Under Section 9(g)(4) of the Illinois Condominium Property Act, a foreclosure purchaser, other than a mortgagee, or a third-party who purchases a foreclosed unit from a mortgagee must pay to the association six months of common expenses attributable to the prior owner, as long as the association initiated collection against that prior owner.  Since its addition to the Act, this so-called “six months” rule has had relatively few opportunities for review by appellate courts.  However, the First District Appellate Court recently considered what parties are considered “mortgagees” under the Act and thus may pass on the responsibility for the six months to a subsequent third-party purchaser.  Specifically, in Wing Street of Arlington Heights Condominium Association v. Kiss the Chef Holdings, LLC, the court ruled a mortgagee’s wholly owned subsidiary is also a mortgagee under the Act and therefore is not liable for the six months; the six months would become due once that subsidiary sold the unit to a third-party.

Broadly speaking, a mortgagee is the lender or other party that holds a mortgage on a piece of real estate.  In Wing Street, Village Bank & Trust foreclosed its mortgage on a condominium unit.  VBT Wing Street Condo, LLC, a wholly owned subsidiary of Village Bank & Trust, purchased the unit at the judicial sale.  After VBT sold the unit to Kiss the Chef Holdings, LLC, the association sued Kiss the Chef for unpaid assessments.  One of the issues in the case was whether VBT was a subsequent purchaser under 9(g)(4), in which case it would be responsible for the six months, or whether VBT was a mortgagee, in which case Kiss the Chef would then be the subsequent purchaser responsible for the six months.

            In deciding whether VBT was a mortgagee for the purposes of 9(g)(4), the appellate court looked to the Illinois Mortgage Foreclosure Law, which defines a mortgagee as “(i) the holder of an indebtedness or obligee of a non-monetary obligation secured by a mortgage or any person designated or authorized to act on behalf of such holder and (ii) any person claiming through a mortgagee as successor.”  735 ILCS 5/15-1208.  Using this definition, the court determined that, since VBT was acting on behalf of Village Bank & Trust when it purchased the unit at the judicial sale, VBT was a mortgagee and therefore not responsible for the six months under 9(g)(4).  As a result, Kiss the Chef was the subsequent third-party purchaser under 9(g)(4) and therefore responsible to pay the six months of unpaid common expenses.

            Because Wing Street involved a bank’s subsidiary, the court did not make any ruling as to whether other entities that commonly receive deeds following foreclosure sales, such as HUD, Fannie Mae, and Freddie Mac, are also considered mortgagees under 9(g)(4).  However, the court did leave some guidance, specifically that the proper definition to apply is the one found in the Illinois Mortgage Foreclosure Law.  If one of these entities acts on behalf of the lender or is a successor to the lender, it will likely also fit the definition of mortgagee and thereby not bear responsibility for the six months.  Given this is an area of law that has yet to be fully fleshed out by the courts, it is imperative that associations note the six months amount on post-foreclosure account statements in order to ensure the association will eventually recover the full amount to which it is legally entitled.


A recent federal court decision highlights the importance of an association’s manager or board contacting the association’s attorney whenever a homeowner files for bankruptcy protection. When an individual files for chapter 13 bankruptcy protection, she is allowed to repay her debts over a period of up to five years through a court-approved payment plan, and her creditors are barred from attempting to collect on those debts unless first granted permission by the bankruptcy court. The plan is administered by the bankruptcy trustee, an official who collects money from the individual in bankruptcy (known as the “debtor”) and pays the creditors. In order to be included in the chapter 13 payment plan, a creditor, such as an association, must file a legal document with the bankruptcy court known as a “proof of claim.” The proof of claim sets forth the amount the debtor owed to the creditor as of the date she filed for bankruptcy protection (the “pre-petition debt”). Unless the debtor successfully objects to the proof of claim (i.e., convinces the court of some legal reason why the money is not owed or should not be paid through the bankruptcy), the creditor should be included in the plan and receive payments toward the pre-petition debt.

Because unpaid assessments are a lien on a homeowner’s unit in favor of the association, an assessment obligation is a “secured” debt (The lien on the unit “secures” the obligation.). The Federal Rules of Bankruptcy Procedure provide a deadline for when a proof of claim must be filed if a creditor wishes to be included in a chapter 13 plan. However, while it is well accepted that “unsecured” debts such as credit card debt will not be paid through the plan unless the creditor files a proof of claim by the deadline, there has been some confusion over whether this deadline applies to creditors, such as associations, holding secured claims.

The federal Seventh Circuit Court of Appeals, whose jurisdiction includes Illinois, settled this confusion in May 2015 with its decision in In re Pajian. For the first time, the Seventh Circuit clarified the proof of claim deadline established by the Rules of Bankruptcy Procedure applies to both unsecured and secured creditors. If a secured creditor does not file its proof of claim by the deadline, it may not be included in the chapter 13 plan and will not receive payments from the bankruptcy trustee.

The upshot of Pajian for associations is managers and board members, in order to ensure the association receives payments to which it is entitled, must notify the association’s attorney immediately upon receiving notice that a homeowner has filed for bankruptcy protection. The notice typically mailed to creditors by the bankruptcy court includes the proof of claim filing deadline. Given the ruling in Pajian, the proof of claim must be filed by this deadline in order for the association to receive payments through the plan. While a secured debt, even if not included in the plan, survives a discharge in a chapter 13 bankruptcy, collecting that debt five years down the road can be a much more cumbersome process when all that could have been required was filing a form with the bankruptcy court. Therefore, when the association’s manager or board becomes aware of a bankruptcy, notify the association’s attorney so she may, if necessary, file a proof of claim.


A common source of confusion among property managers, association boards, and even attorneys is how to calculate the amount of charges that must be a paid by a third-party buyer (i.e., not the foreclosing bank) when a foreclosed property is sold, the so-called “six months.” Perhaps the greatest confusion is the fact the Illinois General Assembly established different rules for condominiums and common interest communities. A brief discussion of the similarities and differences between the two should provide some guidance for manager and boards and help to ensure the association receives the maximum amount to which it is legally entitled.

The six months rule for condominiums is established by Section 9(g)(4) of the Condominium Property Act. According to this Section, a third-party buyer is obligated to pay those common expenses that came due in the six month period preceding the institution of a collection action against the prior owner. Therefore, at a minimum, the subsequent purchaser must pay the unpaid charges attributable to the prior owner that came due during the six month period before the association started a collection action against the prior owner. Furthermore, Section 9(g)(5) also provides the foreclosure sale notice that is published in the newspaper must state any potential buyer, in addition to the six months, will be also be responsible for the legal fees required by Section 9(g)(1) of the Condominium Property Act. According to Section 9(g)(5) these fees must also be paid by a third-party buyer. Therefore, when calculating the total amount due from that buyer, a condominium association, in addition to the common expenses that came due in the six months preceding the initiation of a collection action against the prior owner, may also include in the total any legal fees incurred by the association in that collection action. Also, the six month limitation does not appear to apply to the legal fees; the full amount of legal fees, regardless of when they were incurred, may be added onto the six months of unpaid common expenses.

The six months rule for common interest communities is found in Section 18.5(g-1) of the Condominium Property Act. This provision is similar to the rule for condominiums in that a third-party buyer is also responsible for six months of common expenses that came due prior to the association starting collection against the prior owner. However, unlike Section 9(g)(5) which provides the buyer must pay all of the legal fees incurred in the collection case against the old owner, Section 18.5(g-1) limits this responsibility to court costs (e.g., court filing fees, process server fees, etc.). Therefore, a common interest community can recover the court costs but not the attorney’s fees it incurred in the previous collection action.

In summary, both condominium and common interest communities can recover six months of unpaid common expenses when a third-party purchases a foreclosed property. A condominium may also include the attorney’s fees and court costs it incurred in pursuing a collection action against the prior owner, while a common interest community may only include the court costs. In order for the six months rule to apply at all, both provisions of the statute require the association to initiate collection against the owner prior to the foreclosure sale taking place. While the association will incur legal fees in doing so, some (or in the case of condominiums, all) of those expenses can eventually be charged to the third-party that ultimately receives title to the property. Therefore, when the manager or board receives notice that a unit is in foreclosure and the owner is delinquent on assessments, the board should consider its rights under the applicable six months rule and how much of the delinquency it will be able to recover in the event it proceeds to initiate a collection action.

Collection of Pre-Bankruptcy Association Assessments . . . It Can be Done

When a homeowner in an association files for chapter 7 federal bankruptcy protection, bankruptcy law triggers certain rights and responsibilities for that homeowner and the association as they relate to that homeowner’s responsibility to stay current on his assessment account. One of the outcomes of a successful chapter 7 bankruptcy is the person who filed for bankruptcy (known as the “debtor”) receives a discharge, meaning he is no longer personally responsible for most debts he owed as of the date he originally filed for bankruptcy protection (“pre-petition debts”). Does this mean an association must write-off any assessments a homeowner owed when he filed for bankruptcy? Fortunately for associations, state and federal law allows an association a procedure to enforce the pre-petition assessment obligation following the conclusion of a chapter 7 bankruptcy.

While a homeowner who has completed a chapter 7 bankruptcy is no longer personally responsible for pre-petition assessments, the association still maintains its lien for unpaid assessments in the property because a bankruptcy discharge does not remove those lien rights. As such, even though the homeowner is no longer obligated for the assessments, the property itself still “owes” it. This idea is similar to a mortgage; if an owner does not make his mortgage payments, the bank has the option of forcing a sale of the home because the property itself owes the money in a legal sense. In Illinois, an association can enforce its lien by seeking an in rem judgment (a judgment against the property only, not against the homeowner) in a Forcible Entry and Detainer action, also known as an eviction. If the association obtains an in rem judgment for unpaid pre-petition assessments, the Illinois Forcible Entry and Detainer Act when combined with federal bankruptcy law allows the association to evict the occupants of a unit unless the entire assessment arrearage, including the pre-petition balance is paid.

Because an in rem judgment can be a powerful collection tool, an association should not immediately write-off an assessment balance when it receives a chapter 7 bankruptcy notice. That being said, the association must very carefully follow the steps to obtaining an in rem judgment for pre-petition assessments because any attempt to collect a pre-petition debt from the homeowner personally could be a violation of federal law and subject the association to severe penalties. Above all, the association should keep separate account statements for the pre-petition and post-petition (assessments that accrued after the homeowner filed for bankruptcy) balances and should send invoices for only the post-petition account to the homeowner. Therefore, if the board or property manager receives notice that a homeowner has filed for bankruptcy protection, please contact our office so we can help the association avoid violations of federal bankruptcy law while also ensuring the association can collect the maximum amount of assessments to which it is legally entitled.

Review of Delinquent Assessment Accounts

Every association has them haunting their books: delinquent homeowner assessment accounts. Do any of the accounts belong to owners who lost their units in foreclosure but left an outstanding assessment balance? What should be done with the balance? Should the association try to collect it? Who is responsible for paying it? Should it just be written off? Or what about the current owner who is behind on her assessments but keeps saying she will pay it “next month?” This article seeks to provide guidance on how associations can determine answers to those questions. By obtaining a comprehensive review of its delinquencies, an association can put itself in a better position to collect those delinquent balances and to place itself on solid financial footing.

In addition to cluttering the monthly report from the management company, carrying delinquent account balances harms an association in several ways. First and foremost, every delinquent account represents budgeted assessments that, if not paid, must eventually be recovered by increasing the future assessments on the other, paying homeowners. An association’s board has a fiduciary duty to collect assessments. By not taking steps to address delinquencies, board members could fall short of their fiduciary obligations to the homeowners. Second, for condominium associations, FHA guidelines include a maximum delinquency threshold. If the number of delinquent account exceeds a certain percentage of the total accounts in the association, homeowners’ ability to qualify for FHA financing could be revoked. Third, when an association applies for a loan, one of the elements the bank considers is the delinquency rate. If an association has too many delinquent accounts, the loan’s underwriter may determine the risk in lending to the association is too great and deny the loan. Therefore, allowing delinquent accounts to fester affects the board’s ability to effectively manage the association and places a greater financial burden on the paying homeowners while also negatively impacting both the association and homeowners’ ability to obtain credit.

In order to help the board maintain as low of a delinquency rate as possible it is important to review the association’s delinquent accounts and develop answers to the questions posed at the beginning of this article. By making decisions on the association’s ability to collect delinquent accounts, the association’s financial standing should be greatly improved. There are essentially two primary legal proceedings that inhibit an association’s ability to collect a delinquent balance: mortgage foreclosure and bankruptcy. If a unit is foreclosed, the association’s lien is extinguished as of the date of the foreclosure sale; the new owner of the unit (typically the foreclosing bank) is not responsible for the prior balance, with certain limited exceptions (such as the 6 months of unpaid common expenses pursuant to Section 9(g)(4) of the Condominium Property Act.) The previous owner is still obligated for the charges that accrued prior to the foreclosure sale; however, the association’s ability to collect these charges is limited. The most common method to collect unpaid assessments is a forcible entry and detainer action, which allows the association to evict the owner of the unit if the assessments are not paid. However, this option is unavailable following a foreclosure sale because the party who owes the charges no longer owns/occupies the unit. Therefore, even if the association obtains a judgment against the defaulting owner, it must rely on post-judgment collection to collect the debt.

Post-judgment collection begins with a court proceeding known as a citation to discover assets. In a citation to discover assets, the debtor is required to appear in court to provide, under oath, financial information, such as the name of his/her employer, bank accounts, etc. If the debtor has assets or a job, the association can ask the court to turnover those assets or wages and apply these amounts to the association’s judgment. While post-judgment collection can be an effective tool, there are a few issues with this part of the collection process. First, the citation to discover assets summons must be personally served (not mailed) upon the debtor by a Sheriff’s deputy or private process server. If the association is unable to locate the debtor, the debtor cannot be served and the post-judgment collection process cannot begin. Second, even if the debtor appears and provides financial information to the association, the debtor has the ability to claim he/she lacks sufficient assets or income (called exemptions) so that the court could not order a turnover. Therefore, while under the proper circumstances post-judgment collection can result in payment for the association, it is not a certainty.

The second legal proceeding that affects an association’s ability to collect on delinquent accounts is bankruptcy. When a person files for bankruptcy protection, any personal liability she has for debts owed as of the date of the bankruptcy filing is legally removed (known as a “discharge”). Without personal liability, an association cannot use any of the post-judgment collection procedures described above. The bankruptcy does not extinguish the association’s lien for unpaid assessments. However, if the unit of a bankrupt owner is subsequently foreclosed, the foreclosure removes the lien. Therefore, if a bankrupt owner’s unit is foreclosed, the balance owed as of the date the bankruptcy was filed cannot be collected from any party. If, however, the bankrupt owner maintains ownership of the unit, any balance owed as of the date of the bankruptcy filing (the pre-petition amount) remains as a lien on the unit and can be collected at closing whenever the owner sells or refinances or through an in rem judgment against the property itself. The owner remains personally responsible for assessments that accrue beginning the month following the bankruptcy filing (the post-petition amount).

Cross checking the association’s delinquent accounts against foreclosure and bankruptcy records in order to determine the collectability of those accounts can be a daunting task for the board. Fortunately, our firm can help. We now offer a comprehensive review of an association’s entire delinquency report. Our office charges $600.00 for this service, which includes a review of all delinquent accounts against foreclosure and bankruptcy court records and a recommendation of options available to the association on each account. The board can then use this data and these recommendations to make informed decisions on how to proceed with each account. In some situations, an old balance previously viewed as uncollectable might be available through post-judgment collection. In other situations, a balance must be legally removed due to bankruptcy. Whatever the particular circumstance of each account, the review will give the board the tools it needs to fulfill its obligations to the association’s homeowners in order to reduce assessment delinquencies and promote the financial stability and creditworthiness of the community.