New Consumer Debt Judgment Amendments May Impact Association Collections; Some Illinois Proscriptions on Cannabis in Condo Units
Illinois amended certain sections of the Illinois Code of Civil Procedure to reduce the interest rate charged from nine percent to five percent against “consumer debt judgments” in the amount of $25,000 or less. P.A. 101-0168. Given that this legislation, H.B. 0088, 101st Gen.Assem. (2019), was passed by both houses prior to June 1 of the calendar year without an effective date stated in the legislation, it becomes effective on January 1, 2020. See 5 ILCS 75/1. This law is generally referred to in the press as the “Consumer Fairness Act” (not to be confused with the federal Consumer Review Fairness Act of 2016, Pub.L. No. 114-258, 130 Stat. 1355, which prohibits gag clauses against consumer reviews in non-negotiable contracts), but that name does not appear in the Act.
At the risk of being wrong in foretelling the future, it is this author’s belief that these amendments to the Code of Civil Procedure will likely apply to judgments obtained by condominium and homeowners associations against some unit owners relating to unpaid assessments and certain other charges but not to fines. Indeed, it could be possible in such event that a judgment amount would need to be bifurcated to apply different interest rates to different portions of the judgment.
What Are “Consumer Debt Judgments”?
Section 2-1303 of the Code of Civil Procedure, relating to interest on judgments, will have a new subsection (b)(1), which defines consumer debt and consumer debt judgment.
“Consumer debt” means money or property, or the equivalent, due or owing, or alleged to be due or owing, from a natural person by reason of a transaction in which property, services, or money is acquired by that natural person primarily for personal, family, or household purposes.
“Consumer debt judgment” means a judgment recovered in any court against one or more natural persons arising out of consumer debt. “Consumer debt judgment” does not include any compensation for bodily injury or death, nor any judgment entered where the debt is guaranteed by or contains a joint and several liability provision between a natural person and a business, whether or not that business is legally constituted under the laws of this State or any other state. 735 ILCS 5/2-1303(b)(1), as amended by P.A. 101-168 (eff. Jan. 1, 2020).
This amendatory act provides several new subsections: A new subsection (b)(2) provides that consumer debt judgments of $25,000 or less shall draw interest from the date of judgment until satisfied at the rate of five percent per annum. 735 ILCS 5/2-1303(b)(2), as amended by P.A. 101-168 (eff. Jan. 1, 2020).
A new subsection (b)(3) provides that a consumer judgment debtor may stop the accrual of interest by tendering payment of the judgment, costs, and interest “notwithstanding the prosecution of an appeal, or other steps to reverse, vacate, or modify the judgment.” 735 ILCS 5/2-1303(b)(3), as amended by P.A. 101-168 (eff. Jan. 1, 2020). Apparently, regarding consumer debt judgments, satisfaction of the judgment will not moot or otherwise affect an appeal or motion to vacate or reconsider.
A new subsection (b)(4) clarifies that this subsection (b) will apply to all consumer debt judgments entered after the effective date of the Act. 735 ILCS 5/2-1303(b)(4), as amended by P.A. 101-168 (eff. Jan. 1, 2020).
This amendatory act also shortens the period of time for a judgment creditor to revive a consumer debt judgment to no later than ten years after its entry. It also provides that if any judgment, consumer debt judgment or otherwise, becomes dormant during collection proceedings, the proceedings may continue under court supervision to conclusion.
Consumer Debt — Natural Person
The analysis to determine whether a consumer debt judgment exists primarily focuses on whether the judgment creditor’s claim is for a consumer debt. The first element to establishing the existence of a “consumer debt” is an allegation or claim for money or property owed from a “natural person.” We would expect that whether a defendant or judgment debtor is a natural person should be readily ascertainable. However, judgment creditors will need to be mindful of other consumer protection legislation and cases in ascertaining whether a natural person is involved.
For example, the Illinois Supreme Court relied on Regulation Z, 12 C.F.R. pt. 26, and the federal Truth in Lending Act, Pub.L. No. 90-321, Title I, 82 Stat. 146 (1968), in holding that a reverse mortgage loan to an Illinois land trust secured by a mortgage on a condominium unit is a loan to a natural person. Financial Freedom Acquisition, LLC v. Standard Bank & Trust Co., 2015 IL 117950, 43 N.E.3d 911, 398 Ill.Dec. 1.
Credit extended to a land trust is credit extended to a natural person. Thus, the trustee of the land trust is a consumer, whose ownership interest is subject to the security interest. Accordingly, we conclude Standard, as trustee, was entitled to TILA disclosures and has the right to rescind the transaction. 2015 IL 117950 at ¶37.
Although the court did not focus much on the fact, it is probably essential to the court’s analysis in this case that the beneficiary of the land trust was a natural person. State and federal courts have disregarded the Illinois land trust for years and looked to who are the beneficiaries to determine who are the true owners. See In re Ainslie & Belle Plaine Limited Partnership, 145 B.R. 950, 955 (Bankr. N.D.Ill. 1992) (“It is these attributes of control that determine who is the true owner of property and not legal fictions created to facilitate land transfers.”)
It will be interesting to see how Illinois courts address questions of whether various forms of property ownership in use, such as revocable and irrevocable trusts and single-member limited liability companies, constitute natural persons for consumer debt purposes.
Consumer Debt — Transaction for Personal, Family, or Household Purposes
The second element in ascertaining whether a consumer debt is involved is ascertaining whether the debt involved a “transaction in which property, services, or money is acquired by that natural person.” And the third element focuses on whether the transaction is “primarily for personal, family, or household purposes.” Regarding condominium or homeowner association units, both of these elements have been decided by the courts in connection with the federal Fair Debt Collection Practices Act (FDCPA), Pub.L. No. 90-321, Title VIII, as added by Pub.L. No. 95-109, 91 Stat. 874 (1977).
The FDCPA defines a “consumer” as “any natural person obligated or allegedly obligated to pay any debt.” 15 U.S.C. §1692a(3).
The term “debt” means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment. 15 U.S.C. § 1692a(5).
For years the federal courts followed Zimmerman v. HBO Affiliate Group, 834 F.2d 1163, 1168 – 1169 (3d Cir. 1987) to read the definition of the term “debt” under the FDCPA to require an offer or extension of credit to a consumer. The Seventh Circuit rejected this extension of credit analysis in connection with a case of debt collection of condominium assessments in Newman v. Boehm, Pearlstein & Bright, Ltd., 119 F.3d 477, 480 – 482 (7th Cir. 1997). The Newman court found that condominium assessments were transactions for “money, property, insurance, or services” that arose with the purchase of the condominium unit. “It is therefore clear that the obligation to pay in these circumstances arose in connection with the purchase of the homes themselves, even if the timing and amount of particular assessments was yet to be determined.” 119 F.3d at 481.
The court then found that the assessments were for personal, family, or household purposes simply because they arose from the purchase of the obligors’ home. Id. The court then took the analysis further:
More specifically, however, we also believe that the assessments themselves satisfy that statutory requirement. To the extent that the assessments were to be used to improve or maintain commonly-owned areas, that purpose, too, qualifies as “personal, family, or household.” In our view, when a special assessment is used to repair a common roof, or a monthly assessment is used to pay for services like snow removal from a common walkway or landscaping of a common yard, the assessments are for a household purpose even if more than a single household benefits. Id.
The similarity between language creating consumer debt judgments and decades of litigation under the FDCPA is too striking to be ignored.
Hence this author believes that the new consumer debt judgment amendments to the Code of Civil Procedure will impact at least some collection activities of condominium and homeowner associations. Several interesting questions will follow. For example, are assessments still consumer debts if the unit owner leased the unit during any time of ownership or at the time the past due assessments fell due? What if the units were purchased by natural persons who subsequently transferred the units to living trusts, whether revocable or irrevocable, as part of estate plans? Are charges, such as cable television charges, added to the assessments included in consumer debts? Are fines which flow from violations of the declaration, bylaws, or rules and regulations consumer debts?
Illinois Proscribes Some Cannabis Regulations by Associations
The Chicago Bar Association’s Condominium Subcommittee is fortunate to have long had the services of its legislative liaison, Kris Kasten of Michael C. Kim & Associates. Kris brought to our attention that Illinois’ new Cannabis Regulation and Tax Act, 410 ILCS 705/1-1, et seq., created a new §33 to the Illinois Condominium Property Act:
Limitations on the use of smoking cannabis. The condominium instruments of an association may prohibit or limit the smoking of cannabis, as the term “smoking” is defined in the Cannabis Regulation and Tax Act, within a unit owner’s unit. The condominium instruments and rules and regulations shall not otherwise restrict the consumption of cannabis by any other method within a unit owner’s unit, or the limited common elements, but may restrict any form of consumption on the common elements. 765 ILCS 605/33.
This new section became effective on June 25, 2019.
In other words, an association can prohibit smoking weed, but not other forms of ingesting cannabis, in a unit by amendment to the declaration, but not by rule or regulation. However, the association cannot restrict other forms of ingesting cannabis in its declaration, bylaws, or rules or regulations as to limited common elements, but the association can restrict any form of ingestion in the common elements by declaration, bylaws, or rules and regulations. Got that?
For more information about condominium law, see CONDOMINIUM LAW (ILLINOIS) — 2016 EDITION. Online Library subscribers can view it for free by clicking here. If you don’t currently subscribe to the Online Library, visit www.iicle.com/subscriptions.