If you (the buyer) refuse to pay back assessments on a REO Condo property, can the Condo association raise your monthly assessment to compensate?

Asked by Orif, Chicago, IL Sat Feb 6, 2010

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Paul Garver, Other Pro, Hinsdale, IL
Sat Feb 6, 2010

I am a real estate attorney here in the Chicago area, I need to give you a little background on a couple of things to answer your question, as there are a couple of different ways this could have gone:

1. Many, many REO Sellers try to pass on unpaid assessments to the Buyers at closing. The funny thing about this to me is that almost all the contracts state that the Seller will bring assessments current to the date of closing. This is because the law that allows the Selling Bank to pass on the past 6 months of dues (that others have referred to here) is an Illinois specific law, and the addendums to the typical real estate contract that the banks use are written on a national basis. I coach all of my REO buyers to be prepared at closing to make a stand and walk if the Seller to make these the obligation of the Buyer at closing, as it is a clear violation of the contract (realize this is in a situation where the contract states that the dues will be current as of closing). I have found that faced with that option, the Seller's attorney will go back to the bank, explain it to them, and generally we will end up closing a few days later. It is almost impossible to close on the same day, as this has to go through the hierarchy at the asset management office and the bank. As a side note to other posters who will read this - Yes we have tried to work this out prior to closing, sometimes it works, and sometimes it does not. I have actually had Seller's attorney's offices certify in attorney review that all the back assessments will be paid by the Seller, only to show up and closing and have charges on the Buyer's side.

2. In order to close, the Sellers should have had to procure from the association a Paid Assessment Letter, showing how much was due from the Seller to bring the account current as of the date of closing. This is given to the title company so that they can show to the lender who is lending the Buyer money that there are no liens or unpiad assessments on the propety. Often there are disagreements between the Seller Bank and the Association over the amount due. For example, the association may be charging the Seller Bank for unpaid dues from the owner prior to the foreclosure. The Seller Bank will argue that the foreclosure action will remove any responsiblilty on the Seller Bank for upaid assessments from prior to the foreclosure or at least that they are only legally obligated to pay for a certain number of months - usually 6 months prior to the foreclosure (and they are probably right).

So what could have happened? It is possible that the association agreed to drop the amount owed (even if the Seller Bank is not legally obligated to pay all the assessments - i have seen them agree to an amount to avoid having to litigate over it and take months and months to close). In this case a Paid Assessment Letter should have been issued at closing stating the amount that needs to be paid by the Seller to bring the account current, and there should be a matching disbursement from the Seller's side of the Settlement Statement matching that amount. It is possible that due to some oversight at the Association that amount was agreed to by someone, and then not updated in their system, so even with that payment it still shows a balance due. Getting a copy of that paid assessment letter, along with a copy of the Settlement Statement, and showing them to the association should rectify this problem.

It is also possible that the payment has not be received from closing as of yet, and therefore the association is still showing a balance.

In very rare cases when the Seller Bank and the association have not reached agreemeent on the amount due from the Seller, I have seen the Seller place the full amount that the association claims is owed into escrow. This would be reflected on the Settlement Statement as well. The intent would be that they then negotiate with the association over the amount to settle the debt after closing, and the title company still closes knowing that the amount is sitting in escrow to satisfy the debt should there be any problems. If this is the case, then someone needs to talk to the Sellers and the title company to get the money disbursed.

Hope that helps,

Paul Garver
Web Reference:  http://www.hg-legal.com
3 votes
Mike, , Illinois
Sat Jan 22, 2011
Black & White law in Illinois:

The cold hard facts is that Condo & Common Interest Assoc. are 99% of time commiting fraud and contempt of court when trying to collect these unpaid fees after a foreclosure.

1. Associations MUST file a lawsuit against the previous owner before the judicla sale of the property. MOST DO NOT
2. Association must be adjudicated this special superior right in the Foreclosure proceeding to overide the long standing of IMFL. I HAVE NOT SCENE 1 CASE PROPERLY DONE.
3. Associations are 99% subordinate to a 1st mortgage foreclosure and are ENTIRELY extinquished and barred of any CLAIMS they have on the property. THIS HAS BEEN THE LAW EVER SINCE 2007 and still is.
4. Title underwriters NEED to defend these frivolous claims.

YOU are not obligated to LAWFULLY pay 6 months of past assessments unless the association has properly satisfied the prerequisites of such law. 99% Never do. They are ORDERED in default and ORDERED entirely barred unless proper actions are taken. THEY ARE COMMITTING FRAUD AND CONTEMPT.
1 vote
Matt Laricy, Agent, Chicago, IL
Sat Feb 6, 2010
Your liable for 6months back taxes and assessments on foreclosed condo properties. I have never heard of anyone getting around this.

Matt Laricy
Americorp Real Estate
Brokers Associate, e-PRO
1 vote
Dp2, , Virginia
Wed Feb 17, 2010
Thanks again Paul. I learned something new (didn't know about Paid Assessment Letters).
0 votes
David, Home Buyer, Chicago, IL
Wed Feb 17, 2010
So let's say I am on the other end of this. I live in a 3 unit building and am the board president. The 1st floor duplex never sold and the developer never paid any assesments (and actually emptied the money that was in the accounts, ~$2,000). I was going to sue the developer on behalf of the association, however, in small claims court, corporations, which the association is, must be represented by legal counsel. All told the association is owed around $5,500. Unfortunately the developer recently died. I could go after the estate, but again, I need to retain counsel to do so. I don't know a lot of attornies that want to take on that small of a case.

The bank has taken back the property. I would like them to start paying the assesment for the 1st floor unit. I believe the asocation is also entitled to 6 months of back assesments. My question is this; should I contact the bank, request the prior 6 months and assesments going forward, or should I wait until a paid assesment letter is requested for the REO sale and state the amount I beleive to be owed by the developer. Might the second option result in a larger settlement than just the 6 months owed?

0 votes
Peter Geo, , Chicago, IL
Mon Feb 8, 2010
This is a legal matter between the Seller and the Buyer and has to be disclosed at closing. It has nothing to do with whether it's REO, Sold at Auction or regular real estate closing.

The condo association liens are primary liens so you have to pay them if there is such. If they are not recorded than you can try to fight back, the question is whether it's worth it.
Web Reference:  http://ilfls.com/
0 votes
, ,
Sat Feb 6, 2010

From a lending standpoint, the loan will not close unless SOMEONE pays them. Since the HOA can (and probably already has) put a lien on the property for the past due amount, this becomes a title issue.

However, I would imagine that if you want to pay this amount down over time, and have a binding legal agreement to do so, that this MIGHT be able to be arranged, if all parties sign off on it.

However, the way you phrased your question makes it sound like you're unwilling to pay them, and you're wondering if you'd suffer the repercussions of a higher monthly assessment as a result.

The answer is, the transaction won't close if the past due assessments aren't paid, sot his is a moot point.
0 votes
Philip Sencer, Agent, Chicago, IL
Sat Feb 6, 2010
If you bought at auction then yes, you are liable for them and past due taxes......you did not do your homework. If you bought and had a normal closing, all past due assessments should have been paid then. Talk to your attorney. The condo association can do anything they want and they can force all past due assessments to be paid at the next closing.....when you sell, so either way....you pay!
0 votes
Scott Godzyk, Agent, Manchester, NH
Sat Feb 6, 2010
If you purchased it at foreclosure auction , then you the buyer are responsible for any back assessments, taxes, liens etc... However If you purchased a bank owned home, not at auction, this should have been addressed at closing. The seller (the bankk) is resposnible for paying all fees that were owed before your closing including all liens. You will want to contct your buyer broker to assist you or go directly to the closing attorney/title company and ask them to fix this problem. Now if you did purchase at auction, then are liable, the HOA can lien your property, cut your services or foreclose on you. You will either have to pay it off in full or ask them if you can make payment arrangements by paying the back amount monthly.
Web Reference:  http://www.ScottSellsNH.com
0 votes
Keith Manson-…, , Milwaukee, WI
Sat Feb 6, 2010
You need to pay the condo dues. The question you should ask is why these outstanding due were not addressed at the closing. Was there a title report completed for the closing?

IF condo dues are not paid the common area maintence can not be done and if the common area is not maintaned values of the condos will suffer and can create a chain of other issues. I would pay the condo dues and circle back if it is collectable from someone else and/or get someone to represent you in this effort.

Good Luck

Keith Manson

First Weber Group
Certified Distressed Property Expert
Metro Milwaukee

0 votes
Mack McCoy, Agent, Seattle, WA
Sat Feb 6, 2010
In Washington State, it's lienable, and the HOA can foreclose on you if you don't come across with the dough.
0 votes
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