Speaking on Association collections at the recent CAI Illinois Chapter Conference was an enlightening experience. Discussing, with experienced property managers and earnest Board members, how the foreclosure crisis affects the collection of assessments, our eyes were opened to the extent most Associations are missing a great opportunity to collect. We found most Association Board members and managers cringe when the word foreclosure is uttered, struck with the fear that has grown out of the past 2-year recession. By the end of our presentation and roundtable discussion, however, these same fear-struck professionals left with enough excitement and adrenalin to race the banks to the delinquent units. We stamped out the foreclosure fear and here’s how.
Most recently, we’ve seen a change in delinquent owners who are also in the midst of foreclosure. They’re not abandoning their homes. Instead, they want to keep their kids in school, keep the consistency of a stable home, and ride out the foreclosure wave all the way to the end.
We’re recognizing two reasons for this change in attitude:
First, the Courts in all counties cannot handle the explosion of foreclosure cases and the delays in these matters are horrendous. Continuance dates fill up quickly, so a 3-week alias summons date has become a 6-week date. Once the judgment of foreclosure enters and the redemption expires, lenders were able to schedule the judicial sale with the sheriff’s office in a few weeks. Now, in Kane County for example, lenders cannot get a sale date for nine months! All in all, from complaint filing to the sale, where a foreclosure case used to take about a year, it now takes 2, 3, or 4 years. Savvy unit owners know this. They know that they can live for free without a mortgage payment for several years while living in their home and keeping their kids in school. No mortgage payments mean a little extra money in their pockets and, when threatened with a 60-day eviction date on an Association collection case, guess who gets the extra cash? That’s right. We’re seeing a lot of delinquent unit owners in the midst of a foreclosure, faced with an Association-prompted eviction, come up with money for the past due assessments.
Secondly, thanks to the Attorney General’s office, the loan modification craze has begun. Foreclosure isn’t the end of the line anymore. Even after a foreclosure has been filed, unit owners are renegotiating their loans and keeping their homes. What does this mean for Associations? Most obvious, the owner is more likely to remain the owner and remain obligated for the Association s assessments, so getting a judgment against him now is fruitful. Also, however, the modification process slows down the foreclosure action even further, giving the Association more time to pursue its own collection lawsuit.
Therefore, the time has passed for the antiquated idea that once a foreclosure is filed, the Association should cease all collection activity. Now is the time Associations should institute aggressive collection policies. Revise your rules and regulations to include a 10th of the month late fee at most and to allow turnover to the Association’s attorney at 45 days of delinquency (i.e., one full month with no payment and through the 10th of the second month with no payment). Once your Association has an aggressive collection policy in place, follow it!
Even with the delays in the foreclosures, Associations still need to race lenders to the property. If the Association proceeds quickly and aggressively in obtaining an order of possession and judgment against the delinquent unit owner, and the unit owner does decide to give up the property due to the pending foreclosure, the Association will have time to put a renter in the unit and recoup assessments before the lender can trek through the slow court process and the unit is finally sold at judicial sale.
There are additional reasons not to sleep on your rights and go after your delinquents aggressively. The next is that the result of an eviction lawsuit is not only an order of possession, but in most cases, a personal judgment against the defaulting unit owner. Personal judgments are collectible for 7 years, at which time they can be renewed for an additional 7 years. So the Association will have almost 15 years to try to collect on the personal judgment. Maybe in this economy, your delinquent unit owner lost his job and went into foreclosure, but 10 years from now, he may be Bill Gates! Keep records and schedule reminders, and make sure your attorneys do the same. Each year, or every 2 years, run a skip trace, Google his name, or check out Face Book! Find out where the unit owner is living, where he works, what he owns. Twelve years after that personal judgment enters, your Association could place a lien on the delinquent’s new house, garnish his wages, or freeze his bank accounts. Well worth getting that personal judgment and running a skip trace every two years, isn’t it?
Finally, Association Boards may have a fiduciary duty to initiate a collection action in order to secure 6 months of delinquent assessments under Section 9(g)(4). This recent Amendment to the Illinois Condominium Property Act requires the third party purchaser at a foreclosure sale, or purchaser from the bank, to pay the Association’s delinquent assessments which came due prior to the foreclosure sale for 6 months from the initiation of collection.
To put the legislature’s legalese into a practical example:
The Association has a delinquent unit owner who is also close to the end of a foreclosure. The Association acts on its aggressive collection policy and, at 45 days of delinquency, turns the file over to its attorneys, who in turn file suit. Eight months later, the unit is sold back to the lender at foreclosure sale, and the bank sits on it for a year. Finally, a third-party purchaser comes along to buy the unit from the bank. The Association’s paid assessment letter, before the closing, will include not only the assessments the bank failed to pay during its year of ownership, but 6 months of unpaid assessments from the prior foreclosed owner! It’s a fantastic tool to recoup an arrearage — secured only by the Association’s initiation of collection. If the Association fails to initiate collection against the delinquent unit owner, often because the Board is scared off by the foreclosure, then the Association has failed to secure its right to collect the 6 months of assessments.
So take our new approach to foreclosures — the filing of a foreclosure doesn’t mean it is too late to take action and that your Association should cease collection activity. To the contrary, it is time to plow forward, initiate collections, obtain an order of possession and judgment, and enforce your rights. With every challenge, comes opportunity — this is yours, Board Members take advantage.
Originally published in Common Interest magazine (Spring 2009).
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