Condominiums – Collection of Past-Due Assessments Following Foreclosure

By: Jeanne Hoffmann, Capital Member

The Illinois Condominium Property ACT (“ICPA”) Section 605/9(g)(1), provides condominium associations with a lien on condominium unit/property for unpaid assessments for common expenses, any fines, interest, late charges and reasonable attorney fees and costs for collection. However, if the condominium unit is foreclosed or sold at a judicial sale following foreclosure, the association’s lien is extinguished. The new owner is only responsible for paying the unit’s proportionate share of the common expenses “assessed from and after the first day of the month after the date of the judicial foreclosure sale, delivery of the deed in lieu of foreclosure, entry of a judgment in common law strict foreclosure or taking of possession pursuant to such court order.”

In the recent case of 1010 Lake Shore Ass’n v. Deutsche Bank Nat. Trust Co., 2015 IL 118372 (Ill. Sup. Ct. Dec. 3, 2015), the Illinois Supreme Court made clear that post-foreclosure common expenses must be paid to extinguish the association’s pre-foreclosure lien. The Court affirmed the 1st District Appellate Court’s holding that “Deutsche Bank National Trust Company failed to confirm extinguishment of the plaintiff condominium association’s lien created when the prior unit owner did not pay common expense assessments” by failing to pay assessments owed after the first day of the month after the judicial sale.

1010 Lake Shore Association (the “Association”) brought a forcible entry and detainer action seeking to collect unpaid assessments from Deutsche Bank National Trust (“Deutsche Bank”) who had recently obtained the title and possession of the unit in a judicial foreclosure. The Association sought to recover common expenses and collection costs incurred before the foreclosure sale. Deutsche Bank disputed these expenses and the existence of a lien based upon Illinois Foreclosure Law and ICPA Section 9(g)(3)’s proscription that a purchaser of a condominium unit at a foreclosure sale is only required to pay common expenses accrued following the sale.

The Court agreed that the first sentence of ICPA Section 9(g)(3) only required the purchaser to pay assessments from the first day of the month following the sale, but held that the second sentence of the statute stated that making those assessment payments “confirms extinguishment” of the lien created when the prior owner failed to pay assessments. The Court also rejected Deutsche Bank’s argument that because Illinois Foreclosure Law also provides for extinguishment of liens when the condominium association is a party to the foreclosure, ICPA Section 9(g)(3) merely provides an alternative or secondary means for extinguishment of the liens if the condominium association was not a party in foreclosure. The Court held that the language of ICPA Section 9(g)(3) cannot be construed as an alternative means for foreclosure sale purchasers to extinguish a condominium association’s lien when the association was not joined as a party to foreclosure  because ICPA Section 9(g)(1) already provides that foreclosure or other action to extinguish the lien “shall include the association as a party.” By requiring the foreclosure sale purchaser to “confirm extinguishment” of the lien, “section 9(g)(3) plainly mandates an additional step beyond extinguishment of the lien in a foreclosure action.”

In sum, a lien created under ICPA Section 9(g)(1) for unpaid assessments by a previous owner is not fully extinguished after a foreclosure or judicial sale unless the new owner pays assessments incurred after the sale. In this case the lien for the prior owner’s unpaid assessments was not extinguished because Deutsche Bank failed to pay assessments due after the foreclosure sale and the Association was entitled to collect these earlier unpaid assessments.