Several changes in 2020 Illinois case law have impacted the management of condominium, homeowner (HOA), and townhome community associations. Below is an amended summary our law firm has compiled with implications of these legal updates.
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Shannon Court Condominium Ass’n v. Armada Express, Inc. (1st Dist.)
The Association filed an action in the Circuit Court against Owners of Unit 101 seeking possession of the Unit and money damages for failure to pay assessments. The Association successfully obtained a judgment against the Owners for both possession and monetary damages.
Subsequently, the Association took possession of the Unit and rented it out to recoup the amount owed. On December 12, 2018, a judgment of foreclosure and sale of Unit 101 was entered by the Circuit Court in favor of Lakeview Loan against the Owners and other defendants. On January 29, 2019 Armada (foreclosure buyer) purchased Unit 101 at a judicial sale. The order confirming the sale was entered on February 20, 2019 and a judicial sale deed was dated March 1, 2019.
On April 5, 2019, Armada rendered payment to the Association for assessments due for the months of February, March and April 2019. An additional payment of $59 was also made with a note that it was “in full payment of all amounts due pursuant to the Act.” This payment was the difference between the 6 months of assessments allegedly owed pursuant to Section 9(g)(4) of the Act and the amount the Association collected from renting out the Unit prior to the judgment of foreclosure. The Association claimed that this payment was insufficient and filed suit for possession of the Unit.
On appeal, the Association argued that (1) the underlying court failed to properly calculate the amount of attorney fees owed to the Association and (2) that the underlying court improperly concluded that the Association could not recover “repair costs” as part of the pre-foreclosure sale amounts being sought from Armada as the purchaser subject to a foreclosure sale.
The appellate court confirmed that when a non-mortgagee purchaser of a unit at a judicial sale complies with the provisions of section 9(g)(3) of the Act, a lien created pursuant to 9(g)(1) is extinguished. In that event, a condominium association’s only right to recover payment for pre-foreclosure expenses from a nonmortgage purchaser of a condominium unit at a foreclosure sale is pursuant to section 9(g)(4) of the Act.
The appellate court further confirmed that when calculating the common expenses due to the Association under section 9(g)(4), the amount must include attorney fees “incurred” by the Association – which is not synonymous with attorneys’ fees actually paid. Further, the court also noted that if the attorney’s fees were charged/incurred by the Association prior to the institution of the action for possession against a delinquent owner by the Association, even if paid after the institution of the action, the amount is still collectable from the foreclosure purchaser pursuant to Section 9(g)(4).
In addition, the Court rejected the Association’s claim to recover from Armada repair costs incurred by the Association after it took possession of the Unit. The court reasoned that the Association’s lien to recover these costs was extinguished by prompt payment of common expenses pursuant to Section (9)(g)(3).
Finally, the Court held that rental income earned by the Association prior to the judicial sale of the Unit must be applied consistent with Section 9-111.1 of the Code of Civil Procedure. Said section provides that the rents must be first applied to the assessments sued upon in its action against the original Unit Owners plus statutory interest and the attorney’s fees and court costs incurred by the Association in that action. The amount should not be limited to simply reducing the six months of common expenses referenced in Section 9(g)(4) of the Act.
21 Kristin Condominium Ass’n v. Pioneer Engineering & Environmental Services, LLC (1st Dist.)
The Association filed suit against an engineering company for providing a report that allegedly negligently misrepresented the condition of the building. As required under Section 22(e)(4) of the Condo Act, the developer provided the report to potential purchasers of the units in the building.
The cause of action that the Association is claiming is common law negligent misrepresentation. In response, the defendant engineering company argued, among other things, that it is not liable to the Association because the Second Restatement of Torts section 552 limits its liability on the basis that the report was only intended for the developer. The court found that this was not the case because the engineering company knew that the developer would provide the report to the prospective purchasers as was required under the Act and that any purchaser of a unit within the Association would rely on the report. In addition, the defendant also argued that the report cannot be a misrepresentation because it was simply an opinion. The court rejected this notion and stated that even if the report was intended to serve merely as an opinion, the Association justifiably relied upon it as if it was a statement of fact.
Finally, the engineering company attempted to apply the limitations of liability language contained in the report to absolve themselves of liability. The court, however, disagreed that the language absolved the engineering company of liability because the limitations of liability didn’t limit liability arising out of representations made about the physical state of the building.
The court reversed the dismissal by the lower court and found that the Association had alleged facts that could support a finding that the defendant misrepresented the condition of the building. Case was remanded for further proceedings in accordance with the opinion.
Matthew Thai and Tuyetha Dinh v. Triumvera 600 Naples Court Condominium Association, et. al. (1st Dist.)
Matthew Thai and Tuyetha Dinh were owners of a unit in the Triumvera 600 Naples Court Condominium Association. Mr. Thai and Ms. Dinh filed a six-count complaint against the Association alleging, among other things, violations of the Illinois Human Rights Act (the “Act”) for familial status discrimination, national origin discrimination and retaliation. Specifically, Mr. Thai and Ms. Dinh claimed that they had endured severe emotional distress and harassment from the association and its board members due to their Vietnamese national origin and familial status.
On appeal, Mr. Thai and Ms. Dinh claimed that the trial court had erroneously granted the association summary judgement on their retaliation claim. In reviewing Mr. Thai and Ms. Dinh’s claim, the 1st District court cited that beginning in January 2017, the board president, who was the owner of the unit directly below the plaintiffs’ unit, complained of considerable noise that was purportedly emanating from the plaintiffs’ unit. As a result, the Board president issued a “warning letter’ to the plaintiffs and threatened “legal action” if they did not address the excessive noise. In addition, the board came into possession of photographs showing that the plaintiffs had failed to keep their unit in good condition which prompted the association to send another letter, through counsel, demanding, among other things, that the unit be cleaned and inspected by the association.
Thereafter, in April 2017, the board approved three fines of $50 against the plaintiffs and prepared a written notice offering them an opportunity for a hearing before the board at the upcoming board meeting to address the fines. Notably, however, the court cited that it was unclear as to the manner in which this particular notice was delivered to the plaintiffs. Because it was uncertain whether plaintiffs actually received the notice, the board planned to “rewrite the letter” and “give [plaintiffs] another opportunity and do it by the book.”
Meanwhile, plaintiffs filed a charge with the Illinois Department of Human Rights (“IDHR”) alleging that the association and its board members discriminated against them based on their national origin and familial status. After the association became aware of the IDHR charge, the board president sent an email to his fellow board members stating that the association should be “moving forward with its lawyer” and that “time is of the essence.” Shortly thereafter, the association voted to initiate a chancery lawsuit against the plaintiffs seeking injunctive relief in the form of cleaning and installing adequate soundproofing material in the flooring of the unit as well as sought $150 in fines and attorney fees. While plaintiffs claimed that the chancery lawsuit was filed against them as retaliation for the IDHR complaint, the association claimed it initiated the chancery lawsuit to enforce the association’s governing documents and ensure the unit was kept in good repair.
Ultimately, the 1st District Court concluded that the underlying court impermissibly granted the association’s summary judgment on the plaintiffs’ retaliation claim and remanded the matter to the trial court for further consideration. In support of its holding, the 1st District Court cited that sufficient evidence existed in the record to show that the association’s stated reason for initiating the chancery lawsuit was a pretext and unworthy of credence. As a basis for its holding in that regard, the 1st District Court cited that (1) prior to learning of the IDHR charge, the board discussed providing plaintiffs with proper notice for their violation hearing and expressed a desire to resolve the dispute in a “neighborly” manner, but after learning of the IDHR charge, they immediately changed course and filed the chancery action without affording plaintiffs with a new notice for a hearing before the board; (2) the board president sent an email to his fellow board members demonstrating that he believed the IDHR charge put the board on the defensive and encouraged his fellow board members to take the offensive by initiating litigation against the plaintiffs and (3) defendants had failed to prosecute, in a timely manner, the chancery action against plaintiffs which the Court believed called into question the board’s desire to ensure the unit was in compliance with the governing documents. Finally, the Court also cited that the board president admitted in his deposition that one of the factors in filing the chancery lawsuit was the IDHR charge.
Kai v. Board of Directors Spring Hill Building 1 Condominium Ass’n (2nd Dist.)
Defendants consisted of, among others, the entity Spring Hill, LLC, which had purchased a number of units at the complex. As of October 2018, Spring Hill, LLC owned all of the units in buildings 2 and 3. It owned 75% of the units in buildings 4, 5 and 6 and a majority of the units in building 1.
Defendants effectively used their ownership position to push through a deconversion sale to defendant Mosaic Beverly FMC, LLC – which was an entity that the defendants making up Spring Hill, LLC also controlled. After certain “cursory” meetings at which certain buildings approved the sale to Mosaic Beverly FMC, LLC, the plaintiff Unit Owners filed suit for breach of fiduciary duty, fraud and civil conspiracy. In response, the Defendants argued the case should be dismissed as Plaintiffs’ sole remedy would be under Section 15 of the Act. Specifically, Defendants argued that because Section 15 of the Act includes a procedure to determine a fair price for units subject to forced bulk sales and does not explicitly mention fiduciary duties, a claim for breach of fiduciary duty cannot apply to bulk sales of condominiums.
On appeal, the Court held that (1) because Section 18.4 of the Act imposes a fiduciary duty upon Association board members and (2) because Section 15 does not explicitly abrogate common law duties on its face, the common law of fiduciary duty remains in full force and applies to the bulk sale of condominiums under Section 15. In response, Defendants noted that even if a fiduciary duty existed, their self-interested behavior cannot equal a breach of fiduciary duty. The court however, noted that the facts at issue evidenced “more than mere self-interested behavior” and that Plaintiffs had alleged the dual interests of the Defendant Board Members in both the majority unit owner Spring Hill, LLC and the buyer Mosaic Beverly FMC, LLC created a conflict of interest and led them to breach their fiduciary duties to other Unit Owners. The court noted that, if proven, these allegations could amount to a breach of fiduciary duty. Finally, the court noted that absent claims of self-dealing like those alleged in this matter, Section 15’s appraisal procedures would still remain the sole remedy available to unit owners.
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