February 10, 2010

A new Illinois law endows local governments with considerable power over distressed condominium projects. The law, which took effect on January 1, 2010, was enacted as Public Act 96-0174 and codified at 765 ILCS 605/14.5.

The new act empowers municipalities to effectively force a sale of “distressed condominium property” if certain conditions are met. “Distressed condominium property” is defined in the statute as “a parcel containing condominium units which are operated in a manner or have conditions which may constitute a danger, blight, or nuisance to the surrounding community or to the general public[.]” 765 ILCS 605/14.5(a)(1).

The act is not clear regarding the specific conditions that must exist for a project to qualify as a “distressed condominium property.” Many conditions may be considered, including but not limited to: (a) low occupancy rates, (b) serious building code or zoning violations, (c) a high percentage of unit foreclosure proceedings, (d) serious recording irregularities, (e) termination or threatened termination of essential utilities, or (f) property tax delinquencies with respect to at least 60% of the project’s units. A municipality could conceivably develop its own criteria for claiming that a project qualified as a “distressed condominium property” under this law.

If a court ultimately agrees with the municipality that a property is “distressed,” it may declare that the property is no longer a condominium. Furthermore, the court may empower a receiver to initiate a sale of the entire property. After all expenses of the receiver are paid, and certain other judgments and liens satisfied, any remaining sale proceeds will be distributed to existing unit owners.

Public Act 96-0174 gives local governments a 'big stick' with which to police individual condo projects and neighborhoods. It remains to be seen how aggressive municipalities will be in exercising this new authority, and how the rights of unit owners, lenders and developers will be affected.

If you have any questions concerning this Legal Update, please feel free to contact us:

Eugene J. M. Leone
Pircher, Nichols & Meeks
900 North Michigan Avenue
Suite 1050
Chicago, Illinois 60611
312-915-3113
eleone@pircher.com

Brittany E. Thornton
Pircher, Nichols & Meeks
900 North Michigan Avenue
Suite 1050
Chicago, Illinois 60611
312-915-3152
bthornton@pircher.com

The PN&M Legal Update is published as a service to our clients and friends. It is intended to provide general information and should not be acted upon without first obtaining professional advice appropriately tailored to your individual needs.