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Treatment of delinquencies in Chicago condo associations

Treatment of Delinquent Owners in Chicago Condominium Associations

If your condominium association has unit owners that have become past-due in the payment of their monthly assessments the Board must decide how to proceed. As a board member it is your legal duty to protect the financial health of the condo association. While many board members find this uncomfortable, in some cases this means taking legal action against a delinquent unit owner. This involves using the courts to force repayment of the owner's unpaid assessments.

If no action is taken the eventual outcome is almost certainly that the other unit owners will need to pay for the owner's unpaid assessments. Many board members are misinformed and believing that some entity, a bank for example, will eventually come to the rescue and pay for the owner's unpaid assessments. This will not happen. If you take no action and do not collect the funds from the current unit owner, your Association will never recoup these funds.

Allowing condo owners to become severely delinquent without taking legal action is almost always a huge mistake. If the owner loses the unit to foreclosure and the Board has taken no legal action, the Association will lose 100% of the past due assessments.

Options for condo board members

We suggest that Condo Boards take action on any account that reaches 60 days past due. If an owner is past due in the payment of assessments (and/or special assessments) the Board has two options:

  1. Allow the owner with additional time to pay (Take no action) -  In situations with unique circumstances it may make sense to provide an owner with additional time to pay beyond the 60 day mark. Keep in mind, however, that the law requires the Board to be uniform in their governing of the Association. This means that any exceptions made for one unit owner must be extended to all owners. (Or you are an easy target for a discrimination suit) Emotion should be removed from the decision making process related to delinquencies. If an owner is 60 days past due the Board should take action, regardless of an owner's "personal matters" or hardships. In short, considering each owner's reason or excuse for being unable to pay their assessment should not occur.
  2. Hire an attorney to issue a 30-Day Demand letter to the delinquent owner - This is the initial phase of the legal collections process and in our opinion should be completed for all accounts reaching 60 days past-due. A 30-day Demand Letter advises the owner that if their past due balance is not paid in full within 30 days, the association may file a law suit to force payment. This legal notice must be drafted by an attorney so it should not be created by the Board. In our experience fees for the demand letter range from $150 - $225. All legal fees should be added to the delinquent owner's ledger so that the association can ultimately recoup these fees.

Payment Plans for delinquent condo owners

While there are legal payment plans that are submitted to the court and legally binding, this section is referring to non-legal payment plans. An example of a non-legal payment plan would be a delinquent unit owner signing a board-drafted document promising to pay the balance of his or her unpaid assessments over the next 12 months. Regardless of the language or terms used in this type of document, it is not legally enforceable. In our opinion payment plans of this type should be avoided.

The simple truth is that payment plans rarely produce results for the Association. The owner "promising" to pay rarely does. Once this occurs the Board has no option but to start at square one and hire an attorney to issue a 30-day Demand Letter. The payment plan means nothing since it cannot be enforced and does not bypass the requirement for the 30-Day Demand letter. In practice, payment plans simply buy the unit owner time.

If we think logically about a payment plan it is obvious why they don't work. In all situations you are dealing with an owner that has a proven track record of being unable or unwilling to pay his or her monthly assessment. Now you are asking the owner to not only start paying their normal monthly assessment, but also "add on" some portion of the past due balance to their monthly payment. What odds would you give the success of the plan?

Ultimately all unit owners are already on a payment plan; it is the monthly assessment schedule. Since any agreement drafted between the Board and delinquent unit owner cannot be legally enforced, a payment plan is a risky proposition for the Board. If the owner fails to adhere to the plan the Board has lost critical time within the period available to recoup these funds.

What happens after the 30-day Demand Letter?

If the owner pays the past due balance specified in the demand letter, within the 30 days provided, the matter is settled. Since the owner's balance would be settled there are no further actions available to the Board. If the owner becomes delinquent in the future the process would need to start over. (New 30-day demand letter)

If the owner's debt is not paid within the 30 day period outlined in the Demand Letter the board can file a law suit asking the courts to grant possession of the owner's unit to the association. In short, the Board would be asking to control the unit until the owner's balance has been paid in full. When temporary possession is granted by the court, the owner will be evicted from his/her unit and the association can rent the unit to pay down the owner's balance. Renting the unit is a mechanism available to recoup the owner's past-due funds, but the Board is not required to do so.

Should the unit already be rented to tenants the association can ask the court to force all rental payments to be paid directly to the association. All legal and management fees will be added to the owner's balance should this level of action be required. The cost of a possession case is roughly $1,500, but this can vary widely based upon the attorney, the owner's defense and the number of court appearances required. The duration of time before the Board is granted possession of the unit also varies. Assuming the case is successful, possession is typically achieved 6-10 months from the filing of the case.

There are of course many details related to a possession case which are outside of the scope of this document. If you have any related questions that you'd like answered please email us at blog@connectedmanagement.com. 

Meeting Minutes - An overview for board members