If you look at an MLS listing for a foreclosed condo (and by this I mean bank owned) in Illinois it will often say “Public act 94-1049 may apply”. Usually this statement is in the description that the public can see but sometimes it’s in the agent remarks, which may only be visible to real estate agents. So what the heck does that statement mean? It’s not exactly the most helpful statement, is it?
Public Act 94-1049 was an amendment to the Illinois Condominium Property Act that appears to have gone into effect on January 1, 2007 just as foreclosures were starting to peak. It basically holds the buyers of foreclosed condos responsible for paying up to 6 months of past due condominium assessments and all the legal fees associated with the association’s attempts to collect those assessments. This law applies whether the buyer is buying the condo at a judicial sale or from the original lender after foreclosure is completed. The original lender on the property, who conducted the foreclosure, is specifically exempt from paying these charges so the liability is basically passed down to the new buyer in that case.
As long as the buyer knows what this law is all about and properly takes it into account in their offer there should be no harm done. The trick is to find out what these charges total before you make an offer. What often happens though is that the buyer has no clue about these charges until later in the process and then they either suck it up or the deal falls apart. If you want to know how a buyer gracefully gets out of such a dilemma I suggest you talk to an attorney but a lot is going to depend upon when in the sales process this issue comes up. As long as it surfaces during attorney review (it should) then the buyer should be able to exit with earnest money intact if the charges can’t be negotiated away. Of course, if the buyer is getting the condo in a judicial sale it might be a bit harder to get out of the deal. I don’t even know if that’s possible.
Clearly this law was intended to help the banks but in the rational world that I often pretend to live in the banks should end up de facto paying these charges anyway in the form of lower selling prices. If it’s a short sale (before foreclosure actually takes place) the bank ends up paying off the association anyway from the proceeds of the sale. It should be a totally symmetrical situation.
The state legislature apparently is concerned about this law – perhaps the fact that there is no limit on the legal fees that can be charged to the new buyer – so there is a bill kicking around Springfield (SB2664) that limits the total charges to 9 months of assessments. This bill also is much clearer in the way that it explicitly addresses the legal fees. The only problem is that a 9 month limit actually increases the total liability in those cases where there are minimal legal fees.
I had a brief conversation about SB2664 with Marc Cervantes at Cervantes & Cioffi, a real estate attorney that I often work with. He said that the legislature has been working on various proposals to clean up this legal issue for years and he’s not exactly optimistic that anything is going to be done about it any time soon.
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