The Illinois Supreme Court has ruled unpaid condominium association assessments are not erased through foreclosure, unless the new owner forks over their first post-purchase assessment payment on time, otherwise they have to pick up the tab.
The high court’s decision was delivered Thursday, Dec. 3, by Justice Thomas Kilbride, with the rest of the court concurring. The issue before the court was interpretation of the Illinois Condominium Property Act.
In June 2010, Deutsche Bank National Trust Company bought a Gold Coast condominium unit at 1000 Lake Shore Drive through a foreclosure sale. At that time, a lien was in place for more than $43,000 in outstanding assessments the previous owner owed the condo association for common expenses. On top of that, the bank allegedly failed to pay any assessments after buying the property, which by mid-2012 amounted to about $19,000.
The condo association – 1010 Lake Shore Association – sued the bank in spring 2012 for possession of the unit and for more than $62,000 in unpaid assessments, as well as for legal costs. The bank responded it was not liable for the $43,000 lien for assessments owed by the previous owner, because the Illinois Condominium Property Act held any such unpaid assessments were “extinguished” when the unit was bought through foreclosure. As for the assessments that accrued after the purchase, the bank claimed that amount was in dispute.
After a hearing on the matter, Associate Judge Martin Moltz decided in favor of the condo association, awarding the association $70,018. The bank went to First District Appellate Court in Chicago, but that body affirmed Moltz’ decision in a 2-1 ruling. The majority view contended preexisting overdue assessments are eradicated when the new owner makes their first assessment payment after the foreclosure sale. Given the bank allegedly did not make any payments after acquiring the unit, the bank was on the hook for the previous assessments.
The dissenting justice, Laura Liu, averred the Illinois Mortgage Foreclosure Law dictates that when a condo association is a party to a foreclosure action – as the association was in this case – preexisting overdue assessments are quashed. In the event an association is not a party, then a new owner can cancel the prior owner’s delinquent assessments by paying their first assessment upon assuming ownership.
The bank stressed Liu’s point in its argument to the state supreme court, explaining the prior owner’s debts were cleared by the association’s participation in the foreclosure suit, making it unnecessary for the bank to do away with the lien by the alternative method of paying their first assessment.
The high court disagreed, saying it is a two-step process: the foreclosure extinguishes the lien and the new owner’s first assessment payment confirms the extinguishment. The first payment is the second step, not an alternative step, in blotting out the preexisting lien.
“We presume that the legislature intended the (Condominium Property) Act and the Foreclosure Law to be consistent and harmonious,” Kilbride wrote in the high court’s opinion.
The high court noted the apparent purpose of requiring the post-foreclosure purchase payment is to encourage new owners to promptly pay their first assessment.
Chicago firms represented the parties: Bancroft, Richman & Goldberg for 1010 Lake Shore Association and Potestivo & Associates for Deutsche Bank.
The Federal National Mortgage Association and the Condominium Association Institute were interested in the outcome of the case – both groups filed friend-of-the-court briefs.