Tuesday, September 2, 2014

FYI: Ill App Ct Holds HOA Lien Not Extinguished by Foreclosure, Even If HOA Was Made a Party to the Foreclosure

The Illinois Appellate Court, First District recently held that a lien for unpaid homeowner association payments is not extinguished by a foreclosure and sale, where the purchaser fails to make the payments required of it by Illinois' Condominium Property Act, even if the homeowner's association was made a party to the foreclosure action. 


A copy of the opinion is available at http://www.illinoiscourts.gov/Opinions/AppellateCourt/2014/1stDistrict/1130962.pdf


A bank purchased a condominium unit at a judicial sale.  Several years later, the homeowner's association ("HOA") for the condominium unit filed suit, seeking possession of the condominium unit in connection with unpaid assessments. The trust sought a lien in the total amount of unpaid assessments for the subject property.  


The HOA moved for summary judgment, and the bank responded, contending that it was not responsible for any unpaid assessments incurred prior to its purchase.


The lower court granted summary judgment in favor of the HOA, and the bank filed a motion to reconsider, which was denied.  The bank appealed. 


As you may recall, Illinois' Condominium Property Act (“Condominium Act”) provides that the purchaser of a condominium unit at a judicial foreclosure sale must pay its proportionate share of common expenses for the unit "assessed from and after the first day of the month after the judicial foreclosure sale."  765 ILCS 605/9(g)(3).  Such payment "confirms the extinguishment of any lien created [under section 9(g)(1) in connection with previous unpaid assessments] by virtue of the failure or refusal of a prior unit owner to make payment of common expenses..."  Id. 


Here, the dispute turned on the HOA's attempt to obtain judgment in the total amount of the alleged unpaid assessments. The bank contended that same was improper, in that by statute it was only liable for a portion of those expenses.  The HOA, for its part, contended that the lien for unpaid assessments would only be extinguished by payment of the purchaser's share of common expenses – and, as the bank had not paid its proportionate share, the HOA argued that the lien was not extinguished. 


The Appellate Court ruled in favor of the HOA, noting that the plain language of the Condominium Act indicates that "a lien created under section 9(g)(1) is not fully extinguished following a judicial foreclosure and sale until the purchaser makes a payment for assessments incurred after the sale." 


In addition, the Appellate Court observed that if it were to side with the bank and hold that a purchaser of a unit after a foreclosure sale may never be required to pay assessments that are incurred prior to the foreclosure sale, "we would be holding that a lien created under section 9(g)(1) is fully extinguished by the foreclosure and sale - which would render section 9(g)(3) superfluous."  


The bank countered that the law in Illinois is well-settled that all outstanding claims on property that is the subject of a foreclosure and sale are extinguished, citing the Illinois Mortgage Foreclosure Law and related case law. 


The Appellate Court did not find the bank's argument persuasive, noting that where general and specific statutory provisions conflict, it is the "specific statutory provision that must control over the general rule of foreclosure law cited by [the bank]." 


Accordingly, the Appellate Court rejected the bank's argument, and held in favor to the HOA. 






Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mwbllp.com


Admitted to practice law in Illinois



          McGinnis Wutscher Beiramee LLP





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