Extinguishing Condominium Liens through Foreclosure in Illinois
Illinois legislation affords many significant and generous powers to condominium associations. Illinois condominium associations’ powers were further enhanced by a recent Illinois Supreme Court decision in 1010 Lakeshore Association v. Deutsche Bank National Trust Company, as Trustee for Loan Tr 2004-1, Asset-Backed Certificates, Series 2004-1. 1010 Lakeshore held that the lien created by unpaid assessments of a prior owner of a condominium is only extinguished through payment by the purchaser of the property of the monthly fees assessed the month following the judicial foreclosure sale. 2015 IL 118372.
1010 Lakeshore arose from a lawsuit filed by the condominium association, 1010 Lakeshore Association, against Deutsche Bank National Trust Company, as Trustee for Loan Tr 2004-1, Asset Backed Certificates, Series 2004-1 (“Deutsche Bank”) for non-payment of assessments. Id. at ¶3. Deutsche Bank acquired the property through a foreclosure proceeding. The complaint filed by 1010 Lakeshore Association alleged that Deutsche Bank owed $62,530.81 in unpaid assessments to the association. Id. at ¶4. The association was seeking to collect assessments that accrued both before the judicial sale took place and after the sale had occurred pursuant to 765 ILCS 605/9(g)(3), known as the Condominium Property Act. Section 9(g)(3) of the Condominium Property Act states, “The purchaser of a condominium unit at a judicial foreclosure sale…shall have the duty to pay the unit’s proportionate share of the common expenses for the unit assessed from and after the first day of the month after the date of the judicial foreclosure sale… Such payment confirms the extinguishment of any lien created…by virtue of the failure or refusal of the prior unit owner to make payment of common expenses…” Judgment was entered in the Circuit Court in favor of 1010 Lakeshore Association and subsequently affirmed on appeal. Id. at ¶1.
On appeal to the Illinois Supreme Court, Deutsche Bank argued that because the association was named in its foreclosure proceeding, their interest or lien in the property had therefore been eliminated through the foreclosure process pursuant to Section 15-1509(c) of the Illinois Mortgage Foreclosure Law (IMFL). 735 ILCS 5/5-1509(c), 1010 Lakeshore Association, 2015 IL 118372 at ¶16. Section 15-1509 (c) of the IMFL states that, “[a]ny vesting of title by a consent foreclosure pursuant to Section 15-1402 or by deed pursuant to subsection (b) of Section 15-1509, unless otherwise specified in the judgment of foreclosure, shall be an entire bar of (i) all claims of parties to the foreclosure and (ii) all claims of any nonrecord claimant who is given notice of the foreclosure…” Deutsche Bank further argued that Section 9(g)(3) of the Condominium Property Act was enacted as an alternate means to extinguish condominium liens that were not named in a foreclosure proceeding, not as a condition precedent to extinguish unpaid assessments incurred by prior owners. Id. at ¶26. Conversely, 1010 Lakeshore Association argued that the plain language of Section 9(g)(3) requires purchasers of condominium units through foreclosure proceedings to pay the first month’s assessments in order to extinguish any liens for unpaid assessments by prior owners. Id. at ¶19.
Ultimately, the Court sided with the condominium association and stated that Section 9(g)(3) and Section 15-1509(c) should not be taken as separate remedies to extinguish condominium association liens, but should be read together. Id. at ¶38. In reading the plain language of the statutes, the Court reasoned that Section 15-1509(c) requires that the condominium association be named in order to extinguish any lien said association may have in the property and Section 9(g)(3) then requires a payment to further confirm extinguishment of the lien. Id.
How does this affect servicers and lenders? From a practice standpoint, servicers and lenders should put procedures in place to have a payoff letter and ledger requested from the association immediately following the foreclosure sale. One issue that is left somewhat open following the 1010 Lakeshore case is the timing aspect of making that first payment following the foreclosure sale. Neither the statute nor the court is instructive on what time frame the purchaser of the unit at the foreclosure sale has to make the first payment to confirm extinguishment of the lien. To ensure that any unpaid assessments of prior owners are extinguished, it is recommended that the purchaser of a condominium unit through a foreclosure sale pay the assessments within the first month following the purchase of the property. This will ensure compliance with the statute and effectively confirm extinguishment of any condominium lien.
If you have any questions, please contact Kimberly Goodell, Supervising Attorney, at (248) 853-4400 ext. 1227, firstname.lastname@example.org.
Kimberly J. Goodell joined Potestivo & Associates, P.C. in September 2009 as a Law Clerk. After passing the Illinois Bar, Kim was promoted to the Illinois Litigation Department as an Association Attorney. While working in the Litigation Department, Kim also worked for the firm’s Illinois REO department. In June 2013, Kim was promoted to Supervising Attorney for the Illinois Foreclosure Department and continues to serve in that capacity.