Tuesday, May 1, 2018

FYI: Ill App Ct (1st Dist) Rules HOA Lien Extinguished by Payment 1 Year After Foreclosure Sale

The Appellate Court of Illinois, First District recently held that a foreclosing mortgagee's payment of post-foreclosure sale assessments nearly a year after the sale date confirmed the extinguishment of a condominium association's lien for pre-sale assessments created under the Illinois Condominium Property Act (the "Act").

 

In so ruling, the First District found that the plain language of the Act did not place any "temporal requirement on the payment of post-purchase assessments in order for the payment to confirm the extinguishment of any lien created under subsection 9(g)(1) of the Act[.]"

 

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

 

The defendant mortgagee foreclosed on its mortgage and purchased the condominium unit (the "Unit") at the foreclosure sale on November 13, 2015.  The trial court in the foreclosure action confirmed that sale in January 2016.

 

On August 30, 2016, defendant mortgagee requested verification of the amount of assessments due and owing from the condominium association ("plaintiff association").  On September 1, 2016, plaintiff association provided a ledger reflecting $5,411.31 in unpaid assessments accruing from November 13, 2015 through September 1, 2016.

 

The mortgagee sent a check to the plaintiff association on September 13, 2016 for the unpaid post-sale assessments.  However, on November 30, 2016, plaintiff association issued a Notice and Demand for possession of the Unit to defendant mortgagee demanding $17,810.35 for unpaid assessments that accrued prior to the foreclosure sale.  Thereafter, plaintiff association filed suit.

 

In response, defendant mortgagee filed a motion seeking dismissal of the complaint, or in the alternative, summary judgment.  Defendant mortgagee argued that its payment of $5,411.31 in post-sale assessments confirmed extinguishment of plaintiff association's lien pursuant to section 9(g)(3) of the Act ("Section 9(g)(3)"). 

 

Plaintiff association filed a cross-motion for summary judgment arguing, inter alia, that defendant mortgagee did not comply with section 9(g)(3)'s requirements by failing to pay monthly assessments for the Unit in the month following the sale, and therefore, the lien created under section 9(g)(1) of the Act ("Section 9(g)(1)") was not confirmed extinguished by the payment in September 2016.

 

The trial court granted defendant mortgagee's motion for summary judgment and denied plaintiff association's cross-motion for summary judgment.  Plaintiff association appealed.

 

On appeal, the only issued argued by plaintiff association was whether, pursuant to section 9(g)(3), defendant mortgagee's $5,411.21 payment on September 13, 2016 confirmed the extinguishment of plaintiff association's lien for pre-sale assessments created under Section 9(g)(1).

 

Plaintiff association argued that section 9(g)(3) required defendant mortgagee to begin remitting payment for post-sale assessments immediately in the month following the sale to confirm extinguishment of the Section 9(g)(1) lien.  Thus, plaintiff association argued, defendant mortgagee's payment in September 2016 did not extinguish the lien for pre-sale assessments.

 

However, the Appellate Court rejected plaintiff association's argument that section 9(g)(3) provides for a rigid deadline of the month following the foreclosure sale to commence remitting post-sale assessments.

 

The Court noted that "it is clear that a foreclosure buyer's duty to pay monthly assessments begins on 'the first day of the month after the date of the judicial foreclosure sale.' But on the face of the statute, section 9(g)(3) does not contain any time limit for confirming the extinguishment of an association's lien." See Country Club Estates Condominium Ass 'n v. Bayview Loan Servicing LLC, 2017 IL App (1st) 162459, ¶ 14 (internal citations omitted).

 

The Appellate Court also cited heavily from the Illinois Supreme Court decision in 1010 Lake Shore Ass'n v. Deutsche Bank National Trust Co., 2015 IL 118372 ("1010 Lake Shore").  In 1010 Lake Shore, the Illinois Supreme Court explained that "[t]he first sentence of section 9(g)(3) plainly requires a foreclosure sale purchaser to pay common expense assessments beginning in the month following the foreclosure sale." 

 

However, the Appellate Court did not interpret this phrase to mean that a purchaser at a foreclosure sale must commence remitting post-sale assessments in the month following the sale.  Rather, the Court explained that "first sentence of section 9(g)(3) merely fixes the date when the purchaser's liability for assessments begins." 

 

Thus, the Appellate Court held that defendant mortgagee was not required to immediately remit post-sale assessment payments in the month following the foreclosure sale to confirm the extinguishment of plaintiff association's lien for pre-sale assessments.

 

It is important to note that the Illinois Supreme Court in 1010 Lake Shore advised that "[t]he second sentence [in section 9(g)(3)] provides an incentive for prompt payment of those [post-sale] assessments, stating '[s]uch payment confirms the extinguishment of any lien created' under subsection 9(g)(1) by the prior unit owner's failure to pay assessments." 

 

Thus, relying on 1010 Lake Shore, plaintiff association argued alternatively that defendant mortgagee did not "promptly" pay post-sale assessments for the Unit, and therefore, the September 2016 payment did not confirm extinguishment of the Section 9(g)(1) lien. 

 

However, in rejecting plaintiff association's argument, the Appellate Court noted that the Illinois Supreme Court in 1010 Lake Shore "did not hold that prompt payment is a condition precedent to confirmation of the extinguishment of any lien created under subsection 9(g)(1) of the Act."  Rather, the Appellate Court explained that the payment of post-sale assessments is an additional step necessary to confirm extinguishment of the Section 9(g)(1) lien.  However, prior to the confirmation of extinguishment by the post-sale payment, the Section 9(g)(1) lien is enforceable. The "incentive for prompt payment" is taking the additional step required for extinguishment of the lien before the lien is enforced.

 

The Appellate Court explained that the ruling in 1010 Lake Shore supported the conclusion that "payment of post-purchase assessments, whenever made, is the step necessary to confirm the extinguishment of any lien created under section 9(g)(1)[.]"  Indeed, the Court noted that the Illinois Supreme Court "never qualified its analysis by stating that, before the payment of post-purchase assessments could act to confirm the extinguishment of any lien created under subsection 9(g)(1) of the Act, the payment must be made promptly following the purchase of the condominium at a foreclosure sale."

 

The Appellate Court further explained that the supreme court in 1010 Lake Shore "found no ambiguity in the provisions of the Act; rather, it found the language to be plain it its requirements."  Thus, the Court found that "the legislature did not place any temporal requirement on the payment of post-purchase assessments in order for the payment to confirm the extinguishment of any lien created under subsection 9(g)(1) of the Act; nor do we believe that the supreme court in 1010 Lake Shore found promptness of payment to be an implicit requirement in the statute."

 

In light of the above, the Appellate Court found that defendant mortgagee's payment on September 13, 2016 satisfied all of the post-sale assessments that had accrued since the date of the sale.  Therefore, the Court held that defendant mortgagee's payment confirmed extinguishment of any lien held by plaintiff association for unpaid pre-sale assessments under Section 9(g)(1).

 

Accordingly, the Appellate Court affirmed the trial court's order granting summary judgment in favor of defendant mortgage and denying plaintiff association's cross-motion for summary judgment.

 

 

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
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Chicago, Illinois 60602
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Email: rwutscher@MauriceWutscher.com

 

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