An Illinois condominium association does not have to sue the prior owner before it can collect up to six months of unpaid assessments from a foreclosure buyer under 765 ILCS 605/9(g)(4). That is the holding of Sylva, LLC v. Baldwin Court Condominium Ass’n, Inc., 2018 IL App (1st) 170520, 106 N.E.3d 431, in which the Illinois Court of Appeals rejected a foreclosure buyer’s argument that the condominium association lost its right to the back assessments because it never filed suit against the prior owner.
When a condominium unit is lost to foreclosure, the unpaid assessments that the prior owner left behind do not disappear. Under the Illinois Condominium Property Act, the burden of a delinquent owner would otherwise fall on the other unit owners who pay their assessments on time. 765 ILCS 605/9(g)(4) allows an Illinois condominium association to recover up to six months of the prior owner’s unpaid assessments from a third-party buyer who purchases the unit at a judicial foreclosure sale or from the foreclosing lender. However, the statute ties those six months to the “institution of an action to enforce the collection of assessments,” and before Sylva it was unclear whether that language required an association to first sue the prior owner. As discussed below, this decision is important for Illinois condominium associations because it eliminates a costly and often pointless step in the collection process and confirms that the obligation to pay these back assessments runs directly from the foreclosure buyer to the condominium association.
Facts of the Illinois Condo Assessment Dispute
In August 2014, Sylva, LLC purchased a condominium unit in the Baldwin Court Condominium at a judicial foreclosure sale. The prior owner had fallen behind on assessments. Before the sale, the Baldwin Court Condominium Association had recorded a lien against the unit for the unpaid assessments and sent notice to the prior owner. However, the condominium association never filed a lawsuit against the prior owner to collect the delinquent assessments.
After the foreclosure sale, the condominium association demanded that Sylva pay six months of the assessments that had accrued, but had not been paid, during the prior owner’s ownership. Sylva needed a letter from the condominium association confirming that there were no liens on the unit, so it paid the requested amount under protest. Sylva then filed a lawsuit against the condominium association to recover the money that it claimed it had been wrongfully required to pay.
At the time, 765 ILCS 605/9(g)(4) provided as follows:
The purchaser of a condominium unit at a judicial foreclosure sale, other than a mortgagee, who takes possession of a condominium unit pursuant to a court order or a purchaser who acquires title from a mortgagee shall have the duty to pay the proportionate share, if any, of the common expenses for the unit which would have become due in the absence of any assessment acceleration during the 6 months immediately preceding institution of an action to enforce the collection of assessments, and which remain unpaid by the owner during whose possession the assessments accrued.
Sylva argued that the phrase “institution of an action” meant filing a lawsuit, and that because the condominium association never sued the prior owner, it had no right to collect any back assessments from Sylva. The condominium association argued that recording a lien and sending notice to the prior owner were sufficient actions to enforce the collection of assessments. The trial court agreed with Sylva and granted summary judgment in its favor, holding that the condominium association was not allowed to collect under 765 ILCS 605/9(g)(4) because no collection action had been filed against the former owner. The condominium association appealed.
Does an Illinois Condo Association Have to Sue the Prior Owner?
The Illinois Court of Appeals reversed the trial court. The court stated that the purpose of 765 ILCS 605/9(g)(4) is to allow condominium associations to recover a portion of the prior owner’s unpaid assessments from a new third-party owner, citing the Illinois Supreme Court’s decision in 1010 Lake Shore Ass’n v. Deutsche Bank National Trust Co., 2015 IL 118372, ¶ 32. The court then relied heavily on its earlier decision in Wing Street of Arlington Heights Condominium Ass’n v. Kiss The Chef Holdings, LLC, 2016 IL App (1st) 142563, which held that 765 ILCS 605/9(g)(4) creates an independent claim for the condominium association directly against the new owner, and that this obligation arises at the time of the foreclosure purchase. If the new owner fails to pay, a separate statutory lien arises in favor of the condominium association that is based on the new owner’s failure to pay, not the prior owner’s delinquency.
Building on Wing Street, the court held that there was no reasoned basis for requiring a condominium association to sue the prior owner as a condition to recovering from the foreclosure buyer. Specifically, the court stated as follows:
Section 9(g)(4) says nothing of instituting that action against the previous owner. Condominium associations are entitled to six months of back assessments from the time they institute an action to collect against the foreclosure buyer. That obligation is enforced by a direct suit against the foreclosure buyer. No suit against the previous owner is contemplated in the statute or in any case law interpreting it. Sylva, 2018 IL App (1st) 170520, ¶ 15.
The first sentence of 765 ILCS 605/9(g)(4) remains unchanged today. However, the current version of the statute adds that “[i]f the outstanding assessments are paid at any time during any action to enforce the collection of assessments, the purchaser shall have no obligation to pay any assessments which accrued before he or she acquired title.”
The court also acknowledged that an argument could be made that 765 ILCS 605/9(g)(4) is ambiguous. However, the court held that even if it looked beyond the plain language of the statute, the purpose of the statute and its legislative history supported the condominium association’s position. The court explained that the Illinois legislature made a policy decision that the foreclosure buyer, who receives advance notice of the unpaid assessments under 765 ILCS 605/9(g)(5), should bear part of the burden of a nonpaying owner instead of the owners who pay their assessments on time. Sylva had record notice of the lien and of the statute, and nonetheless chose to buy the unit.
The court further held that requiring a lawsuit against the prior owner “would create needless litigation” and would not help solve the problem that 765 ILCS 605/9(g)(4) was enacted to address. The court also reviewed the 2006 legislative debates, in which the bill’s sponsor explained that the amendment was meant to allow condominium associations to collect six months of back assessments even if they had not perfected a lien, because filing suit was too expensive and cumbersome for most associations.
How Many Months of Assessments Does a Foreclosure Buyer Owe an Illinois Condo?
The court identified one more wrinkle. Because the six months are measured from the institution of an action against the foreclosure buyer, the condominium association technically had not filed suit against Sylva either. However, the court held that the condominium association had no reason to file suit because Sylva had already paid the assessments, albeit under protest. Relying on the principle that the law will not require a person to do a useless act, the court held that the condominium association was entitled to six months of back assessments from Sylva.
Finally, the court remanded the case for the condominium association to prove the amount owed. The monthly assessments for the unit were $258, but the condominium association had required Sylva to pay $3,485 for six months of back assessments, or about $580.83 per month, without explanation. Since there was no undisputed evidence supporting the amount demanded, the trial court had to determine the correct amount on remand.
Key Takeaways for Illinois Condo Associations Collecting from Foreclosure Buyers
The decision in Sylva, LLC v. Baldwin Court Condominium Ass’n, Inc., 2018 IL App (1st) 170520, 106 N.E.3d 431, is an important win for Illinois condominium associations. It confirms that a condominium association need not spend money suing a prior owner, who is often judgment-proof or long gone, to recover up to six months of unpaid assessments from the foreclosure buyer. This case highlights several important lessons for Illinois condominium associations, which are as follows:
Pursue the Foreclosure Buyer Promptly. The six-month look-back period is measured from the time the condominium association takes action to collect from the foreclosure buyer. Condominium associations should send a written demand to the foreclosure buyer as soon as the sale is confirmed and, if the buyer refuses to pay, promptly file an eviction action against the buyer, which is how most Illinois condominium associations enforce this obligation, instead of waiting.
Monitor the Foreclosure Case and Consider Recording a Lien. Most Illinois condominium associations collect delinquent assessments through eviction actions rather than by recording liens, and Sylva does not suggest that recording a lien is required. Under 765 ILCS 605/9(g)(1), unpaid assessments are automatically a lien on the unit, and the bill’s sponsor explained that 765 ILCS 605/9(g)(4) was intended to allow recovery even where no lien had been filed. A foreclosure buyer’s notice of the six-month obligation comes from the notice of sale, which must disclose it under 765 ILCS 605/9(g)(5). However , recording a lien is still a good way to put a foreclosure buyer on notice. In Sylva, the court emphasized that the buyer had record notice of the condominium association’s lien and of the unpaid assessments before it chose to buy the unit. Condominium associations should appear in or monitor the lender’s foreclosure case, confirm that the notice of sale includes the required statement, and consider recording a lien so that the buyer cannot later claim it lacked notice.
Calculate the Amount Carefully and Document It. Although the condominium association won on the legal issue, the case was sent back to the trial court because it demanded roughly $580 per month when the monthly assessment was $258, without explanation. Condominium associations should provide the foreclosure buyer with a clear ledger showing exactly which six months of assessments, and any other permitted charges, make up the amount demanded. This is particularly important because 765 ILCS 605/9(g)(5) requires both the statement of assessment account issued under 765 ILCS 605/18(i) and the resale disclosure issued under 765 ILCS 605/22.1 to state the amount of the assessments and legal fees owed under 765 ILCS 605/9(g)(4).
If your condominium association is seeking guidance on collecting unpaid assessments after a foreclosure, consulting with an experienced community association attorney is essential. Please contact Hirzel Law, PLC if you need further assistance with collecting delinquent assessments from foreclosure buyers.
FAQ’s about Illinois Condo Foreclosure Buyers and Unpaid Assessments
Who has to pay a prior owner’s unpaid assessments after an Illinois condo foreclosure?
Under 765 ILCS 605/9(g)(4), a third-party buyer at a judicial foreclosure sale, or a buyer who acquires title from the foreclosing lender, must pay up to six months of the prior owner’s unpaid assessments. Under Sylva, this obligation runs directly from the buyer to the condominium association.
Does the foreclosing bank have to pay the six months of back assessments?
No. The statute expressly excludes a mortgagee that takes the unit through foreclosure, and under 765 ILCS 605/9(g)(3) the lender is responsible for assessments starting the month after the foreclosure sale. However, a buyer who later purchases the unit from the lender owes up to six months of the prior owner’s unpaid assessments.
When does the six-month period begin?
The six months are measured back from the date the condominium association institutes an action to collect against the foreclosure buyer, not the prior owner. For that reason, condominium associations should demand payment from the foreclosure buyer promptly after the sale.
Does a condo association have to sue the prior owner first?
No. In Sylva, the court held that nothing in 765 ILCS 605/9(g)(4) requires a lawsuit against the prior owner, and that requiring one would create needless litigation. A foreclosure buyer who had notice of the unpaid assessments cannot avoid payment simply because the association never sued the prior owner.
