In 2017, Illinois had the fourth highest rate of foreclosure filings in the United States. While the overall number of foreclosures being filed is decreasing, foreclosures continue to present issues for condominium associations throughout the state.

Generally speaking, a mortgage foreclosure of a condominium unit is a straight forward process.  When a condominium unit owner fails to pay his or her mortgage, the bank files a lawsuit asking that the condominium unit be sold at public auction and that the funds from the sale be applied to the unpaid mortgage.  Over the past decade, it has been a near certainty that a condominium unit sold at foreclosure auction would fetch a price less than what was owed to the bank.  While the condominium association was named as a defendant in the foreclosure action, there was typically no need for it to expend time and money participating, as there was no money left over from the foreclosure sale to go towards unpaid common expenses.

Now, however, this is not always the case for condominium associations.  Rising home values have resulted in an increasing number of condominium units being sold at foreclosure auction for an amount greater than what the bank is owed.  This results in a “surplus,” which is to be used to pay other lien holders, including condominium associations, which have a lien for unpaid common expenses pursuant to Section 9(g)(1) of the Illinois Condominium Property Act and their respective Declaration.

Unfortunately, it’s not always as easy as just asking a court to turn over the surplus funds to the Association.  Assuming the condominium association was named as a defendant in the lawsuit (as Section 9(g)(1) of the Illinois Condominium Property Act requires), by the time the association realizes a surplus exists it is likely the association has been held in default for failing to take action once served with the foreclosure suit.  Some judges have found that a condominium association that has been held in default is not entitled to recover unpaid common expenses from the surplus funds.  Even more frustrating, it is possible these surplus funds will be turned over to the former owner of the condominium unit, despite the fact that this owner failed to pay their proportionate share of the common expenses during their period of ownership!

Beyond preserving its right to collect any surplus funds, there is another reason for a condominium association to strongly consider participating in the foreclosure of a unit.  Section 9(g)(4) of the Illinois Condominium Property Act provides that the purchaser of a condominium unit at a foreclosure sale (or, in the event the unit is purchased by the foreclosing bank, the subsequent purchaser) must pay any unpaid common expenses for the unit which became due during the 6 months “immediately preceding institution of an action to enforce the collection of assessments.”  In short, while the foreclosure of a condominium unit extinguishes the association’s lien for unpaid common expenses, the association is still able to collect 6 months of unpaid common expenses provided it instituted an action to collect them.  One option a condominium association has is to institute their collection action by filing a counter-claim against the owner in the foreclosure case itself.  While instituting a collection action may seem onerous, the Illinois Condominium Property Act also affords a condominium association the right to collect the attorney’s fees and costs form this future owner, along with the 6 months of unpaid common expenses.

To summarize, increasing home values are causing a dramatic increase in frequency and amount of surplus funds being available after foreclosure sales.  In the event a condominium association fails to appear and file a responsive pleading in the foreclosure, it could be precluded from collecting unpaid common expenses from the surplus finds.  Further, and regardless of whether the foreclosure sale results in a surplus, a condominium association is able to collect 6 months of assessments, attorney’s fees, and costs from a future owner, provided that it has instituted an action to collect these unpaid common expenses.  This means that, except in limited circumstances, a condominium association should strongly consider filing an appearance and responsive pleading when served with a foreclosure, as doing so will entitle it to recover unpaid common expenses in the event of a surplus, obtain 6 months of assessments, attorneys, fees, and costs from a future owner of the unit, or both.


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.

On December 3rd, the Illinois Supreme Court issued an opinion confirming the holding of the First District Appellate Court in the case of 1010 Lake Shore Association vs. Deutsche Bank National Trust Company. If you are reading this article, you probably know the facts of this case already. If not, in a nutshell, the case involved a foreclosed unit at 1010 Lake Shore that Deutsche Bank purchased at a foreclosure auction. The foreclosed-out owner owed a substantial balance to the Association at the time the foreclosure sale took place. Upon taking ownership of the unit, Deutsche Bank failed to pay any assessments. The Association ultimately sued Deutsche Bank in circuit court and the court entered judgment against Deutsche Bank for the pre-foreclosure balance. Deutsche Bank appealed the circuit court’s ruling and on appeal the First District Appellate Court held and the Illinois Supreme Court subsequently confirmed that under Section 9(g)(3) of the Illinois Condominium Property Act, a foreclosure purchaser must pay common expenses beginning the month after the sale. The Appellate Court and Supreme Court also held that if a foreclosure purchaser fails to pay assessments beginning the month after the foreclosure sale, the association’s lien for common expenses not paid by the foreclosed-out owner is not extinguished and the foreclosure purchaser then becomes obligated to pay the entire pre-foreclosure balance.

What does this mean for condominium associations and how should associations and management handle unpaid balances on foreclosed units?

  • Actively monitoring foreclosures continues to be important. Those associations that work with our office know how frequently we track foreclosure cases for our clients. We have consistently advised our clients the importance of knowing the status of pending foreclosure actions. The holding in this case makes knowing whether a unit has recently been sold at foreclosure auction more critical than ever as not being on top of the status of a sold unit could result in an association losing out on its right to collect pre-foreclosure amounts.
  • Don’t write off balances. Writing off a pre-foreclosure balance without consulting with counsel could result in an association walking away from money it is legally entitled to recover.
  • If the purchaser of a unit at foreclosure (a lending institution, a quasi-governmental agency, or a third-party investor) fails to timely pay the assessment due the month after the foreclosure sale is conducted, turn the account over to association counsel for collection. Do not wait 60, 90 or 120 days after confirmation of the foreclosure sale to turn the account over if there is a pre-foreclosure balance and the new owner has not paid any post-foreclosure assessments.
  • Once an account has been turned over to counsel for collection, do not accept any payments without first discussing the matter with counsel. Accepting a payment will most likely preclude an association from collecting any portion of the pre-foreclosure balance.
  • It does not matter if an association has been included as a defendant in a foreclosure action. The obligation to promptly pay post-foreclosure assessments applies to all foreclosure actions, whether the association has been named as a defendant or not. Further, the Supreme Court also appeared to state that if an association is not named as a defendant in the foreclosure action, the association’s lien is not extinguished even if post-foreclosure assessments are paid.

Because Deutsche Bank did not pay any post-foreclosure assessments, the Supreme Court did not address the timing of when a foreclosure purchasers’ ability to extinguish the pre-foreclosure lien by paying the post-foreclosure assessments expires. The only statement the Supreme Court made on the issue is Section 9(g)(3) “provides an incentive for prompt payment,” but it did not include any definition of what “prompt” means. Therefore, the Court did not impose any set deadline for payment. Accepting a payment, regardless of when the payment is made, most likely eliminates an association’s ability to collect the pre-foreclosure balance. Without any additional guidance from the Court, the best recommendation we can make is to be aggressive in turning accounts over post-foreclosure if the accounts have a pre-foreclosure balance and once accounts are turned over for collection, do not accept any payments.

While the General Assembly has not been responsive to efforts made by those who advocate on behalf of condominium associations to afford some additional relief related to the loss of assessment revenue that usually accompanies a foreclosure, the Illinois Supreme Court has unanimously recognized the obligation of foreclosure purchasers to promptly make payments upon taking ownership of units. If a foreclosure purchaser fails to promptly make post-foreclosure assessment payments and if an association acts diligently, it will put itself in position to recover pre-foreclosure amounts it may have believed were lost once ownership of the unit transferred.

Trauma Evictions Collections of Assessments and Other Sordid Tales

Assessment Collection for Community Associations

I. Obligation to collect assessments

While few take pleasure in pursuing their neighbors, friends, colleagues, etc. for the collection of assessments, associations and their duly elected board members are charged with the duty of doing just that. By volunteering to become a board member of your condominium, townhome, recreation and/or homeowner association, you are submitting yourself to be held to a high legal standard; the standard of being a fiduciary. Those individuals who fill fiduciary capacities, attorneys, accountants and yes, association board members, are charged with the highest, most stringent obligations under the law.

A fiduciary must always put the interest of his or her constituency above his or her own interests and must always make decisions based upon what he or she believes is in the best interest of the community as a whole, not just a select few. Playing favorites is not an option. To that end, fulfilling duties in a fiduciary capacity requires difficult and sometimes uncomfortable or unpopular decisions. One such decision charged to all board members of common interest communities in the State of Illinois is how and when to pursue a delinquent owner for past due assessments. The balance of the community, those owners who pay their assessments in a timely fashion, must have the trust and faith in their board members that the association is not asking them to carry the load for those who choose not to pay. Thankfully, in the State of Illinois, associations have several options for the collection of assessments. It is my opinion that one such option, the provisions of the Forcible Entry and Detainer Act, is superior to the alternatives.

II. Options for collection

A. Forcible Entry and Detainer

The Illinois General Assembly has bestowed a gift upon community associations in Illinois by making the Forcible Entry and Detainer Act, known on the street as the “eviction statute” automatically applicable to all condominium associations and to all townhome, homeowner and common interest communities that elect to use its provisions. Associations using the Forcible Act to collect assessments must initiate collection by the service of a 30-day demand letter. The 30-day demand letter must be sent to the owner at the unit, or to the owner’s off-site address, if such an address has been provided. The demand must be sent via certified mail. The delinquent owner has 30 days from the date of the letter within which to become current on the account. If the owner becomes current within the 30 days, no further action can be taken. However, if the owner fails to pay any amount or if the owner makes a partial payment within 30 days, the Association is vested with the authority to file suit against the owner in an attempt to collect all past due amounts.

If suit is filed under the Forcible Act the association will be asking a court to award it all past due assessments, attorney’s fees and court costs. Additionally, the association will be asking a court to award it possession of the owner’s unit. Yes, an owner can be evicted for failing to pay assessments. If an owner does not pay his or her share of the assessments and if the association is awarded possession of the unit, the owner will have not less than 60 additional days to bring the account current. After this 60 days has expired and if the owner has not paid the account in full, the association is authorized to schedule an eviction with the county sheriff. If an eviction is conducted, the owner loses his or her right to live in the unit, but he or she does not lose ownership of the unit. At this point the association can place a renter in the owner’s unit and apply all rental payments toward the owner’s past due balance. Leases with tenants are not unlimited in time and once the arrearage has been cured, the owner has the right to petition the court to seek to regain possession of his or her home.

As you would expect, evictions are relatively rare in relation to the total number of cases filed to collect past due assessments. The possibility of losing the right to live in the owner’s home provides a great incentive to pay the account in full. While entertaining the possibility of evicting one’s neighbor makes most people uncomfortable, in my opinion, this mechanism is the best tool to collect past due assessments and should be considered for use by all associations.

B. Assessment Lien Foreclosure

The obligation to pay assessments is not only the personal obligation of the unit owner, it is also an obligation that is a covenant burdening the property. As a covenant that binds the individual and the property, associations have liens for assessments upon each parcel in their respective community. Accordingly, while it is not recommended in light of the option of using the Forcible Act procedures described above, an association may foreclose its lien, just like a mortgage lender, in an effort to collect assessments. When compared to the Forcible Act, foreclosing a lien to collect assessments is a substantially more time consuming procedure. As opposed to the forcible proceedings, which are considered expedited proceedings (i.e. courts must handle and resolve them quickly), foreclosure proceedings could last anywhere between 9 months to 2 or 3 years before any resolution is obtained. Should the owner not pay the balance due, the ultimate outcome of a foreclosure action is that the association may end up owning the unit. Does the association want to own units? If so, will the association attempt to sell the unit? Will the association rent it out first and then try to sell it? Will the board be able to sell the unit without owner approval (it won’t if it’s a condominium)?

While the fear of losing ownership of one’s home can work to compel an owner to pay assessments, the process of foreclosing an association’s lien is not the most efficient manner to collect assessments and should only be used in limited situations such as delinquencies relating to vacant land.

C. Small Claims

If evicting an owner under the forcible statute or potentially taking ownership of a home through a foreclosure action makes boards and associations uncomfortable, another option available to collect assessments is to file an action in small claims court. The declaration creates contractual obligations on behalf of the owners and the failure to pay assessments is a breach of the declaration (contract) by the owner, which gives rise to a suit in small claims court. If an association elects to use this method to collect assessments, unlike proceedings filed under the Forcible Act, no 30-day demand letter is required to be sent prior to filing suit.

The real distinction between a small claims suit and a suit filed pursuant to the Forcible Act can be seen upon entry of a judgment. First, in a small claims suit, an association is not entitled to take possession or threaten an owner with taking possession of his or her home should the owner not pay. If a small claims judgment is obtained and if the owner does not voluntarily pay the judgment amount, the association will be required to pursue more traditional post-judgment collection remedies. Such post-judgment collection remedies include wage and bank garnishments, etc.

Unlike a forcible case, where no additional court appearances are required once judgment has been entered, post-judgment collection remedies associated with a small claims case require additional court appearances by the association’s attorney, which means more money is being spent by the association. Further, there is no guarantee that the association will be able to uncover any assets of the owner to be garnished in an effort to satisfy the past due balance (i.e. bank accounts, wages). Lastly, unlike an action filed pursuant to the Forcible Act, which requires the owner to pay not only the judgment amount, but also any additional assessments that have accrued since entry of judgment, a small claims judgment only obligates the owner to pay the amount of the judgment, plus statutory interest on the judgment at 9%. Therefore, the association that uses small claims suits to collect assessments may be put in the position of incurring attorney’s fees and court costs for the post-judgment work that is not collected, which means the association, should it desire to collect these amounts, will be required to start the process over again.

D. Liens

Recording a lien with the county recorder, which establishes that a past due balance exists for past due assessments, etc. is the most passive way for an association to attempt to collect a debt. Recording a lien carries with it no compelling forces such as a small claims money judgment or the possibility of being evicted from one’s home. Therefore, unless the recording of a lien is used in conjunction with one of the other collection methods outlined above, it is a relatively useless endeavor. Recording a lien for past due assessments will only compel an owner to pay in the event the owner either attempts to sell or refinance his or her home.