Three years ago, the Illinois Supreme Court shook up foreclosure professionals when it affirmed the appellate court in 1010 Lakeshore Ass’n v. Deutsche Bank Nat’l Trust Co., 2015 IL 119372, 398 Ill. Dec. 95, 43 N.E.3d 1005 (“1010 Lakeshore”), to find that a homeowners’ association’s lien for past due assessments owed by the previous owner is not extinguished after a foreclosure sale if the new owner fails to pay foreclosure assessments accruing after foreclosure. The court reasoned that section 9(g)(3) of the Condominium Property Act (which requires a new owner to pay assessments “from and after the day of the month after the date of the judicial foreclosure” and provides that such payment confirms extinguishment of the lien), provided an incentive for “prompt payment” of post-foreclosure assessments.
Prior to the 1010 Lakeshore ruling, the conventional wisdom was that an association’s lien for past due assessments was extinguished by naming the association as a party in the foreclosure or by paying assessments accruing after foreclosure. Thus, as long as an association was named in a foreclosure action, the association’s lien was extinguished and the new owner was not responsible for unpaid pre-foreclosure assessments, regardless if the new owner failed to pay assessments accruing after foreclosure.
Following 1010 Lakeshore, associations latched onto the language in the opinion regarding the incentive for “prompt payment,” using it as leverage to hold new owners liable for the prior owner’s delinquent assessments if the new owner did not pay current assessments immediately after foreclosure. At times, associations even declined to provide statements invoicing the current assessments so as to delay the new owner’s payment and support a claim that the new owner was liable for pre-foreclosure assessments under 1010 Lakeshore.
Although 1010 Lakeshore offered associations more protections (by clarifying that payment of current assessments was required in addition to being named in a foreclosure action to extinguish a lien), the opinion was not as cut-and-dry as the associations made it out to be. In particular, 1010 Lakeshore left many questions unanswered. Most notably, 1010 Lakeshore did not designate a time period to pay post-foreclosure assessments, nor did it expressly hold that failure to make a “prompt payment” following foreclosure forfeited the new owner’s ability to extinguish an association’s lien by making payment at a later date. This led to uncertainty on whether a new owner could effectively extinguish an association’s lien under 1010 Lakeshore if it paid post-foreclosure assessments more than one month after foreclosure.
This put new owners in a difficult position: either pay the pre-foreclosure assessments or challenge the association’s interpretation of 1010 Lakeshore and incur legal fees that could surpass the amount of assessments sought.
As the industry sought clarity on this issue, the Illinois Appellate Court (Second Division) provided an answer in Country Club Estates Condominium Ass’n v. Bayview Loan Servicing LLC, 2017 IL App (1st) 162459, 84 N.E.3d 1140, holding that “prompt payment” was not a rigid term, but ideally payment should be made within the month following the foreclosure sale and the new owner’s payment of assessments seventh months after the sale was not prompt. But that clarity was muddled when the Illinois Appellate Court (Sixth Division) took the opposite view in Quadrangle House Condominium Ass’n v. United States Bank, N.A., 2018 IL App (1st) 171713, holding: (i) “payment of post-purchase assessments, whenever made, is the step necessary to confirm the extinguishment of any lien . . .” and (2) the new owner’s payment of assessments ten months after foreclosure extinguished the association’s lien. (emphasis added). Adding to the confusion, the Illinois Appellate Court (Second Division) recently declined to follow Quadrangle House Condominium Ass’n, holding in U.S. Bank, N.A. v. Quadrangle House Condominium Ass’n, 2018 IL App (1st) 171711 that “prompt payment” is required to extinguish an association’s lien. But the court ultimately found that that the new owner’s payment of assessments within two months following the foreclosure was prompt.
In short, there is a split of authority within the First District of the Illinois Appellate Court, with the Second Division taking the view that “prompt payment” of assessments is required to extinguish an association’s lien and the Sixth Division finding that payment of assessments at any time will extinguish an association’s lien. The Illinois Supreme Court has yet to speak to this issue, and it is possible that it could rule either way.
Given this looming confusion on whether “prompt payment” is truly required and what a court might determine is (or is not) sufficiently “prompt,” associations certainly will continue to take a hard-lined stance and demand that a new owner pay current assessments within the month following foreclosure to extinguish the association’s lien for pre-foreclosure assessments. Thus, unless and until the Illinois Supreme Court puts this issue to rest, the most prudent approach is to ensure that a purchaser remit payment for current assessments within the first month after foreclosure.
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