Buying a Foreclose Condo? Caveat emptor!
There is no denying that it is still a great market for buyers of real estate. From short sale properties to foreclosures, there are amazing deals to be had. But if you have put in an offer on a foreclosed condominium property – beware. There is an Illinois statute that may affect your purchase and without the guidance of an attorney, you may be facing a much greater purchase price than you had anticipated.
In 2007, the Illinois legislature decided that condo associations needed some measure of relief from the losses sustained when unit owners defaulted on their assessments and mortgages. Many times these units are sold in foreclosure auctions, so the Illinois legislature enacted a law to effectuate some relief for the condo associations and the loss associated with unpaid assessments.
The Illinois Condominium Property Act now provides that the purchaser of a unit at a foreclosure sale or from a mortgage holder must pay the association at closing up to six months of unpaid assessments that accrued prior to the foreclosing lender taking title,if several conditions are met.
First, as currently written, the Act provides that the associations must institute “an action to enforce the collection of assessments.” This seems to require that the condominium association file a lawsuit to collect unpaid assessments to be entitled to this special relief. Second, the purchaser of the unit must be someone other than a mortgage holder; if a bank or other mortgage holder purchased the unit at a foreclosure sale, the special obligation to pay assessments shifts to the person who buys the unit from the mortgage holder. Third, the new owner is liable to pay past assessments only to the extent that the assessmentshave not been paid otherwise. Finally, a person who buys from a mortgage holder is liable for payment of pre-foreclosure assessments only if the condominium association’s paid assessment letter and §22.1 disclosures specified the amounts that must be paid.
There are lots of disputes, however, over the language of this statute. Does it entitle the association to legal fees in trying to collect the assessments? Does it entitle them to special assessments, if they existed? Most associations are aiming high in their paid assessment letters and requesting that the buyer of one of these foreclosed units pay the six months of accrued assessments, late fees, and legal fees the association incurred in trying to collect those accrued assessments. Often times, buyers do not find out the amount of these assessments until right before the Closing. You do not want to find out the day before a closing that there were six months of unpaid assessments, plus thousands of dollars in legal fees and late fees. Not to mention, sometimes there are “special assessments” that might have been due in addition to general assessments. Suddenly your great deal might not be so great after all.
Anytime you are preparing to purchase real estate, there are many questions and unforeseen situations that may arise. If you are looking to purchase one of these foreclosed units – talk to an attorney to make sure you are protected and have time to back out of the contract upon review of the association’s paid assessment letter.