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Condominium Law FLASHPOINTS June 2020

June 15, 2020Print This Post Print This Post

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

First District Decision Further Confuses Post-Foreclosure Assessments and Obligations Under §9(g) of Condominium Property Act

A recent decision by the First District of the Illinois Appellate Court is at odds with prior decisions of the same district and fails to address conflicts within the First District. The conflicts are all in connection with condominium association actions to collect past-due assessments and the recovery of assessments under what is commonly called the superlien or super-priority lien provision under §9(g)(4) of the Illinois Condominium Property Act, 765 ILCS 605/1, et seq.

In Shannon Court Condominium Ass’n v. Armada Express, Inc., 2020 IL App (1st) 192341, the appellate court constructed a nice, tightly woven decision reading together §§9(g)(1), 9(g)(2), 9(g)(4), 9.2(b), and 9(g)(5) of the Act, and then finally §9-111.1 of the eviction provisions of the Code of Civil Procedure. 735 ILCS 5/1-101, et seq. The problem with Shannon is that it fails to accommodate the reality of condominium practice, contradicts precedent from the First District, ignores the purpose for which the superlien provision was created, and substantially reduces the amount of assessment arrearages that associations can collect on delinquent units that end up in foreclosure. This last result of the Shannon decision ultimately shifts more costs to the unfortunate unit owners who pay their assessments because paying bills is a zero-sum game.

The facts are not in dispute. The Shannon court took the facts from the pleadings and an affidavit from the president of Armada Express, Inc., supporting summary judgment. The trial court entered summary judgment for the defendant and denied the plaintiff association’s motion for reconsideration. The association appealed both the summary judgment and denial of the motion to reconsider. The appellate court reversed and remanded. 2020 IL App (1st) 192341 at ¶¶1, 2.

The First Eviction Action and Foreclosure Sale

In December 2017, the condominium association filed an action against certain unit owners seeking possession and damages for unpaid assessments. In January 2018, judgment for possession and $5,272.19 in damages was entered. Upon obtaining possession, the association incurred additional expenses in making the unit rentable. From August through December of 2018, the association received $2,625 in rent. In December 2018, the lender on the unit obtained a foreclosure judgment, and in late January 2019 the unit was sold to the defendant, Armada Express, Inc., at a judicial sale. The sale was confirmed on February 20, 2019, and a judicial deed was issued and recorded within the next two weeks. 2020 IL App (1st) 192341 at ¶¶2 – 4.

The Second Eviction Action

On April 5, 2019, the defendant paid the association $1,117 for assessments for February, March, and April of 2019, which included a $25 late charge for February. On April 9, the defendant, by its attorneys, paid an additional $59.04 as “full payment of all amounts due pursuant to the Illinois Condominium Property Act.” 2020 IL App (1st) 192341 at ¶6. On May 2, the association issued a 30-day demand showing that as of May 1, 2019, $19,122.85 was owed to the association. 2020 IL App (1st) 192341 at ¶7. No payments were made. The association filed the instant eviction action against the foreclosure purchaser in June 2019 seeking possession and $19,202.85 in damages plus attorneys’ fees. 2020 IL App (1st) 192341 at ¶¶5 – 8.

The defendant answered that it had paid all amounts due and followed its answer with a motion for summary judgment. In August 2019, the trial court granted summary judgment for the defendant. The trial court found that the $2,625 in rent collected by the association after the first eviction was to be applied against six months of unpaid assessments in the amount of $2,681.04 and that the defendant had paid the difference of $56.04. The trial court denied the association’s subsequent motion for reconsideration. 2020 IL App (1st) 192341 at ¶9.

On appeal, the association argued that a genuine issue of material fact existed as to the amount due under §9(g)(4) of the Act. According to the association, the trial court made three errors: (1) in calculating attorneys’ fees that were due under the first eviction that were recoverable under §9(g)(4); (2) in finding that the association could not recover the repair costs it expended to put the unit in rentable condition; and (3) in applying the rent received after the first eviction. 2020 IL App (1st) 192341 at ¶10.

The appellate court addressed the question presented of summary judgment de novo. The court construed several subsections of the Act applying the following principles of statutory construction: (1) the court’s primary objective is to ascertain and give effect to the intent of the legislature; (2) the plain and ordinary meaning of the language in the statutes is the most reliable indication of legislative intent; (3) each word, clause, and sentence of the statute must be given a reasonable construction such that no term is rendered superfluous; (4) the language in the statute must be construed in context of the entire statute; (5) clear and unambiguous language must be applied as written without resort to aids of construction; and (6) questions of statutory construction are reviewed de novo. 2020 IL App (1st) 192341 at ¶12.

The appellate court began by reviewing the relevant part of §9(g)(1) of the Act, which states:

(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 enforcing the covenants of the condominium instruments . . . shall constitute a lien on the interest of the unit owner in the property prior to all other liens and encumbrances, recorded or unrecorded. 765 ILCS 605/9(g)(1).

Because the unit owners failed to pay common expense assessments, the association had a lien against the unit in the amount of unpaid assessments, late fees, interest, “plus reasonable attorney fees incurred by the [association] in its action against them.” 2020 IL App (1st) 192341 at ¶13.

The appellate court then looked at §9(g)(3) of the Act, which states:

(3) 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 possession pursuant to such court order. Such payment confirms the extinguishment of any lien created pursuant to paragraph (1) or (2) of 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. 2020 IL App (1st) 192341 at ¶14, quoting 765 ILCS 605/9(g)(3).

Quoting from the Illinois Supreme Court decision 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 appellate court noted that the first sentence of §9(g)(3) requires the foreclosure purchaser to begin paying assessments the first month after the judicial sale, and the second sentence “provides an incentive for prompt payment” of the assessments because it confirms the extinguishment (through the foreclosure action) of the lien existing under §9(g)(1). 2020 IL App (1st) 192341 at ¶¶14 – 15.

No issue was presented that the defendant made prompt payment of the assessments after the judicial sale. Nevertheless, the appellate court made a finding that payment of the post-sale assessments 44 days after the sale was confirmed and 36 days after the deed was issued “was ‘prompt’ as a matter of law.” 2020 IL App (1st) 192341 at ¶17. The appellate court also held that this prompt payment confirmed the extinguishment of any association lien against the unit under §9(g)(1). 2020 IL App (1st) 192341 at ¶18.

The Shannon court then started its examination of the question of “whether there exists a genuine factual issue on whether Armada’s tender of $56.04 satisfied its obligation to the Association under section 9(g) of the Act.” 2020 IL App (1st) 192341 at ¶19. (The court sometimes references this payment as $56.04 and sometimes as $59.04.) The court looked to §9(g)(4), which states that:

(4) The purchaser of a condominium unit at a judicial foreclosure sale, other than a mortgagee, who takes possession of a condominium unit pursuant to a court order or a purchaser who acquires title from a mortgagee shall have the duty to pay the proportionate share, if any, of the common expenses for the unit which would have become due in the absence of any assessment acceleration during the 6 months immediately preceding institution of an action to enforce the collection of assessments, and which remain unpaid by the owner during whose possession the assessments accrued. If the outstanding assessments are paid at any time during any action to enforce the collection of assessments, the purchaser shall have no obligation to pay any assessments which accrued before he or she acquired title. 765 ILCS 605/9(g)(4).

Subsection 9(g)(4) is the provision that created what is often referred to as the super-lien amount of six months of unpaid assessments. Additionally, without addressing the possibility of other readings of this provision and conflicting caselaw existing in the First District, the Shannon court’s analysis of the assessments recoverable “during the 6 months immediately preceding institution of an action to enforce the collection of assessments” is limited to those assessments that became due prior to the filing of the first eviction action.

The appellate court then looked to §9.2(b) of the Act which states:

(b) Any attorneys’ fees incurred by the Association arising out of a default by any unit owner, his tenant, invitee or guest in the performance of any of the provisions of the condominium instruments, rules and regulations or any applicable statute or ordinance shall be added to, and deemed a part of, his respective share of the common expense. 765 ILCS 605/9.2(b).

The Shannon court rejected the association’s argument that the trial court refused to allow it to recover its attorneys’ fees from the first eviction action. The trial court found, based apparently on the association’s management company’s ledger, that during the six months preceding the filing of the first eviction case, the association was entitled to recover $2,681.04. The appellate court, apparently reviewing this ledger, determined that this amount was composed of $2,184 in assessments, $150 in late fees, a $75 penalty, and $272.04 in attorneys’ fees. 2020 IL App (1st) 192341 at ¶20. Note that these are not the attorneys’ fees incurred in the first eviction action or subsequently incurred by the association after obtaining the possession order, but only those fees the association charged to the unit that were paid by the association prior to filing the first eviction action.

The appellate court then examined §9(g)(5) of the Act which provides:

(5) The notice of sale of a condominium unit under subsection (c) of Section 15-1507 of the Code of Civil Procedure shall state that the purchaser of the unit other than a mortgagee shall pay the assessments and the legal fees required by subdivisions (g)(1) and (g)(4) of Section 9 of this Act. The statement of assessment account issued by the association to a unit owner under subsection (i) of Section 18 of this Act, and the disclosure statement issued to a prospective purchaser under Section 22.1 of this Act, shall state the amount of the assessments and the legal fees, if any, required by subdivisions (g)(1) and (g)(4) of Section 9 of this Act. 765 ILCS 605/9(g)(5).

In part relying on this subsection of the Act, the association argued that it was entitled to recover all its attorneys’ fees incurred in the first eviction action. The Shannon court rejected the association’s argument, holding that §9(g)(5) is merely a notice provision and does not confer any additional rights or interests to condominium associations. 2020 IL App (1st) 192341 at ¶¶21, 22.

The Shannon court then analyzed that once the defendant purchaser promptly paid post-sale assessments, “ ‘any lien’ created by section 9(g)(1) is extinguished.” 2020 IL App (1st) 192341 at ¶23. Once this lien has been extinguished, a condominium association’s right to recover a portion of pre-foreclosure assessments or expenses is limited to its rights under §9(g)(3). Id. The Shannon court noted that this reading of the subsections of §9(g) is based on clear and unambiguous language of the Act and that the subsections are read harmoniously without any section being rendered superfluous or inoperative. Id.

The Shannon court then proceeded to find that §§9(g)(4) and 9.2(b) of the Act required the purchaser to pay the association the unpaid assessments for the six-month period preceding the filing of the first eviction action as well as attorneys’ fees “incurred” during this six-month period. The court noted that “incurred” is not synonymous with “pay” and found that there were attorneys’ fees of at least $1,242.19 incurred during the six-month period before filing the first eviction action. 2020 IL App (1st) 192341 at ¶25. This additional amount of attorneys’ fees included the $272.04 for preparation of the 30-day demand for possession as well as $970.15 incurred for preparing the action for filing but not paid until after the first eviction action was filed. Therefore, the amount the association was entitled to recover, less the rents received, exceeded the $56.04 amount paid. Therefore, the defendant was not entitled to summary judgment and the trial court was reversed and the case remanded. 2020 IL App (1st) 192341 at ¶26.

Before closing its opinion, the Shannon court addressed the association’s claim for recovery of its expenses after obtaining a possession order to repair the unit so it could be rented. The court rejected this argument reiterating that (1) §9(g)(5) does not grant any additional rights or interests to the association but is merely a notice provision and (2) once the association’s lien is extinguished, then the only pre-foreclosure expenses recoverable are those assessments and incurred fees during the six-month period preceding the filing of the first eviction action. Therefore, the repair costs incurred after the six-month period preceding the filing of the eviction action are not recoverable. 2020 IL App (1st) 192341 at ¶27.

The association also argued that the trial court erred in applying all the rent collected against the assessments due during the six-month period preceding the first eviction action. The Shannon court agreed with the association that the rent collection should be applied pursuant to §9-111.1 of the Code of Civil Procedure (the “Eviction Article”), 735 ILCS 5/9-111.1. 2020 IL App (1st) 192341 at ¶28.

Section 9-111.1 of the Eviction Article states in relevant part:

Upon the entry of an eviction order in favor of a board of managers under the Condominium Property Act, as provided in Section 9-111 of this Act, and upon delivery of possession of the premises by the sheriff or other authorized official to the board of managers pursuant to execution upon the order, the board of managers shall have the right and authority, incidental to the right of possession of a unit under the order, but not the obligation, to lease the unit to a bona fide tenant (whether the tenant is in occupancy or not) pursuant to a written lease for a term which may commence at any time within 8 months after the month in which the date of expiration of the stay of the order occurs. The term may not exceed 13 months from the date of commencement of the lease. . . . The board of managers shall first apply all rental income to assessments and other charges sued upon in the eviction action plus statutory interest on a monetary judgment, if any, attorneys' fees, and court costs incurred; and then to other expenses lawfully agreed upon (including late charges), any fines and reasonable expenses necessary to make the unit rentable, and lastly to assessments accrued thereafter until assessments are current. Any surplus shall be remitted to the unit owner. The court shall retain jurisdiction to determine the reasonableness of the expense of making the unit rentable. 735 ILCS 5/9-111.1.

The appellate court agreed that the rent collected must first be applied against the $5,272.19 judgment and attorneys’ fees and court costs from the first eviction action. 2020 IL App (1st) 192341 at ¶30. The case was remanded in accordance with this opinion.

Takeaway. The Shannon court, in seeking to deliver a coherent reading of §9(g) of the Act, renders a very narrow, definitive path of recovery for a small portion of the assessments and expenses incurred by an association facing a defaulting unit owner. As my good friend and condominium practitioner Mark Rosenbaum of Fischel Kahn in Chicago correctly observed in a communication to me about Shannon:

We both know that in reality an owner may owe an arrearage to an association long before a foreclosure case is even filed, much less gets to judgment. In addition, the period of time between an association instituting an action to collect the arrearage and the date of the foreclosure sale is very often far longer than 6 months. If the period between the institution of the action and the foreclosure sale runs over into a new association budget year, the assessments owed for 6 months just prior to the foreclosure sale will be greater than assessments owed for a 6-month period that started 9 or 12 months before the sale (and that some or all of the 6 months of assessments accruing immediately before foreclosure sale are the assessments most likely to be unpaid, even if rent or other payments have been received).

As one who was involved in the adoption of the original concept of the superlien (represented by §§9(g)(3), 9(g)(4) and 9(g)(5)), I can say that the whole purpose of those provisions was to be of benefit to the association: to enable an association to collect up to an additional 6 months of assessments from the eventual buyer of the foreclosed unit (although, due to bank lobbying, not from the mortgagee).

Cases like Shannon can put an association in a bind: Institute an action promptly when an arrearage arises, and hope that the association has enough time to collect all monies due and owing before a foreclosure sale (if a foreclosure case is ever filed — which is often an unknown when the arrearage arises). This course of action could end up minimizing or eliminating the superlien as monies collected get allocated back by cases like Shannon to the date of the institution of the action. Yet it is not feasible or likely even proper for an association to wait in taking action to collect an arrearage in order to see if a foreclosure is filed and time the institution of the collection action to maximize the superlien.

I would add to Mark’s observations that the Shannon court failed to address conflicting cases that define the “action” to be taken to invoke the superlien recovery can be as simple as a collection demand and need not be the filing of a lawsuit, as the First District, First Division, held in Sylva, LLC v. Baldwin Court Condominium Ass’n, 2018 IL App (1st) 170520, 106 N.E.3d 431, 423 Ill.Dec. 725. This case was discussed at length in the June 2018 Condominium Law FLASHPOINTS (available in the IICLE® Online Library to subscribers). Additionally, in not allowing recovery of repairs made to a unit to render it rentable, the courts are simply further punishing unit owners who pay their common expense assessments. The lenders or foreclosure purchasers gain a windfall by not providing for recovery of these expenses. In fairness, though, can any justice in the Illinois Appellate Court be expected to make sense of the patchwork drafting of the Illinois Condominium Property Act after decades of amendments by special interest and civic groups?

For more information about condominium law, see CONDOMINIUM LAW (ILLINOIS) (IICLE®, 2016). 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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