Condo Associations

Condo Associations

Attention: Condo building property managers and Board members…

DO YOU HAVE OWNERS THAT ARE BEHIND ON ASSESSMENTS?
DO YOU NEED TO GET MONEY FROM THESE OWNERS AND FUND YOUR RESERVES?

After your condo association receives legal possession of a condo for non- payment of assessments, Gold Coast property management is here to help!!

We are experienced in Managing and renting out units that Condo associations have control of.

Please contact Mike Kravitz for more information.

General collection outline for condo associations, by Attorney Stuart Fullett

The Collection of Assessments
Note: This is a general outline of Association assessment collections. Due to the numerous variables that may come into play, it is impossible to discuss all aspects and this outline does not attempt to provide for such. The most important point with respect to the initiation of the collection process is that the Board must understand that it has a fiduciary duty to its members to try to collect assessments and a policy should be in place to make sure that this happens.

General Overview of Illinois Law
Illinois is the only state in the country that allows the use of a Forcible Entry and Detainer action (an eviction) against a unit owner. An Association has the power to dispossess (evict) a unit owner from their residence and rent the property out to satisfy the arrearage. What this means is that once the Sheriff provides the Association with possession, the Association has the authority, but not the obligation, to lease the unit to a bona fide tenant (whether the unit has a current tenant or not) pursuant to a written lease for a term not to exceed 13 months from the date of expiration of the stay of judgment. The money collected shall be first applied to assessments and other charges sued upon in the action for possession plus statutory interest on the monetary judgment, attorneys’ fees, and court costs incurred and then to other expenses lawfully agreed upon, including late charges, fines and reasonable expenses necessary to make the unit rentable and lastly to assessments accrued thereafter until assessments are current. Any surplus shall be remitted to the unit owner. As noted, the Association’s main remedy is to take possession of the unit and rent it out to recoup its money.

The Collection Process
The collection process typically begins when the Association turns over the unit owner’s account to the attorney’s office for collection. The turnover consists of receiving a directive to start collection, being provided with the unit address, the offsite address, if applicable and a current ledger.

The attorney’s office will then order a tract search to procure the names of the record owners of the unit. The tract search is imperative because if all the owners are not named in the initial Notice and Demand, any subsequent action is void as to possession. The attorney’s office will also perform a limited review of court records as to bankruptcy and mortgage foreclosure. For more information regarding these occurrences and how they affect collection, see below.

A. Notice and Demand
After determining the owners of record, the attorney’s office will prepare a Notice and Demand for Possession (“ND”). The ND is forwarded to the unit owner via regular and certified mail. The unit owner has 30 days to dispute the debt and/or pay the debt. Should the unit owner pay in full, the attorney will close their file. If a partial payment is received, the Association will have the option to accept the partial payment or return it to the unit owner. When deciding whether to accept partial payments, the Association should consider its immediate need for cash flow versus the possible negative effects that accepting the payment could have on future collection efforts. At this point, the unit owner may also dispute the debt and request debt verification or request a payment plan or some kind of waiver. At the same time the ND is sent (or anytime thereafter), the Association will have an option of recording a lien for the outstanding assessments and other common expenses against the unit owner. The lien is filed with the Recorder of Deeds so that it becomes public record. If the unit owner pays in full within the ND period, the collection file should be closed and the unit owner should be provided with a Release of Lien, if applicable.

B. Forcible Entry and Detainer lawsuit
Should payment in full not be received, the Association will have the option of filing a Forcible Entry and Detainer lawsuit (“FED”) in which the Association will seek a monetary judgment and/or a court order for the possession (“OP”) of the unit. The FED begins with the filing of the Complaint with the Clerk of the Circuit Court and placing the Summons and Complaint with the Sheriff or Special Process Server for service of process. If the Action is filed in Cook County, the sheriff must first attempt service; if the action is filed in one of the collar counties, service can be made by a special process server. Should service not be obtained before the first court date, service will need to be made via an alias served by the special process server or by posting notice. Note that without proper service of process, the court does not have jurisdiction over the unit owner and/or the unit. Any problem with service of process and each additional attempt (i.e. alias, posting) will lead to additional court dates. If the unit owner is personally served the Association is able to seek a judgment against the unit owner and the property. However, if posting notice is used, the Association may only seek an “in rem” judgment against the property itself, rather than a personal judgment against the unit owner. Note that “in rem” means against the unit rather than the unit owner personally.

After the unit owner is served, there are several ways that the matter can proceed and the process is driven by the unit owner. The unit owner can pay the entire balance and the lawsuit will be dismissed. If the unit owner (or his or her attorney) fails to appear in court, the court will typically enter a Default Judgment and thereafter an OP. The unit owner may also sign an Agreed Judgment and OP either before court or in court. If the unit owner disputes the amount owed the matter is typically set for trial. If the Association prevails at trial the court should enter a Judgment and OP in its favor. Depending on the necessary court dates for service of process and unit owner delay, cases may take multiple court appearances before a final resolution is achieved. However, the majority of cases are resolved relatively quickly.

The Order entered for the Association will include both a money judgment for the outstanding assessments, any special assessments, late fees, fines, attorney’s fees and costs owed to the Association as well as an OP. The OP will have a statutory stay period (a time in which the possession part of the order may not be enforced) of anywhere from a minimum of 60 days to a maximum of 180 days. If someone other than the unit owner is residing in the unit, the OP also may include an assignment of rents from any tenant. This allows the Association to collect rent from the tenant and is not affected by the statutory stay period. If the unit owner pays the judgment in full within the stay period (or anytime thereafter) and is not in arrears on his or her assessments and other common expenses for the period after the date the judgment was entered, the collection file should be closed and the unit owner should be provided with a Release of Judgment and Lien, if applicable.

C. Post-Order for Possession
If the judgment amount and current assessments are not paid within the stay period, the Association has the option of placing the OP with the Sheriff for eviction. Note that there is no “self-help” in Illinois; the sheriff must evict anyone living in the unit. After the OP is placed, the eviction is scheduled. It should be noted that most cases do not proceed this far. However, if only the judgment amount is paid, other options may be available instead of proceeding with the placement of the OP with the Sheriff.

Assuming the unit owner does not come up with the money at the last minute, which quite often happens, the Association may proceed with the eviction and the Sheriff will provide the Association with possession. Thereafter, the Association has the authority, but not the obligation, to lease the unit to a bona fide tenant (whether the unit has a current tenant or not) pursuant to a written lease for a term not to exceed 13 months from the date of expiration of the stay of judgment. The money collected shall be first applied to assessments and other charges sued upon in the action for possession plus statutory interest on the monetary judgment, attorneys’ fees, and court costs incurred and then to other expenses lawfully agreed upon, including late charges, fines and reasonable expenses necessary to make the unit rentable and lastly to assessments accrued thereafter until assessments are current. Any surplus shall be remitted to the unit owner. If necessary, the Association may petition the court to extend the time of possession beyond the original 13 months. Once the unit owner’s account is current, possession of the unit will revert back to the unit owner. If the Association has rented out the unit, the release of the judgment will be concurrent with the expiration of the lease term. The collection file should then be closed and the unit owner should be provided with a Release of Judgment and Lien, if applicable.

Note that the Association only obtains possession of the unit, not ownership. The unit owner remains responsible for any mortgage and property taxes on the unit.

Hiccups in the Collection Process
There are several events which can occur that can delay, stop or hinder the collection process. A few of the most common are review below.

A. Mortgage Foreclosures
A mortgage foreclosure is an action by a lender against the unit owner. The Association is a necessary part to the foreclosure based on its interest in the property. Note that the Association’s interest is usually subordinate to that of the lender.

There are several ways that the Association can learn about a pending mortgage foreclosure. The most common way is that the Association is served with a summons and complaint from the mortgage lender. A foreclosure can usually be discovered by running a tract search or during the monitoring of a unit owner’s bankruptcy.

Once the Association is notified of a pending foreclosure, it must decide whether it wants to participate or just monitor the foreclosure. In making this decision, one consideration is whether the Association is a Condominium Association or a non-condominium common interest community association. The Association should also consider whether it believes that there will be a surplus from the judicial sale and where the Association is in any pending collection action against the unit owner. In order to participate in the foreclosure proceedings and be included in the Judgment, the Association must file first its Answer and Appearance and thereafter its affidavit of lien claimed. If the Association participates in the foreclosure, it should be included in the Judgment as a subordinate lien holder to the lender.

Under Illinois law, the unit owner has an absolute right to reinstate the mortgage by paying the arrearage up to the date that the Judgment is entered. Note that most lenders will still permit owners reinstate their loan until the judicial sale takes place.

After Judgment is entered, the unit owner will be provided with a period in which he or she can redeem the mortgage by paying the entire mortgage off. The redemption period is either (1) 7 months from the date that the owner was served or (2) 3 months from the date of the entry of the judgment, whichever is later.

If the owner has not redeemed the mortgage or made other arrangements with the lender during the redemption period, a judicial sale will often occur shortly thereafter. The judicial sale extinguishes the Association’s lien for unpaid assessments. The new owner is typically responsible for assessments and common expenses starting the first of the month after the sale. If a surplus from the judicial sale exists, the Association, assuming it has participated in the foreclosure and is included in the judgment, will be entitled to try to collect from the surplus.

Illinois law provides a “super lien” provision in foreclosures filed from 2007 forward for Condominium Associations. A similar, but not so generous provision (applicable for foreclosures filed after July 14, 2010) applies to non-condominiums (Homeowner, Townhome and other non-condominium common interest community associations). The “super lien” provisions are predicated on the Associations commencing a collection action after the foreclosure has been filed. Condominium Association may be entitled to collect from the ultimate third party purchaser the six months of common expenses that came due prior to the commencement of the collection action plus attorney’s fees and costs, incurred as a result of the collection action (assuming that the amount was due at the time of the judicial sale). Homeowner, Townhome and other non-condominium common interest community associations may only be entitled to collect from the ultimate third party purchaser the 6 months of common expenses that came due prior to the commencement of the collection action (assuming that the amount was due at the time of the judicial sale).

Note that the term “collection action” remains subject to judicial interpretation – it might be simply sending an ND, or it might require the filing of an FED, which is the safest course of action. If the Association was not named in the foreclosure, the Association’s lien may survive the judicial sale and the whole amount owed could be collectible from the new owner.

B. Bankruptcy
A unit owner can file for either Chapter 7 or Chapter 13 bankruptcy protection. A Chapter 7 bankruptcy is a faster procedure, typically lasting 4 months. Under a Chapter 7 bankruptcy, the unit owner is not required to make any payments on the pre-petition balance and the Association will not receive any payments from the Trustee. In a Chapter 7 bankruptcy, the unit owner will quite often indicate their intention to surrender the unit to their mortgage lender or to reaffirm their debt with their mortgage lender and the Association. If the unit owner intends to surrender the unit, he or she will likely stop paying their current mortgage and assessment payments. The mortgage lender will typically then proceed with a foreclosure against the unit or the unit owner may surrender the unit to their mortgage lender by signing a Deed in Lieu of Foreclosure. Note that the unit owner’s intention to retain or surrender their unit is not binding. If the unit owner remains current on his or her monthly mortgage payment, the mortgage lender will not typically proceed with a foreclosure against the unit.

A Chapter 13 bankruptcy is a much longer action, which can last 5 years. When a unit owner files for Chapter 13 bankruptcy protection, the unit owner will also file a Chapter 13 Plan. The Association should be included in the Plan as a secured creditor. If the Association is not included as a secured creditor or included for the incorrect pre-petition balance, the Association can file an Objection to the Plan to have the Plan revised to include the Association as a secured creditor for the correct pre-petition balance. Once the Plan is confirmed, the Unit Owner will begin making payments to the Bankruptcy Trustee, who in turn will distribute the amount paid to the unit owner’s creditors. These payments should be applied to the unit owner’s pre-petition balance. The unit owner is also required to remain current with his or her post-petition assessments. In order to receive Trustee payments, the Association must typically file a Proof of Claim.

Once the unit owner files for bankruptcy, there is an automatic stay on all collection action against the unit owner, including FED or a foreclosure action. If the unit owner fails to remain current on his post-petition assessments (those which came due and owing after the bankruptcy was filed), the Association can file a Motion to lift the bankruptcy court’s automatic stay. Once the stay is lifted, the Association can proceed against the Unit Owner as if a bankruptcy had never been filed.

The bankruptcy will end either with a discharge or a dismissal. If the bankruptcy is discharged, the unit owner is no longer personally liable for the pre-petition balance (those amounts that were due and owing on the date that the bankruptcy was filed). However, because the Association’s declaration is recorded against the unit and the obligation to pay assessments runs with the land, the pre-petition balance remains as a lien against the unit and can be collected in an “in rem” action. However, if the bankruptcy is dismissed, it is as if the bankruptcy was never filed and the unit owner remains personally liable for all amounts, including the pre-petition balance. A bankruptcy can be dismissed for many reasons, i.e. failure of the unit owner to make payments to the Trustee. Note that the unit owner may re-file for bankruptcy protection.

C. Tax Sale
If the unit owner fails to pay his or her taxes, the unit could be sold at a tax sale. If this occurs, the Association’s lien for unpaid assessments is extinguished. The new owner is responsible for the assessments beginning the first of the month after the date the tax deed is issued.

 


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If you have any questions not answered above, or wish to further discuss anything listed above, feel free to call Mike Kravitz

Gold Coast Property Management.

mikekravitz@goldcoastpropertymanagement.com

Phone: 312.485.9868
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