Foreclosure Purchaser not liable for unpaid HOA fees where Association did not expressly state in its Declaration that Property was subject to the Condominium Property Act

A recent ruling by the Circuit Court of Cook County supports the argument that where a condominium’s recorded declarations do not expressly state that the property will be governed by the Illinois Condominium Act, unpaid assessment liens will not be extinguished in a mortgage foreclosure proceeding. The purchaser of the property will thus have no responsibility to pay any of the prior owner’s unpaid assessments, regardless if the purchaser is a third-party or the mortgagee.

By way of background, the Illinois Mortgage Foreclosure Law and the Condominium Property Act (“Act”) provide that a successful third-party bidder at a mortgage foreclosure sale of a condominium must pay six months of the defaulted mortgagor’s unpaid assessments as well as the condominium association’s legal fees. This rule does not apply to a mortgagee who takes back the property in foreclosure. However, the Illinois’ Supreme Court 2015 decision, 1010 Lake Shore Ass’n v. Deutsche Bank Nat. Tr. Co., 2015 IL 118372, held that where the mortgagee takes back the property, if it does not pay the post-sale assessments the lien for the prior assessments is not extinguished and the mortgagee will be on the hook, even if the association was named in the foreclosure. Since 1010 Lake Shore Ass’n, homeowner’s associations have become increasingly aggressive in trying to recover a defaulted mortgagor’s unpaid condominium assessments from the purchaser in the mortgage foreclosure by claiming that the post-sale assessments were not paid or were not paid timely. The pre-sale assessment lien is therefore untouched. See, for example, V&T Investment Corp. v. West Columbia Place Condominium Ass’n, 2018 IL App (1st) 170436, and Country Club Estates Condominium Ass’n v. Bayview Loan Servicing LLC, 2017 IL App (1st) 162459.

But these rules are triggered only when the Act applies. What happens if it doesn’t?

In Youngheim v. Heritage Springs Owner’s Association, No. 23 CH 09411, the Circuit Court of Cook County denied a motion to dismiss an action brought by a purchaser at a foreclosure sale to declare that a homeowner’s association had no right to collect the prior owner’s unpaid assessments from the purchaser because the association was not subject to the Act. The court agreed with the purchaser that at the time it purchased the property it was not subject to the Act because nowhere in the declarations was there any statement, indication, or reference that the property was to be governed by the Act.

In denying the motion to dismiss the declaratory judgment count, the court held that at the time the purchaser purchased the property, the recorded declaration contained no statement that the property would be subject to the Act. The court rejected the association’s argument that its belated amendment of the declarations to include this statement was too late since it was made after the purchase. The purchaser was entitled to rely on the documents recorded at the time he acquired the property. The court also held that the purchaser made out a claim for slander of title when the association recorded a lien against the property for the unpaid assessments and attorney’s fees that had been extinguished in the foreclosure and for which the purchaser was not responsible. Finally, the court upheld the fraud claim concluding that the statements by the association that the Act applied to the property, and that the purchaser owed the prior owner’s past due assessments, were plausibly false.

Whichever way this case is ultimately resolved, the lesson is that the purchaser of a condominium in a mortgage foreclosure sale, whether it be a third party or the mortgagee, should verify if the condominium’s declarations state that the Act applies to the property. If there is no such statement, this decision supports the argument that the Act does not apply and the association’s lien for the prior owner’s unpaid assessments will be extinguished when the sale is confirmed.

Author

  • James Noonan

    Jim is a founding partner of Noonan & Lieberman. Jim has more than 25 years of experience in civil litigation on behalf of creditors, servicers, business and real estate owners.

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