Which Six Month Rule Applies?
CONDOMINIUMS vs. COMMON INTEREST COMMUNITIES
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.