Association Rentals: What tenants need to know

Cheeky eviction notice

What happens when a condo owner falls behind on their assessments?

One of the reasons renters give for wanting to become homeowners is that they never want to risk being thrown out of their home again. Once you own a piece of property, nobody can throw you out of it without reason, right? When a Condominium Board is involved, this is not always the case.

You see, when you buy a condo in Illinois, you buy air space. You are entitled to the air space in your condo plus the surface of your walls and floor, and a percentage of the rest of the building. Everyone is jointly responsible, through their condo assessments and participation in the association, for the upkeep of the common areas, and building exterior.  It’s a very socialist kind of system when you think about it.

When a condo owner falls behind on their assessments, the board can wind up falling short on their accounts, making them unable to pay for shared items like the water bill, the landscaping bill, or even the building’s insurance policy. The state of a condo association’s finances can affect the ability of buyers to get loans to buy into the building. Therefore, if an owner gets very far behind, the condo board has the right to take them to court and evict them.

Once the owner is out, the board can rent out the condo to a tenant, whose rent will go in part towards the payment of the evicted owner’s back assessments.

Illinois Legal Aid has a great article about this for condo owners. But what does it mean for tenants?

A quick search shows 39 rentals in the MLS that included the words “association has possession” or something similar in the past 12 months. There’s certainly many more that were rented through word of mouth or through a property management company without going to the MLS at all. Association evictions tend to happen in condo buildings that have professional management and/or well-trained boards, as smaller self-managed buildings may not know that this route is even possible.

First of all, as a tenant, know that your landlord is not any specific individual but rather the condo board itself as a corporation. The board is therefore responsible for maintenance and will collect your rent, just as a normal landlord would. In most cases you’re subject to the Chicago Residential Landlord Tenant Ordinance.

Secondly, know that the owner cannot come back and has no right to live in his unit until his debt to the association is fully paid off. The owner is, however, obligated to keep paying her mortgage premiums.

Thirdly, expect to be responsible for the same utility payments that everyone else in the building has to make. Do not, however, expect to be entitled to other building “perks” like business centers, health clubs and roof deck access that regular owners can enjoy, unless you work out in your lease that you get access to those things.

Fourthly, be aware that these leases will probably have what’s called a “Kick Out” clause with either 30 or 60 days notice required. The owner has a right to move back into her unit as soon as the debt plus the assessments accrued during her eviction are paid in full. When that day approaches, the board will have to give you advance notice – either 30 or 60 days – but your time for living in that condo is done.

In some cases, the owner may also be so far behind on other bills like their mortgage that the bank will foreclose on the condo while you’re renting it from the board. In this case, the title on the condo will shift from the original owner to the bank while you’re still living there! At this time, the board will probably lose the right to rent out the condo, and your lease will be handed over to the bank to do with as they please. In Chicago, the bank is also not allowed to kick you out without proper notice – usually 60 days – but it can get very confusing for you as a tenant to figure out where your rent is supposed to be going this month and who is responsible for fixing stuff when it breaks.

So with all of this strangeness, why would any tenant want to rent out a condo in this manner? Well, there are definitely some advantages. Many of these condos are only available to renters under circumstances like these. You can get a very high quality living space that might not otherwise be open to you. You are helping an owner to get out of debt and helping a group of homeowners to keep a good building in good condition. You are rewarding a condo association for staying on top of its members and taking proper legal action when things get out of hand.

60 days notice is actually plenty of time to find a new place to live. If you’re the kind of person who would normally be okay with a month-to-month lease, you’ll find very little difference between that and this. In fact, you actually get twice as much notice with a 60 day kick out clause than any month-to-month landlord would be required to provide.

Would you ever consider renting in a situation like this? Have you ever been given more than 60 days notice that you need to find a new place to live? Have you ever known anyone who’s been involved with a condo association rental, either as a tenant, an evicted owner or a board member? Tell me about it in the comments!

Eviction notice courtesy of unhcr.ca

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3 Responses so far.

  1. Veronica says:

    I am currently renting form Condo Association, the condo is Pre-foreclosure. I been in the unit since December 2012 (Year and 3 month) my lease already expired, but the board has agreed to let me rent month to month until the bank takes possession and then I will need to deal with the bank. I think that my rent has already covered the past due assessments, what happens to the “over payment?” Also, I am interested in buying this unit once it is foreclosed on. Do you have any suggestions?

    • Kay Cleaves Kay Cleaves says:

      The overpayment would be going into the association’s operating account. This account is normally filled by assessments from owners in the building and used for upkeep of the common areas. Rented storefronts in larger buildings are in a similar situation. Most condo associations are non-profits so if the amount they earn from your rent starts to exceed their expenses they will eventually wind up in trouble but for most buildings this is not a problem. Chances are the rent you’re paying is partially covering the ongoing delinquency of your condo’s owner. Even if you’ve paid off the debt they’d racked up before you moved in, chance are they haven’t been paying their assessments since you moved in either.

      As for buying the unit, it will be much easier to do so before the bank takes over if there is any way of contacting the current owner. Banks will not necessarily list the property immediately after foreclosure, and in some cases foreclosure itself can take years. Additionally, as the bank’s expenses rack up from the foreclosure case, the cost to purchase it from them will also increase. I’d suggest taking two steps. The first would be to get yourself an attorney with experience in these matters and possibly a Realtor as well try to reach out to the current owner to negotiate a sale. Explain to them that it will be less detrimental to their credit to sell the property now, and be ready to offer a fair-market price for the unit. (Remember, if the bank takes it over they will also list it for sale at a fair-market price. With prices increasing these days it’s better to sell now than to wait.) See if you can get the association on your side too. Banks can be a real pain to get assessments from, and a foreclosure in the building will bring down everyone’s property value. They’ll have a vested interest in helping you.

      The second step would be to figure out which bank(s) holds the loan(s) on the property and to contact their REO department now to find out what the purchase process would be in the event that the current owner isn’t willing to “play ball” with you. You can find out the name of the bank that holds the loan by looking up your unit’s pin number at the Cook County Recorder of Deeds’ website, ccrd.info.

  2. peter pareene says:

    our association evicted a condo owner; they owe 36000$. owner has been gone for nearly a yr. they will never pay this off plus a loan from bank. we have title & foreclosed on this condo, bank did not foreclose. bank turned down many buyer offers. can we rent?