By: Eli Korer
Routinely, after a lender forecloses on a condominium unit, the lender will be the successful bidder at the foreclosure sale auction and it will take over ownership of the property after approval of the sale. With this in mind, the lender—and presumably any third party who purchases a unit in a condominium foreclosure sale with the intent to hold the property for a short period of time before flipping it and selling it to another third party—often does not want to pay any of the condominium unit’s assessments on a go-forward basis prior to the judicial foreclosure sale being approved, let alone be responsible for paying any assessments which were previously due and owing because of a previous owner’s failure to make assessment payments.
The Illinois Appellate Court’s recent decision in 1010 Lake Shore Association v. Deutsche Bank National Trust Co., 2014 IL App (1st) 130962, decided on August 12, 2014, clarifies the responsibility of a purchaser in a foreclosure sale to pay assessments after the purchase of a condominium unit, and the consequences of not paying those assessments.
The Condominium Property Act (the “Act”) states:
[t]he purchaser of a condominium unit at a judicial foreclosure sale or a mortgagee who receives title to a unit by deed in lieu of foreclosure or judgment by common law strict foreclosure or otherwise takes possession pursuant to court order under Illinois Mortgage Foreclosure Law, shall have the duty to pay the unit’s proportionate share of the common expenses for the unit assessed from and after the first day of the month after the date of the judicial foreclosure sale.
(765 ILCS 605/9(g)(3) (West 2008). Therefore, a purchaser of a condominium unit in a judicial foreclosure sale must pay the assessments for such unit from and after the first day of the month after the date of the judicial foreclosure sale. Further, the Act goes on to describe the nature and intended purpose of such assessment payment: “[s]uch payment confirms the extinguishment of any lien created pursuant paragraph (1) … of this subsection (g) by virtue of the failure or refusal of a prior unit owner to make payment of common expenses, where the judicial foreclosure sale has been confirmed by order of the court.” Id. Section 9(g)(1) provides that “[i]f any unit owner shall fail or refuse to make any payment of the common expenses or the amount of any unpaid fine when due,” the amount of any unpaid assessments, together with any interest, late charges, reasonable attorney fees, and costs of collections”, shall constitute a lien on the interest of the unit owner in the property.” 765 ILCS 605/9(g)(1) (West 2008).
After its analysis of the Act, the Court held that: “a lien created pursuant to section 9(g)(1) [of the Act] is not fully extinguishable by a foreclosure and sale because the purchaser must make an assessment payment under section 9(g)(3) to confirm the extinguishment of the lien…” 1010 Lake Shore Association, 2014 IL App (1st) 130962 at ¶ 14. As such, purchasers of condominium units are strongly advised to pay the unit’s proportionate share of the common expenses for the purchased unit which are assessed from and after the first day of the month after the date of the judicial foreclosure sale (which may be several months before the sale is approved by the Court), especially if there is a preexisting lien against the property from a previous owner’s failure to make assessment payments. If the Section 9(g)(3) assessment payment is not paid, the condominium association’s lien would not be effectively extinguished and the purchaser in a foreclosure sale will be responsible for any unpaid assessments incurred prior to its purchase of the unit, in addition to interest, late charges, and potentially the association’s attorney’s fees and costs in connection with enforcing the lien.
In light of the 1010 Lake Shore Association decision, purchasers of condominium units in a foreclosure sale should review their procedures for paying assessments to make sure such payments are being made pursuant to Section 9(g)(3) of the Act. If you have any questions regarding the Act or how this decision may impact your foreclosure sale purchase and assessment payment procedures, please contact: