August 1, 2018

by Chris Iaria
Anselmo Lindberg & Associates, LLC
USFN Member (Illinois)

Like clockwork, almost every month brings a new Illinois appellate case addressing the issue of pre-foreclosure association liens. The good news? All of the cases continue to agree that such liens can be terminated via the foreclosure process. The bad news? Illinois courts (even within their own circuit panels) cannot agree on the specific actions required to terminate those liens, nor has any binding court articulated a set of rules to follow — forcing lenders and servicers to read the tea leaves and speculate as to the exact approach.

A Brief History
In 2015, the Illinois Supreme Court released an opinion that held that a condominium association’s liens for unpaid assessments were not automatically extinguished by the foreclosure process. See 1010 Lake Shore Ass’n v. Deutsche Bank National Trust Co., 2015 Ill. 118372. In countless foreclosure actions, this meant that years of pre-foreclosure assessments could suddenly spring back to life (i.e., zombie liens) if the servicers and lenders didn’t take appropriate steps to terminate those liens.

The Illinois Condominium Act requires the purchaser to make payments from the first day of the month following the judicial sale. The issue that stems from this obvious payment obligation is: when exactly do those aforementioned payments need to be made in order to extinguish pre-foreclosure liens? In Country Club Estate Condo Ass’n. v. Bayview Loan Servicing LLC, 2017 Ill. App. (1st Dist. 2d Div.) 162459 (Aug. 8, 2017), the appellate court held that the payment needed to be made “promptly” after judicial sale. Unfortunately, that decision failed to define the term “prompt” — but also added that “seven months” failed to meet the court’s interpretation of the term prompt. So, what is prompt? Six months or less? One was left to speculate and the lawyers were left to litigate.

Several months later, the court issued another opinion addressing “promptness.” In V&T Inv. Corp. v. W. Columbia Place Condo. Ass’n, 2018 Ill. App. Unpub. LEXIS 563, the court held that the highest bidder must begin making payments from the date of the judicial sale, and not the confirmation of sale; but that certain court delays and other factors can extend the time period for what is considered “prompt.” For example, if a judicial sale occurred on January 1 and the sale wasn’t confirmed until August 1, even though the time period was over 7 months, payment was still prompt if the mortgagee remitted payment in August, centered on a factor-based test.

2018
This year, the court released another opinion on terminating pre-foreclosure condominium assessments. In Quadrangle House Condo. Ass’n v. U.S. Bank, N.A., 2018 Ill. App. (1st Dist. 6th Div.) 171713 (Apr. 20, 2018), the court opined that the judicially created idea of “promptness” was foolish and that the actual Act contained no such requirement. This Quadrangle opinion eviscerated the rigid timing requirement. It was a major victory for lenders and servicers, and the industry was hopeful that it would stand as good law. Unfortunately, two months later a second Quadrangle decision was issued. The facts in the two cases were virtually identical, but a separate panel within the First Judicial District determined that their ambiguous “promptness” rule should have been followed in determining whether the lender made post-foreclosure payments in a timely manner. See U.S. Bank, N.A. v. Quadrangle House Condo. Ass’n, 2018 Ill. App. (1st Dist. 2d Div.) 171711 (June 26, 2018).

Closing Words (For Now)
In Illinois, a bid at a judicial sale is an irrevocable offer to purchase, but the judge ultimately gets to confirm or deny the sale. On its face, it may appear that this matter is as simple as paying immediately following the judicial sale. Oftentimes, however, events outside of a servicer’s control can elongate the period of time from judicial sale to confirmation, and servicers are rightfully reluctant to make payments before confirmation. Examples of common delays include loss mitigation, contested foreclosures, bankruptcy, and — increasingly frequent — an association’s refusal to provide the servicer with the proper payment information (arguing that the servicer is not an owner and, thus, is not entitled to the account information).

Again, it should be noted that all four of the aforementioned appellate court decisions were issued from the First District Appellate Court. With that in mind, it seems probable that the Illinois Supreme Court will have to get involved to clarify. For now, though, there is a substantial risk that the law will continue to change as different interpretations keep unfolding.

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