To the benefit of Associations who are hit hard by the foreclosure crisis, the First District Appellate Court recently held that third-party purchasers cannot circumvent payment up to six months of the prior owner’s assessments if the lender uses a subsidiary to purchase the property at the foreclosure sale.

In Wing Street of Arlington Heights Condominium Association v Kiss the Chef Holdings, LLC, the Appellate Court held that a wholly-owned subsidiary of the mortgagee (lender) still constitutes the mortgagee for purposes of applying Section 9(g)(4) of the Illinois Condominium Property Act to collect six months of assessments from the third-party purchaser.

In Wing Street, the Association filed suit against the prior owner, Realworks, LLC, for unpaid assessments. Realworks was eventually foreclosed upon by its lender, Village Bank & Trust. When the property went to judicial sale, it was purchased by VBT Wing Street Condo, LLC (“VBT”), a wholly-owned subsidiary of the lender/mortgagee. Kiss the Chef Holdings, LLC (“Kiss the Chef”) then purchased the unit from VBT.

The Association demanded payment of six months of the prior owner’s unpaid assessments from Kiss the Chef under Section 9(g)(4), asserting that Kiss the Chef was the third-party purchaser of the property from the mortgagee. Kiss the Chef contended, to the contrary, that VBT was actually the third-party purchaser since VBT had purchased the property as a separate corporate entity from the mortgagee, Village Bank & Trust. The trial court sided in favor of Kiss the Chef, denying the Association a judgment for the six months of assessments under Section 9(g)(4). The Association appealed that judgment.

The Appellate Court just issued its opinion, reversing the trial court’s ruling and finding in favor of the Association. Of particular importance, the Appellate Court specifically held that if a wholly-owned subsidiary of the mortgagee purchases a foreclosed condominium at a judicial sale, that subsidiary still constitutes the mortgagee for purposes of applying Section 9(g)(4) to the subsequent, third-party purchaser. As cited by the Association, the Appellate Court relied on the definition of “mortgagee” under the Mortgage Foreclosure Act, which includes any person designated or authorized to act on behalf of the lender and any successor of the lender.

Given the number of agents and mortgage servicing companies who represent banks in foreclosure cases these days, this appellate decision clarifies the Association’s right to treat those entities as mortgagees and clearly identifies the third-party purchaser for purposes of collecting the six months of the prior owner’s assessments under Section 9(g)(4).

This case was handled for the Association by Kovitz Shifrin Nesbit. With over thirty years of experience, we look forward to demonstrating how we can work for you. Please do not hesitate to contact our law firm at 855-537-0550 or visit www.ksnlaw.com.