In December 2015, the Illinois Supreme Court issued a ruling in 1010 Lake Shore case regarding post-foreclosure payments. The Court stated that when a bank or other purchaser fails to make payments following a foreclosure sale, the association’s lien for pre-foreclosure sale amounts is not extinguished. This meant that banks could be held responsible for the previous owner’s delinquent balance. The Court reasoned that the Condominium Property Act was written in a way to provide an incentive for purchasers to make prompt payments following a foreclosure.
Fast forward fifteen months, to March 31, 2017, when the First District Appellate Court issued an opinion in 5510 Sheridan Road Condominium Association v. U.S. Bank, 2017 IL App. (1st) 160279, which also interpreted the relevant section of the Condo Act. This opinion, which appears to contradict the Illinois Supreme Court’s interpretation of 9(g)(3) set forth in 1010 Lake Shore, does little except to muddy the water related to timely payments of common expenses following a foreclosure sale.
In that case, the condominium association pursued a forcible entry and detainer action against the mortgagee who purchased the property in the foreclosure. The association previously sent a demand to the purchaser seeking both pre- and post-foreclosure amounts, as the purchaser failed to pay all of the common expenses due after the sale. Shortly before the association filed its lawsuit, the bank made a partial payment, but did not pay the post-foreclosure common expenses (nor the outstanding account balance) in full. Nine months after suit had been filed, the bank made payment in full of the post-foreclosure common expenses.
The judge that presided over the case found in favor of the association, entering a money judgment for over $73,000.00 and granting it an order of possession. The bank appealed the order, arguing that it had properly extinguished the lien when it paid all post-foreclosure common expenses. The bank and the association agreed that payment in full of the post-foreclosure common expenses was not made until nine months after the forcible action was filed. The association appears to have argued that Section 9(g)(3) of the Condo Act created a firm deadline for the payment of assessments – the first day of the first month after the foreclosure sale. This is surprising, because the Illinois Supreme Court merely stated that 9(g)(3) provided an incentive for prompt payment of post-foreclosure assessments and did not state that they needed to be paid on the first day of the first month after the sale.
The First District of the Illinois Appellate Court disagreed with both the association and the judge’s order. It stated that Section 9(g)(3) does not set a strict deadline for when payment must be made and reasoned that the language “from and after the first day of the month after the date of the judicial foreclosure sale” merely explains the point from which the purchaser is responsible for ongoing assessments. The Appellate Court ruled in favor of the bank and entered judgment in its favor.
The Appellate Court’s opinion creates several issues that will need to be addressed. First, the Appellate Court reached a different conclusion than the Illinois Supreme Court did in 1010 Lake Shore, where it found a prompt payment requirement. Appellate Courts are not supposed to overrule the Illinois Supreme Court and cannot contradict its decisions unless the Supreme Court has signaled a change in its interpretation. If the wrong arguments were made to the Appellate Court or if the facts differed slightly, then it could be justified in arriving at a different result.
Another issue concerns attorneys’ fees and costs. In 5510 Sheridan, the association lost the entire case as the Appellate Court determined that the payment of post-foreclosure common expenses, even after suit has been filed, was sufficient to extinguish the lien. This meant that the association was not entitled to recover its attorneys’ fees and costs. This runs contrary to the Forcible Entry and Detainer Act which specifically requires attorneys’ fees and costs to be paid before a demand and, therefore, a case is invalidated. Unfortunately, this will have implications beyond foreclosures, since all owners could pay the common expenses and negate the association’s ability to collect legal expenses. This leaves associations in a precarious position, forcing them to reject all partial payments out of fear of losing its ability to recover attorneys’ fees and costs they expended to get delinquent owners to pay. Such a situation is untenable.
5510 Sheridan is a precedential opinion from the First District of the Illinois Court of Appeals. This means that it will be binding on Cook County trial courts. The other appellate districts can choose to follow the opinion or reject it. We are hopeful that the case will be appealed to the Supreme Court of Illinois where the issues could be resolved.