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Illinois: Appellate Court Hands Down a Key Win to Lenders

Posted By USFN, Monday, May 1, 2017
Updated: Tuesday, April 18, 2017

May 1, 2017

by Douglas A. Oliver
Anselmo Lindberg Oliver LLC
USFN Member (Illinois)

Since December 3, 2015, one of the most challenging issues in Illinois foreclosure law has been condominium association (COA) demands that lenders satisfy unpaid, pre-foreclosure assessments, where the lender was the successful bidder at the judicial sale. On that date, a unanimous Illinois Supreme Court held that a condominium assessment lien against foreclosed property survives the foreclosure where post-sale assessments go unpaid. This was decided in a case known as 1010 Lake Shore Association v. Deutsche Bank National Trust Co., 43 N.E.3d 1005, 2015 IL 118372; and it dealt with Section 9(g) of the Illinois Condominium Property Act (Act) (765 ILCS 605/9(g)).

Under Section 9(g) of the Act, unpaid assessments become an automatic lien on condo property. This lien is subordinate to purchase money mortgages and is wiped out as a junior lien in a foreclosure — if the winning bidder at the foreclosure sale pays the assessments that come due from the first day of the next month following the sale.

The 1010 Lake Shore decision held that, pursuant to Section 9(g)(3) of the Act, the lien for pre-foreclosure unpaid assessments remains in place and enforceable until post-sale assessments are paid. Specifically, the Illinois Supreme Court ruled that it is the payment of post-sale assessments that “confirms extinguishment” of the lien for unpaid pre-foreclosure assessments. However, 1010 Lake Shore left open a key question: when must such payments be made to accomplish extinguishment of that pre-foreclosure lien? A lack of guidance on this issue created many disputes as to whether pre-foreclosure assessment liens were extinguished, despite lender payments of post-sale assessments.

Condominium associations in Illinois took the position that post-sale assessments had to be paid on the first of the month following the sale, or very soon thereafter. Otherwise, the COA contended, the lien for pre-foreclosure assessments could not be wiped out by later payment of post-sale assessments. In other words, the “late” payment of post-foreclosure assessments waived extinguishment of pre-foreclosure assessment liens. Under this view, the associations could demand all unpaid assessments, including pre-foreclosure assessments, in many — if not most — cases.

COAs would aggressively assert this course of action by holding REO closings hostage or filing lawsuits to evict lenders from possession of condo property. None of this was supported by the language of Section 9(g)(3) of the Act or the 1010 Lake Shore opinion. However, condo associations successfully pressed the issue because the foreclosing lender’s only alternative to payment was to litigate the association’s right to payment — an unacceptable choice to many.

In the recent case of 5510 Sheridan Road Condominium Association v. U.S. Bank, 2017 IL App (1st) 160279 (Mar. 31, 2017), the Illinois Appellate Court for the First Judicial District (which covers Cook County and the City of Chicago) held that Section 9(g)(3) sets forth no payment due date. The appellate court determined that Section 9(g)(3) only demarks the point at which the successful bidder at sale becomes liable for ongoing assessments, which is the first day of the month following the judicial sale. This highly consequential holding means that, regardless of the timing of payment of post-sale assessments, the lien for pre-foreclosure assessments is wiped out as soon as the successful sale bidder (often the foreclosing lender) pays post-sale assessments.

Recommended Practices
Despite the ruling in 5510 Sheridan Road, it is clearly still a best practice to begin paying post-sale assessments as soon as possible. The prior 1010 Lake Shore case implied that it was the duty of the successful bidder at the foreclosure sale to request payment information for ongoing assessments from the COA. Yet, associations vary widely in their ability and willingness to provide useful payment information. As a result, the following practical steps should prove helpful to circumvent problems:

1. Tender a payment to the COA as soon as possible after the first day of the month following the foreclosure sale, using the best available information to calculate the amount. Even where there is a dispute as to the amount due, it is always advantageous to make the best possible good-faith tender of payment.

2. In all foreclosure cases where a COA is a party, issue a subpoena to the association, seeking disclosure of both the amount due and the amount of regular assessments. Alternatively, discovery requests might be used to solicit this information.

3. Serve a demand for a statement of balance due to the COA board of managers, as provided by Section 9(j) of the Illinois Condominium Property Act, while the foreclosure case is pending. If the association does not respond, its lien will be subordinate.

4. Make sure that all communications with the association or its attorneys are either in writing or otherwise documented.

The 5510 Sheridan Road decision is a major victory for lenders. If the foregoing practices are observed, it should be much easier to deal with — or prevent — unwarranted COA demands for payment of pre-foreclosure liens. The case could be further appealed, but this author’s firm regards the appellate opinion as well-reasoned and believes that it will stand.

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Note for consideration of the USFN Award of Excellence: This article is not a "Feature."


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