Illinois Update: Extinguishing Condominium Liens through Foreclosure
Since the decision in 1010 Lake Shore Association v. Deutsche Bank National Trust Company, as Trustee for Loan Tr 2004-1, Asset-Backed Certificates, Series 2004-1, there has been widespread confusion related to the timing requirement for payment of the first month’s assessments to an association following a foreclosure sale. 1010 Lake Shore Association v. Deutsche Bank National Trust Company, as Trustee for Loan Tr 2004-1, Asset-Backed Certificates, Series 2004-1, 2015 IL 118372. The Court in 1010 Lake Shore Association ruled that Section 9(g)(3) of the Illinois Condominium Act and Section 15-1509(c) of the Illinois Mortgage Foreclosure Law should not be taken as separate remedies to extinguish condominium association liens, but should be read together. Id. at ¶38. In reading the plain language of the statutes, the Court reasoned that Section 15-1509(c) requires that the condominium association be named in the foreclosure action in order to extinguish any lien said association may have in the property and Section 9(g)(3) then requires a payment to further confirm extinguishment of the lien. Id.
In March 2017, following the decision in 1010 Lake Shore Association, a case from the First Appellate District, 5510 Sheridan Road Condominium Association v. U.S. Bank, sought to clarify the timing requirement for when payment must be made to the association following the foreclosure sale to effectively extinguish any assessments and fees owed by the prior owner. 2017 IL App (1st) 160279. In 5510 Sheridan Road Condominium Association, the court viewed the issue as one relating to the plain language of Section 9(g)(3). Id. at ¶19. Based on the court’s reading of the statute and the plain meaning of the language, it held, “that the phrase “from and after the first day of the month after the date of the judicial foreclosure sale” does not create a timing deadline with which purchasers must comply to avail themselves of the statute’s extinguishment provision. Instead, that phrase simply demarcates the precise moment in time when the foreclosure-purchaser becomes liable for postsale common expenses.” Id. at ¶20. The court went on to explain that had the legislature intended for a timing deadline to be put in place, they would have constructed the statute in such a way to include a clear and concise deadline by which to remit payment to the association. Id. at ¶25. By omitting any such language from the statute, the court stated that it shows the legislature did not intend for section 9(g)(3) to create a hard timing rule for payment of post sale expenses. Id.
The ruling in 5510 Sheridan Road Condominium Association was viewed as extremely beneficial to servicers and lenders because it established that payment was not required to be made immediately on the first of the month following the foreclosure sale. This decision gave some latitude to the timing requirement for payment following a foreclosure sale. The victory for lenders, however, was short lived. In August 2017, a separate panel of the First District Appellate Court presided over Country Club Estates Condominium Association v. Bayview Loan Servicing, LLC. Ill. App. (1st) 162459 (Aug. 8, 2017). The facts surrounding the Country Club Estates case and 5510 Sheridan Road were markedly similar. In both cases, payment of the post-foreclosure assessments and fees were made approximately seven months after sale confirmation. Similarly, payment of post-foreclosure assessments and fees in both cases were made after suit was filed by the association.
The court in Country Club Estates reviewed commentary made by the legislature while considering certain amendments to section 9(g) of the Illinois Condominium Act. Id. at ¶¶15-16. Although the amendments were not specifically related to the provision in question, the court felt they were instructive as to the legislature’s intent and desire to protect condominium associations when unit owners become delinquent on payment of assessments and fees. Id. The court went on to state that 1010 Lake Shore created a requirement that post-foreclosure sale assessments and fees be paid promptly following the sale. Id. at ¶¶17-19. The court reasoned that from reading the statements of the legislature along with the “prompt payment” requirement set forth in 1010 Lake Shore, the facts required the case to be reversed and remanded for the trial court to consider whether Bayview’s payment seven months after the foreclosure sale should be considered “prompt payment”. Id. at ¶33. The court states in their opinion that “prompt payment” is something that will be considered on a case by case basis and is completely dependent on the facts surrounding each individual matter. Id. at ¶¶23-29. Through this opinion, the court has removed any certainty for lenders and servicers as to when payment is actually due to an association following a foreclosure sale.
Due to the contrasting decisions from the 5510 Sheridan Road and Country Club Estates cases, lenders and servicers are once again placed into uncertainty as to a timing requirement for payment of post-sale assessments and fees to condominium associations. Because the standard for “prompt payment” was not defined by the court, it remains a best practice to make payments to the association for any post sale expenses once the sale has been confirmed. By making payments quickly after sale and confirmation, lenders will ultimately save time and money by avoiding any post sale litigation that could be brought by an association for failure to make “prompt payment” following the foreclosure sale.
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