An Illinois bill awaiting the governor's signature or veto has deeply divided a constituency with a shared goal: getting new owners into foreclosed condominiums.
The two sides are papering Gov. Pat Quinn's office with pleas, positions and petitions. Accusations are flying in both directions.
The disputed legislation, Senate Bill 2664, affects the ability of condo associations to recoup unpaid assessments and collection costs resulting from mortgage foreclosures.
The Illinois Condominium Property Act allows associations, in case of a judicial foreclosure sale, to recoup up to six months of unpaid common expenses from the next owner of the unit.
These expenses may include special assessments, late fees, fines and attorney fees. Lenders are exempt from making this payment.
The bill would amend the condo act by capping an association's claim to nine months of regular assessments. Attorney and court costs can be recovered as long as the total doesn't exceed the cap.
The Illinois Association of Realtors, which supports the legislation, said the current law is an affordability barrier for buyers.
The extra costs, which can reach several thousand dollars, typically cannot be financed. Buyers often are stunned to discover at closing that they owe sizable sums.
"In today's credit market, most people have to come up with a lot more down payment than they used to, and it can be a struggle to put that together," said Greg St. Aubin, director of governmental affairs at the Springfield-based association.
The added costs also are unfair and excessive, he said.
"We think the way the current law is written has fostered an atmosphere that has allowed outrageous attorney fees to run up and for associations to throw in anything having to do with the prior owner just because they knew they could stick the buyer with it," he said.
Condo owners and their advocates have a much different view. Foreclosures already are a losing proposition, they said.
Association attorney David Hartwell of Penland & Hartwell LLC in Chicago explained: Associations have a fiduciary duty to collect assessments. When an owner is delinquent, even before foreclosure is looming, associations can initiate a lawsuit to gain temporary possession of the unit and rent it in hopes of satisfying the debt. Many units must first be made habitable to meet landlord-tenant ordinances and to attract tenants. If the unit winds up in foreclosure, these costs are recoverable under the current law, but would not be under the bill.
Foreclosures can take up to two years to complete while assessments generally are unpaid, Hartwell said. Hartwell also said the bill would apply only to condos, not town homes or other homeowner associations.
The bill, said Gene Fisher, executive director of the Diversey Harbor Lakeview Association in Chicago, would "raid the finances of condo associations by unjustly preventing their full recovery of foreclosure-generated costs. These costs will unavoidably be inflicted on each condo owner, for the associations' only recourse to replace the raided funds will be to raise assessments."
If assessments don't increase to make up foreclosure shortfalls, building maintenance and service, along with reserve funding, must decrease, said Beth Lloyd, a Schaumburg real estate broker and president of the Association of Condominium, Townhouse and Homeowner Associations.
"The only income associations have is from the individual unit owners — they don't get grants or tax revenues," she said. "Buyers will catch on that an association cannot properly maintain its property because it has to write off so much bad debt."
Foreclosure and collection debts are attached to the property and should be incorporated into the negotiated selling price, she said.
A couple of points agreed on by both sides: An occupied unit is better than a vacant one. And everyone involved should know upfront how much money is needed to close the deal.
The governor's decision is expected this summer.