Condo Association Liens Can Step In Front of Second Mortgages

cai legal updates

Most condo associations know that there is a process through which they can receive up to six months of assessments plus legal fees and costs in the event they institute an action to collect assessments and the property goes through foreclosure.  What many of them do not know is that the condo association’s lien can have priority over a prior recorded second mortgage on a property for additional assessments if it follows the appropriate process.  In other words, if a foreclosure were to happen on the unit, the condo association would be entitled to obtain some recovery (if there is enough money) before the second mortgage is paid.  How does it do this?

Section 9(g)(2) of the Condominium Property Act provides the process to gain priority (who gets paid first).  Section 9(g)(2) states that a condominium association can send a notice to a bank with a second mortgage (or any non-first mortgage) on a property by certified or registered mail, return receipt requested.  If common expenses that come due in the 90 days immediately following the mailing of the notice are not paid, the Association’s lien for those common expenses are superior to the second mortgage.  The notice has to state the amounts and due dates of the unpaid assessments through the date of the notice.  The board can send notice as often as it would like to, but it would be best to send notice every 90 days.

There are two items that must also be true before a condo association can exercise these rights.  First, the association’s governing documents cannot state that a second mortgagee’s interest will always be superior to the association’s lien as long as it was recorded first.  Generally, a condo declaration will state that the association’s lien is subordinate to the first mortgage, but does not reference a second mortgage.  In such a case, the association can be entitled to priority in getting paid if it sends the appropriate notice.  Second, the mortgage has to list a mailing address in the State of Illinois for the sending of the notice.  If no Illinois address is listed for notice, then the association cannot use this procedure to gain priority.

How will an association know when this is an option?  When attorneys pursue collections on behalf of an association, we generally do a tract search.  The mortgages would come up on the tract search.  Additionally, where there is a foreclosure on a property and if there is a second mortgage, a bank’s name will be listed on the foreclosure complaint.

It is almost unheard of for an association to use this procedure to gain priority.  Contact your association attorney if you would like to start implementing these procedures.