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OMNIBUS REVISION TO COMMON INTEREST COMMUNITY ASSOCIATION ACT AND ILLINOIS CONDOMINIUM PROPERTY ACT

With the recent votes in the Illinois Legislature, it appears that the current legislative session is coming to a close.   As of August 24, 2017 only one significant piece of community association legislation has passed both houses and was signed by the Governor.  PA-100-0292 (formerly HB0189) consolidated several other bills into a single omnibus act.  This article discusses the changes to both the Common Interest Community Association Act, and the Illinois Condominium Property Act, which are encompassed in this bill.

 COMMON INTEREST COMMUNITY ASSOCIATION ACT CHANGES 

  • Creates a New Section 1-20(e) involving amendments to governing documents. The language provides that approval or consent of a mortgage holder (if required by an association’s governing documents) can be implied if the mortgagee or lienholder receives notice of the proposed amendment and fails to respond after 60 days.    This change will allow associations whose membership has approved of an amendment to pass their agreed upon changes without being limited by lack of response from mortgagees or lienholders.
  • Creates a New Section 1-45 (i) which will require that any association with 100 or more units/homes use “generally accepted accounting principles (GAAP)” in fulfilling any statutory accounting obligations.

ILLINOIS CONDOMINIUM PROPERTY ACT CHANGES 

  • Creates a New Section 9(c)(5). Grants the board the authority (unless there are explicit terms and provisions to the contrary in the declaration and by-laws) at the end of any fiscal year, to dispose of surplus funds of the association by either: (1) contributing the surplus to reserves; (2) crediting the surplus against owners’ assessments; (3) returning the surplus as a direct payment to the owners; or (4) maintaining the funds in the operating account and applying such funds to the following year’s annual budget.  Additionally, the new language provides owners the ability to object to the board’s action regarding the surplus, similar to owners’ right to reject a budget or special assessment found in Section 18(a)(8) of the Act.
  • Amends Section 15 “Sale of property.” In the event the sale of the entire condominium property achieves the requisite percentage of vote, any unit owner who opposed such sale, and filed a written objection, would be entitled to the greater of the fair appraised value of the unit or the balance of any outstanding debt (mortgage/liens) against the unit.  Further, the new language provides that the objecting owner would also be entitled to receive a reimbursement for “reasonable relocation costs” as determined by federal law.  The changes to this section would apply to any pending contracts for sale of the entire property.
  • Amends Section 18(a)(8) of the Act. Currently the Act provides that owners shall have the right to object to any regular or special assessment increase, in excess of 115% of the prior year, by a petition signed by twenty percent (20%) of the votes of an association, and submitted to the board within 14 days of the action.  The change increases the amount of time to file such petition to 21 days.
  • Amends Section 18(a) (16) of the Act. Currently the Act provides that owners shall have the right to object to any contract entered into with a current board member, a board member’s immediate family or a company which the board member has a 25% or greater interest in, by filing a petition within 20 days of such action.  The change increases the amount of time to file such petition to 30 days.
  • Amends Section 18(b)(9)(C) of the Act. Currently the Act provides if the Board passes a rule eliminating proxies at an election and requiring the owners to vote by ballot, the owners shall have the right to object to such rule by filing a petition within 14 days of such action.  The change increases the amount of time to file such petition to 30 days.
  • Amends Section 18.4 (a) of the Act. Currently the Act provides that owners shall have the right to object to a capital improvement approved by the board in excess of 5% of the annual budget (not maintenance, repair or replacement of existing portions of the common elements) by petition signed by owners with twenty percent (20%) of the votes of the Association within 14 days of the action.  The change increases the amount of time to file such petition to 21 days.
  • Creates a new Section 18.10 of the Act which will require that any association with 100 or more units use “generally accepted accounting principles (GAAP)” in fulfilling any statutory accounting obligations.
  • Amends Section 19 “Records of the association; availability for examination” of the Act. The amendment is an attempt to permit owners greater access to records of an association.  Importantly records of an association must be made available within “10 business days” of receipt of the owner’s request to inspect.   Additionally, the amendment removed the portion of the statute which required a “proper purpose” to review certain records.   Further, the amendment includes permitting the inspection of owners’ email addresses and phone numbers, in addition to names and addresses.  However, the legislation provides that an association can require any member examining or copying records related to other owners’ information to certify that such information will not be used for a “commercial purpose.”  Finally, the amendment authorizes the board of directors to fine a member who violates the certification.
  • Amends Section 27 “Amendments.” The language provides that approval or consent of a mortgage holder (if required by the association’s governing documents) can be implied if the mortgagee or lienholder receives notice of the proposed amendment and fails to respond after 60 days.    This change will allow associations whose membership has approved of an amendment to pass their agreed upon changes without being limited by lack of response from mortgagees or lienholders.
  • Amends Section 31. The new language amends Section 31 (subdivision or combination of units) of the Act to define “combination of units.”  Importantly the new language establishes that in the event of a combination of units, use of limited common elements or common elements is not a diminution of other owners’ interest and, despite other language in the Act, shall not require the unanimous consent of all owners.

This article is being provided for informational purposes only.  This article does not constitute legal advice on the part of Keay & Costello, P.C. or any of its attorneys.  No association, board member or any other individual or entity should rely on this article as a basis for any action or actions.  If you would like legal advice regarding any of the topics discussed in this article and/or recommended procedures for your association going forward, please contact our office. 

 

OMNIBUS HOUSE BILL 0189

With the recent votes in the Illinois Legislature, it appears that the current legislative session has come to a close.   As of July 10, 2017, only one significant piece of community association legislation has passed both houses.  HB0189 consolidated several other bills into a single omnibus bill.  This article discusses the changes to both the Common Interest Community Association Act, and the Illinois Condominium Property Act, which are encompassed in this bill.  It was sent to the Governor for signature on June 27, 2017.

COMMON INTEREST COMMUNITY ASSOCIATION ACT CHANGES 

  • Creates a New Section 1-20(e) involving amendments to governing documents. The language provides that approval or consent of a mortgage holder (if required by an association’s governing documents) can be implied if the mortgagee or lienholder receives notice of the proposed amendment and fails to respond after 60 days.    This change will allow associations whose membership has approved of an amendment to pass their agreed upon changes without being limited by lack of response from mortgagees or lienholders.
  • Creates a New Section 1-45 (i) which will require that any association with 100 or more units/homes use “generally accepted accounting principles (GAAP)” in fulfilling any statutory accounting obligations.

ILLINOIS CONDOMINIUM PROPERTY ACT CHANGES 

  • Creates a New Section 9(c)(5). Grants the board the authority (unless there are explicit terms and provisions to the contrary in the declaration and by-laws) at the end of any fiscal year, to dispose of surplus funds of the association by either: (1) contributing the surplus to reserves; (2) crediting the surplus against owners’ assessments; (3) returning the surplus as a direct payment to the owners; or (4) maintaining the funds in the operating account and applying such funds to the following year’s annual budget.  Additionally, the new language provides owners the ability to object to the board’s action regarding the surplus, similar to owners’ right to reject a budget or special assessment found in Section 18(a)(8) of the Act.
  • Amends Section 15 “Sale of property.” In the event the sale of the entire condominium property achieves the requisite percentage of vote, any unit owner who opposed such sale, and filed a written objection, would be entitled to the greater of the fair appraised value of the unit or the balance of any outstanding debt (mortgage/liens) against the unit.  Further, the new language provides that the objecting owner would also be entitled to receive a reimbursement for “reasonable relocation costs” as determined by federal law.  The changes to this section would apply to any pending contracts for sale of the entire property.
  • Amends Section 18(a)(8) of the Act. Currently the Act provides that owners shall have the right to object to any regular or special assessment increase, in excess of 115% of the prior year, by a petition signed by twenty percent (20%) of the votes of an association, and submitted to the board within 14 days of the action.  The change increases the amount of time to file such petition to 21 days.
  • Amends Section 18(a) (16) of the Act. Currently the Act provides that owners shall have the right to object to any contract entered into with a current board member, a board member’s immediate family or a company which the board member has a 25% or greater interest in, by filing a petition within 20 days of such action.  The change increases the amount of time to file such petition to 30 days.
  • Amends Section 18(b)(9)(C) of the Act. Currently the Act provides if the Board passes a rule eliminating proxies at an election and requiring the owners to vote by ballot, the owners shall have the right to object to such rule by filing a petition within 14 days of such action.  The change increases the amount of time to file such petition to 30 days.
  • Amends Section 18.4 (a) of the Act. Currently the Act provides that owners shall have the right to object to a capital improvement approved by the board in excess of 5% of the annual budget (not maintenance, repair or replacement of existing portions of the common elements) by petition signed by owners with twenty percent (20%) of the votes of the Association within 14 days of the action.  The change increases the amount of time to file such petition to 21 days.
  • Creates a new Section 18.10 of the Act which will require that any association with 100 or more units use “generally accepted accounting principles (GAAP)” in fulfilling any statutory accounting obligations.
  • Amends Section 19 “Records of the association; availability for examination” of the Act. The amendment is an attempt to permit owners greater access to records of an association.  Importantly records of an association must be made available within “10 business days” of receipt of the owner’s request to inspect.   Additionally, the amendment removed the portion of the statute which required a “proper purpose” to review certain records.   Further, the amendment includes permitting the inspection of owners’ email addresses and phone numbers, in addition to names and addresses.  However, the legislation provides that an association can require any member examining or copying records related to other owners’ information to certify that such information will not be used for a “commercial purpose.”  Finally, the amendment authorizes the board of directors to fine a member who violates the certification.
  • Amends Section 27 “Amendments.” The language provides that approval or consent of a mortgage holder (if required by the association’s governing documents) can be implied if the mortgagee or lienholder receives notice of the proposed amendment and fails to respond after 60 days.    This change will allow associations whose membership has approved of an amendment to pass their agreed upon changes without being limited by lack of response from mortgagees or lienholders.
  • Amends Section 31. The new language amends Section 31 (subdivision or combination of units) of the Act to define “combination of units.”  Importantly the new language establishes that in the event of a combination of units, use of limited common elements or common elements is not a diminution of other owners’ interest and, despite other language in the Act, shall not require the unanimous consent of all owners.

This article is being provided for informational purposes only.  This article does not constitute legal advice on the part of Keay & Costello, P.C. or any of its attorneys.  No association, board member or any other individual or entity should rely on this article as a basis for any action or actions.  If you would like legal advice regarding any of the topics discussed in this article and/or recommended procedures for your association going forward, please contact our office. 

 

NEW LAW AMENDING THE CONDOMINIUM PROPERTY ACT CLARIFIES A BOARD OF DIRECTORS’ ABILITY TO SECURE LOANS

Public Act 099-0849 was signed into law by Governor Rauner on August 19, 2016.  The new law changes the Condominium Property Act to clarify the inconsistency in within Section 18.4 of the Act.  The amendment to Section 18.4 (m) of the Act permits boards of directors, by majority vote, to execute various bank documents to secure a loan on behalf of an association.  Currently the language of Section 18.4 (m) has a qualifier relating to the “condominium instruments” and there is a concern that some old condominium declarations and by-laws may require up to two-thirds of the owners to vote when either pledging an association’s assets or assigning future income.  This change makes it clear that a board of directors, without owner approval, by majority vote can assign future income of an association and pledge the assets of an association.

This change in the Condominium Property Act takes effect January 1, 2017.

 

This article is being provided for informational purposes only.  This article does not constitute legal advice on the part of Keay & Costello, P.C. or any of its attorneys.  No association, board member or any other individual or entity should rely on this article as a basis for any action or actions.  If you would like legal advice regarding any of the topics discussed in this article and/or recommended procedures for your association going forward, please contact our office. 

 

 

On July 15, 2016 Governor Rauner signed two important pieces of legislation for the community association industry.

CLOSED PORTIONS OF MEETINGS/EXECUTIVE SESSIONS     P.A. 099-0567

Section 18(a)(9) of the Illinois Condominium Property Act and Sec. 1-40 Common Interest Community Association Act. Meetings.

The new law changes both the Condominium Property Act and the Common Interest Community Association Act to clarify what items may be discussed by a board of directors during the closed portion of a meeting or executive session meetings.  Importantly, the new law the specifies that board members can meet in a closed portion of a noticed meeting, or separate from a noticed meeting to discuss certain enumerated executive matters.  The act details that Boards may discuss engagement, interviewing and dismissal of employees, independent contractors, agent or providers of goods and services.    Finally, the law makes it clear the Board members can meet with legal counsel outside to the presence of an open meeting.

SUCCESSOR DEVELOPERS – P.A. 099-0569

Sec. 1-15 Common Interest Community Association Act and Sections 4.1 and 18.5 (j) Illinois Condominium Property Act

The new law changes both the Common Interest Community Association Act and the Condominium Property Act to require successor developers to obtain written assignment of developer (declarant) rights and to require the successor to record the assignment prior to it being effective.  This alleviates the situation where a bank or subsequent purchasers of undeveloped portions of an association contends “they are the new declarant” without having anything in writing.

APPELLATE COURT PROVIDES SOME CLARITY ON SIX MONTHS RULE

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.

 THE RETURN OF LEASING AND RESTRICTIONS AT ASOCIATIONS

As Illinois and the rest of the nation recovers from the crash of the residential real estate market, the issue of leasing restrictions has, again, arisen. Many associations having survived the onslaught of foreclosures are awaking to realize that the formerly owner occupied properties are quickly being bought up by groups of investors. Sometimes this has occurred over a number of years, but for some associations it seems like it happened overnight. Associations may quickly see the number of rental properties in their communities go from a comfortable five to ten percent, to a painful or problematic thirty percent.

The increase in rental units can be concerning to community associations for a myriad of reasons. When such concerns arise, boards and the owners have choices when it comes to who may occupy individual living units. The first choice to be made is whether leasing of units should be restricted in any fashion. If the answer to that question is yes, there are several leasing restriction options available for consideration. Whether an association chooses to allow leasing or not, it is important for boards and the owners to know their rights with respect to enacting leasing restrictions.

When an association decides to enact a leasing prohibition, either outright, with a grandfather clause or a cap, the association must determine whether to include such prohibition or restriction as a rule or by an amendment to the declaration containing a restrictive covenant. The difference between a rule and a covenant could determine the enforceability of the prohibition/restriction. In Illinois the seminal case on leasing restrictions is Apple II Condominium Association v. Worth Bank and Trust Co., 277 Ill.App.3d 345 (1st Dist. 1995).

The unit owners in Apple II were investment owners who purchased their property at a time when the association had no leasing restrictions. However, the appellate court stated that “neither the fact that there were no restrictions on the property when the [complaining unit owners] purchased their unit nor the fact that the [complaining unit owners] purchased the property for investment purposes is relevant.” Additionally, the court in Apple II acknowledged that while leasing restrictions put in place by rule are legal, courts will employ a greater level of scrutiny since the rule was adopted solely by a board and not the owners.

Once an association determines that a leasing amendment restriction would be beneficial to their community, a decision must be made as to the nature and extent of such a restriction. Does the association want to completely ban leasing of all units? Does the association want to limit leasing only to those units that are leased as of the time the amendment is passed? Does the association want to allow all current owners the opportunity to lease their units but prevent any subsequent purchasers from being able to enter into leases? Does the association want to impose a percentage cap?   Each of these decisions need to be carefully considered and properly documented in the language of any proposed amendment.

If a board and the owners at an association decide that restricting leasing of units would be beneficial to the association, the board should take several steps. First, the board should consult the association’s governing documents and review what they say about leasing. The next step the board and the owners must determine is the nature and extent of leasing restriction to be enacted. Finally, the best approach is for the board to propose an amendment to the governing documents and then have the proposed amendment voted on by the owners. While there are several options available to the board and the owners, it is up to the board and the owners to decide which leasing restriction best suits their community before it’s too late.

THE OMBUDSPERSON: COMING SOON TO A STATE NEAR YOU

 On December 29, 2014, outgoing Governor Pat Quinn signed into law the Condominium and Common Interest Community Ombudsperson Act, following its passage during veto session. With Governor Quinn’s signature, Illinois became the fifth state to enact some form of Ombudsman/Ombudsperson legislation.[1] The bill is the final version of a piece of legislation that Representative Elaine Nekritz has introduced in various forms over the previous five legislative sessions. Through several substantial changes, the Illinois Legislature crafted a bill that is part mandate and part aspirational. In any event, the legislation that has been extensively discussed, debated and reviewed is almost here. While passed in 2014, the Act does not take effect until July 1, 2016.

The true purpose of the Act and the argument supporting the need for an Ombudsperson can be found in the Act’s “Findings”, which preface the legislative requirements. As part of the law, the

General Assembly finds . . .Unit Owners and persons charged with managing condominium property or common interest community property may have little or no prior experience in managing real property, operating a not-for-profit association or corporation, complying with laws governing condominium property or common interest community property, and interpreting and enforcing restrictions and rules imposed by applicable instruments or covenants. “

Additionally, the Act notes:

Unit owners may not fully understand their rights and obligations under the law or applicable instruments or covenants. Mistakes and misunderstandings are inevitable and may lead to serious, costly, and divisive problems.”

The Act is an attempt at a legislative solution to these issues.

On its face the Ombudsperson Act has several different components. Initially, the Act creates the “Office of the Condominium and Common Interest Ombudsperson.” The office will exist under the umbrella of the Illinois Department of Financial and Professional Regulation.   The Ombudsperson, and other staff, will be employed by the Department. Further, the Ombudsperson will “have the powers delegated to him or her by the Department, in addition to the power set forth in [the] Act.” Currently, there is no mechanism in the Act describing the selection or appointment of the Ombudsperson, however the Act does empower the Department to adopt rules for administration and enforcement.

The powers and obligations granted to the Ombudsperson, and the compliance requirements for Associations can be found within the Act. The first impact comes from the requirement that every association is required to adopt a formal, written policy for resolution of complaints made by homeowners. This policy must include a form on which to make the complaint, a description of the process by which the complaint must be submitted, the timeline in which the Association will resolve the complaint, and the requirement that the Association make its “final” decision within a reasonable time. This provision has an effective date “no later than 180 days after the effective date of this Act.”, Accordingly, every association in the state bound to the requirements of the Condominium Property Act or Common Interest Community Association Act, must have adopted their complaint resolution policy adopted no later than January 1, 2017.

Additionally, the Act requires registration from every association in the state subject to either Act. No later than July 1, 2017 (provided the appropriate rules for registering and forms have been created) every association must be registered with the Department of Financial and Professional Regulation. This registration will be valid for a period of two years, and has specific items which must be reported to the Department. As of now, there is no registration fee required. However, non-compliance with the registration requirement could result in an Association being assessed a late fee or penalty Further, continued non-compliance could eventually suspend and association’s ability” to impose or enforce its lien for common expenses or to pursue an action or employ any enforcement mechanism otherwise available to it in enforcement of a lien for common expenses until it is validly registered…” Be aware that this provision will not invalidate an association’s lien for common expense or its ability to collect such a debt, will suspend, during the period of time the association is unregistered, its ability to pursue the claim.

Starting July 1, 2018 the Ombudsperson is charged with offering education and training to owners, boards and associations relative to the statutory laws affecting associations and the “operation and management” of associations. Additionally, the Ombudsperson is charged with creating an informational website containing the Illinois Condominium Property Act and the Common Interest Community Association Act, along with other relevant and useful information. The website will also contain information regarding services provided by the Office of the Ombudsperson, including, non-judicial dispute resolution. The Act notes in Section 20(c):

Information and advice provided by the Ombudsperson has no binding legal effect and is not subject to the rulemaking provisions of the Illinois Administrative Procedure Act.

It is not until July 1, 2019 that the Ombudsperson will begin accepting requests for assistance from homeowners. It is important to note several stipulations in Section 40 of the Act, which outlines such requests. First, dispute resolution is only between an association and a homeowner:

The Ombudsperson shall not accept requests for resolutions of disputes with Community Association Managers, supervising community association managers, or community association management firms…

Also, in order for a complaint to be heard, the individual bringing the complaint has a number of conditions related to standing, prior attempts at resolution, and specific timeframes that must be met. Specifically the homeowner must meet the following requirements: the homeowner cannot owe any outstanding assessments or fees (unless the amounts are the subject of the dispute); the disputed issue must have been initiated or occurred within the past two calendar years; the homeowner must have first made written complaint to the association and followed its internal procedures; the homeowner must have received a final adverse decision from the association; and the homeowner must have filed the request for dispute resolution within 30 days after receiving the association’s final response.

Once these conditions have been met, and the Ombudsperson’s Office receives a written complaint, the Ombudsperson will assist in efforts to resolve the dispute. It is imperative to note that this process is not mandatory. The Act provides clearly that “[t]he Ombudsperson shall assist only opposing parties that mutually agree to participate in dispute resolution.” Further, any decision is non-binding, and no penalties or enforcement provisions have yet been enacted.

On October 1, 2020, the Office of the Ombudsperson will be required to submit an annual written report to the legislature, which must include statistics on all complaints heard, and an analysis of the most common types of complaints heard. This information will then be used to formulate new legislation and reform to “reduce the frequency or severity of those disputes.”

The Condominium and Common Interest Community Ombudsperson Act will face its first true hurdle almost immediately. A new, unfunded office has been created within the Department of Financial and Professional Regulation, and the Ombudsperson will need to be appointed by the new Republican Governor, Bruce Rauner. Given the ongoing battles over Illinois’ current financial standing, it is likely that several “trailer bills” may be proposed and passed before there is much movement toward full enactment and implementation of the Ombudsperson Act. Illinois has taken its first step toward providing homeowners with an avenue to bring complaints without the costly, lengthy, and intimidating process of filing a formal lawsuit. It will now be up to the Democratic controlled legislature and the newly elected Republican Governor to see the process through. Even then, the effectiveness of the Ombudsperson Act may not be known for many years.

 

[1] Florida, Virginia, and Nevada all have Ombudsman Offices. Colorado has a similar program, however its function is informational only for homeowners.  For an excellent discussion of the various existing offices see CAI’s Publication “Memorandum on Offices of Community Association Ombudsmen” – March 2014. http://www.caionline.org/govt/Documents/Ombudsman_Report.pdf

 

Patrick Costello, Keay & Costello, P.C & Co-Chair of the Illinois Legislative Action Committee

Charles Perry, Lieberman Management Services, Inc., & Co-Chair of the Illinois Legislative Action Committee

 

 

The 2014 Illinois Legislative Session was quite active for condominium and common interest community associations. Over nineteen (19) pieces of legislation were introduced effecting associations. A total of nine (9) pieces of legislation passed the House of Representatives and Senate and were sent the Governor for signature. Eight (8) new acts were signed by the Governor and the foreclosure legislation was vetoed with an amendatory veto. There was no override or approval of the amendatory veto and, accordingly, it failed.

The following a description of new public acts passed into law effective in 2015. Below each synopsis is a link to the actual legislation.

PUBLIC ACT 98-0996 LEASE OF UNITS AFTER POSSESSION. This act amends the Illinois Forcible Entry and Detainer Act regarding leasing of units by associations. The act provides that an association may enter into a lease at any time within 8 months of expiration of the stay on its possession order. The lease entered into, within that 8 month period, may not exceed 13 months. Currently the statute provides that the term of a lease entered into by an association cannot exceed 13 months following the expiration of the stay of the order of possession. Additionally, the amended language to the Act reflects that the court may, upon motion, extend the time to lease for additional 13 month periods.

This amendment to the Act will aid association in leasing units by affording more time to complete any necessary repairs and locate tenants. The act took effect January 1, 2015.

http://www.ilga.gov/legislation/publicacts/fulltext.asp?Name=098-0996

PUBLIC ACT 098-1068 VOIDS CERTAIN DEVELOPER PROVISIONS IN CONDOMINIUM INSTRUMENTS. This act amends Section 9.1 of the Illinois Condominium Property Act. The act provides that any condition in a condominium instrument which either: (1) requires the prior consent of the unit owners in order for the board to take certain actions, including the institution of any action in court or a demand for a trial by jury; or (2) requires the board to arbitrate or mediate a dispute with a developer, declarant or any person not then a unit owner prior to litigation or a demand for a trial by jury – is void. This act effectively voids restrictions in governing documents that seek to thwart or place oppressive procedural hurdles upon an association’s pursuit of claims against the developer found in many declarations. The act took effect January 1, 2015.

http://www.ilga.gov/legislation/publicacts/fulltext.asp?Name=098-1068

PUBLIC ACT 098-0735 ELECTRONIC NOTICE. This act amends Section 18.4 of the Illinois Condominium Property Act. For condominium associations this act supplements, the Electronic Voting Act discussed below. The act grants a board the power to adopt rules and regulations permitting electronic delivery of notices and other communications, but only upon an individual unit owner’s authorization. Additionally the act permits each unit owner to designate an electronic address, a U.S. Postal Service address, or both, as his or her contact information to be kept on the list of unit owners. This will be an important piece of legislation that will allow associations to take advantage of technology while satisfying the various notice requirements in the Condominium Property Act and the various governing document. The act took effect January 1, 2015.

http://www.ilga.gov/legislation/publicacts/fulltext.asp?Name=098-0735

PUBLIC 098-1042 ELECTRONIC VOTING, NOTICE AND USE OF TECHNOLOGY. This bill, introduced by CAI, amends both the Illinois Condominium Property Act and the Common Interest Community Association Act. The bill permits boards to adopt rules and regulations concerning the use of acceptable, verifiable means of technology, including electronic means for unit owner notice, voting, signatures, consents and approvals. The bill establishes that electronic votes are valid and may be used for the purpose of establishing meeting quorums. The bill also provides that a verifiable electronic signature satisfies any requirements for signatures on documents. It acknowledges that if an owner either does not have the capability or desire to conduct business electronically, an association shall make reasonable accommodation, at its expense, for the person to conduct business without the use of electronic or other means. This act took effect January 1, 2015.

For a more thorough review of the act and its requirements please see our discussions of Public Act 098-1042 here.

http://www.ilga.gov/legislation/publicacts/98/PDF/098-1042.pdf

PUBLIC ACT 098-0762 AMENDMENTS TO INSURANCE REQUIREMENTS FOR CONDOMINIUMS. This act amends Section 12 of the Illinois Condominium Property Act regarding insurance requirements. The amendment to the act clarify issues regarding amount of coverage required for replacement costs of the insured property, defense costs obligations of condominium insurance and improvements and betterments coverage. The act provides greater specificity as to the types of defense coverage required under an association’s directors and officer’s liability policy. Additionally, the act will remove the right of an association to purchase mandatory owner insurance and charge the cost of such insurance back to the owner. This act takes effect June 1, 2015.

http://www.ilga.gov/legislation/publicacts/fulltext.asp?Name=098-0762

PUBLIC ACT 098-0842 LEASING AND COMMON INTEREST ASSOCIATION. This act amends Section 1-35 of the Common Interest Community Association Act and adds a qualification to which leases must be provided to the association when a unit is not owner occupied. The new language of the law provides, “Unless otherwise provided in the community instruments” leases are required to be provided to the association. As such the act amends CICAA to allow associations to provide limitations in their instruments (declaration, by-laws or rules) on requiring owners to provide leases.  Generally, speaking this legislation will only have effect on an association if its board determines that it does not want copies of leases – which should be rare. This act took effect January 1, 2015.

http://www.ilga.gov/legislation/publicacts/fulltext.asp?Name=098-0842&GA=98

PUBLIC ACT 098-0966 PROCESS SERVERS IN GATED COMMUNITIES. This act amends Section 2-203 of the Illinois Code of Civil Procedure regarding service of process on individuals. The act, as amended, requires employees of “gated residential communities” (including condominiums, cooperatives and private communities) to permit entry to a process server (as defined under the Code) for the purposes of serving process on a defendant or witness who resides or is known to be in the community. This act takes effect January 1, 2015.

http://ilga.gov/legislation/publicacts/fulltext.asp?Name=098-0966

PUBLIC ACT 098-1135 Ombudsperson BILL. This act (amended several times after it was originally filed) creates an Office of Condominium and Common Interest Community Ombudsperson under the authority of Illinois Department of Financial and Professional Regulation. Starting July 1, 2018, the Ombudsperson would be charged with offering training, educational materials and courses to condominium unit owners, condominium associations and boards. This bill requires the Ombudsperson to maintain and post certain information on the Department’s website. The bill requires that by January 1, 2017 every association covered by the Act to create and enact an internal dispute resolution policy with forms for filing complaints, a timeline for the complaint process and a mechanism for deciding complaints. Commencing July 1, 2019 the Ombudsperson would be authorized to provide assistance to owners in resolving disputes with their associations. Participation in such dispute resolution would be entirety voluntary. Further, each association would be required to register with the Office of Ombudsperson. The registration will require a renewal every two years. There is no fee provided in the legislation for such registration. However, in the event that the Association either fails to initially register or fails to register a late fee can be imposed. In the event the Association fails to initially registered two years after the effective date or fails to renew its registration on three or more occasions, the association right to enforce its claim for unpaid assessments, would be suspend during the period of non-registration. Finally, the Office of the Ombudsperson would be required to submit every October (starting in 2020) a report to the General Assembly detailing the disputes the Office has been involved in between owners and associations.

This act takes effect January 1, 2016.

For a more thorough description of the legislation please see here.

http://ilga.gov/legislation/publicacts/fulltext.asp?Name=098-1135

PLEASE NOTE THE BELOW BILL DID NOT PASS

HB2664 – CONDOMINIUM FORECLOSURE BILL.

This bill sought to amend only the Illinois Condominium Property Act by changing condominium association’s right to collect unpaid common expense on foreclosed. While the bill increased the months from 6 to 9 the expansion would only apply to regular assessments and not to any other unpaid common expense. Further, while attorney fees and costs of collection can be charged to the third-party buyer, in no event can the total balance collected exceed an amount equal to 9 months of regular assessments. It was anticipated that in large part this would reduce the amounts associations would be able to recover following a foreclosure sale.

In addition, the bill amended Section 2 of the Act to include definition of “regular monthly assessments.” The bill would remove the “initiation of an action” prerequisite to collecting these amounts. Finally, the bill amends Section 22.1 of the Illinois Condominium Property Act and reduces the days an association (or its management company) has to respond to a request from a purchaser for information from 30 days to 14 days, if the association is managed. If the association is self-managed it has 21 days. Currently the law requires the information to be made available within 30 days. On April 8, 2014 this bill passed the entire Senate and was sent to the House. That following a heated debate, May 22, 2014 this bill passed the House with a slight majority. This bill was sent to the Governor for signature, however, the Governor issued an amendatory veto.

The Governor’s veto kept the language of the bill substantially intact, but added that any unpaid amounts not covered by the third-party purchaser in the payment of 9 months regular assessment would be paid by the mortgage holder. Effectively, the mortgage holder would need to make-up any unpaid amounts and the association, following the foreclosure, would be made whole. In vetoing the bill Governor Pat Quinn stated the following:

SB 2664 limits condominium associations from collecting more than the sum of nine months of regular monthly assessments from the purchaser of a foreclosed condominium.  Following the procedure in SB 2664 would force the rest of the homeowners in the condominium association to bear the costs of a foreclosure. While it is reasonable for a new homeowner to pay up to nine months of regular assessments when they purchase a property coming out of foreclosure, the lender who owns the mortgage should also contribute to the costs that the homeowners in a condominium association incur when a lender forecloses on a property.

On November 24, 2014, with no action taken on the bill, the bill died in the Senate.

Unfortunately many associations face difficulties when damages to common elements are discovered. Typically an association is compelled to bear the expenses of fixing or replacing the damaged common element. However, what if the damage is caused by a unit owner or associated with an individual unit? Most condominium declarations provide that the expenses incurred in repairing a common element damaged by a unit owner can be assessed against that owner or unit. A more unique question is encountered when the association cannot determine who caused the damage, yet the common element is either solely accessible by one unit or obviously under the control of a single unit.

One Association was faced with such a problem. The supporting members of a roof truss system had been removed in the attic space of a unit to seemingly create additional storage space. The roof trusses were defined as a common element but were accessible solely through the living space of a single unit. Due to safety concerns the Association notified the unit owner of the damage and requested that the trusses be repaired or replaced immediately. When he unit owner failed to undertake the repairs, the Association contracted to have the work performed. Following the repair of all the damaged roof trusses the Association assessed the unit owner’s account for the cost of repair. The unit owner refused to pay.

The Association instituted suit for reimbursement of the expenses for the repairs. The Association’s Declaration provided that all expenses incurred in repairing damage of common elements should be borne by the unit owner or unit causing such damage. Further, the Declaration provided that all covenants contained within the Declaration “run with the land,” meaning all impositions, obligations, and rights are transferred from owner to owner. While the Association could establish that the damage to the common elements was related solely to this unit, it could not determine or establish who removed the trusses or when they were removed. The Association argued that it need only prove the existence of the covenant and its breach to receive reimbursement. The current unit owners argued that they did not remove the trusses. The current owners contended that the Association should sue the prior unit owners who they contended had sold them the unit with the removed trusses.

The trial court determined that the Association could recoup its expenses from the current unit owner. The obligation to pay for repairs to the common elements, related solely to this unit, was an obligation of the current unit owner. Accordingly, a judgment for the entire amount of the repair work was awarded against the unit owner. Additionally, the trial court, in accordance with the Declaration, awarded attorneys fees in favor of the Association and against the unit owner.

The unit owner appealed the trial court’s decision to the appellate court. The appellate court affirmed the trial court’s ruling (in an unpublished opinion) and held in favor of the Association. On appeal the unit owner argued that the trial court, in effect, imposed strict liability without requiring the Association to establish that the current owners caused damage to the trusses. In response, the appellate court stated that “the existence of a covenant and the existence of a breach are the relevant issues in this type of case; once the covenant and breach are established, enforcement is entitled.”

This decision is particularly beneficial to associations in that it recognizes the mechanism of recovery for damage to common elements. Similarly, the decision stands for the proposition that new unit owners, by virtue of their ownership, assume all responsibilities and obligations which could have been assessed against the prior owners. If the prior owner damaged the association’s property within the unit, the new owner can be held responsible for the costs and expenses. Similarly if the prior unit owners had failed to pay all of their assessments, the new unit owner would be responsible for bringing the account current. Moreover, the association is not required to pick up the tab for the repair work merely because the unit may have been transferred since the damage was done.

Subsequent to the sale of the unit in the case described above, in 1991, the Illinois General Assembly passed a law which may have some impact on Associations and repairs or alterations to common elements. The statute, 765 ILCS 605/22.1(a), requires the Board of Managers to provide several statements when a unit owner, other than the developer, decides to sell his or her property. One of the required statements that the Board must make is that “any improvements or alterations made to the unit, or the limited common elements assigned thereto, by the prior unit owner are in good faith believed to be in compliance with the condominium instruments.” (765 ILCS 605/22.1(a)(8)). The burden is on the unit owner selling the unit to request these statements from the Board in writing. But after the request is made to the Board, the Board is required to furnish the statements to the unit owner within 30 days. The burden is then on the prospective purchaser of the unit to demand the Board’s statements from the seller to whom the Association provided the information.

With this in mind, it is important to note that the Board is not required to automatically provide a statement under 765 ILCS 605/22.1(a)(8) every time a unit is sold. Rather, the Board’s issuance of a statement is dependent upon several occurrences. First, the prospective purchaser of a unit must request a statement by the Board from the current unit owner. The current owner must then request the statement from the Board. If these two events occur, then the Board must provide the required statement to the current unit owner within 30 days. If either of these events do not occur, then the Board is not required to make a statement for that particular unit.

For each instance that the Board is requested to make a required statement, the Board should take certain steps to make sure that it complies with the Illinois Condominium Property Act when it makes the required statements. If the Board is making a statement regarding alterations or improvements, then it should make an inspection of the unit. In inspecting the unit, the Board should look for all alterations or improvements made in the unit and the limited common elements assigned to the unit. The Board should ascertain whether or not each alteration or improvement complies with the Association instruments. In its required statement, the Board should clearly identify each and every alteration or improvement in the unit or limited common element which the Board in good faith believes does not comply with the Association instruments.

Accordingly, as Ben Franklin once wrote, “[a]n ounce of prevention is worth a pound of cure.” If prospective buyers require that all the applicable disclosures under 765 ILCS 605/22.1 be complied with, the described situation could be avoided. Additionally, if an Association is making an affirmative representation about alterations or improvements, it should make sure that either no alterations have been made or that any alterations are in compliance with the governing documents. Otherwise, despite language in the declaration which may hold a unit owner responsible, the association, not the owner, would be responsible to repair or replace the damaged common elements.

As any person who has served on their association’s board of directors can tell you, it is a thankless job. While you are required to undertake the business of a not-for-profit corporation and assume fiduciary responsibilities to the other unit owners, you receive no form of compensation or special treatment. Furthermore, what you do get is panoply of responsibilities, phone calls and headaches. Unfortunately, most of the education is on the job training. With this in mind, what happens when the members of the association, beyond the typical complaints and disagreements, decides to “remove” you from the board of directors. Some would say, “If you want the job it’s yours.” However, others might not so readily turn the business of the association over to those with opposing viewpoints.

Section 18(a) (4) of the Illinois Condominium Property Act requires that the bylaws of an association must provide for a method of removal from office of the members of the board of managers. (765 ILCS 605/18(a) (4)). Each association should examine their respective bylaws to determine the “method” applicable to their board. Additional concerns associated with removal are notice provisions, voting and proxy requirements, quorum and reelection procedures.

Typically, the board does not “call” a meeting, on its own initiative, for the removal of the Board. The first hurdle in removing a board or board member it scheduling and calling the meeting. Section 18(b) (5) provides that “special meetings of the members (usually where a board member would be removed) can be called by the president, board of managers or by 20% of unit owners.” The unit owners seeking the removal of a board member or the entire board would then petition the president of the board, with signatures representing 20% of the ownership, to call a special meeting for the purposes of removal. The “Notice” of the special meeting must be mailed or delivered to all the unit owners no more than 30 and at least 10 days prior to the meeting. (Sec. 18 (b) (6)).

The second hurdle to overcome is obtaining sufficient attendance at the meeting, either by person or proxy, to constitute a quorum. If a quorum is not present, the meeting will not and cannot proceed. When a quorum is established, the bylaws should be followed to vote on the removal. An obvious method of gaining a sufficient number of votes is through the use of proxies. As any unit owner who regularly attends meetings is aware, most of your neighbors do not attend in person. Proxies can be used to secure the necessary votes either in favor or against the removal. It is important that the proxies are properly prepared in order to be considered valid. The proxy must name a proxy holder who will be present at the meeting. Additionally, the proxy should acknowledge whether the proxy holder is instructed to vote a certain way or whether the proxy holder can use the vote however he or she sees fit. Further, the proxies should be dated and contain the unit owner’s name and address for proper balloting.

A final concern is after the vote is taken; there must be a method to replace the removed members on the board. Section 18(a) (13) of the Act requires that bylaws provide for a method of filling vacancies on the board which must include authority for remaining board members to fill the vacant positions by two-thirds vote. The member elected to fill the vacant position will hold that position until the next annual meeting, unless the unit owners again petition the board to call a special meeting to fill the vacancy for the remaining term. This petition must be delivered to the board within 30 days of the vacancy and must be signed by at least 20% of the ownership. The meeting to fill the vacancy then must be called within 30 days.

An interesting concern is where the entire board is removed. In such a situation there are no remaining board members to fill the vacancy. Therefore, members must be ready to nominate other members to serve on the board. Members also should be prepared with the necessary proxies to cast votes for new board members. The bylaws should be carefully reviewed to examine both the nominating procedures and voting procedures for strict compliance.

Overall, the process of removing members from the board of managers is sophisticated and technical. Failure to follow any of the steps can result in the invalidity of either the removal or the subsequent election. A thorough understanding of the bylaws and the procedures required is imperative in protecting both the validity of the removal and preserving the rights of all the members of the Association.