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Illinois App. Court (1st Dist) Holds 7-Month Delay in Paying Overdue HOA Assessments May Not Extinguish HOA Lien

The Appellate Court of Illinois, First District, recently reversed a trial court order granting summary judgment in favor of a mortgage servicer and against a condominium association (COA) holding that a material question of fact existed regarding whether the servicer promptly paid assessments that accrued after the foreclosure sale, as required under section 9(g)(3) of the Illinois Condominium Property Act to extinguish the COA’s lien for pre-foreclosure sale assessments.

A copy of the opinion in Country Club Estates Condominium Association v. Bayview Loan Servicing, LLC is available at:  Link to Opinion.

In November 2014, a mortgage servicer purchased a condominium unit through a foreclosure sale.  At this time the unit had almost $14,000 in unpaid monthly assessments to the COA. Initially, the servicer refused to pay any assessments, past or present.

In April 2015, the COA sued the servicer under the Illinois Forcible Entry and Detainer Act (735 ILCS 5/9-101 et seq.) seeking possession and $18,659.26 in unpaid assessments.  Almost two months after the COA filed the lawsuit, and seven months after the servicer purchased the unit, the servicer paid the amount of assessments that accrued after the foreclosure sale.

The servicer filed a summary judgment motion arguing that under section 9(g)(3) of the Illinois Condominium Property Act (765 ILCS 605/9(g)), paying the assessments owed after the foreclosure sale extinguished the COA’s lien for pre-foreclosure sale assessments.

The trial court granted partial summary judgment to the servicer as to the pre-sale assessments and certified this issue for appeal.  This appeal followed.

On appeal, the COA argued that under 1010 Lake Shore Association v. Deutsche Bank National Trust Co., 2015 IL 118372, a foreclosure buyer must promptly pay current assessments to extinguish an association’s lien for any outstanding pre-sale assessments.

As you may recall, Section 9(g) of the Illinois Condominium Property Act states that:

“(1) If 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 thereof shall constitute a lien on the interest of the unit owner in the property.

(3) The purchaser of a condominium unit at a judicial foreclosure sale 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. Such payment confirms the extinguishment of any lien created pursuant to paragraph (1) or (2) of this subsection (g) by virtue of the failure or refusal of a prior unit owner to make payment of common expenses.” 765 ILCS 605/9(g).

The Appellate Court observed that a foreclosure buyer’s duty to pay monthly assessments clearly starts on “the first day of the month after the date of the judicial foreclosure sale.” Id. However, section 9(g)(3) does not contain a time limit to extinguish an association’s lien. Thus, the Appellate Court looked beyond the statute’s language to determine the legislature’s intent.

The Appellate Court noted that section 9(g)’s legislative history does not contain any debate regarding the extinguishment clause.  However, on separate occasions the legislature expressed concern about the difficulties condominium associations face when a unit owner does not pay their assessments and the unit then goes into foreclosure. The Appellate Court found these concerns “pertinent to the interpretation of section 9(g)(3).” For example, in this case the former unit owner had not paid assessments since 2011, “thus exposing the Association’s other unit owners to the obligation to pay more than their share of common expenses to cover the shortfall.”

The servicer argued that paying post-foreclosure assessments, regardless of the timing, extinguished the COA’s lien for pre-sale delinquent assessments. The Appellate Court disagreed because the Illinois Supreme Court in the 1010 Lake Shore case held that “[t]he first sentence of section 9(g)(3) plainly requires a foreclosure sale purchaser to pay common expense assessments beginning in the month following the foreclosure sale. The second sentence provides an incentive for prompt payment of those postforeclosure sale assessments.”

The servicer further argued that even with no time limit to extinguish an association’s lien, the statute still incentivizes prompt payment of assessments when they become due, because foreclosure buyers normally want to quickly unencumber and sell their new asset.

However, the Appellate Court concluded that the servicer’s seven-month delay in paying the assessments in this case belied this argument.

The servicer also argued that 1010 Lake Shore is distinguishable because the foreclosure buyer there did not pay any assessments making the court’s “prompt payment” discussion dictum. The Appellate Court rejected this distinction because it cannot ignore the Supreme Court’s dicta.  See Exelon Corp. v. Department of Revenue, 234 Ill. 2d 266, 282 (2009)

Thus, the Appellate Court held that “to extinguish an association’s lien for pre-foreclosure-sale assessments, a foreclosure buyer must make ‘prompt’ payment of current assessments.”  As a mortgage foreclosure is a proceeding in equity, “whether a particular payment is ‘prompt’ is fact-based, taking the particular circumstances and the equities of the situation into account.”

The Appellate Court next examined whether the servicer promptly paid the assessments here. The Appellate Court found that absent any extenuating circumstances, assessments should be tendered the month after purchase because to “permit indefinite delay on the part of foreclosure buyers would impose unacceptable hardship upon the buyer’s fellow unit owners, who in many instances are already losing thousands of dollars in unpaid assessments as a result of the unit’s foreclosure.”

The Appellate Court rejected the servicer’s argument that this case is analogous to Pembrook Condominium Association-One v. North Shore Trust & Savings, 2013 IL App (2d) 130288, and 5510 Sheridan Road Condominium Association v. U.S. Bank, 2017 IL App (1st) 160279, where a foreclosure buyer’s payment of post-sale assessments extinguished the condominium association’s lien for presale assessments.

In the Appellate Court’s view, Pembrook did not hold that a foreclosure buyer that fails to promptly pay post-foreclosure assessments may still claim the benefit of section 9(g)(3). Instead, the Pembrook court held only that payment made about a month and a half after the first payment became due was sufficient under the circumstances.  Further, the Court noted, there is “a material distinction between a seven-week delay and a seven-month delay in payment.”

The Sheridan Road court held that the phrase “the first day of the month after the date of the judicial foreclosure sale” set the time when the obligation to pay post-sale assessments begins. Id. However, this did not set a payment deadline.  Thus, the Appellate Court found Sheridan Road distinguishable and held “that payment must be prompt under the circumstances (though not necessarily strictly by the first of the month after the sale) to extinguish an association’s lien.”

Moreover, to the extent that Pembrook or Sheridan Road impose no time deadline on foreclosure buyers, the Appellate Court rejected that conclusion because it is inconsistent with 1010 Lake Shore.

The servicer next argued that even if 1010 Lake Shore requires prompt payment, it should not apply retroactively to this case. The Appellate Court disagreed finding that “1010 Lake Shore did not create a requirement of promptness; it merely articulated the requirement that was already implicit in the purpose underlying section 9(g)(3).”

Finally, the Appellate Court considered whether the servicer promptly paid the assessments here.  However, the record did not contain the reasons why the servicer may have delayed payment so the Appellate Court could not say that the servicer’s “tender was not prompt as a matter of law.”

Accordingly, the Appellate Court reversed the trial court’s summary judgment order and remanded the case for further proceedings consistent with its opinion.

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