Judicial Sale Purchasers Could Have to Pay All Pre-Foreclosure Condo Assessments

Nine times out of ten, the foreclosing bank is the winning purchaser at a judicial sale and becomes the owner of foreclosed property following a court order approving such sale.  However, banks are not in the business of owning real estate, which can be very problematic in the context of a foreclosed condominium.  While Section 9(g)(3) of the Illinois Condominium Property Act (the “Act”) states that the judicial sale purchaser is responsible for the unit’s monthly assessments “after the first day of the month after the date of the judicial foreclosure sale”, many banks do not pay monthly assessments until the closing of the resale.  This process can take months, sometimes even years, which can of course have a negative impact on the financial health of the condominium association.

A recent Illinois First District Appellate case may end this common practice by giving judicial sale purchasers, including banks, a large incentive to pay assessments as quick as possible following the judicial sale.  In 1010 Lake Shore Ass'n v. Deutsche Bank Nat. Trust Co., a condominium association filed a forcible entry and detainer (eviction) lawsuit against the judicial sale purchaser bank.  The bank never paid the association anything after the judicial sale and the association filed its eviction complaint approximately two years after the sale.   The association sought both possession of the condominium unit and $62,530.81.  Over $40,000.00 of this amount represented assessments from the previously foreclosed owner, which the bank argued was extinguished by the foreclosure.  The association argued that pursuant to the Act, these previous assessments were not extinguished because of the bank’s failure to pay assessments post-foreclosure. 

The court looked closely at the first sentence (discussed above) and second sentence of Section 9(g)(3). The second sentence provides that [s]uch payment confirms the extinguishment of any lien created pursuant to Section 9(g)(1).[1]  In ruling in favor of the Association, the court focused its analysis on the word “confirm” and held that a “lien created under section 9(g)(1) for unpaid assessments by a previous owner is not fully extinguished following a judicial foreclosure and sale until the purchaser makes a payment for assessments incurred after the sale.”

Based upon this ruling, condominium associations may seek to recover pre- and post-foreclosure assessments from judicial sale purchasers, including banks, who do not pay anything to the condominium association after the judicial sale.  Given that the purchaser/defendant in the 1010 Lake Shore Ass’n paid nothing, even after it was sued by the association, makes for a pretty straightforward case.  However, an analysis of Section 9(g)(3) of the Act becomes murkier when a judicial sale purchaser eventually pays something to the association, but just not immediately.  For instance, would the Appellate Court have ruled differently if the defendant waited six months after the sale was approved before finally paying assessments? Or would the Appellate Court deem the pre-foreclosure lien extinguished if the bank timely paid assessments for the first month following the sale, but then withheld assessments thereafter? Given this uncertainly, foreclosing banks, or any judicial sale purchaser, should be highly motivated to timely pay all condominium assessments that accrue after the foreclosure sale. Otherwise, they will risk liability for amounts that would otherwise be extinguished by the foreclosure.

Please contact Rudolph Kaplan LLC for further questions regarding assessments owed for foreclosed condominium units.

This article was written by David L. Rudolph, Esq. and Benjamin M. Altshul, Esq.

[1] Section 9(g)(1) creates the lien in favor of the Association for the non-payment of assessments.

Photo by Jeff Turner.