As more and more of my clients are buying foreclosed properties, the question of who is responsible for paying unpaid condo assessments keeps coming up. Buyers feel that it should not be their problem; after all, they didn't own the property when the assessments became due. Associations, on the other hand, want their money; they don't particularly care where it comes from. Because homeowners' associations require payment of assessments by all unit owners in order to meet their budget and keep their property in good repair, the Illinois legislature has sided with them on this issue.
The Illinois Condominium Property Act states that if you buy foreclosed property from the bank, you are responsible for assessments for the six months immediately prior to when the association instituted legal action to collect the assessment, assuming that such assessment is still unpaid. Take note: if the homeowner did not pay assessment for more than six months before the association took legal action, you are still only liable for six months' assessments. If the association never took legal action, you are not responsible for the assessment at all. In fact, I've had a few clients benefit because they were purchasing a foreclosed condo in an association that never filed suit for past due assessments.
The bank that foreclosed the condo is liable for assessments from the first day of the month after the month in which the foreclosure took place, through the date you close on your purchase from the bank.
What happens if the condominium association has instituted a special assessment? Well, your attorney can negotiate with the bank's attorney and try to get you the best possible deal. Unfortunately, many lenders have form contracts they require buyers to sign, which state that the buyer shall be responsible for all special assessments. Some lenders are willing to negotiate some of the terms of the sale; others are not. When a bank does not have its own form, the buyer benefits because the buyer's offer typically is on a standard realtor form, and those forms state that the seller is responsible for special assessments.
Make sure you understand how much assessment you will owe at closing if you're purchasing foreclosed property from a bank!
Illinois Real Estate Law Blog
Monday, July 28, 2008
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20 comments:
Is the third party buyer at a foerclosure sale (by the Sheriff) responsible for the Associations legal fees? If so which fees and how much?
Michael Beckerman
Hi Michael,
My understanding is that a third party buyer who purchases the unit at a foreclosure sale (i.e. outbids the lender) is only responsible for up to six months' assessments, for the six months immediately preceding the association's suit to collect the assessments. Hope that helps!
How can you find out if the association filed an action to obtain past assessments owed? Will that show up on the title docs? Can you find out this info before seeing the title commitment? Thanks.
Hi Megan,
Often even if the condominium association filed suit to obtain past due assessments, it does not appear on the title commitment.
When your lawyer obtains the Section 22.1 Disclosure for you from the seller's condo association, however, past due assessments should be stated on there!
Who is responsible for paying the past-due assessments incurred from the moment the association instigates legal action up to the moment the Bank/mortgage lender takes ownership by foreclosing on the property? If it is not the new buyer of the foreclosed property, who is it?
Thanks for replying.
Marc
The new buyer is only responsible for up to six months of unpaid assessments. Unfortunately, if more than that accrues before the bank forecloses and takes over, associations often end up eating the loss. It is my understanding that before the six-month rule was instituted, associations were not entitled to any past due assessments at all.
Mr. Amdani,
If you represented a condo association against a delinquent owner and sent bills to the unit owner for your legal fees, who is responsible for paying your fees if the unit goes into foreclosure.
Typically, when I represent a condominium association, the condominium association is responsible for my legal fees. If the association chooses to collect the fees from an individual unit owner, that is up to them!
Hi Naheed,
I'm kind of on the other end of this situation and am wondering about the condo owners who foreclosure, and what the process is there. I'm in the process of filing for a deed-in-lieu, and while I'm planning to not pay my mortgage, I will certainly be paying my assessments while I'm still living in the condo. However, once I vacate, I would expect to stop payments to the association, since I would no longer be utilizing the services provided by the fees. From what I saw on your post here, it looks as though the association can come after me, but it doesn't appear they ever really get anywhere?? If the new owners have to end of paying for it (or at least 6 months of it) upon purchase down the line.
My main question is about the special assessment though. The special was started in May 2007, and runs in with our regular for 5 years. Clearly I've only been paying for about 2 years, with a little under the remaining 3 years to go. What happens to this remaining portion? Does it, too, get rolled into the (eventual) new owner's responsibility, or am I bound to pay at least that amount, going forward, regardless of whether or not I still reside there? Since regular assessments seem to be more for current expenses, and the special was for one-time fixes that have been done (I think) back in 2007... I don't know. I can see arguments both ways, but I don't know the LAW here. Please help!
Thanks,
Karen
Hi Karen,
Special assessments that are unpaid by unit owners when the unit is foreclosed usually end up being the responsibility of the bank who owns the property after the foreclosure is complete. Whether or not it gets passed on to the new owner of the unit depends on what the new owner and the bank negotiate prior to the new owner's closing. That doesn't mean, of course, that the condominium association won't go after you for the funds!
I am in the process of purchasing a condo that was foreclosed. I signed the contract and paid the $3,000.00 in earnest money. Just yesterday, I received a letter from the association stating that I would have to pay $6,000.00 in past due association fees, legal fees and damaged entry fees. In the contract is states that I am responsible for past due fees and I understand that I am liable now for 6 months of the past due fees. I did ask the association if there were any past due fees before I signed the contract and they told me they did not know. My question is since the contract was signed in early August and closing is later this month if I back out now am I entitled to receive my earnest money?
Khalid,
Whether or not you can get your earnest money back depends on the terms of your contract, the status of pending contingencies, etc. The attorney that is handling your closing should be able to review your contract and advise you if you can get your earnest money back or not.
Hi,
I vacated purchased a condo and never paid assessments, 2 years ago. To date no foreclosure no eviction. I filed bk 6 months ago. Still no action to take the unit. Are there any laws that will prevent the condo association from coming after me later for post bk fees? Seems like no one is trying to get paid on this condo. I filed bk but still may owe them?
Hi Karen,
Oftentimes when a condominium owner stops paying assessments, the association brings a forcible action against the owner, in essence to evict the owner and temporarily take over the property. I'm surprised your association has not done this, especially since you've already vacated the unit. With respect to whether or not the association can collect assessments from you, you should consult with your bankruptcy attorney!
Does this law apply to homeowners associations? We are not for profit association comprised of single-family homes.
thanks!
It is my understanding that only a small portion of the Illinois Condominium Property Act, (specifically, Sections 18.5(c) - 18.5(h) -- which sections have nothing to do with the six months' back assessments), apply to non-condominium community associations. As a homeowners' association, you are covered by the General Not-For-Profit Corporation Act, which does not make reference to back assessments either.
Hi Naheed,
What about the purchase of a condo that has not been foreclosed on, but the seller owes assessments? Who is responsible for paying the assesments owed then?
Thanks!
In that situation, the past due assessments have to be paid at or prior to closing. Typically the seller pays them from his proceeds at closing, unless the buyer and the seller contract otherwise.
We are in the process of filing bankruptcy. We have offered possession to our Condo association and in return they relieve us from any post-bankruptcy fees. The rejected our offer and are starting a demand for possession with an attorney. The builing is only three units. Our fear is that after we claim bankruptcy, they will issue a huge special assessment to recover there attorney fees and lost assessments. Is there any limits on special assessments they can levy?
I'm not sure if the association would need to issue a special assessment to claim back assessments and attorneys' fees from you. They may be able to claim those fees without any special assessment at all. On the other hand, because of the bankruptcy, they may not. However, since you are in the process of bankruptcy, you should consult your bankruptcy attorney for advice, as he or she will be more familiar with the situation.
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