Britta Rivera Venture

CHICAGO REAL ESTATE NEWS & MORE

WHAT IS PUBLIC ACT 94-1049? WHO PAYS OUTSTANDING ASSOCIATION DUES?

Real estate listings often state that the buyer of certain foreclosed or distressed properties may be responsible for PUBLIC ACT 94-1049.  Many buyers have asked what this means to them when purchasing of this type of housing.  Therefore, listed below are guidelines established when the market began to decline.

If you are considering buying a short sale or foreclosed property, you should read and understand this legislation.

TIPS ON SELLING A SHORT SALEhttps://brittariveraventure.wordpress.com/2013/07/07/tips-on-selling-a-short-sale-how-best-to-get-bank-approval-is-now-a-good-time/TIPS ON BUYING A SHORT SALEhttps://brittariveraventure.wordpress.com/2012/01/31/2012-tips-on-buying-a-short-sale-be-prepared-to-wait/

This information was obtained via the internet.

Condominium Legislation Effective in 2007

The State Legislature routinely amends the Illinois Condominium Property Act.  Here is a listing and analysis of new legislation that have effective dates in 2007.

Note that my analysis of Item 1, just below, has been revised as of 8/21/2007, as understanding of the legislation has been expanded.

1. Association Entitlement to Assessments After Foreclosure (Revised as of August 10, 2007)

Public Act 94-1049, effective January 1, 2007, adds a few new wrinkles to the interaction between foreclosures and condominium associations.

For a number of years there has been a push on from the condominium community to pass legislation that would entitle condominium associations to some level of priority over foreclosing mortgagees (usually identified as “lenders”) with regard to unpaid assessments. This legislation is a step in that direction, although, in my opinion, an uncertain one.

The new law adds a new section to the foreclosure law relating to the notice of sale to be published in a foreclosure (not usually relevant to condominium associations which rarely take a unit to foreclosure sale) and also two new Subsections (Subsections (4) and (5) to Section 9(g) of the Illinois Condominium Property Act (the “Act”)). Neither new Subsection is, in my opinion, especially well drafted, and so questions of interpretation will be many.

Subsection (g)(4) attempts to give a very limited right of priority to associations for unpaid assessments after a foreclosure. But Subsection (g)(5) will impact managing agents by requiring changes to both the 22.1 letters (at sale) and the assessment letters (given at closings and refinancing) in circumstances where the lender is later selling the unit to a 3rd party.

The new Subsections (g)(4) and (g)(5) state:

(4) 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 r 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. If 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.

(5) The notice of sale of a condominium unit under subsection (c) of Section 15-1507 of the Code of Civil

Procedure shall state that the purchaser of the unit other than a mortgagee shall pay the assessments and the legal

fees required by subdivisions (g)(1) and (g)(4) of Section 9 of this Act. The statement of assessment account issued

by the association to a unit owner under subsection (i) of Section 18 of this Act, and the disclosure statement issued to a prospective purchaser under Section 22.1 of this Act,

shall state the amount of the assessments and the legal fees, if any, required by subdivisions (g)(1) and (g)(4) of

Section 9 of this Act.

Subsection 4 is intended to give condominium associations the right to collect up to 6 months of unpaid assessments if the property is conveyed in certain circumstances. Interpreting Subsection 4 in the light most favorable to associations, I think it means as follows:

1. If a unit is sold at a foreclosure sale to the foreclosing mortgagee, then the 6 months of assessments are not due to the Association as part of that sale. But if the foreclosing mortgagee had obtained possession of the unit during the foreclosure (through receivership proceedings or otherwise), then the foreclosing lender WILL have to pay the up to 6 months of assessments as part of the foreclosure sale (if the Association has started collection proceedings, as described below). And if the purchaser at the foreclosure sale is NOT the

foreclosing lender, but is a 3rd party (maybe even a junior mortgagee other than the association), then that purchaser must pay the up to 6 months of assessments at the foreclosure sale (again assuming the Association has started collection proceedings as describe below). Note that situations in which a 3rd party buys a unit at a foreclosure sale are very rare. Also note that it is even rarer for a mortgagee to take possession of a unit while the foreclosure is ongoing (through receivership or otherwise).

2. Once the foreclosure sale is complete, or the mortgagee has otherwise taken title (through deed in lieu or consent or strict foreclosure proceedings), then whoever the mortgagee (now owner) sells the unit to will have to pay the 6 months of assessments.

The conclusion in 2, above, is consistent with the provisions of the last sentence of Subsection 5 when it speaks of issuance of statement of assessment or a 22.1 letter to a prospective purchaser being required to state how much is owed as a result of provisions of, among other things,

Subsection 4. Such items have no place in a foreclosure, but only in a sale to a third-party. But even if the “correct” person is buying, the association still is required, under the statute, to have taken certain actions ahead of time. In order for an association to get the common expenses (up to 6 months), the association has to start an action to collect. Does this mean a “joint” forcible action (possession and money)? Does this mean a counterclaim in the foreclosure?

Does this mean a regular contract action? Any of the above? It is unclear.  One interpretation is that it is best to wait until the last possible minute in the foreclosure and then file the forcible or counterclaim, or other collection action.  That way there is the greatest chance that at least 6 months of assessments will be due, and will be remaining unpaid.  After all, if suit is filed to collect only 3 or 4 months expenses, then the association may be cheating itself of a few extra months’ assessments if the arrearage later gets up to 6 months or more. But note that since associations are always named as party defendants in foreclosures, the association will have to file a pleading (including maybe a counterclaim) in the foreclosure at the required time, regardless of how much is owed.  So maybe a new strategy will be to file an answer and affirmative defense in the foreclosure and not file a counterclaim until the last minute before entry of the foreclosure judgment. But that strategy, at first glance, runs the risk of resulting in the association not being included in the foreclosure judgment of the lender (who has its own timetable), with possible adverse consequences if the foreclosure sale raises a surplus. Just one more unanswered question, I guess.

As for Subsection (g)(5), that will have immediate impact on associations and managing agents

on and after January 1, 2007. Put aside the first sentence of the Subsection, which sentence will

really have application only to foreclosing lenders in the context of the foreclosure itself.

Although, it is to be noted that sentence reinforces the fact that Subsection 4 is not intends to

require a payment of assessments from the foreclosing mortgagee, but rather only from a 3rd

party purchaser. The second sentence requires that Section 22.1 statements and assessment

letters (under Section 18(i) of the Act) state the amount of assessments and the legal fees, if any,

required by Section 9(g)(1) and (4) of the Act. Note that (g) (4) says nothing at all about legal

fees. It applies only to common expenses. So how did legal fees get into this picture? I cannot

tell.

Also note that this new legislation does not amend either Section 22.1 or Section 18(i). So there

is no cross-reference in either of those Sections to the language that must be added as per this

new legislation. You must simply know it is there.

At first view, it would appear that the language that must be added to Section 22.1 letters and

Section 18(i) assessment letters should read something like this: “This unit was purchased by the

Seller as the mortgagee at a foreclosure sale. At the time of the conclusion of the foreclosure

sale, the Association had instituted an action to collect unpaid assessments from the prior owner

(borrower). As of the date of the institution of that action, the unpaid assessments then owing on

the Unit were not less than $______________, (which amount is equal to at least 6 months of

assessments as then assessed) and the amount of legal fees and court costs incurred in connection

with that collection action was $___________, which together total $_____________. Under

765 ILCS 605/9(g)(4), said total is now due and owing on this Unit, to be paid by the Purchaser.

This amount is in addition to any other assessments, special assessments, late charges or other

charges that may be due on this Unit from the Seller.”

Information about this new law will be updated as the situation warrants.

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March 27, 2012 - Posted by | Uncategorized | , , , ,

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