Many smaller condominium associations operate fairly casually and do not adhere strictly to their governing documents or the IL Condo Act. They also ignore Best Practices for operating the association like a business. This can become a problem when the association needs to pursue legal remedies for unpaid assessments. Specifically, failing to properly elect a board to act on behalf of the owners can stop a lawsuit to recover unpaid assessments.

In the case of 4934 Forrestville Condominium Association v. McKinley, the First District Appellate Court held that a unit owner’s claim that a Board was not validly constituted could go forward and potentially defeat the Association's claim.

The owner sought to dismiss the lawsuit on the grounds that the board did not consist of three unit owners, that the two board members pursuing the lawsuit owned a single property, that annual elections had not been held, and that the association's incorporation was not in Good Standing with the Secretary of State. The motion to dismiss was originally denied. The Appellate Court reversed this decision, requiring the association to provide a response to the claim.

Associations can avoid such complications in court by doing the following:

  1. Hold board elections annually in compliance with your Bylaws
  2. Elect the proper number of board members as required by your Bylaws
  3. Ensure that board members meet eligibility requirements for serving
  4. Incorporate your association with the Secretary of State and adhere to annual filing requirements to remain in Good Standing

To read more about the case, click here.

When it comes to elections, one of two voting methods will likely be specified in your condo association’s Bylaws.

In cumulative voting, owners have a right to vote their entire ownership percentage to a single candidate or to divide their ownership among one or more candidates. This gives owners with a lower ownership percentage a better chance at electing at least one of their preferred candidates because they can cast their entire vote for one candidate.

In non-cumulative voting, owners cast their entire ownership percentage to each of their preferred candidates, up to the number of open positions.

For example, consider two owners, one with 15% ownership and one with 18% ownership. In cumulative voting, the owner with 15% ownership can allocate the entire 15% to one candidate, giving them at least a shot at electing one of their preferred candidates. The owner with 18% ownership would need to allocate more than 15% to a single candidate in order to defeat the other owners vote, leaving them a smaller percentage to allocate to other candidates and decreasing the likelihood that they will be able to control all three of the open positions.

In non-cumulative voting, owners cast their entire ownership percentage to their preferred candidates in equal amounts, up to the number of open positions. An owner with 15% ownership, therefore, would give 15% to each of three candidates, assuming that there are three open board positions to vote on. The owner with 18% ownership would give 18% to each of their three preferred candidates, easily defeating the other owner’s votes for the entire board and thus controlling the board.

Review your Bylaws to determine how your association votes. Condo owners need to consider the math involved in voting and strategize with other owners if they want to have the best chance at electing their preferred candidate(s). You can find another simple explanation of cumulative vs. non cumulative voting and a handy calculator here.

A recent court decision on an assessment collection case has made it clear that associations must be careful to enter their Declaration and Covenants into the record in any lawsuit to collect unpaid assessments.  

In this case, the association was awarded a judgment for the unpaid assessments, but not the attorney’s fees. This is because the association did not allege sufficiently that there was any legal provision for the recovery of attorney’s fees. Your collection attorney should review your governing documents for this provision and recommend an amendment if it is absent. The Declaration and the specific language that provides for recovery of attorney’s fees and costs in a collection matter should also be entered as evidence in court.

To read more, click here.

Condo owners age 62 or older may qualify for a reverse mortgage. This is a special type of loan that allows them to take cash out of their property without having to repay the loan until they move out, sell or die.

Currently, 90% of reverse mortgages are insured by the FHA. In order for a reverse mortgage to be made in a condo building, the entire association must be FHA certified. A new rule proposed in 2016 includes a provision that would allow condominium units to individually become eligible for FHA financing.

Public comment on the proposed rule closed on November 28, 2016. HUD is expected to address condo approval for reverse mortgages in early 2017. 

To read more, click here.

In November 2016 the government announced that it would lower the minimum required owner-occupancy rate from 50% to 35%, which could allow more condominium buildings to become FHA Certified. The lower owner-occupancy rate, however, comes with additional requirements that must be met in order for any buyer to purchase in a condominium building with an FHA insured mortgage.

Buildings with fewer than 50% of their units occupied by owners must also document that their financial reserves equal 20% of more of their budget and that no more than 10% of units are late of homeowner dues. Additionally, they must provide 3 years of financial documents for review that are deemed "acceptable."

These more stringent criteria could potentially shut out a large number of condominiums from FHA eligibility, but those that are managing well financially despite high investment ownership rates would still qualify.

To read more, click here.

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