When a mortgagee anticipates that it will be taking title to a condominium unit through a judicial sale in Illinois, it needs to be aware of some common pitfalls created by the Illinois Condominium Property Act.  Some mortgagees prefer to take title through a subsidiary entity created by the mortgagee for that purpose.  However, the Illinois Condominium Property Act provides that if a mortgagee takes title in the name of another entity, that entity could potentially owe  some additional condominium assessments.

Section 9(g)(4) of the Illinois Condominium Property Act (765 ILCS 605/9(g)(4)), provides that “a purchaser of a condominium unit at a judicial foreclosure sale, other than a mortgagee, shall have the duty to pay the proportionate share, if any, of the common expenses for the unit which would have become due in the absence of any assessment acceleration during the 6 months immediately preceding institution of an action to enforce the collection of assessments, and which remain unpaid by the owner during whose possession the assessments accrued.” 

This means that if the original mortgagee plaintiff in the foreclosure action decides to designate another entity to take title at a judicial foreclosure sale of a condominium unit, that other entity may become liable for 6 months worth of assessments.  This would be in addition to the assessments that would be due from any purchaser at a judicial foreclosure sale (including, of course, a mortgagee or its designated entity) pursuant to Section 9(g)(3) of the Illinois Condominium Property Act, which commence to become due from the first day of the month following the judicial sale.

This potential problem may be avoided by way of a formal assignment of the mortgage being foreclosed, or by other legal methods.  Additionally, we would caution that the party attempting to collect the 6 months worth of assessments (typically the condominium association) should be required to demonstrate the “institution of an action to enforce the collection of assessments.”  There is some question as to what extent a condominium association must go in order to demonstrate the “institution of an action,” but we believe that it means “the filing of a lawsuit to collect assessments.”  Many foreclosing lenders beat the association to the punch by filing a foreclosure lawsuit before the association has filed a collection lawsuit, and once the foreclosure lawsuit is filed, it typically trumps any subsequent collection lawsuit filing.

So, before a mortgagee takes title to a condominium unit in the name of a different entity, some research should be done to determine whether an assignment of the mortgage is appropriate, and to discover whether the underlying condominium association actually filed a collection lawsuit prior to the foreclosure lawsuit being filed.

The information contained herein is not intended as legal advice which is applicable to specific situations and is based upon legal criteria which are subject to change.  Please contact Leo Aubel at (312) 346-1460 should you have any questions.