On December 3, 2015, the Illinois Supreme Court issued a ruling which affirmed 1010 Lake Shore Assoc. v. Deutsche Bank, the case which held that the purchaser at a judicial sale (mortgagee or 3rd party) must pay the post-sale assessments to confirm the extinguishment of the lien of a condo association or HOA for the amounts owed before the sale.

In the case, the trial court had entered a money judgment and order for possession against the bank after it had purchased a condo unit at a judicial sale but had failed to pay any assessments for almost 2 years; the money judgment included over $43,000 in pre-foreclosure sale common expenses. The Appellate Court affirmed the trial court's ruling because it found that the association's lien for the pre-sale amounts had not been extinguished after the foreclosure because the bank failed to pay the post-sale assessments. On appeal, the Illinois Supreme Court affirmed the ruling.

The Court relied on Section 9(g)(3) of the Condo Act and found that a foreclosure alone does not extinguish the lien of a condo association or HOA for the pre-sale amounts owed on a unit. Section 9(g)(3) requires an extra step: the purchaser must pay the post-foreclosure sale assessments. This payment must be made to confirm the extinguishment of the association's lien for the prior owner's unpaid common expenses. Without such payment, the association's lien remains.

What does this mean for your association? It means that the association may be able to collect the pre-sale past due amounts when a unit is sold in foreclosure. If the purchaser pays the assessments due after the judicial sale, the lien is extinguished. The association could still collect the 6 months pre-sale assessments due under Section 9(g)(4) but any additional amounts may need to be written off. It is not clear how quickly the payment needs to be made. As such, we recommend starting collection proceedings quickly if payment isn't remitted shortly after the foreclosure is completed. Please contact our team to discuss.

What does this mean for mortgagees? It means that it is vital that you immediately contact the condo association or HOA and pay the post-sale assessments. Only by remitting this payment can you confirm the extinguishment of the lien for the prior owner's unpaid common expenses. Failure to remit such payment means that you could be responsible for the pre-sale amounts owed. As such, we recommend that you contact the association soon after the sale, even before the sale has been approved by the court, and pay the post-sale assessments.

For both sides, we suggest taking this news with a grain of salt. Even with the Supreme Court's ruling, this matter remains murky. The Court did not address the timing issue (when does the payment need to be made; what happens if the bank remits payment months down the line; what happens if payment is made after the association has started collection proceedings) nor did it address other case law on this issue that seems to be contradictory. Further, although the Court did not consider the issue, the Court noted that the bank argued that the proper method of seeking to enforce the association's lien for pre-sale amounts would be a lien foreclosure rather than a forcible lawsuit. We believe that this matter will continue to evolve and we expect further litigation or amendments to the Mortgage Foreclosure Act or Condominium Act to further clarify this issue. Please contact KDAO to discuss how this case affects your legal interests.