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Condominium Law FLASHPOINTS February 2020

February 14, 2020Print This Post Print This Post

Kenneth Michaels, Jr., Lakelaw, Chicago
312-588-5000 | E-Mail Kenneth Michaels, Jr.

Prompt Payments of Post-Foreclosure Sales Revisted and Unified in First District

How late can a foreclosure purchaser go without paying assessments until the foreclosed condominium association lien is effectively reinstated? We asked this question in the May 2018 Condominium Law FLASHPOINTS. While we still do not have any direction from the Illinois Supreme Court, several appellate court opinions, especially from the First District, have addressed this question. A recent unpublished decision suggests that seven months is too long for a foreclosure purchaser to pay current assessments. Ford City Condominium Ass’n v. Wilmington Savings Fund Society FSB, 2020 IL App (1st) 190112-U. A foreclosure purchaser’s failure to pay current post-sale assessments promptly reinstates any prior condominium association liens that were extinguished in the foreclosure case.

Background on §9(g) of the Condominium Property Act

Section 9(g)(1) of the Illinois Condominium Property Act, 765 ILCS 605/1, et seq., creates a statutory lien against each condominium unit, which exists the moment the unit owner fails to pay an assessment when due. If assessment payments are due the first of the month, the lien exists as of the second, even if there is a grace period to cure the arrearage before late fees are imposed. This statutory lien also may include unpaid fines assessed against the unit, the association’s attorneys’ fees for enforcement and collection, late fees, and interest. A condominium lien under §9(g)(1) exists without recording a document describing the lien against the unit.

Section 9(g)(2) of the Act addresses a process by which a condominium association, depending on the content of its declaration and bylaws, may serve notice on a junior mortgagee or lien claimant and at least claim a partial priority over that party for a short period of time.

Section 9(g)(4) creates the six-month super-priority obligation on a foreclosure purchaser (or if the purchaser is the original lender, then on a subsequent purchaser from that lender) for unpaid assessments prior to the foreclosure sale. This provision, while often included in a post-sale transaction is outside our discussion here. For further discussion of §9(g)(4), see our Condominium Law FLASHPOINTS articles from May, June, and December 2018 (available in the IICLE® Online Library to subscribers).

Section 9(g)(5) requires that foreclosure notices of sales, statements of account to unit owners requested pursuant to §18(i) of the Act, and disclosure statements pursuant to §22.1 of the Act, need to disclose assessment lien amounts and attorneys’ fees due under §§9(g)(1) and 9(g)(4). See the December 2018 Condominium Law FLASHPOINTS (also available in the IICLE® Online Library to subscribers) for discussion of a court holding that a condominium association could not collect §9(g)(4) assessments and fees due because of a lender’s failure to include the necessary language in the foreclosure notice of sale.

Section 9(g)(3) of the Act contains two long sentences. The first sentence states:

The purchaser of a condominium unit at a judicial foreclosure sale, or a mortgagee who receives title to a unit by deed in lieu of foreclosure or judgment by common law strict foreclosure or otherwise takes possession pursuant to court order under the Illinois Mortgage Foreclosure Law, 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, delivery of the deed in lieu of foreclosure, entry of a judgment in common law strict foreclosure, or taking of possession pursuant to such court order.

In 1010 Lake Shore Ass’n v. Deutsche Bank National Trust Co., 2015 IL 118372, ¶24, 43 N.E.3d 1005, 398 Ill.Dec. 95, the Supreme Court held that this sentence “plainly requires a foreclosure sale purchaser to pay common expense assessments beginning in the month following the foreclosure sale.”

The second sentence of §9(g)(3) states:

Such payment confirms the extinguishment of any lien created pursuant to paragraph (1) or (2) 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, a deed in lieu thereof has been accepted by the lender, or a consent judgment has been entered by the court.

The Supreme Court held that this second sentence “provides an incentive for prompt payment of those postforeclosure sale assessments.” [Emphasis added.] 2015 IL 118372 at ¶24. However, the court left unresolved what constituted a “prompt” payment of assessments after a foreclosure sale occurs, as required under §9(g)(3) of the Act.

Several decisions, especially in the First District, previously reached conflicting results in determining the meaning of the prompt payment language (i.e., whether it creates a deadline for payment, or if such a deadline exists, when is it). Some of these prior decisions were discussed in the May 2017, August 2017, December 2017, and May 2018 Condominium Law FLASHPOINTS (also available in the IICLE® Online Library to subscribers).

On May 21, 2019, Appellate Court Justice Mathias W. Delort gave an excellent presentation on these cases at a Chicago Bar Association Condominium Subcommittee webcast, which is presently available here (available to Chicago Bar Association members). He also provided an eight-page handout, which is also available on the Chicago Bar Association’s website. Justice Delort is presiding justice of the Sixth Division of the First District of the Illinois Appellate Court.

The Ford City Condominium Ass’n Decision

Unfortunately, Ford City, supra, decided by the Second Division of the First District,is an unpublished decision. However, it does provide some overall guidance regarding the current state of §9(g)(3) actions and reviews the process to recover attorneys’ fees in such actions.

Factually, the case is typical of these actions. Wilmington Savings Fund purchased the property at a foreclosure sale in early January 2017. Later that month, the sale was confirmed. Six months later the condominium association sent a 30-day demand to Wilmington demanding payment of approximately $27,400 in past-due assessments, late fees, collection costs, and nominal attorneys’ fees. The association was not aware that the unit had been quitclaimed to U.S. Bank Trust National Association (U.S. Bank) almost two weeks before the 30-day demand was sent. In late August, U.S. Bank paid the association approximately $4,900 constituting 8 months in regular and special assessments, with a prepayment of October assessments. Litigation ensued in an eviction action to determine whether U.S. Bank’s payment 7 months after the foreclosure sale extinguished the lien. 2020 IL App (1st) 190112-U at ¶¶4 – 6.

After unsuccessful cross-motions for summary judgment, the case went to trial. The trial court entered a possession order for the association. U.S. Bank then filed a motion for reconsideration before the hearing on monetary damages was conducted. This reconsideration motion was denied at a hearing. At the same hearing, the trial court heard the association’s attorneys’ fees application and awarded fees of approximately $8,800 plus $1,000 in costs. In late December 2018, after receiving a new affidavit on common expenses due, including presale common expenses, the trial court entered judgment against U.S. Bank for approximately $32,250. 2020 IL App (1st) 190112-U at ¶¶7, 8.

The Ford City Legal Analysis

On appeal, the case was assigned to the Second Division of the First District. Writing for the appellate court, Justice Pucinski analyzed that through early 2018, the Sixth Division of the First District “had generally concluded that there was no timing requirement for making payment under the Act.” 2020 IL App (1st) 190112-U at ¶16, citing Quadrangle House Condominium Ass’n v. U.S. Bank, N.A., 2018 IL App (1st) 171713, ¶¶11 – 15, 105 N.E.3d 948, 423 Ill.Dec. 540, U.S. Bank, N.A., for Truman 2012 SC2 Title Trust v. Quadrangle House Condominium Ass’n, 2018 IL App (1st) 171711, ¶20, 108 N.E.3d 294, 424 Ill.Dec. 368, and 5510 Sheridan Road Condominium Ass’n v. U.S. Bank, 2017 IL App (1st) 160279, ¶¶20 – 25, 77 N.E.3d 1108, 413 Ill.Dec. 301. “Meanwhile, the Second Division concluded that ‘prompt’ payment is necessary to extinguish a lien under the Act.” Ford City, supra, 2020 IL App (1st) 190112-U at ¶16, citing U.S. Bank, supra, 2018 IL App (1st) 171711, ¶20, and Country Club Estates Condominium Ass’n v. Bayview Loan Servicing LLC, 2017 IL App (1st) 162459, ¶21, 84 N.E.3d 1140, 416 Ill.Dec. 663. However, in 2018 the Sixth Division applied Country Club Estates to find that the purchaser made a prompt payment, thereby extinguishing the association’s lien. Ford City, supra, 2020 IL App (1st) 190112-U at ¶17, citing V&T Investment Corp. v. West Columbia Place Condominium Ass’n, 2018 IL App (1st) 170436, 105 N.E.3d 889, 423 Ill.Dec. 481. “Thus, although V&T Investment did not explicitly overrule Quadrangle House or 5510 Sheridan, it appears that the Sixth Division has changed course and joined the Second Division in requiring that a prompt payment be made to extinguish a lien under the Act.” Ford City, supra, 2020 IL App (1st) 190112-U at ¶17. Based on this precedent, the appellate court rejected U.S. Bank’s argument that 1010 Lake Shore described an incentive for prompt payment but did not impose a legal deadline.

Next, the court looked to whether the trial court erred in finding that U.S. Bank’s payment was not prompt under the facts.

Pursuant to the holding of Country Club Estates, in the absence of extenuating circumstances, payment should be made in the month following purchase. Country Club Estates, 2017 IL App (1st) 162459, ¶22. This is not a strict deadline, however, and the determination of whether a payment was prompt should be determined by examining the facts and circumstances of each case. [2017 IL App (1st) 162459] at ¶¶23 – 24, 29. These circumstances might include an unreasonable refusal by the association to accept payment or a delay between the judicial sale and the confirmation of that sale by the foreclosure court. [2017 IL App (1st) 162459] at ¶¶23 – 24. 2020 IL App (1st) 190112-U at ¶21.

The trial court made its determination that payment was not prompt at trial. U.S. Bank had not included a bystander’s report or transcript of the trial in the record on appeal, so the appellate court had no basis “to provide any meaningful review” and affirmed the trial court. 2020 IL App (1st) 190112-U at ¶22.

Finally, the appellate court affirmed the attorneys’ fees awarded by the trial court finding no abuse of discretion. The court repeatedly noted that U.S. Bank relied in the appellate record on a transcript of the hearing, but never included the timesheets that the trial court was apparently considering. Summarizing the applicable standards for approving attorneys’ fees in these actions, the court stated:

Under section 9-111(b) of the Code of Civil Procedure (735 ILCS 5/9-111(b) (West 2018)), in determining reasonable attorney’s fees, the trial court must consider the time expended by the attorney, the reasonableness of the hourly rate for the work performed, the reasonableness of the amount of time expended for the work performed, and the amount in controversy and the nature of the action. The party seeking the fees bears the burden of presenting sufficient evidence from which the trial court can determine the reasonableness of the claimed fees. Kaiser [v. MEPC American Properties, Inc.,] 164 Ill.App.3d [978, 518 N.E.2d 424, 427, 115 Ill.Dec. 899 (1st Dist. 1987)]. To this end, the fee petition must “specify the services performed, by whom they were performed, the time expended thereon and the hourly rate charged therefor.” Id. 2020 IL App (1st) 190112-U at ¶25.

In an analysis of U.S. Bank’s numerous attacks on the association’s attorneys’ fees, the court made certain observations of interest to practitioners.

With regard to an objection to a charge for 0.9 hours for preparing for and attending a status hearing, the court observed:

Although the entry does not identify every step taken in preparing for the hearing, it does inform the trial court what work was done — preparation for and attendance at a status hearing. Moreover, even without knowing the minute details of the preparation or the hearing, we hardly think an hour is an unreasonable amount of time to spend both preparing for and attending a hearing. 2020 IL App (1st) 190112-U at ¶28.

With regard to an objection for a charge of 5.1 hours drafting a response to a summary judgment motion, the court observed:

U.S. Bank next complains that the 5.1 hours spent by Ford City’s counsel on drafting, reviewing, and finalizing its response to U.S. Bank’s motion for summary judgment was excessive. According to U.S. Bank, because Ford City conducted all of the necessary research and document review when it previously filed its own motion for summary judgment, simply typing the response to U.S. Bank’s motion for summary judgment should not have taken more than 1.5 hours. . . . Even assuming that U.S. Bank accurately represents the entire content of these entries, we cannot say that the trial court abused its discretion in finding 5.1 hours to be reasonable. Even if Ford City conducted some relevant research in filing its own motion for summary judgment, it is not unreasonable for its counsel to review that research or conduct updated research on the arguments raised in U.S. Bank’s motion. Moreover, drafting a response or any other pleading is not as simple as just sitting down and typing. It also involves the application of the attorney’s legal knowledge to the facts, which requires more time than simply typing mindless words. [Citation omitted.] 2020 IL App (1st) 190112-U at ¶32.

Unfortunately, because the appellate court chose to treat its opinion as an unpublished decision, the court’s recognition of the realities of legal practice are unavailable for the profession’s use and benefit.

Takeaway

The First District appears, at least until further guidance may be provided from the Supreme Court, to recognize that in situations involving §9(g)(3), the foreclosure purchaser must promptly pay the post-sale assessments to the condominium association. What constitutes prompt payment may turn on the facts of each case, but generally the time frame is something between the first day of the month following the sale and seven months after the sale.

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.

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