A recent Illinois Appellate Court decision has brought to the forefront the ongoing dispute between foreclosure sale purchasers—usually mortgagees—and homeowners associations (HOAs) regarding the extent to which purchasers are responsible for HOA assessments. In a potentially significant ruling, the Appellate Court held that an Illinois foreclosure purchaser’s failure to pay assessments that come due after the foreclosure sale could result in liability for all previously unpaid assessments, including those that accrued prior to the sale. 1010 Lake Shore Ass’n v. Deutsche Bank Nat’l Trust Co., 2014 IL App (1st) 130962.
The context for this decision is an ongoing tug-of-war between foreclosure sale purchasers and HOAs that has been percolating since the housing crisis began in 2008. On one hand, foreclosure purchasers do not want to pay assessments that were unpaid by a prior owner, reasonably arguing that the prior owner is solely responsible for those fees. HOAs, on the other hand, feeling the crunch associated with foreclosed properties in their condominium developments, have sought to increase the obligations of foreclosure purchasers to stabilize their balance sheets.
The Illinois Condominium Act, 765 ILCS 605/1 et seq., attempts to strike a balance between the competing concerns. The statute protects HOAs by granting them liens for unpaid assessments (section 9(g)(1)) and requiring purchasers of condominium units at judicial sales to pay the assessments due on the first day of the month after the sale (not the confirmation of sale) (section 9(g)(3)). The statute also protects purchasers by stating that payment of the first post-sale assessment “confirms the extinguishment of any lien” that the HOA may have had based on the prior owner’s failure to pay assessments, thus limiting the overall liability of the purchaser. Read more: