2539334956_87cef7e457_zIn the closing days of its January term, the Illinois Supreme Court agreed to decide an issue of considerable potential importance to the real estate bar – when does a foreclosure sale on a condominium unit extinguish the Association’s lien for assessments incurred before the sale closed?  In 1010 Lake Shore Association v. Deutsche Bank National Trust Company, the First District Appellate Court, Division 2 held that where the new owner fails to pay post-sale assessments, he or she can remain liable for pre-sale assessments.

The defendant in 1010 Lake Shore bought the condominium unit at issue in 2010.  Nearly two years later, the plaintiff filed suit, alleging that the defendant owed more than $62,000 in assessments.  The plaintiff filed a motion for summary judgment, alleging that because the defendant had failed to make any payments on assessments incurred after the sale, the lien against the property resulting from unpaid pre-sale assessments had not been extinguished, making the defendant liable for those amounts too.  The defendant responded that it could not be liable for any amounts incurred before the foreclosure sale, and that a genuine dispute existed as to the amounts owed for assessments incurred after the sale.  The trial court granted the plaintiff’s motion for summary judgment and awarded the plaintiff possession of the unit.  In a subsequent order, the trial court denied reconsideration and awarded plaintiff attorneys’ fees.

A divided Appellate Court affirmed.  The issue came down to construction of Section 9(g)(3) of the Condominium Property Act, according to the majority.  The statute provides that:

The purchaser of a condominium unit at a judicial foreclosure sale . . . shall have the duty to pay the unit’s proportionate share of the common expenses for the unit assessed from and after the first day of the month after the date of the judicial foreclosure sale . . . [s]uch payment confirms the extinguishment of any lien created pursuant to paragraph (1) . . . . of this subsection (g) by virtue of the failure or refusal of a prior unit owner to make payment of common expenses, where the judicial foreclosure sale has been confirmed by order of the court.  765 ILCS 605/9(g)(3).

The plaintiff argued that the statute was plain and unambiguous – the new owner only extinguished the lien arising from pre-sale assessments by keeping current with post-sale assessments.  The majority of the Appellate Court agreed.  If the new owner could never be held responsible for earlier assessments, the Court wrote, the second sentence of the statute was rendered superfluous.

The defendant argued that this conclusion was contrary to Section 15-1509(c) of the Mortgage Foreclosure Law, which provides that a purchaser in a foreclosure sale takes the property free of all claims arising from pre-sale events.  But according to the majority, the rule of statutory construction that a specific rule trumps a general one applied.  By that standard, the rule of the Condominium Property Act prevailed.  The court found it unnecessary to consult interpretive aids such as the legislative history on the grounds that the statutory language was plain and unambiguous.

The court also rejected the defendant’s claim that the plaintiff’s claim arising from pre-sale assessments amounted to a collateral attack on the foreclosure sale and was barred by res judicata.  The majority found that the defendant had waived the argument by failing to raise it in opposition to the plaintiff’s motion for summary judgment.

Justice Liu dissented.  He argued that Section 15-1509(c), providing that pre-foreclosure sale claims and liens were extinguished by the sale, governed the dispute.  According to Justice Liu, there was no conflict between Section 15-1509(c) and Section 9(g)(3) of the Condominium Property Act.  If a lien-holder was a party to the foreclosure action, its claim is extinguished by the sale.  If for any reason a lien-holder is not named, then the Condominium Property Act governs, and the earlier lien is extinguished only if the new owner pays post-sale assessments.

We expect 1010 Lake Shore to be decided in eight to twelve months.

Image courtesy of Flickr by Jeff Turner (no changes).