Q&A: Falling Behind on Payments

Q&A: Falling Behind on Payments

Q. Due to unforeseen circumstances, I am about three months behind in my association payments. I’m worried in today’s economic climate that the condominium will foreclose on my unit. My mortgage payments are up to date, and I called my lender who said no, they cannot foreclose. I wrote a letter to the board asking for a payment plan in July of this year but have received no response as of yet. I know I owe the money, but I was sick for a period of time. I am planning to pay the back fees with my taxes.

                        —Seeking Leniency

A. “Upon purchase of a condominium, each owner is contractually bound to pay monthly assessments; and unpaid assessments are deemed to be a lien on a unit,” says David Hartwell, a partner at the Chicago-based law firm of Penland & Hartwell, LLC. “Pursuant to the right and remedies accorded to an association, it may choose to foreclose on a unit for the purpose of collecting delinquent assessments.

“However, initiating a foreclosure proceeding is typically not advisable, especially in the current financial climate. In accordance with lien preferences, the mortgage holder’s lien is paramount to that of the association; therefore the unit would have to sell at foreclosure for more than the outstanding loan amount in order for an association to then be able to collect unpaid assessments. Due to the substantial decrease in unit values, it is unlikely that surplus funds would be available for an association to collect. Foreclosure actions are also often times more costly and take more time to finalize than a collection action pursuant to the Forcible Entry and Detainer Act. As such, the preferable method of collecting delinquent assessments would be through a collection action as opposed to a foreclosure.

“As challenging financial times persist, a growing number condominium owners are unable to timely pay their monthly assessments. This condition can be compounded by unanticipated life experiences such as illness or loss of employment. Unit owner requests for payment plans are frequent; however a board has no duty to consider or grant these unit owner requests. Pursuant to the Illinois Condominium Property Act (“Act”), a board shall not forbear from the collection of assessments nor shall it adopt a policy which treats owners differently. Allowing an owner to pay assessments pursuant to a payment plan, which contemplates payment of less than all of the assessments due and owing would be considered a form of forbearance and therefore is inconsistent, according to the Act. Furthermore, allowing some owners a break in their responsibility to fully pay each monthly assessment results in some owners being treated differently than others. Such plans are often considered by paying owners as unfair as it amounts to a free loan.

“Boards are also advised not to enter into payment plans for numerous additional reasons. By allowing an arrearage to grow, it is likely that satisfaction of the debt to the association will only become more difficult to pay. If a unit owner is struggling to pay his or her current financial obligation, allowing the debt to grow will only make full payment more difficult. Second, monitoring payment plans are difficult and only place undue strain on boards or property management. Third, since the decision of whether or not to allow a payment plan is subjective, boards can place themselves in a position of making inconsistent decisions which can lead to claims of discrimination.

“We would advise all boards to adopt a uniform collection policy which is consistent with Illinois law and consistent with their fiduciary obligation to timely collect all assessments. Adopting a collection policy is particularly useful to boards because it alleviates having to reject proposed payment plans on a subjective basis, which typically lessons the feelings of a unit owner that they are be treated unfairly. While board members are sensitive to an owner’s financial condition and typically do not take pleasure in taking adverse action against an owner, they nonetheless have an obligation to all of the owners to maintain a financially-stable association. If assessment debt is allowed to accrue, it will adversely affect all owners. Maintaining uniform assessment collection policies will always serve the best in nterests of an association.”

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