By Katerina Tsoukalas-Heitkemper
In recent years, there has been a notable increase in foreclosure sales resulting in surplus funds due to rising property values. This trend presents opportunities and challenges for Illinois condominium and homeowners associations (HOAs) seeking to recover unpaid assessments and other charges.
What Are Surplus Funds?
Surplus funds are the excess proceeds from a foreclosure sale after satisfying the foreclosing lender’s claim. For example, if a property sells for $450,000 but the outstanding mortgage is $400,000, the $50,000 difference constitutes surplus funds. These funds are held by the court or trustee until distributed to eligible claimants, such as junior lienholders or the former homeowner.
Why Associations Must Participate in Foreclosure Proceedings
To recover unpaid assessments or other charges from surplus funds, Illinois associations must actively participate in foreclosure proceedings. This involves:
- Filing an answer to the foreclosure complaint, asserting their statutory lien for unpaid dues.
- Submitting affidavits to confirm the lien and outstanding balance before the foreclosure judgment is entered.
- Petitioning for surplus funds once notified of their existence.
Challenges and Procedures
Associations face competition from other junior lienholders, such as second mortgage holders or judgment creditors. Claims are prioritized based on lien hierarchy and timing. Associations must act promptly to file motions for surplus recovery, as delays may reduce their chances of payment if funds are insufficient to cover all claims.
In Cook County, additional steps may include amending foreclosure judgments to include association liens before petitioning for fund distribution. This process can be more straightforward in other Illinois counties.
Key Takeaways for Associations
- Monitor Foreclosures: Associations should track foreclosure cases involving their properties to identify potential surplus opportunities.
- Assert Liens Early: Filing claims early in the process helps secure priority over competing lienholders.
- Seek Legal Assistance: Given the complexity of surplus fund claims, experienced legal counsel can streamline recovery efforts.
By proactively engaging in foreclosure proceedings and adhering to legal requirements, Illinois condominium and homeowners’ associations can maximize their chances of recovering unpaid assessments from judicial sale surpluses.
Please feel free to contact Tressler’s HOA law attorneys if you have any questions or concerns.
About the Author
Kathy is a partner and Co-Chair of the HOA/Condominium & Common Interest Community Association Law practice. Her practice includes extensive experience and deep knowledge of all areas of civil litigation, collections, bankruptcy and foreclosures, including a deep knowledge of those laws pertaining to condominiums and common interest community associations. She has expertise in all aspects of residential and commercial real estate transactions (eviction actions; sales and purchases and litigation); drafting/revising/translating corporate documents; extensive knowledge of both creditor and bankruptcy proceedings; and legal representation of not-for-profit and for-profit corporations.