Monthly assessments are the lifeblood of condominium associations. These funds pay for the association’s ongoing expenses, (such as fees for management and other professionals, costs for maintaining the building, etc.), as well as any capital improvements. They also fund the association’s reserves. Without payment of monthly assessments by unit owners, associations simply could not function.
Unit owners who fail to pay their monthly assessments, whether due to economic hardship or otherwise, put their association in a bind and the other unit owners will be left to pick up the slack to meet the association’s ongoing financial obligations. Collection issues are further complicated by the fact that financial issues among neighbors can be delicate and uncomfortable. That said, the bottom line is that boards have a fiduciary obligation to ensure that monthly assessments are paid in full and on time.
Since delinquencies pose a threat to the operating of an association, the question facing boards of directors is: what can an association do to protect the association’s interests in the event that a unit owner fails or refuses to pay their monthly assessments? The following steps are a general outline to assist boards to effectively handle assessment delinquencies and protect the association’s financial interests:
Tip: Be sure to maintain up-to-date contact information for any unit owners who live offsite so that they can be notified of an assessment increase, special assessment, or delinquency.
Tip: any late fees imposed by management (as opposed to the association) must be expressly included in the management contract.
The first step in commencing a collection/ eviction action is to issue a formal 30- day demand letter stating the amount of the delinquency. Once the 30-day demand period expires and if the unit owner has not paid the outstanding balance, a complaint may be filed against the unit owner seeking an eviction order and money judgment in the amount of the delinquency.
Tip: The Illinois Condominium Property Act creates an automatic lien on a unit in favor of the association for any unpaid assessments and provides that any attorneys’ fees incurred by the association to collect delinquent assessments can (and should) be billed back to the delinquent unit owner.
a. Collect on the Money Judgment. If the personal service of the collection lawsuit is obtained on the unit owner, the association can seek a money judgment against the unit owner in the amount of the delinquency.
Tip: Once a money judgment is obtained, the association can seek to garnish the unit owner’s wages (assuming the unit owner is gainfully employed) to collect on the outstanding judgment.
b. Lease the Unit. In addition to a money judgment, the association may obtain an order of possession allowing the association to lease the unit and apply the rent to pay down the outstanding balance. This remedy is available regardless of whether the unit owner is served personally or via posting and gives the association the right to possess (but not own) the unit to lease it out. The lease can be for a term of up to 13 months and must commence within 8 months after the 60 day stay for the possession order expires. (Note: per Illinois law, condominium unit eviction orders are automatically stayed for 60 days from the date of entry; after the stay expires, the order must be placed with the Sheriff for eviction.) Thereafter, the association may, with the permission of the court in each instance, renew the lease for additional 13-month terms.
Tip: It is strongly recommended that any such lease be prepared and / or reviewed by the association’s counsel to ensure that it is proper and adheres to the requirements for leases entered into pursuant to an order of possession.
The above remedies are in addition to (and not in lieu of) the automatic lien for unpaid assessments (see #3).
Tip: Courts are split as to whether there is a deadline/timeliness requirement for lenders to pay the assessments following a foreclosure/deed in lieu in order to have the remaining balance (i.e., anything beyond 6 months’ worth of assessments) wiped out, and if so, what that deadline is. Accordingly, best practice is to monitor payments and aggressively pursue available remedies if payment is not made in a reasonably timely manner.
While assessment collection issues pose a difficult challenge to condominium boards and threaten the financial well-being of associations, the steps outlined above can help effectively address the issue, protect the financial interests of the association and the investment of unit owners. By acting diligently to collect unpaid assessments, the board not only fulfills its fiduciary obligation to protect both the financial health and interests of the association and all unit owners, but also sends a message that non-payment will not be tolerated and that all unit owners will be held to the same standard of meeting their financial obligations to the association. The above recommendations are intended to highlight common strategies for effectively handling delinquencies but are not an exhaustive list of all available remedies.