Typically, when a buyer purchases a condominium unit all delinquent association dues are paid by the seller either before or at the time of closing. However, when the unit bought directly from a lender who obtained the unit through foreclosure, the buyer could be held responsible for some of the unpaid association dues that accrued prior to closing.
Basically, The Illinois Condominium Property Act (765 ILCS 605(g)(4)), provides for the buyer to pay delinquent assessments that became due during six months prior to any legal action being taken by the association for collection. By the same law, the lender owner is responsible for dues beginning after the first day of the month following the day they received possession of the unit.
The best interpretation of the statute provision is that the buyer is only responsible for assessments that became due prior to taking ownership of the unit if a law suit was filed in court by the association to recover the amounts owed by the former owner. In the event that the association never filed any collection case in court, none of the former owner’s liability should be charged to the new buyer.
Though this may sound straightforward enough, the statute isn’t always applied in the way that it should be. There are many instances in which the buyer is charged for the last six months dues prior to the bank taking ownership of the unit, whether any collection action was ever taken by the association or not.
Since the buyer of a foreclosed condo usually will not find out about the status of delinquent assessments until after the contract has been accepted, caution must be taken. The best defense against unknowingly getting stuck with somebody else’s bill is to make sure the sales contract is contingent upon the buyer’s approval of any delinquent dues that will be charged to the buyer. This may be achieved either when the offer is submitted or during the attorney review contingency period.
Since a sizeable and unexpected amount of past association dues could make what once was a great deal not so good, being proactive about this issue from the beginning is the answer.
Condominium associations have become more restrictive of unit rentals over the last several years and have been proposing leasing restrictions. A change in policy to prohibit or limit the number of condominium unit rentals in a complex must be weighed carefully by any board of directors.
After the real estate market crashed, many condominium owners decided to rent their unit if they needed to move and couldn’t sell. As a result, many associations began a review of their rental policy. One concern is that a condo complex with a high percentage of rentals won’t be as desirable to prospective buyers and would end up depreciating everyone’s units. Another concern is that a lot of rental units could impede the ability of unit owners or buyers to obtain mortgages for the units. Both of these concerns do have some merit.
High owner occupancy condominium complexes generally are perceived as being more stable and better maintained than buildings with a high percentage of rental units. Also, lenders have guidelines requiring a certain percentage of owner occupancy in order to lend money on units in the complex, although this has eased up over the last couple of years.
Disallowing condominium rentals altogether can have a big downside. There is always a possibility that if a condo owner cannot rent the unit, it will end up in foreclosure court. Multiple foreclosed units wreak more damage on the overall health of a condominium complex than the existence of some tenant occupied units.
A limit on the number of unit owners who may rent their unit at any given time might be the best scenario. The limitation should be based on a number of factors unique to each association, but the number of rentals allowed should always be somewhere less than fifty percent.
Any change in the condominium rental policy must be done by means of an amendment to the condominium declaration. The amendment must be voted on by a super majority of the unit owners and then recorded with the recorder of deeds. The board should make sure they have the votes to pass the amendment before they start the amendment process. Board members won’t be very popular when they spend the association’s funds to pay legal fees for a useless amendment.
That happens to be a popular question these days. The truth of the matter is hardly anything that may have a benefit comes totally risk free. Amazingly enough, however, foreclosed homes generally come with less baggage than you might think.
When a foreclosure action is commenced, every party that has a recorded interest in the property must be made a party defendant to the lawsuit. Say for example you have a recorded lien in the amount of $5,000 and the property goes into foreclosure. You will be served a summons and then have a chance to respond to the filed complaint. In general terms, the property will ultimately be sold at a public sale and one of two things will happen to your lien: The first scenario is you will be paid out of the sale funds if there is any excess beyond what the mortgage company is owed. The second scenario is when there will not be enough money out of the sale to pay your lien. Your interest will be legally extinguished without any payment being made to you. Considering most properties that go into foreclosure are underwater nowadays, this is the more common scenario. Either way, the title will be cleared of your lien and of no concern to a buyer.
Condominiums however can be a bit challenging when it comes to unpaid association dues. One can assume that if someone has stopped paying their mortgage they have also stopped paying their monthly assessments. Under Illinois law (765 ILCS 605/9), the mortgage company that receives title to a condominium unit through a foreclosure sale is responsible for condominium dues beginning after the first day of the month after the date of the public sale. That leaves some potential responsibility on the part of the buyer that purchases the unit from the mortgage company. Under the statute, the buyer may have the obligation of paying dues that were left unpaid by the former owner, and would have become due during the six months before legal action was taken by the association to collect the assessments. This could be a sizeable amount. The information is obtainable by the buyer in a couple of different documents that should be requested by the buyer’s attorney during the attorney review period as the contract may allow.
The other possible pitfall in the purchase of a foreclosed home has to do with the physical condition of the property. Essentially all mortgage companies selling their foreclosed properties, or REOS, have very stringent sales agreements that require total “As-Is” purchases. Therefore you will have no recourse for any defects or problems with the condition of the property whatsoever after the closing. This makes a professional home inspection more important than ever. Awhile back there was a real estate investor in the process of purchasing a foreclosure in Round Lake Beach. The water was not turned on at the time of the home inspection and the plumbing could not be checked. The inspection period was extended until the water could be turned on for another inspection. When the water was turned on, a geyser that would rival Old Faithful erupted in the basement. The buyer was happy to walk away with his earnest money.
Purchasing a foreclosed property can be a great deal but due diligence is a must.
Many people wonder if it is worth pursuing a short sale when a foreclosure on their ‘underwater’ home seems inevitable. For clarification’s sake, a short sale takes place when a mortgage company agrees to accept less than owed to pay off a mortgage through a sale of the property. A scenario in which a foreclosure would be more advantageous to the homeowner than a short sale is hard to imagine.
The potential benefits of a short sale are that your credit won’t take as big of a hit as it will with a foreclosure, and you have a much better chance of not getting stuck paying the deficiency at a later date. This is important because undoubtedly your mortgage has a deficiency judgment clause which states that the lender can get a judgment against you for the difference if they end up getting less for the property than the amount you owed.
These days, unlike during the early days of short sale, many deficiencies are actually waived by the lender during the short sale negotiation process. Many lenders are even giving relocation credits to the seller out of the short sale proceeds at closing. This means that the mortgage company will allow the homeowner to leave closing with a certain percentage of the sale proceeds to help cover their moving and relocation costs.
How does one qualify for a short sale? First of all, there must be a contract for sale of the property pending. The seller must contact the lender and get a short sale application along with a list of all the documents that the lender requires. The lender will consider several things in making their decision whether or not to authorize the short sale: They must be convinced that the seller is under hardship and if they don’t approve the short sale the property will end up in foreclosure. Also, they will only allow the short sale if they determine through their own research that the property is not being sold for less than it is actually worth. Ultimately the lender must conclude that they will come out better with the short sale than if they take the property back through a foreclosure sale.
Good advice to anyone contemplating a short sale is to act diligently. Put the property on the market as soon as you realize you can no longer make the payments, contact the lender as soon as the property goes under contract, and get all of the required documentation to the lender as soon as possible. This is important because at some point most of the benefits of the short sale can get lost. In the event that a foreclosure ends up getting filed anyway and there are a lot of missed mortgage payments in between, your credit will get beat up pretty bad even if the short sale ends up going through. An early decision to go forward with a short sale along with acting expeditiously should make a successful short sale more likely.