A 3 Step Process for Collecting Condominium & HOA Assessments in Illinois

A 3 Step Process for Collecting Condominium & HOA Assessments in Illinois

Assessment payments are the lifeblood for a community association as these payments are generally the sole source of income for most community associations. The income received from assessment payments is used to fund association operations and provide essential services. A community association that fails to collect monthly assessments from its members could find itself in a precarious financial situation which will only lead to further stress on the association and its members. Thus, it is important for a community association to ensure it is consistently collecting monthly assessments and to put together a plan for collecting assessments from delinquent owners. This article will discuss the three step process for collecting assessments for condominiums and homeowners associations in Illinois.

Community Association Collection Policies

As an initial matter, a community association should adopt a collection policy as part of their rules and regulations, so assessments are collected efficiently and all owners are treated uniformly.  The typical components of a community association’s collection policy are as follows:

• • Assessment Due Dates: Clearly defined dates when HOA assessments are due, often on the first day of the month, but in some cases, assessments are paid quarterly, or annually.
  • Late Fees and Interest: Specifications on when late fees or interest are imposed (e.g., after the 15th of the month) if permitted by the govering documents.
  • Delinquency Notices: Timelines for sending follow-up letters or notices owners who miss payments, typically within 30 days of delinquency.
  • Referral to Legal Counsel: Criteria for when delinquent owners are referred to HOA’s attorney, often when an account is overdue by a specific amount or time period (e.g., two months).
  • Liens: Outline the timeframe in which the HOA may place a lien on the property to provide notice of the community association’s statutory lien.
  • Liens: Identifying the timeframe when the community association will proceed with an eviction or foreclosure.

Step 1 – The Initial Demand Letter

First, if an owner is not responsive to a community association’s efforts to collect assessments, the association should turn the matter over to their attorney.

Once the delinquent assessments are turned over to the community association’s attorney, the attorney will typically send an additional demand letter.  If an association continues to send letters without involving legal counsel, sometimes owners will not take the association seriously, and will choose not to pay. In many cases, a letter from an attorney will prompt a response for the owner, as the owner believes that the association is taking the matter seriously and willing to proceed with legal action.  . If the delinquent owner is again unresponsive, the community association and the association’s attorney will then discuss taking the next steps as discussed more fully below.

Step 2 – Recording a Lien

Once the time period provided under the initial demand letter has expired, the community association should record a lien. In Illinois, community associations are either governed by the Illinois Condominium Property Act or the Illinois Common Interest Community Association Act. As discussed below, the statutes take different approaches with respect to whether they provide statutory authority to place a lien.

A. Condominium Associations

Illinois condominium associations are governed by the Illinois Condominium Property Act, 765 ILCS 605/1. Under 765 ILCS 605/9(g) of the Illinois Condominium Property Act, a condominium association has a lien for (1) the amount of common expenses unpaid; (2) the amount of any unpaid fines; and (3) interest, late charges, reasonable attorney fees and costs of collection incurred enforcing the condominium instruments, rules and regulations of the board, or any applicable statute or ordinance.

A condominium lien is automatic and does not need to be recorded to be enforceable. However, we generally recommend that associations record the lien to put bona fide purchasers on notice. Furthermore, the lien must be recorded if the condominium association foreclose on the lien.

765 ILCS 605/9(g) provides that a condominium association’s lien is senior to all other liens and encumbrances other than taxes and previously recorded encumbrances. Accordingly, a condominium association’s lien will generally not take priority over a first mortgagee.

With respect to junior mortgages, an Illinois condominium association may assert priority over a junior or second mortgage if (1) the condominium association’s declaration or bylaws do not provide that a second mortgagee’s interest is senior to the lien rights of the association and (2) the second or junior mortgagee has an Illinois mailing address. If both conditions are met, the condominium association must send notice to second or junior mortgagee of the lien by certified or registered mail.

765 ILCS 605/9(g)(4) sets forth that associations can recover up to 6 months of unpaid assessments from a post-foreclosure purchaser, other than the bank, provided the association attempted to collect from that owner before foreclosure concludes. Courts have generally interpreted the phrase “institution of an action” to be a lawsuit brought in court. To preserve its right to collect under the 6 Month Rule, associations should file a lawsuit under the Forcible Entry and Detainer Act as opposed to just initiating collections by sending a letter or 30-day notice and demand.

B. Common Interest Community Associations

Most homeowners associations are governed by the Illinois Common Interest Community Association Act, 765 ILCS 160/1. The Illinois Common Interest Community Act does not provide a statutory lien to homeowners associations when a member becomes delinquent on their assessments. A homeowners association only has the authority to place a lien and foreclose if permitted to do so by their governing documents. A homeowners association looking to place a lien on a delinquent member’s property will need to review their governing documents to ensure this remedy is available to them. If a homeowners association is not permitted to place a lien under their governing documents, the association may seek to obtain a money judgment to collect assessments or may attempt to evict the unit owner or tenant.

The declaration of a common interest community association will determine the association’s lien priority. Illinois is a race-notice jurisdiction which means that the first recorded interest takes priority. 765 ILCS 5/30. Accordingly, it is important that common interest community associations record liens, if permitted by the association’s governing documents, in a timely manner given that common interest community associations do not have the same statutory priority granted to condominium associations.

Step 3 – Eviction or Foreclosure Litigation

Initiate an Eviction Action

The filing of a lien is not a prerequisite to initiating an eviction action, and a community association may choose to skip the lien stage if the association’s goal is to remove the delinquent member from the property. An eviction action is the preferred remedy for most community associations as it is generally the fastest and most efficient way to collect delinquent association assessments. It is important to note that Illinois law does not provide for self-help evictions. As such, changing of locks, cutting off utilities or blocking entry is not permitted when a unit owner is not paying assessments and could subject the association to liability.

A. Condominium Associations

765 ILCS 605/9.2 of the Illinois Condominium Property Act permits a condominium association to evict a unit owner, or any tenant of the unit owner, if there is a default in the performance of any obligations under the declaration, bylaws, or the rules and regulations. Eviction actions are temporary. Even if an association is successful in an eviction action, the delinquent unit owner will not lose title to the unit and the condominium association only has the right to possession of the unit until the judgment has been paid. 735 ILCS 5/9-111.1 of the Illinois Eviction Act provides that the condominium association may rent the unit and apply any funds received to the delinquency.

B. Common Interest Community Associations

The Illinois Common Interest Community Association Act differs from the Illinois Condominium Property Act in that the Illinois Common Interest Community Association Act does not describe evicting an owner. 735 ILCS 5/9-102(a)(8) of the Illinois Eviction Act provides that an eviction action may be maintained by a homeowners association:

When any property is subject to the provisions of a declaration establishing a common interest community and requiring the unit owner to pay regular or special assessments for the maintenance or repair of common areas owned in common by all of the owners of the common interest community or by the community association and maintained for the use of the unit owners or of any other expenses of the association lawfully agreed upon, and the unit owner fails or refuses to pay when due his or her proportionate share of such assessments or expenses and the board or its agents have served the demand set forth in Section 9-104.1 of this Article in the manner provided for in that Section and the unit owner has failed to pay the amount claimed within the time prescribed in the demand.

735 ILCS 5/9-102(b) provides that homeowners association may only prosecute an eviction action if (1) the association is a not for profit corporation or a limited liability company; (2) the unit owners are authorized to attend meetings of the board of directors of the association in the same manner as provided for condominiums under the Illinois Condominium Property Act, and (3) if the declaration was recorded before 1985, the board must have voted to have the provisions of the Illinois Eviction Act apply to the association and must have delivered or mailed notice of such action to the unit owners.

C. Illinois Eviction Act

Under the Illinois Eviction Act, the community association will provide, in most cases, a 30-day notice to the owner or tenant. Once notice is provided, the association will file a complaint in the pertinent county court. At the time of the filing, the association will receive a “return date” usually between 21 and 28 days after filing wherein the owner or tenant will have to appear in court.

It is important to note that service of process in an eviction action can delay the entry of an eviction order. If a unit owner cannot be served, an association can ask for service by posting or publication. However, if service is obtained in this manner, a monetary judgment cannot be entered as part of the eviction proceeding.

If service of process is properly obtained and the owner or tenant does not appear on the return date, the court will typically enter an order of possession in favor of the community association at the first hearing date. If the owner or tenant appears on the return date, the case will be set for trial, usually in a week or two, unless the owner or tenant files a jury demand. The filing of a jury demand can significantly lengthen the time and cost of an eviction suit. In most instances, eviction cases go to trial without even a responsive pleading filed by the owner or tenant because, if an appearance is filed, the allegations in the complaint are deemed denied under Supreme Court Rule 181(b)(2).

If a community association is successful in the eviction action, the possession award at the end of an eviction case must allow for 60 days for the unit owner to pay the outstanding amount due and owing before the sheriff can evict the unit owner. If there is a tenant in the property, a community association can move for possession against the tenant by serving a 5-day notice if the tenant does not start paying rent to the association at the expiration of 60 days.

Initiate a Foreclosure Action

Unlike eviction actions, which are discussed below, an advantage of a foreclosure is that a successful foreclosure would permanently remove the owner/tenant from the condominium.  However, judicial foreclosure is typically more expensive and a lengthier process, which is why evictions are the most common remedy to collect assessments.

A judicial foreclosure begins when the community association files a lawsuit against the delinquent owner to foreclose on its assessment lien. The association can request a monetary judgment against the owner in addition to a judgment of foreclosure. If the owner does not respond to the community association’s lawsuit, then the association may seek a default judgment. If the unit owner files an appearance and answer, the case will proceed toward summary judgment or trial.

Prior to initiating a foreclosure action, the community association will want to ensure there is sufficient equity in the unit. As set forth above, community association liens are junior to previously recorded mortgage liens. Additionally, unpaid taxes are usually senior to the community association’s liens. Furthermore, there may be previously recorded judgment or mechanic’s liens which would be senior to the community association’s lien. If the community association forecloses on its lien and is the credit bidder at the foreclosure sale, the community association will take the unit subject the aforementioned senior claims.

Conclusion

Timely collecting assessments and recovering delinquent assessments is pivotal to the financial health of a community association. When attempting to collect delinquent assessments, a community association will want to ensure it is following the procedures set forth in its governing documents and the pertinent statutes. Failure to follow proper procedure may provide the delinquent owner with the opportunity to avoid recovery of assessments. Community associations faced with delinquent owners should discuss how best to recover the delinquent assessments with the association’s attorney. The attorneys at Hirzel Law, PLC are experienced community association attorneys who can help assist a community association in their collection efforts.

 

5th Circuit Sets Aside Nationwide CTA Injunction on December 23, 2024: Complete your Corporate Transparency Act filings before January 1, 2025!

On December 3, 2024, a federal court in Texas issued a nationwide preliminary injunction in Texas Top Cop Shop, Inc v Garland, No. 4:24-CV-478, 2024 WL 4953814, at *37 (ED Tex, December 3, 2024), temporarily halting the enforcement of the Corporate Transparency Act. Unfortunately for community associations, the Fifth Circuit delivered a lump of coal just two days before the holiday. On December 23, 2024, the Fifth Circuit stayed the ruling of the district court’s injunction pending appeal. Now, community associations must file a Beneficial Ownership Information (“BOI”) report by December 31, 2024. Failure to do so may result in fines of $10,000 or even jail time.

In its order, the Fifth Circuit ruled as follows:

The Corporate Transparency Act (“CTA”) obliges certain nonexempt companies to report the identity of their beneficial owners and applicants for incorporation. 31 U.S.C. § 5336. On December 3, 2024—less than one month before the crucial January 1, 2025 reporting deadline—the district court granted Plaintiffs-Appellees’ (the “Businesses”) motion for a preliminary injunction and entered a nationwide injunction enjoining the CTA and the corresponding Reporting Rule. Id.; 31 C.F.R. § 1010.380. The district court concluded that both are unconstitutional and issued nationwide injunctions against each, despite no party requesting it do so and despite every other court to have considered this issue tailoring relief to the parties before it or denying relief altogether.

The government, Defendants-Appellants, filed an emergency motion with this court seeking a stay. Because the government has met its burden under Nken v. Holder, 556 U.S. 418 (2009), we GRANT its motion for a temporary stay of the district court’s order and injunction pending appeal.

Per the Fifth Circuit’s ruling, the preliminary injunction that was entered on December 3, 2024 is no longer in effect and reporting companies (including community associations) remain obligated to comply with the requirements of the CTA. While the judicial system did not provide relief to community associations, many were hopeful that Congress would provide the necessary relief to community associations.

On Saturday, December 21, 2024, President Biden signed into law H.R. 10545, the “American Relief Act, 2025”, which averted a government shutdown. The initial draft resolution included an amendment to the CTA that would have delayed the filing deadline to January 1, 2026. However, that language was removed from the final resolution. As such, the January 1, 2025 filing deadline remains in effect.

Conclusion

The Fifth Circuit’s ruling on December 23, 2024 is a devastating blow to community associations. The Fifth Circuit not only removed the preliminary injunction that was in effect, Congress failed to include any language in H.R. 10545 that would have delayed enforcement of the CTA until January 1, 2026. Accordingly, community associations must file a BOI report with FinCEN by January 1, 2025 or face penalties such as $10,000 of fines or even jail time. We recommend that community associations contact Hirzel Law, PLC as soon as possible to take the necessary steps to file a BOI report with FinCEN.

 

Jeremy Fernando is an Associate Attorney at Hirzel Law, PLC. Mr. Fernando is licensed to practice law in the State of Illinois. He concentrates his practice on community association law, condominium law, homeowners association law, and real estate law. Mr. Fernando’s legal career includes serving in corporate practice where he represented insurance companies and institutional investors in U.S. and cross-border private placements of securities, including transactions in the Netherlands, England, Ireland, Australia, and Germany. Mr. Fernando earned his Juris Doctor from Marquette University Law School, where he graduated with honors and ranked in the top 15% of his class. He also served as an Associate Editor of the Marquette Law Review. Mr. Fernando is committed to providing effective legal representation to his clients and is passionate about helping communities navigate complex legal challenges. He may be reached at 312-552-7669 or jfernando@hirzellaw.com.