claims.]

In 1010 Lake Shore, the foreclosing mortgagee was the highest bidder at the foreclosure sale. After the sale, they were disputing the assessments on the property that were due prior to the completion of the foreclosure action. As a result, the mortgagee withheld payment of assessments — including those due after the sale occurred. The appellate court held that the duty to pay the current assessments exists independently of the prior assessments, and then stated that failing to pay the current assessments would revive the previously extinguished pre-sale assessments, leaving the mortgagee liable to pay those as well.

This is a significant win for the condominium associations, who have been stretching this opinion as far as they can to obtain all past-due assessments. In creating this duty to pay, the decision in 1010 Lake Shore does not confer a legally cognizable right in the property (the winning bidder must still obtain an order approving sale), but ominously punishes bidders as if it did. This has led to nightmarish situations for lenders because the holding does not set parameters as to when a payment actually extinguishes the lien.

After discovery of an association, new steps must be taken to ensure the extinguishment of their lien. Including them in the foreclosure no longer guarantees an extinguishment.

Servicers should obtain the amount of the current monthly assessments at, or about, the time of the foreclosure sale. At this point, under 1010 Lake Shore, the purchaser of the unit at the foreclosure sale must focus on the payment due on the first day of the month after the sale took place. Failure to make that payment risks allowing the previously extinguished pre-sale assessments to be revived. Any disagreement with prior assessments must be handled independently of the post-sale assessments in order to avoid the risk of being responsible for all assessments.

Often associations will not disclose any information until a deed is recorded. This occurs well after the first day of the month following the foreclosure sale — and does not stop the same association from suing the lender for the full amount of the condominium lien after confirmation, contending that the lender failed to tender timely payments. The same problem exists in the form of overcharging. If a lender takes the time to contest an overcharge, the association may acquiesce on the initial demand, but will then argue that the pre-foreclosure condominium liens are revived due to the lapse in time.

For that reason, proactive steps must be taken to demonstrate compliance with the Condominium Act — and adherence to 1010 Lake Shore. The certificate of sale should entitle the purchaser to obtain the information. If the association refuses to provide the purchaser with the necessary information after having requested it in writing, argument can be made that the association’s refusal to provide the necessary information estops them from a 1010 Lake Shore argument.

On January 27, 2015, the Illinois Supreme Court granted certiorari and will review the First District’s decision in 1010 Lake Shore. At the time of the writing of this article, oral argument was heard on September 24 and a decision from the Court is expected within the next few months. While it is hoped that the Supreme Court will take a more reasonable approach, it is best to avoid becoming involved in the predicament that the First District’s decision presents.

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