The Illinois Court of Appeals for the Second District recently held that, under Section 9 of the Illinois Condominium Property Act, payment of post-foreclosure sale assessments extinguishes any liens that an association may have on the property that came due prior to the foreclosure sale.
A copy of the Court's opinion is available at: http://www.illinoiscourts.gov/Opinions/AppellateCourt/2013/2ndDistrict/2130288.pdf
The defendant bank recorded in 2007 a first mortgage against a condominium unit by lending to the unit's owner. On July 26, 2011, the bank filed a complaint to foreclose on the mortgage. The next day, the plaintiff, a condominium association (CA), recorded a lien against the unit owner for unpaid association charges in the amount of $1,607.55. On October 7, 2011 the bank received a judgment of foreclosure. On April 13, 2012, the bank bought the unit at a sheriff's sale and the deed was recorded on April 17, 2012 conveying the property to the bank.
The bank sent the plaintiff condominium association checks for the May, June, and July 2012 association charges but the plaintiff refused them. From August 2012 on, the CA accepted the bank's payment of the charges. On August 30, 2012, the plaintiff recorded another claim for a lien for $7,412.22 in association charges from March 2010 through July 2012.
On November 27, 2012, the plaintiff condominium association filed its complaint seeking possession of the condominium unit. The defendant bank moved to dismiss, arguing that the lien was extinguished by the plaintiff's acceptance of the association charges. The trial court held that under the Condominium Property Act (765 ILCS 605/9) the plaintiff's lien was unenforceable. The Illinois Court of Appeals affirmed.
On appeal, there were three issues raised: (1) whether there is any legal precedent to deny the plaintiff's ability to recover association charges that came due before the bank acquired the property; (2) whether, under the Illinois Condominium Property Act, the plaintiff condominium association's acceptance of association charges after the bank acquired the property bars plaintiff's recovery for its lien; and (3) whether the condominium declaration barred plaintiff's recovery. The Court of Appeals answered the first two issues in the affirmative and, as a result, did not address the third issue.
For the first issue, the Court addressed the ruling from Newport Condominium Ass'n v. Talman Home Federal Savings & Loan Ass'n of Chicago, 188 Ill. App. 3d 1054 (1988). In that case, the bank had a first mortgage on the property and subsequently filed an action to foreclose on the mortgage. At the time of the lawsuit, the association had a lien on the property and it was assumed that the lien was subordinate to the mortgage. The bank successfully bid on the property at a sheriff's sale in January of 1983 and received the certificate of purchase at that time, but because of the unit owner's bankruptcy and abandonment of the property, the bank did not receive the deed to the property until May 1985.
The association filed an action asserting that the bank was responsible for association charges from the time it received the certificate of purchase until when it received the deed. Although the trial court in that case held that the bank was responsible for the association charges during that entire time, the appellate court disagreed and reversed, holding that the certificate of purchase did not convey title in the unit to the bank because, under long-standing Illinois law, title had remained with the unit's owner until the sheriff's deed conveyed it to the bank. "For this reason, the association could not enforce its lien against the bank insofar as it sought to recover charges that had come due before the bank obtained title. Because the obligation to pay condominium assessments is a covenant that runs with the land and is binding only upon title holders, we conclude that the bank is not liable for the assessments which accrued from the expiration of the redemption period to the date the bank exchanged the certificate for the deed."
The Court of Appeals concluded that the Newport case disposed of the plaintiff's appeal. Even if the plaintiff condominium association's lien survived the foreclosure judgment in favor of the bank, it could not be enforced against the bank to the extent that it was based on association charges that came due before the bank obtained title to the property.
The Court next analyzed the issue raised under the Illinois Condominium Property Act. Sections 9(g)(1) and 9(g)(3) of the Act read:
(1) If any unit owner shall fail or refuse to make any payment of the common expenses or the amount of any unpaid fine when due, the amount thereof together with any interest, late charges, reasonable attorney fees incurred in enforcing the covenants of the condominium instruments *** and costs of collections shall constitute a lien on the interest of the unit owner in the property prior to all other liens and encumbrances, recorded or unrecorded, except only *** (b) encumbrances on the interest of the unit owner recorded prior to the date of such failure or refusal which by law would be a lien thereon prior to subsequently recorded encumbrances. Any action brought to extinguish the lien of the association shall include the association as a party.
***
(3) 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 pursuant to paragraph (1) *** of this subsection (g) by virtue of the failure or refusal of a prior unit owner to make payment of common expenses, where the judicial foreclosure sale has been confirmed by order of the court ***.
In analyzing these provisions, the Court of Appeals concluded that the bank's payment of the association charges defeated the plaintiff condominium association's attempt to enforce its lien during the period in question.
Under the Illinois Condominium Property Act, the purchaser of a condominium unit at a judicial foreclosure sale must pay the charges that are assessed from and after the first day of the month after the date of the judicial foreclosure sale, and, if the trial court confirms the sale, the payment extinguishes any lien created by the failure of the previous unit owner to pay the assessments that came due earlier.
The bank acquired the deed to the unit in April 2012. The plaintiff attempted to argue that the bank did not make its first payment, however, until June, 2012. The Court rejected the plaintiff's argument because the payment made in June contained both May and June's association charges.
The Court held that the bank's payment of the post-foreclosure-sale assessments extinguished any lien that the plaintiff had based on the owner's failure to pay the assessment that came due before the foreclosure sale. To hold that plaintiff's lien survived the payment, the Court explained, would contradict the plaint language and necessary implication of the Illinois Condominium Property Act. If the payments extinguished the lien that had been created, then plaintiff cannot enforce the lien.
The Illinois Appellate Court therefore affirmed the trial court's dismissal of the complaint.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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