Copyright 2007 Chicago Tribune Company
Pamela Dittmer McKuen, Special to the Tribune.
When a condominium unit falls into foreclosure, the association often loses out on unpaid assessments. New legislation makes it easier to recoup some of that money.
Owners who are late on their mortgage payments typically are late on their assessments as well, said attorney Howard Dakoff of Levenfeld Pearlstein in Chicago.
By the time the foreclosure process is completed, about nine months, the amount owed can grow to several thousand dollars.
"Under the previous law, when the bank foreclosed, the association's lien was wiped out," he said. "Units in foreclosure tend to be highly leveraged; therefore, there is little equity. Most of the time, there is only one bidder at a judicial sale and it's the bank for the amount of their loan."
The remaining unit owners have to make up the deficit, either through assessment increases or service reductions, he said.
The new Super Lien Statute, Public Act 94-1049, allows associations to collect up to six months of back assessments. However, several conditions must be met. The association must file a lawsuit to collect unpaid assessments, and the unit buyer must be someone other than the mortgage holder. In other words, if a bank or other mortgage holder buys the unit at a foreclosure sale, the obligation to pay assessments shifts to the person who buys the unit from the bank. The law went into effect Jan. 1.
At least 15 other states have enacted similar legislation, Dakoff said.
Beth Lloyd, who is both president of the Association of Condominium, Townhouse and Homeowners Associations and a sales agent for Coldwell Banker Residential Brokerage in Schaumburg, has mixed feelings about the new statute. On one hand, associations will benefit. On the other, buyers may shy away from properties with an assessment burden added to the price tag.
"If the buyer loved it so much that he was willing to pay the six months of assessments, then we would have to wait to see if the property would appraise at the purchase price," she said. "If not, the sale would fall apart, unless the buyer once again wants it so bad that he is willing to apply more down payment and reduce the loan amount in order to close."
She'd like to see the lenders chip in on the assessments, she said.
Association attorney John Bickley of Kovitz Shifrin Nesbit in Buffalo Grove and Chicago said that associations can get their money faster with the long-standing eviction remedy. It's a legal procedure in which the association gets temporary possession of the unit and rents it out until either the delinquent assessments and related costs are paid or the foreclosure takes place.
"It's a delay to wait for the foreclosure to be completed," he said. "Especially in smaller associations, if owners don't pay for a period of time, it puts a huge dent in the operating capital."
But eviction has its drawbacks as well, Dakoff said. The association pays legal fees upfront and finding temporary tenants can be difficult, especially when the units aren't in the best condition.
To maximize the length of time they have possession and better their chances of being paid, associations need to evict quickly, Bickley said.
"They give extra time because it's a neighbor," he said. "As a consequence, their sympathy results in a kind of breach of fiduciary duty because assessments are not collected."
"The association has to balance how much additional money it will cost to obtain possession with the potential benefits," Dakoff said. "The new law gives condo associations six months' worth of assessments where before they could receive nothing."
"It's another tool to use in collecting money," Bickley said.