Thursday, April 6, 2017

RE: Ill App Ct (1st Dist) Holds Post-Foreclosure COA Dues Need Not Be Paid Monthly to Extinguish Pre-Foreclosure COA Lien

Reversing a trial court's ruling in favor of a condominium association and against a mortgagee, the Appellate Court of Illinois, First District, recently held that the Illinois Condominium Property Act's ("Condo Act") provision creating a mechanism to extinguish liens for pre-foreclosure common expense assessments does not create a timing requirement as to when common expense assessments must be paid post-foreclosure to confirm extinguishment of the pre-foreclosure lien. 


A copy of the opinion is available at:  Link to Opinion


A condominium association ("COA") filed a lawsuit against a mortgagee seeking possession of a condominium unit, pre-foreclosure sale common expenses, and attorney's fees.   


Prior to the filing of the COA's complaint, the mortgagee had foreclosed on the condominium unit, and named the COA in the foreclosure action.  The COA never appeared in the foreclosure action and judgment was entered against it. 


The mortgagee was the successful bidder at a foreclosure sale.  The sale was confirmed, and a judicial sales deed was recorded. 


Some four months later, COA transmitted a 30-day notice to the mortgagee, claiming that the mortgagee was "in default in the payment of [its] proportionate share of the common expenses."  The COA demanded payment of $81,400.35, which included, among other things, regular and special assessments, parking fees, and late fees that had accrued over several years.


In response, the mortgagee paid $14,968.76 to the COA, representing only about 5 months of post-sale expenses that had accrued to the date of its payment.


The COA's complaint demanded payment from the mortgagee for the pre-foreclosure sale common expenses for the unit and possession.  The COA alleged that its "lien for all past due assessments has not been extinguished and remain[ed] valid" because the mortgagee "failed to [timely] pay the condominium association assessments, parking fees, late fees and other charges the month after the date of the judicial foreclosure sale" as required by section 9(g)(3) of the Condo Act.


Cross-motions for summary judgment were filed.  The mortgagee argued that section 9(g)(3) did not contain a timing requirement and that its payment for post-sale expenses extinguished the COA's lien against the unit for pre-sale expenses.


The COA argued that section 9(g)(3) did contain a timing requirement with which the mortgagee failed to comply.  As a result, the COA reasoned the mortgagee's payment did not extinguish the COA's lien, and therefore claimed the mortgagee still owed it $94,873.79, which amount included pre-foreclosure sale expenses and $25,816.88 in post-sale expenses.


Some nine months after making its first post-sale payment, the mortgagee transmitted two checks to the COA totaling $25,816.88 with a letter stating they were being "tendered as payment in full of all outstanding amounts due for the Unit" from the date the foreclosure sale was confirmed to the date of the second round of payments. 


In its response in opposition to the mortgagee's motion for summary judgment, the COA argued that the second round of payments did not extinguish its lien for pre-foreclosure expenses because the second round of payments were made in "bad faith."  Conversely, the mortgagee argued the COA's lien for pre-foreclosure expenses had been extinguished by the two rounds of post-sale payments. 


The trial court entered summary judgment in favor of the COA and against the mortgagee, and awarded the COA possession, unpaid pre-foreclosure common expenses, and attorney's fees.  The mortgagee appealed. 


To begin its analysis, the Appellate Court noted that "[t]o determine whether the court properly granted summary judgment to the association, we must interpret section 9(g)(3) to determine whether it sets forth a timing deadline for foreclosure purchasers to pay condominium associations for post-sale common expenses."


Initially, the Court noted, subsection 9(g)(1) of the Condo Act "permits condominium associations to assert liens against a unit owner for unpaid common expenses."


As you may recall, the Illinois Supreme Court previously ruled that the lien created under section 9(g)(1) is not extinguished in a foreclosure action.  See 1010 Lake Shore Association v. Deutsche Bank National Trust Co., 2015 IL 118372.  Instead, the Appellate Court noted, subsection 9(g)(3) of the Condo Act "sets forth a mechanism by which foreclosure purchasers may extinguish an association's lien for pre-sale common expenses."


More specifically, subsection 9(g)(3) provides in relevant part that a purchaser condominium unit at a 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. . ."


The Appellate Court noted that the case turned on the meaning of the phrase "from and after the first day of the month after the date of the judicial foreclosure sale" contained in subsection 9(g)(3). 


The mortgagee argued that this language simply denotes the point in time after which a "purchaser of a condominium unit at a judicial foreclosure sale" becomes responsible for paying post-sale common expenses. The COA argued that the phrase sets forth a strict deadline by which purchasers must remit payment for post-sale expenses to extinguish any lien for pre-sale common expenses.


The Appellate Court agreed with the mortgagee, and held that "based on a plain reading of subsection 9(g)(3), that the phrase 'from and after the first day of the month after the date of the judicial foreclosure sale' does not create a timing deadline with which purchasers must comply to avail themselves of the statute's extinguishment provision. Instead, that phrase simply demarcates the precise moment in time when the foreclosure-purchaser becomes liable for post-sale common expenses."


As a fallback position, the COA argued that it should still prevail under subsection 9(f) of the Condo Act.  This subsection states: "Payment of any assessment shall be in amounts and at times determined by the board of managers." 765 ILCS 605/9(f).


Relying on subsection 9(f), the COA contended that the mortgagee's payments for post-sale expenses were untimely because the COA's condominium declaration states that assessments are due on "the first of each and every month."


The Appellate Court disagreed.  On this issue, the Court held "that sections 9(f) and 9(g)(3) are essentially unrelated. Section 9(f) concerns when assessments are due. Section 9(g) and its various subparts, by contrast, relate to the creation, and extinguishment, of liens for unpaid common expenses. Section 9(g) does not incorporate or otherwise refer in any way whatsoever to section 9(f)."


Additionally, the Court held, "[b]y relying on section 9(f) to construe section 9(g)(3), the association is inviting us to apply the doctrine of in pari materia," under which "two legislative acts that address the same subject are considered with reference to one another, so that they may be given harmonious effect." 


However, the Appellate Court found that because the language of the statute was clear, the doctrine of in pari materia did not apply and the COA could not "supplement its text by importing section 9(f) into section 9(g)(3)."


Because the mortgagee paid the full amount of post-sale expenses it owed the COA before judgment was entered against it, the COA's lien for pre-sale expenses was extinguished pursuant to subsection 9(g)(3), and the Court held that the mortgagee was entitled to summary judgment as a matter of law.




Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
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Chicago, Illinois 60602
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