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Robert M. Prince

Robert M. Prince

Cervantes Chatt & Prince

Covenants, Conditions and Restrictions (CC&Rs)

February 16, 2018

How are the elements of a community defined? What establishes the components of the common areas versus homeowner-owned areas? Where is it written that certain elements are the responsibility of the homeowner and that others are the responsibility of the association? These issues and others are established in an association’s Covenants, Conditions and Restrictions (CC&Rs). Attorney Robert Prince, of Cervantes Chatt & Prince P.C. in Illinois spoke with us at length and explained the nuances of CC&Rs, as well as many other im- portant common interest community topics. In Illinois, as well as in some other states, statutes are different for condominiums versus homeowners associations. That is something to keep in mind for nearly all aspects of association governance and living.

Prince said, “In Illinois, condominium CC&Rs are generally entitled the ‘Declaration of Condominium Ownership’. Non-condominiums are generally referred to as a ‘Declaration of Covenants’. In either case, the bylaws are generally either built into the Declaration or attached to it and are generally included when speaking about CC&Rs. The CC&Rs create the association and include provisions about how the property in the Association may be used and will be operated. The CCRs are generally very broad and cover a wide-range of issues, including obtaining insurance, paying assessments, voting rights, leasing and enforcement.”

How are the CC&Rs recorded? Prince started off by saying that, “The CCRs are recorded with the county recorder of deeds against the property intended to be bound. The developer records the first version of the CCRs generally in preparation for the first sale of a home within the association. Often, the developer will not record the original CCRs against all of the property that is intended to be in the association at one time. Instead, the developer will record supplements to the declaration that brings property in when it is done being developed. Once the CCRs is recorded they can only be amended in compliance with their own terms and the law.”

“You have to look at the CCRs to determine how they can be amended. Generally, it takes a super majority (two-thirds or three-fourths) of the owners to approve a substantive amendment to the documents. For condominiums, the percentage cannot exceed three-fourths of the owners. Moreover, condominium owners usually have to vote on amendments based on their percentage of ownership interest, a percentage that is used to determine a condominium owner’s assessment and voting rights. For non-condomin- ium there is no law that dictates what percentage is necessary to approve an amendment.

Yes, the CCRs can amended by two-thirds of the Board to fix errors and omissions in the documents. Prince said that this happens often and usually occurs when there are changes in the law pertaining to associations. The CCRs can only be amended this way to the extent necessary to fix the errors and omissions and cannot be used to make substantive changes.

Prince stated that mortgagee approval is only necessary if the CCRs require approval. A recent change to the Condominium Property Act and the Common Interest Community Association Act provides that a mortgagee will generally be deemed to consent to an amendment if it fails to approval within 60 days after the association mails the amendment and request to it by certified mail.

Certain topics are very detailed in most CCRs while others could be barely addressed. The process of adopting assessments, carrying insurance and the members’ easement rights are usually very detailed. Use restrictions, those that dictate how the owners and occupants can use the prop- erty within the association, are often very general with the detail being provided in the rules and regulations.

Covenants, conditions and restrictions are terms of art that are used for the type of provision at issue. A covenant is a promise. A condition is how something will be executed. A restriction is a limitation on the use of property.

The CCRs are the legal backbone for how the property within the Association will be used. The provisions of the CCRs are meant to be more constant (they are difficult to change) while the rules and regulations are meant to more easily change with the times. Where the CCRs are general in nature, rules and regulations are generally more specific and detailed. The rules and regulations need some link to the CCRs and can- not contradict them.

For condominiums, the areas owned in common are called the common elements. The common elements are defined in the CCRs and are depicted on the plat that is recorded along with it. For non-condos, the common property is called common areas. The common areas are generally specifically listed as being common areas in an exhibit to the CCRs which generally corresponds with the plat re- corded for the property.

Courts interpret the governing documents based on the language that is used. Vague language can provide more breadth and flexibility. However, a court may be less likely to allow an association to enforce a vague provision if there are other ways to interpret that provision. As the governing documents become more specific, owners are on better notice of the requirements. However, if the documents are too specific, the provisions could be read narrowly by a court, leaving gaps in the provision.

Owners can always challenge the governing documents even decades after a provision was adopted. A board has to show that a rules and regulation addresses an issue that is antagonistic to a purpose of the association and must be reasonable in its application. to be enforceable. In contrast, a provision in the CCRs are presumed valid unless they are wholly arbitrary, violate a constitutional right or are against public policy. Interestingly, the burden is on the asso- ciation to show that a rule is legitimate and enforceable while the burden is on the challenger to show that a provision in the CCRs is invalid. As part of enforcing either document, the board will have to show strict com- pliance with the association’s processes and procedures.

The Fair Housing Act is a federal law that protects individuals who are in protected classifications from discrimination. There is a parallel statue in Illinois called the Illinois Human Rights Act. Every association in Illinois is bound by both laws, prohibiting them from discriminating against people on the basis of race, color, religion, national origin, sex, disability (handicap), and familial status. Most often, we see fair housing issues come up when owners are seeking reasonable accom- modations for disabilities. Particularly, the issue arises when a person seeks an emotional support animal in a building where pets are prohibited. The Fair Housing Act and the Illinois Human Rights Act contain both government and private rights of action. This means that the government could sue the association or leave it to the aggrieved party to do so. The potential damages are vast and, if the owner prevails, she could be en- titled to her attorneys’ fees. Since these issues are quite sensitive and ripe with pitfalls, we recommend associations seek legal counsel anytime a fair housing issue comes up.

This depends, in large part, on the governing documents. If the governing documents authorize a rules or violations committee the board may create one to assist in its enforcement efforts. A majority of the committee’s members must be board members. If any of this is not present, the association does not have a committee. Instead, it has a commission which is an advisory body that can take no action on behalf of the association. In the event there is a properly constituted committee, it can issue fines. The ability to appeal the decision to the board is based on whether the CCRs or rules and regulations provide for such an appeal. Prince believes that an appeal provides additional due process, which is upon favorably by a court.

Fines are generally spelled out in the association’s enforcement policy, which is part of its rules and regulations. In some policies there are specific fines for certain types of violations. Other policies use escalators, increasing the fine for each subsequent violation. Additional policies, will include a broad range that the board can use in levying a fine. The board must be reasonable and consistent in doing so; like situations should have like fines. To do otherwise, brings with it risks of selective enforcement and discrimination.

Prince said, “Associations are prohibited from using fines to punish owners. They are also prohibited from using fines as a revenue generating measure. Fines are supposed to represent the harm caused to the association by the violative behavior.”

Board actions are supposed to occur at open meetings or portions of meetings open to the members. If an owner is unable to attend a meeting, he or she can request meeting minutes, but those re generally only made available after they have been approved at the next meeting. Board can publish draft minutes or distribute a list of actions in its newsletter or on its website. By and large boards try to provide as much information as possible while protect- ing individuals privacy rights and the interests of the association, provid- ing transparency. However, boards have to make sure that their efforts to be transparent do not negatively impact the association.

All board de- cisions have to be made at an open meeting. However, there are some topics that a board is allowed (but not required) to discuss and consider in a closed meeting out of the purview of the membership. The Condominium Property Act and the Common Interest Community Association Act list several categories of items that can be considered in a closed session, including to discuss actual or potential litigation, to consider the hiring and firing employees and engagement of contractors, to interview employees and contractors, to discuss violations, to discuss collections and to consult with the association’s legal counsel. Most of these topics involve personal privacy concerns.

The law does not state how an association is supposed to notify the members of a new rule being adopted. Commonly, a board will send out a signed resolution to the members after its adoption. If it does not do so, it is susceptible to being challenged by the members due to lack of notice. A condominium board has to send a notice of meeting for a members meeting to discuss a proposed rule along with the proposed rule 10 to 30 days before it can adopt a rule at its next board meeting. The Common Interest Community Association Act does not contain a corollary provi- sion. Thus, common interest community associations often adopt rules on little to no notice, as long as it complies with the notice requirements under its governing documents.

Illinois law does not address this issue. Typically, new rules become effective when they are adopted. In some cases, the board will give an effective date to the rules when they are distributed to the owners.

If a board fails to enforce the association’s rules and regulations the association can be sued. Generally, the individual board members will be sued for breach of fiduciary duty as well. Additionally, while the governing documents will generally include a provision which states that the failure to enforce in one instance does not waive enforcement in other instances, courts are less likely to allow an association to enforce a rule that has not been enforced historically without some notification to the members that the association will begin enforcing it anew. If a board does not intend to enforce a rule, it should remove the rule to avoid any issues

ADR is an alternative to filing and fighting lawsuits. It is meant to be a cost effective method of resolving disputes between the parties. A lot of disputes are handled through the American Arbitration Association rule. However, other methodologies can be used as well. Where mediation tries to get both sides to agree to a settlement, in an arbitration the neutral third-party looks at all the facts and decides who wins the case. If a party is dissatisfied with the arbitration award (the ruling) they can only reject the award and litigate the case if there is a showing of impropriety during the arbitration process

Choosing who will act as the arbitrator or mediator for ADR is an ordeal unto itself. Often the arbitration provision will state exactly how the arbitrator or arbitration panel will be put together. Selecting the arbiter or the panel is the subject of negotiation amongst the parties. For mediation, the parties have to actually agree to submit to the process with either party being able to walk away at any time.

The costs of ADR are generally split evenly by the parties. However, the agreement between the parties can state specifically who pays what.

Yes, as long as the provisions are not against public policy a restriction in the CCRs can limit the transfer of property. Most often, we see CCRs that include a right of first refusal, which allows the association to stand in the shoes of a would be purchaser. Boards likely cannot limit how an owner can alienate (sell or transfer his or her property) in a rule and regulation.

The CCRs can contain a wide array of architectural controls detailing specifically how a home can and cannot be built and what can be added to the property. There is no ‘one size fits all’ approach to architectural controls. What works for one association may be completely unreasonable in another.

 Boards have the ability to require renovations to protect the life and safety of the residents as well as the property within the association. It cannot use its authority arbitrarily, but it can act in the best interest of the association to limit harm. It can also require that contractors meet certain reasonable standards, such as being properly licensed and carrying the appropriate types of insurance.

This is also dealt with on a case by case basis. The CCRs usually do not address a specific time period to be a temporary structure. This can be addressed in the association’s rules. If a playset is fastened to the ground or dug in, it is more likely to be permanent than temporary. A plastic playset that is put out on the lawn and can be removed on a moment’s notice may not even be a temporary structure for the purposes of the CCRs.

Several years ago the General Assembly approved the Solar Rights Act. It has since been renamed the Homeowner Energy Policy Statement Act. It prohibits an association from completely banning solar energy systems. Instead, the board can adopt restrictions on where the system can be placed and how they can be installed. However, the rules cannot, in their application, prohibit the installation of a system. A board has a firm deadline after receiving its first request to adopt a policy and record it with the declaration. It also has a firm deadline to approve any request.

Prince said “You can only grant variances to the rules if there is flexibility in the rules themselves. Boards should be as reasonable as possible when dealing with hardship requests. However, if a board does not enforce the association’s rules other owners could assert claims for breach of fiduciary duty.

An encroachment occurs when someone builds something on the common elements or the common areas. Generally, encroachments occur when an owners adds an improvement to the property. Often, the declaration will contain a provision waiving encroachments caused by the developer’s construction of the association. If the encroachment is a developer installed encroachment, there is generally nothing to do. If the encroachment occurred because of an owner’s construction on the property, the board has a duty to other owners to have the encroachment removed as it limits other’s use of the common elements and areas. It should send a letter to the owner to seeking the removal of the encroachment. If that does not work, it likely will need to litigate the issue.

Association liability for insufficient lighting and other hazards caused by its policies and requirements is generally limited to instances where it knows of a dangerous condition and fails to take action to alleviate it. If a person trips and falls, in part, because of insufficient lighting, the association will likely be sued by the injured person.

A recent Illinois Supreme Court case stated that an association has inherent authority to adopt rules and regulations and enforce them regarding the common elements and common areas. The court specifically permitted an association to issue speeding tickets if it has adopted rules on the topic. However, if an association has a speeding restriction, it will have a duty to enforce that restriction. Its failure to do so can lead to liability.

The Supreme Court of Illinois has made it clear that the association does not have authority to issue citations to third parties who do not own or reside in the association. Instead, associations can fine the owners of the unit who the visitors were going to see.

Associations are able to completely ban owners from putting displays on the common areas and common elements. When it comes to owner displays on their own lots, associations need to be reasonable and not promote or hinder any specific religious holiday. For example, having a restriction that only addresses Christmas lights may be discriminatory as there is no like provisions for other non-Christian holidays. Often, we see well-crafted provisions that require all holiday decorations to be removed within 30 days after the holiday.

Owners have the right to exercise their rights to freedom of speech, which would include the right to advocate for the candidates and issues of their choosing. Associations are able to adopt restrictions on the time, place and manner in which political signs can be displayed. However, it cannot regulate the content of the political signs. Reasonableness is the key to the time, place and manner restrictions.

Collection of Delinquent Dues

February 15, 2018

Delinquent homeowner dues accounts can affect a community in a variety of negative ways. Obviously, the association needs homeowner dues to be paid, preferably on time, in order to operate. However, there are many residual undesirable consequences of having too many delinquent accounts. A community with an abundance of homeowners in arrears on their assessments could be declined for a capital improvement loan when needed — therefore, preventing the community from performing necessary major repairs or replacements. Also, the Federal Housing Authority (FHA) looks at the number of delinquent homeowners in a community in its approval process and won’t approve communities with over a certain percentage of past-due accounts. If an association can’t obtain FHA approval, allowing potential purchasers to obtain FHA mortgages for homes in the community, it can have a hugely negative impact on home sales for the entire neighborhood. Cleaning up past-due accounts in an expeditious manner will not only benefit the association itself, but also all the homeowners who have a stake in the community. How should this be done?

According to Illinois attorney Robert Prince, associations have several options to collect assessments but they usually start with a thirty-day notice that complies with specific statutory requirements. This notice includes details on what the individual owes, the total assessments (late fees, fines, attorney’s fees, etc.) and outlines certain legal rights the owner has in regard to responding to the notice. Prince stated that most Illinois associations pursue actions for possession under the Forcible Entry and Detainer Act, which allows the association to evict a delinquent owner. This is unusual compared to other states, which have to go through a foreclosure process to collect.

If the owner does not pay the amount requested in the demand, which includes attorneys’ fees and costs incurred in pursuing collections, the association can file a lawsuit with the circuit court of the county the property is located in. If the association receives a judgment and the owner still fails to pay by a deadline set by the court, the association can have the sheriff evict the occupants of the property. The association can then choose to lease the unit to a tenant to try and pay down the debt.

It is important to note that the association only has the right to possession of the property. It does not become the owner of the unit. The owner, assuming payment in full is eventually made, will eventually be restored to possession of the property. Since the association is not the owner, it is not responsible for the mortgagee, insurance or taxes for the property, which remain with the unit owner. In the foreclosure process, the purchaser of the home at the foreclosure sale will become the new owner and responsible for all of those obligations.

It is unusual for associations to pursue foreclosures for a few reasons. First, if there is no equity in the property, the association will receive nothing as part of the process because the association’s lien will have lower priority than the first mortgage on the property. Additionally, the foreclosure process can take a year or more to complete. In contrast, a proceeding under the Forcible Entry and Detainer Act is meant to be an expedited proceeding that can be over within four months.

When to begin to take action is generally dependent on the amount of the monthly or annual assessments. If the monthly assessments are lower, the association will want to wait for several months before beginning the collection process. Many associations pursue collections after the owner has missed three assessment payment or $500, whichever comes first. This is in an effort to make sure that there is a miscommunication on payments and to make sure that the fees do not immediately overshadow the assessments to be collected. Additionally, it is usually easier for an owner to catchup and pay a lower balance quickly and get back track. As the amounts get higher, it starts to spiral out of control for most owners.

Illinois associations do not generally use collection agencies to pursue delinquent assessments because they operate on a contingency relationship. In such a situation, the collection agency will get a percentage (often 33%) of the collected amounts. This cuts into the amounts the association realizes from collections. Additionally, because the association can usually recover its attorneys’ fees as part of the collections process, the association has the opportunity to lose nothing in the process. The one place associations can use collection agencies is where an owner has not declared bankruptcy and lost his or her home to foreclosure. In such a situation, there is a lower chance of collecting on the delinquent assessments. Thus, a contingency relationship may reduce the risk in this scenario.

Prince stated that the association and its management have to be cognizant of the fact that the case is in collections and that the attorney needs to be ‘in the know’ about everything related to the unit. Boards should not negotiate payment plans with the owners directly without working with the attorney to make sure everyone is on the same page. Additionally, management needs to inform the attorney whenever a payment is made so that accurate information can be relayed to the owner as well as the court.

Prince went on to state that associations can accept partial payments from owners. There is nothing in Illinois law that prevents or penalizes associations for accepting partial payments as long as there is no limiting language on or with the payment. For example, if the owner sends a check that states payment in full on it, cashing the payment acts as payment in full. If an association refuses to accept a partial payment that does not restrict the payment, a court will generally look on that decision unfavorably.

Legally, an Illinois association can post lists of delinquent owners though it would be highly unusual to do so. The Condominium Property Act and the Common Interest Community Association Act both allow boards to discuss delinquencies in a closed session, likely related to privacy concerns. By publishing the names of delinquent owners the association is destroying that privacy. Moreover, if the association lists the amount owed form each owner, it better be right. If the association is mistaken as to someone’s delinquency or if the amount is wrong, the association is likely liable for defamation.

Judicial foreclosure is a process in which a lienholder (usually a bank) can execute on its interests recorded against the property due to a failure to pay. Some states allow a lienholder to foreclose on a lien without involving the courts. In Illinois, associations can use a judicial (court based) foreclosure proceeding to foreclose on its liens against the property. The association is required to send notice to everyone who has interest in the property and file a lawsuit. The minimum amount of time it will take for the case to go through the foreclosure process is nine months, but it usually takes a longer period of time to complete the process.

deally, after an association has turned a file over for collections, all communications should be through the attorney office when possible. However, courts do not like when management completely cuts off communication, forcing the owner to communicate solely through the attorneys office. Thus, property managers should be as helpful as possible but speaking without giving definitive answers about what is owed. This is because there could be attorneys’ fees and costs that have not posted to accounts as of yet. Communications in writing are also best because the communications can be easily sent to the attorney to keep them abreast of
what has occurred.

Prince strongly encourages repayment plans under appropriate circumstances. Prince stated that “Repayment plans are often the best option to get the association paid.” However, associations have a duty to make sure they are not foregoing collections by allowing abnormally long payment plans. Prince thinks that associations should add an approved payment plan in its rules and regulations, including flexibility to deviate from the approved payment plan.

What terms should a repayment plan include? Prince recommend that any payment plan require the owner to pay the outstanding balance within six or twelve months. It also should require owners to pay assessments as they come due so that the delinquency does not get worse. Moreover, the payment plan should state that the owner admits the amounts are owed and that, if the owner fails to adhere to the plan, the association is entitled to a judgment and an order for possession.

Can associations offer different payment plans to different people? Repayment plans are often dictated by an owner’s ability to pay. However, Associations should provide similar plans to individuals in similar circumstances, as much as possible. If it fails to do so, the association could be subject to a lawsuit for discrimination in violation of the Fair Housing Act. Any deviations from the standardized plan or denying any payment plan must be based on different facts, such as whether the owner has failed on other payment plans in the past.

Absolutely not. Boards are obligated to diligently pursue the collection of assessments. If a board were to forgive or forego an owner’s assessments, it has violated its fiduciary duties. A board has the ability to negotiate and forgive non-assessment charges such as legal fees and fines, but it must do so consistently amongst the owners.

Associations are not allowed to tack extra fees and costs on a foreclosure purchaser to recoup its costs. The purchaser is responsible for assessments from the first day of the first month after the sale. Further, if the association instituted an action to collect assessments, the purchaser from the bank or a purchaser from the sale other than the bank is obligated to pay up to six months of assessments plus costs to the association. In addition, if the association is a condominium association it is also entitled to recover its attorneys’ fees from the purchaser.

The association can adopt a special assessment to cover a gap caused by a foreclosed owner’s failure to pay. In such a case, the purchaser, like all other owners, are responsible for its proportionate share of the assessment.

The Fair Debt Collection Practices Act (FDCPA) is a federal law that regulates debt collection from consumers. Associations are not debt col- lectors, they are creditors. Attorneys collecting on behalf of the association are debt collectors. The FDCPA requires the attorney to include certain disclosures on its correspondence to owners to make sure they know their rights to dispute the debt, among other things. It only applies if the owner is a natural person who uses the property as a consumer (occupancy by owner or family) rather than as an investor.

Prince stated that associations can use a garnishment proceeding to attempt to collect form a delinquent owner. This usually comes in the form of a wage garnishment, where the owner’s employer is required to withhold a portion of the owner’s nonexempt wages (those wages over and above the poverty line). Before the association can use a garnishment, it must first obtain a judgment against the owner.

If an owner fails to pay assessments, the association can record a lien against the unit. Prince stated that it is unusual for condominium associations to file liens in Illinois. This is because condominiums have a statutory lien. That means that when a condominium assessment is un- paid, it is superior to mortgages and other liens that are recorded later. Associations can request that a lien be recorded but only at its request. As for non-condos, there is no statutory lien. Still those associations do not generally file liens in Illinois because a foreclosure by the first mortgagee will extinguish the lien. Generally, an association can avoid the attorneys’ fees and costs to record the lien. Prince continued by stating that there has been one case in Illinois where an association was sued for filing a lien against an owner because the lien stated the wrong amount of what was owed at the time.

Associations can file standard breach of contract cases in small claims court if an owner fails to pay assessments. This is because the CCRs re- quire the owner to pay assessments and the owner breached that duty when he or she failed to pay assessments. However, Prince recommends that associations pursue Forcible Entry and Detainer Act cases because it limits the defenses that owners can raise. In a forcible case, owners can only raise issues related to possession. In a small claims case, the owner can file more defenses and claims against the association.

Moreover, it can be difficult to collect on a small claims judgment. The association can only utilize traditional post-judgment remedies such as wage garnishments and freezing bank accounts. If there is no money in a bank account or if the owner does not make enough money, the association may not recover anything. With a forcible case comes the threat of eviction. If an owner and the owner’s family could lose one of the necessities of life (shelter), they will generally come up with the money if they can. If they cannot come up with the money, the association can proceed with the eviction and potentially lease the unit to a tenant.

The bank is only legally responsible for the unit and assessments if title has transferred to the bank. This only occurs where a sheriff’s deed has been issued in a foreclosure or some non-foreclosure deed has been issued in its name. This most often occurs when a deed-in-lieu of foreclosure is issued, which is where the owner gives the property to the bank generally in exchange for not being personally liable for any amounts owed on the mortgage. The bank will have to send a copy of the deed to the association in order to assert its ownership rights.

Is it advisable for an association to cease its collection efforts once it is understood that the bank has started to begin the foreclosure process? It depends. If the association is a condo association, the risk is very small that it will lose its attorneys’ fees. This is because the association should receive its attorneys’ fees and costs will be paid by the purchaser at the foreclosure sale other than the bank or a purchaser from the bank after the sale.

For non-condominiums, the association will want to ask its attorney opinion on whether it makes sense to pursue collections, which is an educated guess at best. If the likelihood of collecting before the bank will complete the foreclosure process or if the assessments at issue are so small as to make collections not cost effective, the association will not want to waste its money pursuing collections because the purchaser at the foreclosure sale or from the bank after the sale is not obligated to pay attorneys’ fees. If it is a close call, the association should err on the side of trying to collect rather than not.

The redemption period is the time in which an owner can pay off the mortgage in full after the foreclosure case is initiated. Unless the court shortens the redemption period, the owner has seven months from when the complaint is served or 3 months after judgement is entered, which- ever occurs later, to pay off the mortgage. The expiration of redemption refers to that date when the owner can no longer force the bank to accept payment in full to save the owner’s home.

In Illinois, if a bank does not pay assessments, it is subject to collections just like any other owner with some added benefit. Particularly, if there is not a second mortgage on the property, there is generally no risk that the association’s interests will be extinguished in a subsequent fore- closure. Likewise, there is little risk that the association will not collect since the bank has ownership of the unit and literally made of money. For condominium associations there is an additional inducement for banks to pay. A Supreme Court of Illinois opinion states that if a bank fails to timely pay assessments after the foreclosure order approving sale is entered, the bank could be responsible for the entire balance of the unpaid common expenses and other charges from the previous owner.

Prince said that an association has the same duties to a tenant as a traditional landlord. If there is an issue that comes up that affects the habitability of the unit, the association will have to fix the repair issue. The association is not inherently responsible to the owner when a tenant fails to pay rent, but it could breach its fiduciary duties if it fails to address a tenants failure to pay.

Since the tenants could be disposed when a foreclosure is completed, the association needs to, at a minimum, include a provision in the lease allowing for termination of the tenancy. Also, the association should be cognizant of the fact that it will have to turn the lease over to the owner when the owner’s account is brought to a zero balance.

Associations also have to make a decision on whether to keep a security deposit. In the City of Chicago, landlords taking a security deposit have to strictly comply with the Chicago Residential Landlord Tenant Ordinance (RLTO). The RLTO requires landlords to give a receipt stat- ing the bank that the security deposit is held in, to keep the security de- posit segregated from the landlords own money and to pay interest to the tenant yearly on the security deposit, among other things. If the association does not, it could be subject to paying significant damages and attorneys’ fees to the tenant. Thus, it is best to have a proposed lease reviewed by the association’s attorney.

When an owner files for bankruptcy, the bankruptcy code requires creditors to cease collections actions against the owner. This is called the automatic stay and it prevents creditors from going after prepetition debts (those that existed immediately before the owner declared bankruptcy). There are two general types of bankruptcies we see from owners – Chapter 7 and Chapter 13. A Chapter 7 bankruptcy is a liquidation of the owner’s assets. Owners generally do not have much, if any, unencumbered (no liens) assets. Thus, when the owner is granted a discharge from the bankruptcy court, the association cannot collect from the owner personally. However, it is able to collect on its lien.

A Chapter 13 bankruptcy is a repayment plan that is generally completed between three and five years. The owner is required to pay the bankruptcy trustee each month a set amount of money, which is distributed to the owner’s creditors. The association is generally a secured creditor and is paid most, if not all, of what is owed to it under the owners bankruptcy plan.

What if an owner fails to pay assessments after bankruptcy is filed? Prince explained that bankruptcy filing only protects the owner from collections existing debts owed at the time the owner filed bankruptcy. If the owner fails to pay assessments that accrue after bankruptcy is filed (post-petition assessments), the association can file a motion in the bankruptcy court asking the court for permission to pursue collections on the post-petition assessments. This is commonly called a motion for relief from stay. Unless the owner cures the post-petition arrearage by paying in full, the motion is generally granted and the association must pursue its remedies in state court.

Once someone advises the association that he or she is represented by an attorney, is it advisable for them to continue contacting the individual, or do associations need to just deal with the attorney? Attorneys have ethical obligations not to communicate with a party that the attorney knows is represented by an attorney. There is no like requirement in the law for an association; the association can continue to contact the own- er. However, more than one Illinois court has criticized associations for not communicating through the owner’s attorney. Thus, the association should rely on its attorney to communicate with the owner’s attorney.

The Association’s Records

February 14, 2018

Maintaining the association’s records is very important. According to Robert Prince, the law requires all associations to maintain and make various records available to members. If the association does not maintain the required records, it could lead to liability. Thus, it is vital to know which documents have to be maintained and how the association has to make it available to the members.

Section 19 of the Condominium Property Act lists what records condominiums need to keep. Section 18.5(d) of the Condominium Property Act and Section 1-30(i) contain the requirements for almost all non-condominiums. All associations must keep the governing documents, including the CCRs, articles of incorporation, rules and regulations (no time limit), detailed and accurate records of receipts and expenditures (10 years for condos no time limit given for non-condos), contracts (those in force for condos or that association has rights or obligations; no time limit given for non-condos). minutes (kept for seven years), ballots and proxies (kept for one year) and a list of names and addresses of its members (current list). Additionally, a recent change to the law requires condominiums to keep and make available the email addresses and phone numbers of the members.

Some municipalities also have association related ordinances that ad- dress record keeping, such as Chicago. Associations should inquire with their local municipalities to see if there are additional or different requirements.

Prince stated that if the owner is permitted to review the records under the applicable law, there is little the association can do to stop disclosure. For condominiums, Section 19(g) protects certain documents from disclosure such as other owner’s ledgers, documents related to litigation, employee documents and lease documents. In all instances, the request must be made in writing and state, with particularity, what records are being sought to be reviewed.

For most records, there is no requirement that an owner state a purpose for reviewing re- cords. In non-condos, owners are only permitted to review owner lists and ballots and proxies if the owner states a proper purpose. In a condo, owners can review the owner list, including phone numbers and email addresses, as well as ballots and proxies if the owner submits a purpose related to the association. A condo association can also require the condo owner to sign an affidavit that states that the owner agrees that the information will not be used for commercial purposes.

Condominium associations are able to charge the costs of retrieving, making available and copying the records requested. Non-condos can charge the costs of retrieving and copying the records. The key is that the costs must be reasonable under the law.

The Condominium Property Act exempts condominiums from having to turn over certain information such as leases, account ledgers and violation notices related to other owners. In contrast, condominiums do have to give requesting owners an owner list that includes, name, address, email address and phone numbers. Non-condominiums only have to give a list of owners with their names and addresses.

Must associations make these records available for review for the en- tire period in which they maintain them, or can they put a time limit on their availability? Prince said that the association has to allow owners to review requested records for the entire time they are required to maintain that specific record under the law. If it is not required to maintain a record, the association does not have to let an owner review that record. Though, it can choose to do so.

There are no restrictions on an association being able to put records online. However, associations have to be wary that it has a duty to protect certain identification information of the owners under federal law.

If a board member is the only one who has a record, the board member has a duty to safeguard the record. Also, if someone requests the record, the board member will need to make the record available to the members.

Yes. They must be kept for a minimum of seven years.

There is no legal standard format. However, practically speaking, minutes are supposed to give basic information about the meeting and decisions made at the meeting. Many associations put too much detail in the minutes. We recommend that the board exclude a regurgitation of the discussion that occurred. Instead, the minutes should list all of the decisions made by the board, whether it decided to act or not act.

Unless the bylaws require the committees to keep minutes, there is no statutory obligation that they do so.

Association Board Member Elections

February 13, 2018

Cultivating, nominating and electing board members is something that should always be on the minds of current board members. Politics in any arena can be tricky, but in associations it can also

sometimes be difficult to find people willing to serve. Many people feel unqualified or even afraid to volunteer due to the fear of being taunted by potential disgruntled residents. While these fears are not wholly unfound- ed, current board members should encourage volunteerism by running fair elections, showing that residents with different types of views and knowledge are needed and desired, and letting potential candidates know their service will be valued, even if all residents don’t agree with every decision they make. Most associations have safeguards in place indemnifying board members from potential liability, so if a resident has the time and desire to serve, they shouldn’t be afraid to run for the board.

According to Prince, there is no legal requirement that an association have a written election procedure. It is unusual for associations to have one. However, as associations have been revitalizing their rules as of late, they have been including provisions governing all administrative operations, including the order and operation of members meetings where the election is held.

Prince explained that associations have to give notice to the members of any election meeting. The notice must be sent to the owners of each unit between 10 and 30 days before the election and must include the date, time and place of the meeting. If proper notice is not given, the election will be invalid.

Condominiums must hold elections each year. Associations that are subject to the Common Interest Community Association Act must hold elections at least once every 24 months. However, nearly every association’s bylaws will require them to have elections each year.

This is prohibited by law for all condominiums and associations that are subject to the Common Interest Community Association Act. For other associations, it technically could be used but must be in the bylaws.

Directors are those individuals elected to the board. Officers are members of the board that have specific roles and duties. In Illinois, all officers of condominiums and homeowners associations are also directors. The officers are selected by the board rather than by the membership.

It is unusual for an association to have a nominating committee. If the declaration or bylaws require a nominating committee, it will specify that the members of the committee will be either selected by the members or the board, generally at the annual meeting for the next meeting. The nominating committee’s job is to find suitable candidates to run for the board.

Yes, they are allowed unless the association has specific rules prohibiting nominations from the floor. Prince recommends that associations do not limit nominations from the floor due to practical implications. If a board of three has all seats up for election and only one person submits his or her name for the election, only one person would be elected, which could lead to administrative problems with the Secretary of State.

Prince has never seen an association that had prohibitions on self-nomination. Condominiums and associations subject to the Common Interest Community Association Act cannot ban self-nominations.

In Illinois, the board generally sends a ballot and/or a proxy listing the names of all individuals who submitted their candidacy by the required deadline. If an owner did not submit his or her name, the owner could attend the meeting and nominate him or herself from the floor. However, since the owner did not give prior notice by the required deadline, the owner’s name will not be listed.

Condominium boards are prohibited from indicating a preference for a specific candidate or slate of candidates. There is no limitation for non-condominiums but any endorsement should not appear on the ballot, proxies or other election materials and should be paid out of the board member’s personal money.

There is no authority for the board to request or demand a background check of board members. The board is not allowed to prohibit owners from running for the board. Thus, any requirement would only aide the board in the election process, sparking questions of the reasonableness of such a restriction.

Prince said that associations have to provide equal access to association facilities and publications. If the association requested biographical information of the candidates, it must distribute everyone’s submitted information to the members. If it is going to provide a platform for one candidate, it must do so for others.

According to Prince, boards have to be very careful if they try to do this. Since they are not supposed to endorse candidates, they do not want to use the association’s resources in fighting a war of words. Individual board members are free to campaign with what they believe the truth is, but it should not be an action of the association. The one exception Prince noted is where the false claims will cause confusion as to when and where the election will be held or how individuals can vote in the election. In such a case, the association needs to clear up the confusion to maintain the integrity of the election.

It is common for an association to require an owner to sign in for an election. If an owner refuses to sign in, the association is within its right to deny that person a right to vote. As for registering in advance of the election, individuals names need to be on the association’s records or show proof that they are the owner of the unit if their name is not on the records. No other registrations are required.

The process is simple, owners fill out their ballots and submit them to the association in accordance with the association’s election rules whether by proxy, by mail, through electronic means, or submitting a ballot in person. When the chair calls the end of voting, the ballots are collected and election judges generally count the ballots. The election judges are generally disinterested in the election in that they and their family are not running for election. After the votes are tallied, the results are announced to the members.

The election judges, the board and the property manager generally have access to the results as the end of the meeting is unfolding. Additionally, the candidates and their representatives can be present for the counting of the votes. Others interested in knowing about the outcome can submit a request, in writing, to review the ballots and proxies, which are held for at least one year.

A proxy is a legal document that allows someone to vote on behalf of another. The proxy stands in the shoes of the owner. The proxy must be signed and dated by an owner. Proxies come in two forms – directed and general. A directed proxy requires the proxyholder to vote a specific way on matters coming up at the election. A general proxy allows the proxyholder to vote as he or she wishes. Unless the association has rules requiring an owner to submit a proxy on a specific form, an owner can use his or her own form to submit a proxy. If an owner gave a proxy but also appears at the meeting, the proxy can be invalidated and the owner given a new ballot.

Prince stated that an association can ban proxies if it adopts a rule doing so or if it adopts rules authorizing voting my electronic means. Often, those rules must be approved at least 120 days before the next election. Beyond eliminating proxies, some bylaws state that an owner may only give a proxy to another owner. While it is unusual, it prevents third parties from being present and voting in elections.

The CCRs, bylaws or rules and regulations may address how a tie should be broken. Therefore, the board should look there first. Assuming those documents do not provide an answer and neither party bows out of the election, the tie can be broken via a run-off election, drawing lots, coin flip or even rock paper scissors. The parties to the election should agree to the method before it is used to ensure that it will be binding.

Unless the association has adopted specific rules establishing a process, an owner only needs to ask for a recount or send a notice challenging the election. The request can be made the night of the election or thereafter. Prince feels that the board should always grant a recount and respond to an election challenge. Assuming the result does not change after the recount and assuming that the board does not uphold the challenge to the election, the member’s only recourse is to file a lawsuit. Such challenges are rare.

What is cumulative voting? Cumulative voting allows members to cast more than one vote for a single candidate as long as they do not exceed their total number of votes. For example, if there are three vacant seats up for election and four candidates, a member could vote for one candidate three times, three candidates one time, or one candidate two times and one candidate one time. Cumulative voting is intended to give a political minority in the association a chance to have representation on the board. As it stands, the law allows for cumulative voting only if the CCRs or bylaws states that voting can be done cumulatively. However, there has been legislation introduced recently to get rid of cumulative voting altogether.

The election judges are the individuals who count the ballots after they are submitted. They review the ballots and determine the voters’ intent. The inspectors are generally members of the association and should not be a candidate up for election or related to a candidate up for election to avoid impropriety. With some elections being conducted by a combination of electronic means and in person ballots, the association may have two sets of election judges.

The Fair Housing Act and Civil Rights

February 12, 2018

Violations of the Fair Housing Act can result in severe penalties for associations. Being knowledgeable of how to govern your community responsibly in this regard is very important.

First, the association’s board should treat every- one the same. If the association treats all individuals in the same position in the exact same way, it is difficult for an owner to argue that they were discriminated against because of a protected classification. Additionally, boards should think critically about whether a restriction or rule or an interpretation of those provisions would have an undue effect on a protected class. Also, boards should be cautious before denying an owner’s request for an accommodation due to a disability. If wrongfully denies a request, it will be sued and will lose.

According to Prince, timeliness of responses can be the biggest issue. Associations can get in just as much trouble for not responding in a timely manner than if it wrongfully denies a request for an accommodation. Moreover, since boards are not experts on all cultures and religions, they will not always know that a restriction discriminates based on a protected class. Pool and bathroom rules are two such trouble spots where associations discriminate against families and based on sex without knowing about it.

People who believe an association has discriminated against them in violation of the FHA can file a charge of discrimination with the Illinois Department of Human Rights (IDHR) or the United Stated Department of Housing and Urban Development. The IDHR will investigate the claims and require the association to defend itself. If they find discrimination, they will file a lawsuit against the association. If they do not find substantial evidence of discrimination, the owner can still sue the association in federal court. If the owner wins, he or she is entitled to damages and attorneys’ fees and costs.

Prince stated that there are many different civil rights, but in dealing with associations we are generally dealing with freedom from discrimination in housing. Associations are prohibited from discriminating against people based on several protected classes, including race, color, religion, national origin, sex, disability (handicap), and familial status.

Violating the FHA is considered a civil violation. In very rare situations, FHA violations could also be criminal violations if they violate the civil rights amendments or otherwise violate a federal criminal statute.

Any provision that differentiates, either directly or indirectly, between people based on a protected classification. For example, adopting rules that allow “family swim time” or have “adult” swim hours, would violate the FHA and the IHRA based on familial status.

Protected classes include race, color, religion, national origin, sex, disability (handicap), and familial status. Congress and the General Assembly have decided that it is improper to differentiate amongst people based on these characteristics. However, just because someone is in a protected class does not mean they have been discriminated against. When a decision or rule of the board either singles out a protected class or unfairly burdens a protected class, the board has discriminated based on a protected class.

Age and sexual orientation are explicitly included as protected classes pursuant to the Illinois Human Rights Act. In contrast, the FHA does not explicitly list age or sexual orientation as protected classes. That being said, familial discrimination can include some age characteristics and federal courts have seemed pen to interpreting sex discrimination as including sexual orientation discrimination.

Prince said that this is a very current issue. At least one association has been found to have discriminated against a person when it did not provide a sign language interpreter for an important decision coming before the members.

Prince said that requests for reasonable accommodations are on a case by case basis. Associations are required to give a person a reason- able accommodation if the person or someone linked to the person (such as a family member) is disabled and an accommodation is reasonable and necessary to afford the person an equal opportunity to use and enjoy their home and the services provided by the association. An accommodation is reasonable if it does not impose an undue financial burden on the association and does not run contrary to the very purpose of the association.

Absolutely. CCRs and rule provisions that could be interpreted as prohibiting a persons’ free exercise of religion are discriminatory. For ex- ample, an association that has a rule prohibiting owners from putting any- thing in the common element hallway, cannot be read to prohibit owners from placing a religious object in the hallway if it is required by their religion such as a mezuzah.

If an association shows a preference for a certain religion through a religious display or limits a specific religion’s religious display, it could lead to a claim of discrimination. Associations have to provide equal access to religions; it can- not only allow Christian displays. Associations should avoid involving themselves in religion.

Sex offenders and felons are not listed as protected classes. An Indiana Supreme Court case specifically found that an association did not discriminate when it prohibited sex offenders from leasing units. However, HUD has recently issued guidance on the topic. HUD has stated that it could be discriminatory to ban felons or sex offenders if it has a disparate impact based on a protected class such as race. Associations should evaluate whether any such ban in its governing documents is worth the risk.

The only associations that can discriminate against children or families are associations that are properly created as housing for older persons (55+ housing). Other associations are prohibited from having restrictions that specifically or disparately impact children or families. Most of the issues related to discrimination against children are related to pools and other recreation items.

If an owner is disabled and appropriately requests a comfort or service animal, the association will have to allow the owner to bring the animal into the association even if there is a prohibition on keeping pets or the specific species of animal. However, it should be noted that not all notes entitle a person to a comfort animal accommodation. Associations receiving requests for animal related accommodations should consult with their attorney to ensure compliance with the FHA.

If the disability is readily apparent, the association cannot request additional information. Even if it is not apparent, the association cannot inquire as to the nature or severity of the impairment. Instead, it can ask for disability related information that is necessary to verify the person has a disability (a physical or mental impairment that substantially limits one or more major life activities), describes the needed accommodation and shows the relationship (often called a nexus) between the condition and the needed accommodation. Prince advises that the doctor’s note can be written by a medical practitioner and does not have to be a doctor or psychologist.

If an owner or resident makes a proper request for an accommodation, the association cannot restrict the weight or size of the animal. If it is unrelated to a re- quest for an accommodation, size limitations can be reasonable if they are appropriately adopted (either in the declaration or rules) and if there is a legitimate reason for them. Practically speaking, it is difficult to enforce size and weight restrictions.

The association is not generally bound by the ADA. However, the FHA is interpreted similarly to the ADA as it pertains to service animals.

Prince said that more and more complaints have been brought to HUD and other entities concerning restricted areas for comfort animals. By and large, the associations pay out in those cases. Thus, Prince does not recommend that associations adopt policies restricting the areas comfort animals can go.

Prince said that is quite uncommon to photograph animals. However, some associations are moving towards requiring dog owners to submit DNA samples to try and confront dog feces that are left on the common areas.

The association cannot limit the number of comfort animals a resident can have. Instead, the resident’s condition and whether it is necessary to have more than one animal for that condition will determine whether the resident can have more than on animal.

Prince said that for all intents and purposes, associations are housing providers.

Yes. Recent guidance from HUD has stated that associations can be responsible for failing to address discrimination by members based on a protected class. Associations will need to address discriminatory animus even if the member has not complained to the association.

Transitions

February 11, 2018

Transition is the event where control of the association transfers from the developer to the association. When transition occurs is set by law – three years after the recording of the original CCRs, when 75% of the units have been sold or when the developer willingly hands control over to the members, which- ever occurs first. In Illinois, we generally refer to transition as “turnover”.

If there are construction defects in the common elements, the developer cannot give itself a pass. The law states that the statute of limitations for any claims the association has will not begin to accrue until turnover. Thus, the association will be able to go after the developer, assuming it is still in business. A more proactive approach is to notify the developer of the issue while it controls the board. While it is in control, the developer acts as a fiduciary to the association and its members. Thus, if it were to make a decision that hurts the association but helps its own interest, it could be challenged. If the developer refused to address the issue, the members could file a derivative lawsuit against the developer. If the developer still has units to sell, it has assets the association could try to seize.

In Illinois, the developer fills the role of the board before transition. The developer is required to take all necessary actions to protect the association.

Prince noted that it is important to know when transition is required to occur. At the latest, power should transition to the members three years after the declaration is recorded. However, even though transition is supposed to occur, a lack of membership participation may delay turnover if a quorum cannot be reached to hold the turnover meeting. Since the statute of limitations (the time period a lawsuit has to be filed in) begins to run at turnover for association issues, advancing or delaying turnover could be strategic for the developer and the members of the association.

Prince stated that the advisory committee has no power in Illinois. It is unusual to even have one. The committee’s main role should be to funnel information between the developer and the members to assist in a harmonious development of the association.

Prince said that this occurs quite often. Developers generally want to keep assessments low to attract homebuyers. The developer pays any shortfall caused by the lower assessments. When transition occurs, the association can then approve a budget that does not rely on a developer shortfall.

Prince said that owners do not have the right to inspect the developer’s records. They do have the right to inspect the association’s records. When transition occurs, the developer will have to turnover all of the association’s records to the new board.

Prince said that the pre-transition board has the exact same duties as the board does after transition occurs.

Is the association responsible to uphold the terms of those contracts? Contracts that are made by the developer on behalf of the association are enforceable. However, if a contract extends more than two years after transition, the newly elected board can opt out of the contract through a specific process. When turnover occurs, all contracts should be reviewed to address these potential rights.

Construction Defects

February 10, 2018

A construction defect occurs when something built by the developer was not built to the industry standard, such as walls that are missing vapor barriers.

Owners generally only have claims on damages from the paint on the drywall and inward. This is the general bounds of the unit. Everything else is generally part of the common elements and is a claim of the association. Individual owners have warranty rights based on the contract with the developer. Generally, the developer exclaims the implied warranty of habitability, a broad and powerful warranty that re- quires the building to be built in such a way as to be free from defects and allow for habitation, and instead grants a narrow express warranty. The express warranty is limited to certain items. In contrast the association does not have a contract with the developer. Thus, the association is generally able to assert the implied warranty of habitability when defects are noted. Additionally, a condominium association can assert claims, including warranty claims, on behalf of all of the owners for defects noted inside of the units.

If an association notices deficiencies, it should hire a contractor to inspect and solicit bids to fix the issue. The association should then notify the developer of the claim. If the claim is for issues with the unit, the purchase contracts must be reviewed to determine where the appropriate notices should be sent and how long they have to give the developer to fix the issues.

Associations that need to make repairs due to a danger to life, health or property, should notify the developer of its intent to make the repairs. This will give the developer the opportunity to inspect the property before it is altered. If the situation is urgent, the developer will likely have to act quickly. Assuming the developer has refused to fix the issue, the association can have the emergency repairs completed.

It is vital that the contractors document everything they do on the property. Some contractors go as far as to have a staff member do nothing but take pictures and video record the work. Also, any original materials that can be salvaged should be kept as potential evidence.

Generally, the association and the owners need to notify the developer by certified mail. However, the sales contract will dictate how the notice is to be sent. The association should notify the developer as soon as practicable after it knows that it has a problem.

It would not be unusual for developers to argue that the express warranty has expired if it has. However, if the issue is a common element issue, the implied warranty of habitability may not have expired yet. Additionally, if the developer knew of the issues while it was in charge of the association and failed to act, it likely breached its fiduciary duties to the association, which generally will have a longer statute of limitations than the warranty period which is usually one year.

Yes. The board can modify the rules and regulations the developer drafted. It is one of the first things associations do after turnover.

Arbitration is widely viewed b companies as a means by which they can reduce potential losses. Developers often put provisions in governing documents requiring the associations to arbitrate disputes rather than litigate them. However, the Condominium Property Act was amended a few years ago to make it difficult for a developer to force an association to do so. Since arbitration can be just as expensive as litigation, most associations would rather just litigate the case.

Contact Info:

Robert Prince
Cervantes Chatt & Prince P.C.
111 W. Washington Street, Suite 1201
Chicago, IL 60602
(630) 590-0255
rprince@ccpchicago.com
www.ccpchicago.com

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