Investor Prevails: Condo Deed in Lieu

Windy City Trial Group won two significant cases in March 2019, further paving the way for condo investors to take full advantage of Illinois condominium law. The law allows unpaid condominium association liens from prior owners to be extinguished after the investor accepts a deed in lieu of foreclosure. Denny Esford, Trial Counsel and President of Windy City Trial Group says “that while section 9(g)(3) of the Illinois Condominium Act has been on the books for some time, the interpretation of the statute was in limbo as appellate courts rejected attempts by certain condominium associations to keep old assessment liens alive (as to the new owner) when a prior condo owner gives up a mortgage and walks away from the condo.”

What Does Section 9(g)(3) Do?

Section 9(g)(3) of the Illinois Condominium Act says when a mortgage holder accepts a deed-in-lieu of foreclosure and begins paying the homeowner association fees due after the deed-in-lieu is accepted, any prior lien the association had against the property is extinguished as to the new owner. Cook County Chancery Judge Sophia Hall granted summary judgment to Windy City client Blackhall Corporation 401(k) PSP, saying section 9(g)(3) “… clears the slate so the new owner is not burdened with paying the assessment defaults of the prior owners.” The case number is 17-CH-7253.

In the second case, the condo association attempted to argue its lien remained alive as to the new owner because the lien was prior in time to the subject deed-in-lieu of foreclosure, or in the alternative, Section 15-1401 of the Illinois Mortgage Foreclosure Law made the deed-in-lieu subject to the association’s lien. Cook County Chancery Judge Neil Cohen granted summary judgment to Blackhall, finding the ‘prior in time’ argument to be “unsupported by any relevant [legal] authority and wholly without merit.” As to Section 15-1401, Judge Cohen found this to be a general statute that is trumped by a more specific Section (9)(g)(3) of the Illinois Condominium Act. To hold otherwise, said Cohen, “would violate every rule of statutory interpretation.” The case number is 15-CH-17426.

Improved Foreclosure Process for Condo Investors

Judge Hall noted “… the Association might still sue the prior owners for the amounts due.” But Esford says, “As a practical matter, if the prior owner is so financially underwater that there is a large past due assessment and voluntarily gives up the deed to their home, the odds of recovering past assessments from the prior owner is slim. So while efforts by condo associations to keep their liens alive against the new owner is understandable, the purpose of the Act is to put the past to rest and move forward as quickly and cost effectively as possible.”

Blackhall Trustee Mark Reynolds hopes these cases will clear the way for investors like Blackhall to acquire more condominium properties from owners and financial institutions faced with unprofitable liens and mortgages. Reynolds said, “the Illinois legislature recognized and provided a path for condo owners and financial institutions to extricate themselves from distressed condo properties while providing an incentive for investors to come in, make improvements, and then lease or sell the unit. It turns the property back into a profitable unit for the both investor and the association when the new owner begins paying assessments. That is a win for all involved.”