There has been significant number of judicial rulings and new legislation activity in 2014 and many have far reaching implications to Illinois community associations. Below is an update on seven legal items that you should be aware of.
Reference to “ICPA” below is the Illinois Condominium Property Act. Reference to “CICAA” below is the Common Interest Community Association Act.
1. Electronic Communications To Be Allowed by Law
2. The Governor Vetoes Senate Bill 2664 (Regarding Foreclosures)
3. Appellate Court Rules That Under Certain Circumstances a Buyer of a Foreclosed Condominium Unit May Be
Responsible for All Unpaid Assessments Owed by the Previous Owner
4. The Association's Right to Rent a Unit Is Clarified
5. The ICPA Insurance Requirements Are Amended
6. Community Associations Must Allow Special Process Servers Access to Gated Communities
7. CICAA Is Amended to Include Technical Change Regarding Leasing
Effective January 1, 2015, Section 18.4 of the ICPA was amended to permit condominium boards of directors to adopt rules and regulations to allow for electronic delivery of notices and other communications required by the ICPA if a unit owner submits an electronic address for such notices. Not only will this legislation allow for quicker notification and communication to unit owners, but it will also reduce mailing costs for associations. Section 18.4(s) of the ICPA now states:
“To adopt and amend rules and regulations (l) authorizing electronic delivery of notices and other communications required or contemplated by this Act to each unit owner who provides the association with written authorization for electronic delivery and an electronic address to which such communications are to be electronically transmitted; and (2) authorizing each unit owner to designate an electronic address or a U.S. Postal Service address, or both, as the unit owner's address on any list of members or unit owners which an association is required to provide upon request pursuant to any provision of this Act or any condominium instrument.”
Upon the adoption of rules pursuant to this new law and collection of electronics addresses, Boards may send unit owners notices of meetings and any other information that is required under the ICPA to be distributed to unit owners. Not only will the legislation allow for quicker notification and communication to unit owners, but it will also reduce mailing costs for associations.
It is recommended that Boards work with their legal counsel to draft and adopt (i) a rule allowing for electronic delivery of notices and other communications and (ii) a written authorization form for unit owners to execute designating an electronic address.
Senate Bill 2664 was vetoed by the Governor in a nod to condominium associations, which vigorously opposed the legislation and which would have greatly limited a condominium association’s ability to collect unpaid assessments from a buyer after a foreclosure. And then unexpectedly, the Governor proposed the State Senate and State House of Representatives amend the Senate Bill to provide that the condominium association be allowed to collect all assessments, attorneys’ fees and costs incurred by the association in attempting to collect the assessment delinquency while keeping the 9 months’ worth of regular assessments provision (which is an increase from the current 6 months of assessment number).
Under the Governor’s proposed amendment, the third party purchaser of a condominium unit at a judicial foreclosure sale or one who acquires title through a consent foreclosure, a common law strict foreclosure, or the delivery of a deed in lieu of foreclosure shall have the duty to pay to the association an amount not to exceed the total of the regular monthly assessments for the condominium unit for the 9-month period immediately preceding the foreclosure sale. The proposed amendment allows for the collection of attorneys’ fees and court costs from the third party purchaser, but in no case, can the association collect more than 9 months of regular assessments. The amendment includes a definition of “Regular Monthly Assessments” to mean “the amount charged by the association as provided for in the current annual budget.”
The requirement of the third party purchaser and mortgagee to pay assessments is automatic. The proposed amendment excludes the requirement that the condominium association must “initiate collections” in order to receive the back assessments.
The proposed law also amends Section 9(g)(5) to require the mortgagee to include in the notice of foreclosure sale, the amounts due to the Association from a third party purchaser. To ensure that the back assessments are collectible, property managers will have to provide mortgagees statements with the unpaid amounts due.
The future of this amendment now lies with the Bill’s sponsor, Senator Michael Hasting, who can (1) move the Senate to accept the Governor’s changes, (2) move the Senate to override the Governor’s veto or (3) take no action which will keep the current law in place. If the Senate approves the Governor’s changes, the House of Representatives will have the same options. If both Houses approve the Governor’s changes, then the proposed amendment will become law.
Pursuant to the ICPA, a purchaser of a foreclosed condominium unit is responsible for paying assessments beginning the first day of the month following the foreclosure sale.1 Unless changed by Senate Bill 2664, a condominium association’s ability to collect from a new owner any unpaid assessments owed by the previous owner is capped at six months.2 However, there is now an exception. On August 12, 2014, the Illinois Appellate Court affirmed the trial court’s ruling in 1010 Lake Shore Association v. Deutsche Bank National Trust Company, which held that if a purchaser of a foreclosed condominium unit does not pay the assessments starting the first day of the month after the foreclosure sale, as required by Section 9(g) of the ICPA, the association’s statutory lien against the unit is not extinguished and the purchaser is responsible for all assessments owed by the previous owner.3
The defendant in the case argued that the court’s ruling contradicts “well-settled law which provides that all outstanding claims on property that has been the subject of a foreclosure sand sale are extinguished and that the purchaser takes the property free of any such claims.” However, the Appellate Court reasoned that “section 9(g)(3), which is contained in the Condominium Property Act and relates to the payment of assessments by the purchaser of a condominium unit at a judicial foreclosure sale and the effect the making of such a payment has on the status of a lien arising from a previous owner’s failure to make assessments payments, is a specific statutory provision that must control over the general rule of foreclosure law cited by defendant.” The court concluded “that a lien created pursuant to section 9(g)(1) is not fully extinguishable by a foreclosure and sale because the purchaser must make an assessments payment under section 9(g)(3) to confirm the extinguishment of that lien . . . .”
Based on the court’s ruling, condominium associations can now collect its entire lien for unpaid assessments from a purchaser who fails to pay monthly assessments timely after a foreclosure sale. While the court’s opinion is not clear as to when payment is deemed timely or untimely, it is incumbent upon management and the board to send the purchaser of a foreclosed unit timely monthly assessment invoices providing them an opportunity to pay current assessments. If the new owner fails to pay the assessments timely, the association is entitled to collect its entire assessment lien against the condominium unit from the new purchaser.
It is recommended that management and the Board of Directors obtain legal advice following a foreclosure to ensure the association is collecting the most assessments that the law allows.
1765 ILCS 605/9(g)(3) (West 2008).
2 The six months is subject to change pursuant to Senate Bill 2664. See Paragraph 2 above for more information.
3 1010 Lake Shore Association v. Deutsche Bank National Trust Company, 2014 IL App. (1st) 130962.
House Bill 4782, effective January 1, 2015, clarifies the Associations’ right to rent out a unit in which it has obtained possession through a forcible entry and detainer action. The amendment provides that the commencement date of the lease must be within 8 months of the date the stay of the order of possession expires. Otherwise, the Association must obtain approval from the court.
An Association is still entitled to lease the unit for 13 months. If the assessment delinquency owed by the subject unit has not reached a zero balance after 13 months and the lease needs to be extended beyond 13 months in order to pay off the assessment balance, then the association must seek approval from the court.
Senate Bill 3014, effective June 1, 2015, amends Section 12 of the ICPA relating to the Association’s insurance requirements for the common elements and limited common elements. First, property insurance coverage must now provide coverage “at the time the insurance is purchased and at each renewal date, in a total amount of not less than the full insurable replacement costs of the insured property, less deductibles, but including coverage sufficient to rebuild the insured property in compliance with building code requirements subsequent to an insured loss, including: Coverage B, demolition costs; and Coverage C, increased costs of construction coverage. The combined total of Coverage B and Coverage C shall be no less than 10% of each insured building value, or $500,000, whichever is less.”
The Bill also amends Section 12(3)(D) of the ICPA to require that the fidelity bond for the directors and officers to “include, but not be limited to, coverage of: defense of non-monetary actions; defense of breach of contract; and defense of decisions related to the placement of adequacy of insurance. The coverage required by this subparagraph (D) shall include as an insured, past, present, and future board members while acting in their capacity as members of the board of directors; the managing agent; and employees of the board of directors and the managing agent.”
The Bill further amends Section 12(h) by eliminating the Board’s right to purchase insurance coverage on behalf of a unit as allowed by rules and regulation adopted by the Board regarding mandatory unit insurance in the event that a unit owner does not purchase such insurance. If your condominium association has previously adopted mandatory unit insurance rules with that remedy, such rules and regulations should be revised to eliminate that remedy due to the change in the law.
These changes apply only to insurance policies issues or renewed on or after June 1, 2015.
6. Community Associations Must Allow Special Process Servers Access to Gated Communities
Effective January 1, 2015, the Illinois Code of Civil Procedure was amended to require employees of a residential housing community, including condominium or community associations, and residential cooperatives, to grant licensed process servers entry into the community to serve process of law on a defendant or a witness who resides within the gated community or building.
Senate Bill 3057, effective January 1, 2015, amends the CICAA to require an owner to provide a copy of a lease to the association unless otherwise provided in the association’s governing documents.
For the full text of any of the new legislation provided herein, go to http://www.ilga.gov/.
Copyright 2014. Levenfeld Pearlstein, LLC. All Rights Reserved. This summary is being provided for general information and does not constitute legal advice. For a specific problem, you should consult an attorney.