Reforms will have significant impact on association members
In 2008, I had the honor of serving as the chairman of the Illinois Condominium Advisory Board, which was created by the legislature in 2007 to make recommendations on necessary reforms to the Illinois law affecting condominium and homeowner association members. Throughout 2008, the council conducted a series of public hearings in a variety of locations to obtain input from owners, board members, property managers and other individuals and entities who are impacted by this very large and diverse industry.
In early 2009, the council's findings were circulated for public comment and though a final report was not submitted, the recommendations and findings were circulated throughout the legislature and as a result a number of bills are pending or have been adopted that should produce some significant changes by 2010 on the way certain matters are addressed.
Some of these new laws have been passed in both houses and contingent upon the governor's signature will take effect on the commencement date provided for in the individual bill. Here is a short summary of some of the new legislation.
• A condominium unit owner more than 60 days delinquent will not be counted toward the quorum to adopt an amendment to the bylaws. This is a significant bill since, for the first time, the law now recognizes that privileges are tied directly to the timely payment of assessments. For decades, many associations have used the current payment, or "good standing," as leverage to issue pool passes, voting rights, etc., and now this principle is in the Condominium Act (SB154), sent to the governor on May 27.
• Another significant bill is one in which voting can be done by electronic means for both condominiums and homeowners association. Details such as identification, security and implementation have to be worked out, but for once, Illinois is on the cutting edge of recognizing changes in technology to make association living easier. SB 1390 was sent to the governor on June 25.
• Finally, a statute for townhouses, homeowner associations and master associations. Up until now, most changes in the law impacted condominiums only and there was little statutory authority for the some 40,000 plus, other types of entities. This impacts all associations throughout the state. SB1933 was sent to the rules committee on May 31.
• Currently, if a condominium is foreclosed, the association is only entitled to assessments from the first day of the month following the sheriff's sale, plus six months of assessments from the purchaser of the unit from a foreclosing lender. Due to the slow real estate market, most lenders wind up paying this expense. SB2102 attempts to address the priority of lien status of and obligates any purchaser other than a lender foreclosing its own mortgage to pay all back assessments, instead of the current six-month requirement. Referred to committee assignments March 13, and currently in limbo.
• Manager licensing. For too long this significant issue has been swept under the rug, whether for political reasons or just not enough support to overcome opposition. Associations should be able to require their property managers to be licensed, and show proof and demonstrate proficiency in property management before an association can hire them. There is currently no such requirement. Educational requirements can be fulfilled by recognized professional organizations, such as CAI and ACTHA, and all boards should make certain that their manager is licensed and bonded. HB271 and SB 1579 were sent to the governor on June 26.
• Financing restrictions. As a result of "tight" money and credit, prospective homeowners must rely upon the efforts of reasonable lenders to fund new mortgages. As of the date of this writing, it is getting harder and harder to make that assumption. New buyers have turned back the clock 20 years, and FHA is now a player once again. A common problem is the boards are being inundated with requests to amend their documents to eliminate the right of first refusal because FHA allegedly will not make a loan to an association where this provision exists in the declaration. Without going into the details of how this requirement can be "gotten around," a new bill proposes to restrict the right of an association to exercise the right of first refusal based upon the type of financing an owner or buyer is seeking. This would also impact reverse mortgagees as well. HB 155 was sent to the governor June 12.
• As we have seen all over the country, condominium and homeowners associations are failing because of the poor housing market. The media is replete with stories about multiunit communities with scores of empty and incomplete units, yet the association is expected to legally operate. This is a bailout provision whereby, local government can declare a property distressed, and have a receiver appointed to seek the appointment of a receiver to oversee association affairs until such time as the remainder of the units are sold and the association is viable, or have the property declared to be the property of the owners who purchased units and dissolve the insolvent developer's rights. This should help solve a lot of problems for people who unknowingly bought homes from developers who would be come insolvent. HB 688 was sent to the governor June 11.
• The rumor mill has been rampant about pending bills to bar an association from amending its declaration to prohibit leasing and there is no bill pending or up for discussion regarding this matter. What there is in committee is a dramatically watered-down version that creates an exception for a charitable organization or foundation to be exempted from enforcement of such policies under certain circumstances. There is no indication as to if, or when, this would be enacted into law. As of May 22 it is in limbo.
• Lastly, there has been much discussion about creating an administrative agency such as an ombudsman to oversee educational requirements and implementing a structure for mediation of association disputes. Although this may come to fruition, there are no further details as to how this will be implemented, who will serve in this role, how the office would be funded, etc. HB 941 was sent to the rules committee on March 13.
As you may be aware, bills sent back to committee or sitting in limbo may never again see the light of day. However, there is some significant legislation that will become law shortly, and it should have a positive impact on the people who live in associations, serve on boards and toil in the industry. You can check back here for more details as information becomes more readily available.
• Jordan Shifrin is an attorney with Kovitz Shifrin Nesbit in Buffalo Grove. Send questions for the column to him at jshifrin@ksnlaw.com. This column is not a substitute for consultation with legal counsel. Past columns can be read at www.ksnlaw.net.