The struggling economy and the spike in mortgage foreclosures over the past five years have made collecting funds from unit owners a hot topic with our board members.
The process for “treating” a delinquent unit owner has historically been straight forward. Step number one is to issue a demand letter that provides the owner with a period of 30 days in order to pay the entire past due balance.
If the debt is not paid within the 30 days the association can proceed with step number two, which is filing suit against the owner. In this type of suit the association is typically asking the court for two things: a money judgment against the delinquent owner and temporary possession of the owner’s unit.
If possession is granted, the association will have control over the owner’s unit until the full amount of the money judgment is repaid. While not mandatory, the strategy is normally to rent the unit and recoup the debt through payments from the tenant(s).
Part of the reason that the collections process works consistently is that unit owners cannot avoid paying their assessments. If an owner does not pay their assessments, regardless of the reason, the association can proceed with these steps and recoup the money owed. From a legal perspective the courts do not allow unit owners to raise defenses against failing to pay assessments in possession cases. Any such defenses are not considered “germane” or relevant to the issue.
From a managers perspective this is good news and saves us from dealing with a long list of potential defenses ranging from the performance of the Board to budget disagreements.
In mid-2012 the Appellate Court of Illinois made a ruling that had the potential to rewrite the rules on collecting from a delinquent owner. In Spanish Court Two Condominium Association v. Carlson, 2012 IL App (2nd) 110473 (June 27, 2012), the appellate court ruled that owners may be able to state reasons for failing to pay assessments as a defense.
In this particular case the unit owner claimed that she did not owe assessments since the association failed to maintain and repair common elements of the property. The court agreed and determined that the board had a duty to maintain the common elements just as the unit owners have a duty to pay their assessments. If the association fails to provide the required repair services, the court reasoned, then the owner can use that failure as an affirmative defense to her lack of assessment payments.
The court used the relationship between a landlord and a tenant as a parallel to that of an association and owner in regards to the duty to provide services in exchange for income. This seems off-base considering that a unit owner is more akin to a co-landlord with partial ownership in the association. This is much different than a tenant paying rent to a landlord in exchange for a properly maintained residence.
The ruling was only “binding” in a handful of counties; luckily not Cook. The precedent that the ruling set, however, was dramatic. The ruling meant that unit owners could now begin using the repair status of their building as a reason for not paying assessments.
The practical problem is that the health of a property is subjective. Even among professional contractors there will be conflicting opinions on the location and scope of potential repairs. In fact, across the hundreds of associations that we currently manage, there isn’t a single property where a person could not point out a list of repairs that fall somewhere between needed and nice-to-haves. From tuck-pointing, cracked sidewalks, chipped paint to drafty windows, rest assured that every property has something that could arguably be repaired.
The eventual outcome of this type of change is seemingly that the courts will become the assessor of which repairs raised by a delinquent owner are “significant enough” to warrant the withholding of assessments. How that could reasonably be achieved without expanding the role of city building inspectors, or some other similar resource, is unclear.
Thankfully the association appealed the court’s decision and the appeal was accepted by the Illinois Supreme Court.
Just last week the Illinois Supreme Court rejected the appellate court’s previous ruling. The court noted a few interesting opinions:
· The importance of maintaining a quick method for associations to collect past due assessments.
· The potential negative impact on the association’s finances and the board’s ability to administer the association if owners are allowed use these types of defenses to avoid paying assessments.
· The court disagreed with the comparison of the landlord-tenant relationship
From our perspective this is a huge relief and a big win for all board members and associations. Since the Supreme Court passed this ruling, it covers all of Illinois.
Hello and welcome to our blog. I hope that the information being shared makes the lives of my fellow board members in Chicago a bit easier. Feel free to email me with any questions that you may have. It would be my pleasure to help!