To:

Office of the Governor, State of Illinois Illinois General Assembly Illinois State Senate Report of the Condominium Advisory Council

Re:

Recommendations and Revisions to The Illinois Condominium Act and the Illinois General Not-For-Profit Corporation Act. In 1963, The Illinois Condominium Property Act (765 ILCS 605 et seq.) was adopted by the Illinois State Legislature to create a new form of property ownership in Illinois modeled on the State of Florida. First appearing in the middle 1960s, condominiums began to grow arithmetically and in some instances geometrically. Initially justified as affordable housing for some and as a maintenance-free lifestyle for others, it is estimated there are over 44,000 condominium communities in Illinois currently, plus another 44,000 or so, homeowners and townhome associations (which are not condominiums) and another 12, 000 cooperatives. Currently, very few new subdivisions are being approved by local governments without the mandatory creation of a homeowners association by the developers to relieve taxpayers from the burden of paying for maintenance of amenities that exclusively benefit the residents of a new neighborhood. When the Condominium Act was first enacted, and on numerous occasions when it has been revised or amended, it disregarded the needs of the thousands of row-house, townhome, attached housing type condominium communities in favor of urban vertical communities. Some of the current definitions are inapplicable or must be constructively interpreted in order to apply to a multi-building attached housing community instead of a high-rise apartment building (e.g. an attic in a condo-townhome). In addition, because of the large number of non-condominium multi-family communities and a great deal of confusion exists as to what laws apply and what do not, as well as the fact that many of the consumer protections (admittedly limited) apply only to condominiums and do not protect townhome owners. In looking at the overall multi-family housing industry globally, the Council conducted 5 public hearings in various locations in northern Illinois (where the largest percentage of these communities exist), sent speakers to and communicated with legal organizations (Chicago Bar Association, Illinois Real Estate Lawyers Association) and consulted with professional organizations consisting of Owners, Board Members and various professionals who deal with the day-to-day problems of association living (Community Associations Institute [CAI], Association of Condominium & Townhome Associations [ACTHA]). The following proposals are the recommendations being presented to the Illinois Legislature:

I.

SPECIFIC REVISIONS TO THE ILLINOIS CONDOMINIUM PROPERTY ACT A. Term Limits for Directors and Procedures for Removal of Directors

Recommendation: Section 18(a)(11) of the Condominium Act be amended by adding the following language: Any director may be removed from the Board of Directors at a special meeting of owners, called for said purpose by a 2/3 majority of those present or voting by absentee ballot. All procedures governing secret ballot elections shall hereby apply. A director, after notice and an opportunity for a hearing, may be suspended or removed for cause by a 2/3 majority by the Directors. Explanation: Because of a significant amount of input regarding directors who have served for decades, it has been proposed that perhaps directors should be limited to two terms. Considering that the majority of directors who serve more than two terms actually do a good job and really care about the property, and some associations have difficulty recruiting directors, we are opposed to term limits. B. Common Interest Community Defined

Recommendation: That the definition Common Interest Community be reinserted into the Act. Common Interest Community real property other than a condominium or cooperative in which any person by virtue of his or her ownership of a partial interest or unit therein, is obligated to pay for maintenance, improvement, insurance premiums, and/or real estate taxes or other real estate or common areas maintained for use by the owners, or any other expenses lawfully agreed upon, and are described in recorded covenants which is administered by an association. (Section 735 ILCS 5/9-102(c)(1) should be reworded to substitute this definition. Explanation: This definition was previously included in The Act and for some reason it was deleted. This creates a hole since the Common Interest Community definition remains in the Code of Civil Procedure as a remedy for collection of delinquent assessments for non-condominium associations; i.e. Forcible Entry & Detainer. This would make it consistent. C. Special Assessments

Recommendation: The Act shall be amended to reflect that all special assessments of any kind for all types of associations may be adopted in accordance with existing 18(a)(8) procedures and the differing or contradictory language contained in 18.4 and 18(a)(8)(v) be stricken to alleviate any further confusion. Explanation: The requirements to adopt a special assessment which are addressed in separate Sections (18(a)(8), and 18.4(a) and have different requirements, creating confusion, with no real apparent rationale for the differences.

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D.

Foreclosures

Recommendation: The current statute provides for the lender to begin paying assessments from the first day of the month following the Sheriffs sale. A better approach without eliminating or diluting a banks lien priorities would be to legislate that the lender, upon completing the foreclosure and obtaining title, will owe assessments from the first day of the month after filing the foreclosure. It also imposes a corresponding obligation on Associations to be diligent in the collection of their assessments and if a bank intentionally holds off foreclosing, an Association with an order of possession will be able to collect rent to offset the delinquency for a longer period of time. Explanation: (Current Section 9.) The lien of a first mortgage has a superior position to the assessment lien. The rationale for this priority was that in the 60s and 70s, the condominium was a new form of property ownership which presented some risk and in order to guarantee the availability of mortgage money to finance purchases. This had to be included in the Declaration in order for buyers to get loans. When a mortgage is currently foreclosed, it wipes out the associations lien for unpaid assessments. The mortgage lien always has priority. This can be financially devastating to an association. Under the current law, the foreclosing lender has only to pay the assessment from the first day of the month following the Sheriffs sale. Furthermore, lenders who do take title to properties in associations rarely pay the monthly assessments until the property is sold. This also creates a cash crunch for associations unless the property sells quickly. In 2007, 9 of the Act was amended to provide for the collection of an additional 6 months of back assessments from the purchaser of the unit from the foreclosing lender (Section 9(g)(5). That language is ambiguous and confusing. E. Real Estate Taxes Recommendation: 1. A condominium by virtue of a vote of the owners or a 2/3 majority of the board has the authority to seek relief from real estate taxes (18.4(p)) on the dwelling Units. The relief described in this section in particular should also be available to Common Interest Communities, who currently have to get owner approval and in some instances it must be unanimous. 2. If the association incurs attorneys fees in seeking relief from real estate taxes, it may be charged back to each owner in the same manner as a Special Assessment by percentage of ownership in condominiums and shall be a lien on any unit where their share of the fees remains unpaid. F. Redefining Meeting Requirements

Recommendation: The Council recommends a wholesale revision of 18 modifying requirements as follows:

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1. At a closed session where no minutes are taken the board shall include in the minutes at the next board meeting the topic(s) that were discussed at the closed session. 2. The Act shall be amended to provide for codifying the open session or homeowners forum, to wit: At all open meetings of the Board of Directors, a reasonable period of time shall be set aside prior to or after the conclusion, for owners in attendance to address particular issues to the Board. Such sessions are not considered a part of the official meeting and are always subject to the rules established by the Board for decorum and procedure. The Board of Directors shall not use work sessions or other informal gatherings of the Board of Directors to circumvent the open meetings requirements of this Section. Explanation: Notices, time frames and open meetings are an area of major controversy because of the passage of numerous amendments throughout the years without effectively integrating the new language with some of the old and impractical requirements. G. Email

Recommendation: 1. To be added to the Act, subject to signing a waiver, any owner can opt to receive all notices and official association communications via email. It is the responsibility of the unit owner to notify the association of any changes in address. 2. The board of directors is permitted to communicate one on one via email without being accused of holding secret meetings so long as open meetings, board notes and other meeting formalities continue to be preserved. 3. waivers. H. Purchase or Sale of Property Any owner can opt to receive written notice, including revoking previous

Recommendation: An association by a vote of 2/3 of all the owners, at a special meeting called for this purpose, shall be permitted to buy or sell, obtain or transfer clear title to a portion of the common elements or common areas when the revenues derived shall be used exclusively for the benefit of the association. Explanation: Sometimes an association owns a part of the property, i.e. a vacant lot, a janitors unit, parking space, which are deemed part of the common elements.

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Current procedures are confusing or in some instances contain 100% approval requirements which are nearly impossible to obtain. I. Merger and Consolidation

Recommendation: The Act shall be amended so when two or more condominium associations merge or consolidate, the respective percentages of ownership shall be merged and re-calculated based upon square footage. Explanation Sometimes two or more separate associations which were created by a developer for marketing purposes consider it would be in the best interests of the owners to preserve resources and reduce expenses by merging two or more associations. There is confusion over how to address the percentages of ownership. Section 18(b)(13)(i). J. Developer Turnover

Recommendation: Section 18.2(b) shall be clarified and revised so that the three (3) year time frame commence for turning over an association from developer to owner control, be mandatory from the recording of the initial declaration, not any subsequent amendments. Explanation: Section 18.2(b) provides that the developer turnover control of an association when the sooner of 75% of the units are sold or within 3 years of the recording of the declaration. Some developers abuse this process by adding on units and claiming the 3 year time then extends from the addition of units. K. Borrowing Money

Recommendation: Section 18.4(m) should be re-written to state that An association may commit to borrow money for association purposes by a vote of a 2/3 majority of the board of directors. Explanation: Section 18.4(m) is particularly confusing because it talks about pledging assets and what it is really saying is borrow money. L. Financial Disclosure Recommendation: Section 18(a) be deleted and revised as follows:

(7) that the board of managers shall annually make available to all unit owners (a) a balance sheet and income statement of the common expenses for the preceding year actually incurred or paid, (b) an indication of which portions were for reserves, capital expenditures or repairs or payment of real estate taxes (c) a tabulation of the amounts collected pursuant to the budget or assessment, and (d) showing the net

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excess or deficit of income over expenditures plus reserves within 60 days of the close of the fiscal year.1 Explanation: Each year all unit owners are supposed to receive a copy of a year-end financial review prepared by the board. However, under Section 18(a) it is unspecified as to what is currently required under the Act. M. Specific Revisions to the Act Recommendation: 1. That the Definitions section be supplemented with the following: Common Areas Real property owned by the Association for the use or benefit of the Owners. Member An Owner of a unit, lot, home or other property in an Association subject to a Declaration. (j) (l) (n) Documents. 2. of Managers. 3. Section 4 Add The defined maintenance responsibilities of the Owner and the Association. 4. Section 4.1 - Delete (a) in its entirety and substitute In all instances, this Act shall govern and supersede: (a) Delete (1). (b) Delete (2) or of any specified units. (Insert after perimeter walls, where structural in nature.) (c) Delete (b) in its entirety and substitute: To the extent of a conflict between the provisions of the Declaration, By-Laws or other governing documents, the Declaration shall prevail, except to the extent the Declaration is inconsistent with this Act. 5.
1

Delete Registrar of Titles (obsolete). Add Rules and Regulations and Governing Documents. Delete Condominium Instruments and substitute with Governing

Additional Definitions Board of Directors synonymous with Board

Section 8 Add Common Areas to definition.

Note This was ACTHAs recommendation.

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6. Section 9(a) First conveyance shall include the first conveyance of each phase in an add-on Condominium. Section 9(b) Substitute Governing Documents for Condominium Instruments. Paragraph (3) Substitute Governing Documents for Condominium Instruments. Paragraph (4)(g)(i) Delete shall and substitute with must. Paragraph (4)(g)(2) Delete in its entirety. Paragraph (e) Should be relocated to Section 4.1. Paragraph (g)(4) and (5) Delete Condominium throughout. Paragraph (h) A lien may be recorded against any Unit or Units or any property still owned by the developer for any unpaid assessments or Common Expenses. This lien may be recorded by any Owner prior to turnover of the Association to owner control. Thereafter, only the duly elected Board of Directors may do so. 7. Section 10(a) Delete Master and substitute with Community.

Add Section (d): In the event a developer refuses or fails to convey title to the Common Areas to the Association within sixty (60) days after the election of the first Unit Owner Board of Directors, after sending written demand to the developer to his last known address, the Association can apply to the Circuit Court in the County in which the property is located at any time, to either order the developer, or in the alternative, execute a judicial deed conveying said property to the Association. Should the Association be required to apply to the Circuit Court for this relief after a thirty day written demand to the developer, the Association may seek recovery of all of its attorneys fees and costs incurred from the developer. Add Section (e): In the event real property owned and used for residential purposes by an Association has not been assessed at $1.00 per year by the County Assessor, the Association may make an application for a reduction to $1.00 per year and said reduction shall be retroactive to the date of recording of the Declaration for any Association owned parcels. 8. Section 14.2 Delete Condominium Instruments and substitute with Governing Documents. Add Common Areas after Common Elements. Delete Condominium.

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9. Instruments.

Section 14.3 Substitute Governing Documents for Condominium

Add or installation of a master antenna or dish. 9. Instruments. 10. Section 18(a)(3) Delete in its entirety and substitute with: Members of the Board shall not be compensated. Section 18(a)(4) Delete in its entirety and substitute with: Members of the Board may be removed after notice of a special meeting is sent to all Owners, and a majority of more than two-thirds (2/3) of all Owners voting in person or by mail-in ballot, vote to remove said Director(s). A director may be removed or suspended FOR CAUSE, after notice and an opportunity for hearing by a 2/3 majority of the Board. For Cause shall be defined as any illegal act including the commission of a crime, financial improprieties or any action(s) which is detrimental to the health, safety and welfare of the property and/or its residents. Section 18(a)(6) Delete at least 30 days prior to the adoption thereof by the Board of Managers and substitute with that each Owner shall receive, with the notice of the meeting of Owners,. 11. Paragraph (a)(8)(i), subparagraph (v) Delete Section 17(b) Substitute Governing Documents for Condominium

Subsection (ii) delete in its entirety everything following except. Insert after employee, or contractors. Add (iv) or where Board business is being conducted. (a)(11) Delete in its entirety and substitute with Members of the Board shall be elected for a two (2) year term and Board members may succeed themselves. (a)(14) Delete in its entirety and substitute with: A majority of the Board shall constitute a quorum. (a)(16) Add Violation of this section shall constitute a conflict of interest. It shall also be a conflict of interest for any member of the Board to vote on any matter wherein they have a direct economic interest or derive a direct economic benefit, with the exception of ownership of a unit. (a)(18) Delete in its entirety and substitute with: Proxies are hereby abolished effective immediately. Association elections or referendums may be conducted by mail-in or email ballot, subject to rules adopted by the Board, as well as in person.

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(b)(1)(7) Delete in its entirety and substitute with: All voting shall be on the basis of one vote per unit for any election or removal of directors. (b)(2) Delete in its entirety and substitute with: The Association shall have only one class of membership and there shall be no distinction between resident and non-resident Owners. (b)(9) Delete in its entirety (b)(9)(B) Delete 120 days and substitute with 60 days. Add A Board can adopt rules to eliminate nominations from the floor at an election meeting, unless there are an insufficient number of candidates to fill all vacancies or the Board has failed to establish procedures for nomination prior to the meeting. (b)(10) Delete issuing a proxy. Add Paragraph (14) Cumulative voting is hereby abolished. (g) Add All management companies must maintain their own General Liability, fiduciary bond and Errors and Omissions insurance, and annually, provide the Association proof upon request. Also add All records of the Association are the property of the Association and any third party in possession of books or records belonging to the Association shall deliver same to the Board of Directors upon ten (10) days written notice. Failure to do so may result in said third party paying all costs and expenses, including legal fees incurred either for the recovery or re-creation of said records. (i) Delete in its entirety and substitute with: That upon ten (10) days notice to the manager or Board of Directors and payment of a reasonable fee, not to exceed 25% of the monthly assessment, any Unit Owner or his attorney shall be furnished a statement of his account setting forth the amount of any lien or unpaid assessments or other charges due, a waiver of the right of first refusal, if applicable, and any and all documents, records or disclosures required under Section 22.1 herein. The Association may also add any out of pocket costs such as copying and postage, separately. Add to Section 18 No Owner may vote or run for or serve on the Board of Directors if they are currently delinquent in the payment of any regular or special assessments for more than 60 days. (q) Delete Condominium Instruments and substitute with Governing Documents. 12. Section 18.2(a) Add: A developer, or his representative(s), acting as the Board of Directors, shall have a fiduciary duty to all members of the Association.

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(b) Delete everything after the word earlier. (i) Insert email address of candidate after address. (iii) Delete by filing a petition for such meeting with the developer. (c) Delete in its entirety. 13. Section 18.3 Delete Condominium Instruments and substitute with Governing Documents. 14. Section 18.4(m) Unless expressly provided for in the Declaration or By-Laws, the Board of Directors can, by a 2/3 majority vote, incur indebtedness on behalf of the Association without the consent of the members. 15. The last three paragraphs of Section 18.4 should be identified as Paragraphs (s), (t) and (u). 16. Section 18.4, third paragraph, add: or debt collectors as defined by the Fair Debt Collection Practice Act. 17. Section 19(b) Delete the right to inspect, examine and make copies, and substitute with shall the right to obtain copies. Delete in person or by agent at any reasonable time or times at the Association's principal office. (e) Delete in its entirety. (f) Add: Failure to pay any costs incurred shall constitute a lien on the requesting Owners Unit until paid. Condominium Instruments shall be substituted with Governing Documents. 18. Section 22 Add: (6) In the event developer collects any additional funds at closing, other than current or pro-rated assessments and/or prepaid insurance premiums, if applicable, said sums shall be deposited in a separate interest-bearing account designated for funding the Association's reserves, and may not be used by the developer-controlled Board to subsidize any shortfall in the Operating Account or for capital expenditures. The developer shall be liable for any shortfall or difference. 19. Section 27(a)(ii) - Condominium Instruments shall be substituted with Governing Documents. Paragraph (a)(ii) Delete or with respect to property whose Declaration is recorded on or after July 1, 1984.

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(b)(i) Add (1)(a) The aforestated shall also be applicable to any amendment which updates, modifies or amends a Declaration or By-Laws in order to bring into conformity or compliance with changes in the law. (b)(2) Add: The aforestated shall also apply in the event the developer fails to develop all proposed Units or designated specific Units for common purposes, and the Board of Directors is desirous of adding said property and submit same to the Act. The reallocation of percentages of ownership shall be in accordance with calculating the square footage of the Units to be added in, relative to all existing Units. (b)(6) Add: or to correct a material error or omission. 20. Section 32 Add: (d) The Board of Directors shall have no obligation to mediate or arbitrate disputes between Owners where the Association is not a party. N. Commentary on Pending Legislation

Recommendation: The right to amend a declaration to eliminate or restrict rentals should remain unimpaired and within the exclusive purview of an association according to its governing documents. However, a board of directors of a condominium association shall be empowered to grant an exception, in their discretion, for a qualified 501C(3) organization intending to purchase property in an association to lease to low or moderate income persons. Approval will not be unreasonably withheld. All other existing leasing restrictions should be grandfathered enforceable. Explanation: The reason for these changes include realistic amendments to specific sections that have become irrelevant and may no longer be practical.

II.

NEW LEGISLATION A. Developer Abuses

Recommendation: During the new development process or the conversion of existing real property, all developers of more than 20 units be required to post a warranty bond equal to 1% of the gross sales in escrow with a nationally recognized title insurance company located in the city or town where the property is located, which shall accrue interest and shall be released only upon the mutual agreement of the parties. All developers of 19 or less units shall be required. If the sum shall remain in escrow for a period of 180 days from last closing and if no agreement is reached, then the dispute shall be submitted for Alternative Dispute Resolution, and any agreement or findings shall be final. In the event no resolution is reached, judicial action may be taken. The loser shall be required to pay attorneys fees.

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Also, no transaction shall close without a certificate of occupancy, and no municipality shall issue one without a complete inspection of the premises. Any developer failing or willfully refusing to make a good faith effort to repair warranty defects shall pay the attorneys fees if they lose when they get sued. Violation of this section may be deemed to constitute consumer fraud and may be subject to civil and/or criminal sanctions enforceable by the office of the Attorney General. Explanation: During the real estate boom of the last decade a number of multifamily residential properties were converted to condominiums (some as small as 2-flats). In a smaller building, if one or more units remained unsold, or if even one owner defaulted on their mortgage, this created an extreme economic hardship for the remaining owner(s). Many developers were undercapitalized and cut corners during construction and there was no accountability and no recourse for poor construction standards other than hiring an attorney and filing suit. Once local government performs an inspection and issues a permit for each major area of construction under local ordinance, there is no other recourse if the developer fails to stand behind their product. Municipalities, under Illinois state law, are immune from liability for permitting faulty construction to be sold. Litigation is extremely costly and beyond the means of many associations because they would also have to pay expert and legal fees, still make essential repairs and have no guarantee of ever recovering their out-of-pocket costs. Developers can be judgment proof or file bankruptcy. Municipalities require developers to post cash bonds or irrevocable letters of credit to guarantee the completion of public improvements only so they do not become a burden for the taxpayers, if the developer becomes insolvent. Buyers and future Owners should have statutory protection with teeth, either through criminal sanctions, prosecutorial actions of the Attorney General al Consumer Fraud or through the office of the newly created Ombudsman/Administrators Office. First, buyers need to be protected from developers. As previously stated, current disclosure laws do not go far enough on fully informing buyers of what they are getting into. Just like insect infestation, Radon, lead paint and other pamphlets, the condominium and homeowners Association disclosures should be mandatory, as well. Developers, as a condition of closing, must present current financial information, i.e. money on deposit, bills owed, subcontractors owed, liens of record or about to be filed, estimated real estate taxes per dwelling and a number of other issues the buyers get stuck with and only have recourse through hiring legal counsel and filing suit. Currently, buyers of used cars need only go to a website to get the complete history of the car (Carfax), yet buyers of homes do not have this opportunity. By adding an attorneys fees provision to the disclosure section (22) and expanding the required disclosures, consumers can be better protected. Likewise, owners need better protections from abusive or over-reaching Board members. Prohibitions should be added regarding sanctioning Boards for retaliatory litigation against

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owners who file administrative proceedings or lawsuits. Likewise, sanctions should also be imposed on property managers that fail to abide by the law regarding turnover or disclosing records, charging abusive fees, etc. These are the biggest complaints owners seem to have against developers, Boards and managers. B. Common Area Tax Liability

Recommendation: 1. If the developer fails or neglects to convey all common area parcels within 18 months of turnover, the association after serving written notice and demand on the developer at his last known address, may apply to the Circuit Court for issuance of a Judicial Deed conveying said parcels to the Association. The Circuit Court shall be empowered to enter a judgment against the developer for all the associations attorneys fees, unpaid costs and fees. Notice can be posted and/or published in the same manner as a foreclosure. 2. If at any point in time an Association applies for real estate tax exemption ($1.00 per parcel) currently provided by law, said exemption (a) shall be permanent until or unless the material nature and/or use of the property shall change, (b) and the granting of any exemption shall be retroactive to the day that the developer turned over control of the Association to the unit owners, and (c) the County Assessor shall have the burden of proof to demonstrate the exempt nature of the property has abated or is no longer applicable. Explanation: Homeowners associations, and multiple association planned communities with a master association (and sometimes condominiums) generally own parcels of land known as common areas (see new definition). Section 10 of the Act, and Section 10-35 of The Property Tax Code provide that these parcels shall be taxed at $1.00 per year. However, the burden is on a new association to apply for the Exemption of $1.00 since the developer cannot under current statutory language. Many new boards overlook this detail when control of the association is turned over to the unit owners. Further, in Cook County, even after the property has been granted the statutory exemption, the association will frequently find that the property several years later has been returned to the assessable tax rolls after a triennial reassessment. This procedure is cumbersome, costly and patently unfair. It puts the burden solely on the owners who take over a board, sometimes after sizeable penalties and interest have accrued. Further, if a property that should have been exempted is overlooked, it can accrue unpaid taxes, penalties and interest for years until it may come to the association boards attention. Now, the association has incurred a massive tax liability and even if the board files a Certificate of Error with the Assessor, they will only roll back a year or two of the tax liability. Sometimes someone may buy the taxes, and even though the property is unbuildable it usually has to be repurchased by the association at great bother and expense. Lastly, associations frequently learn about unconveyed common areas years after turnover. A defunct developer neglected to deed the property to the association and it was held in trust. The trustee sends all the notices to an invalid address. Now, not only do you have a large tax liability, you do not even have ownership.

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C.

Property Manager Registration2:

Recommendation: 1. In order for a company or individual to manage property or work for a management company as a property manager in the State of Illinois, all individuals and companies shall register with the Department of Professional Regulation. A fee will be paid for said registration and a Certificate shall be issued verifying registration. (Registered Property Manager (RPM)). 2. Every 3 years the Certificate must be renewed and as a condition of renewal, applicant must show proof of having completed no less than 20 hours of course work or seminar attendance or made presentations to managers for a recognized local, state or national organization or community college and proof of fidelity insurance. 3. The funds collected from registration renewals confirming education shall fund the office of an Administrator and staff and establish a Fund to help compensate associations who are victims of theft, fraud or embezzlement not covered by insurance. 4. Failure to register and continuing to do business as a multifamily residential property manager shall constitute a Class A misdemeanor. 5. Persons found guilty of a Class A misdemeanor shall not be eligible to obtain an RPM registration for one year. 6. Managers and management companies shall be responsible for all fees and tuition costs involved with becoming a registered property manager and shall not pass them on to the Associations. 7. The Department of Professional Registration shall maintain a realtime list of registered property managers, companies and their principles on its website. Explanation: 1. On the one hand, property managers and companies who manage hundreds of millions of dollars in real estate assets currently have no requirements for a license, certification, bonding or even minimal education. In 2007, the legislature adopted some very general standards with no enforcement mechanism or mandatory provisions or guidelines. 2. In the past few years, there have also been cases of financial impropriety by managers and the associations who have lost tens or even hundreds of thousands of dollars with little recourse. Even when claims are made under their own directors and officers insurance policies, claims are sometimes arbitrarily denied, extensive demands for documentation are imposed and frequently coverage is inadequate. Those who support licensing
2

Note There is a division on this issue.

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of property managers advocate state regulation, mandatory education, continuing education, and state control over the custody of funds. The counter-argument has been made that you cannot legislate honesty and integrity. Licensing will only create another level of bureaucracy and diligent boards should be involved in their own financial management. Although both arguments have merit, one gives pause to the fact that this is the only profession that is unregulated and only accountable to their own clients with no governmental regulation. Many condo owners feel that this is an additional cost which will be passed on to them. D. Dissolving Condominiums

Recommendation: In the event an associations ownership reflects that 2/3 or more of the units are owned by less than 1/3 of the owners for a period of no less than 36 months, the property will be decertified as a condominium and revert to multiple ownership. Each former unit owner of a de-certified property shall become a partial owner of the newly established multifamily property. Their former percentage of ownership of the common elements shall be converted to a corresponding percentage of ownership of the entire property as tenants in common with all other owners; however, none of the provisions of the Condominium Act shall apply. Explanation: Sometimes developers, even with all the best intentions are unable to sell all their units, or else sell a large number to investors. Hypothetical question When is a condominium no longer an association? When an inordinate number of units are owned by a single owner or small group of investor owners, it defeats the purpose of a condominium association and likewise other owners may be subject to the ill effects of self-serving economic decisions and conflict of interests by a select few. Condominium ownership should reflect a diversity of ownership or revert to a non-condominium; i.e. an apartment building. E. Clarify Maintenance Responsibility

Recommendation: Section 4.1 and Section 12 of the Act should be consolidated to include additional provisions: 1. elements. 2. of cause. The association is responsible for administering and maintaining the common

The unit owner is responsible for the interior and contents of their unit, regardless

3. Repair and maintenance of the limited common elements shall be the responsibility of the unit owner, unless otherwise stated by the board.

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4. Insurance coverage, clauses and exclusions for damage to unit, common elements and limited common elements shall be written consistent with these principles. 5. All unit owners shall purchase unit owners insurance for the interior and contents of their unit (HO-6) and all additions and improvements. Failure to obtain unit owners insurance shall constitute a waiver of any and all claims against the association for damages or loss to interior or contents. 6. All insurance companies offering unit owners insurance shall not be able to defer any claims to the associations carrier for the unit interior, personal property, contents or improvements unless there is a showing of gross negligence or indifference on the part of the association. 7. Cabinets, appliances, duct, conduits and wiring are the responsibility of the unit owners and their carriers. 8. purposes. Owner paid repairs can be tax deductible by reducing the unit cost basis for tax

9. All damages to the property including units and common elements caused by a unit owner, unit occupant or guest shall be charged back to the unit to the extent it is not covered by the unit owners insurance. Explanation: Section 12 of the Act governing insurance was revised significantly in 2003 and instead of clarifying, the law made it more confusing. There should be statutory guidelines as to who pays for what and they should supersede all documents. Section 4.1(a) of the Act should be repealed as it applies to maintenance and insurance coverage. It states Except to the extent otherwise provided by the declaration or other condominium instruments: . . . . This phrase alone causes more inconsistency and expense for associations than probably any single provision of the Act. It allows the documents to take precedence over The Act. Section 4.1 which outlines maintenance responsibility and Section 12 which governs insurance coverage should be brought into sync in clear unambiguous language that ends this controversy once and for all. F. Corporate Status and Service of Process

Recommendation: It shall be mandatory that all associations are incorporated as Illinois General Not for Profit Corporations and remain in good standing by complying with State law including the filing of an annual report. All fees of incorporation, annual reports, etc. shall be increased and the new revenue shall be earmarked for use by a new Office of Association Governance (or ombudsman/administrator, etc.), as the regulator of all associations in the State of Illinois.

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Explanation: All claims, notices, summons and subpoenas served on any Illinois Association must be served on their registered agent. More notices are lost, unable to be served, or defaulted due to erroneous information or the fact that an association is not incorporated or a Board member or manager was the registered agent and are long gone. G. Financial Records

Recommendation: 1. Every association must have an independent financial review or audit no less than every two years. Failure of a Board to do so may be subject to a fine or civil penalty. 2. The aforestated shall also be added to Section 22, 22.1 and Section 19 regarding disclosure of records. Explanation: The provisions dealing with financial disclosure and recordkeeping are ambiguous and confusing. In an age of computers, the old ways of doing business should be obsolete. In addition, regardless of the outcome of manager licensing or registration, there must be independent scrutiny of association financial records on an ongoing basis. H. Commercial Space in Mixed Use Properties

Recommendation: All commercial, business or office space contained within a building occupied by a residential condominium association shall pay a proportionate share of all common expenses for shared facilities calculated on the basis of square footage. In the event a business condominium co-occupies the property, their proportionate share of the common elements shall be calculated on the basis of square footage only. Any unpaid portion of the common expense shall be a lien on the interest of the property owner. Explanation: Twenty-first century urban development includes a large percentage of buildings with residential space sharing facilities and amenities with commercial. The residential association must be protected with respect to a fair contribution toward the associations obligations to maintain the property. The developer has the discretion whether to make the commercial property condominiums, however, in all instances whether commercial space is part of the condominium or cohabitates with the association, there must be a fair allocation of common expenses. Many developers put self-serving provisions for the business or commercial users.

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I.

Office of the Condominium Ombudsman (Administrator, Governance, etc.) The creation of the Office of the Community Association

Recommendation: Administrator.

1. The Administrator will not be required to investigate every claim made regarding: maintenance of the property, alterations of common elements or facilities, or violations of rules or covenants. This will be subject to the Offices discretion 2. The Administrator may review within his discretion complaints dealing with criminal or discrimination matters and may refer them to the appropriate Federal, State or local agencies. Matters pertaining to managers shall be referred to the Department of Professional Regulation. 3. The Office of the Administrator shall create a mediation panel. Attorneys, accountants and other licensed or trained professionals may sign up and be registered to serve on the panel. Any two or more aggrieved parties may file a petition requesting mediation. A member of the panel shall be assigned to mediate the dispute by which the parties agree to be bound (binding mediation). The mediator shall be paid a fee for each hour, or flat fee per session, to be apportioned equally by the aggrieved parties. The Administrator shall establish a schedule of fees. 4. The Administrator shall certify all education programs for the Department of Professional Regulation as appropriate for certification and continuing education of property managers and other professionals and make them known on a website. 5. The Administrator shall be consulted by the Legislature on all new proposed legislation materially impacting associations or their members. 6. The Administrator shall operate the office similar to other agencies regulating professionals where all matters requesting attention shall be discretionary or a right to sue letter will be issued. (EEOC, ARDC, etc.) 7. The Office of the Administrator shall disseminate statewide educational materials for buyers and owners of condominiums. Explanation: 1. This organization would be empowered to act as a liaison between owners, boards, managers, developers, etc. It is intended to act as an arbiter of condominium disputes whether it is for an election, rules violations or misconduct. 2. In the State of Florida, what began as a project with good intentions (the Ombudsman) became embroiled in controversy and subject to pointed criticism due to the perception that it had become strictly an advocate for owners interests.

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3. In order for an Ombudsman or association Administrator to be effective, it must (1) be totally independent to be objective and even-handed towards all interests, and (2) it is virtually impossible to intercede in all disputes without having a massive staff and huge budget. To create a State Administrators Office, the State of Illinois must begin with modest goals. Funded and staffed in the beginning through the contributions of associations, managers and developers, it should begin as an investigatory body, with limited police powers. J. Mandatory Mortgage Notification for Amendments

Recommendation: The Act (Section2) shall be amended to provide that provisions contained within declarations requiring notification to mortgagees of routine amendments shall be null and void. Explanation: Most declarations are written to require written notification, and in most instances the approval of first mortgagees for any and all amendments. This is expensive and over burdensome for most associations that wish to merely change the size of the board or eliminate dogs, etc. Mortgagee and/or village approval should only be required where the interests of the Village or the mortgagee are materially affected. Otherwise, such requirements are null and void. K. Occupancy Limits

Recommendation: The Association shall be permitted to amend its declaration to limit the number of occupants per unit on the basis of bedroom count or square footage when there is a good faith showing that it is to prohibit a material negative impact on sewer, water, traffic, refuse and parking. L. Smoking

Recommendation: Smoking should be prohibited in all common areas and associations may amend their documents to eliminate smoking from inside dwelling units. In such an event, notices that This is a smoke free building shall be prominently displayed throughout the property. Explanation: Smoking in public and even private areas is becoming less and less commonplace. However, there are some community associations that have been remiss or even refuse to prohibit smoking in public areas. The State of Illinois, as in many other jurisdictions, have stepped up in this area. This should be made applicable to associations due to close proximity of residential units. M. First Right of Refusal (The Association has the right to purchase a unit on the identical terms of any buyer.) A board of directors by the vote of 2/3 majority may exercise the

Recommendation: right of first refusal.

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Explanation: A carryover from the days when one of the only known types of community Associations was a cooperative (Co-Op). The pre-emptive right of an Association is based upon an Illinois Appellate Court case that is followed nationally on enforcement of this restriction (Gale vs. York Centre, et al.). Although over the years it has been diluted due to abuses, particularly in the area of discrimination, for condominium Associations in particular, it is more of a burden than a benefit. Lastly, it can be used for discriminatory purposes. O. Reverse Mortgages and Other Methods of Creative Financing

Recommendation: No Board of Directors should be permitted to impair or restrict the rights of an Owner to secure a reverse mortgage or other similar financing, so long as on its face it does not adversely affect the rights of an Association to collect assessments. Further, no fees may be levied by the Association to process the paperwork necessary to close on a reverse mortgage transaction. Explanation: Some older persons have assets that are in the equity of their home, and some seniors may chose to obtain a reverse mortgage or execute other equity transfer instruments.

P.

Managers Fees

Recommendation: Property Managers are entitled to charge reasonable fees for extraordinary services performed as a result of Owner needs or demands. Preparing files for legal proceedings, closings or other services, which directly benefit or impact a single Owner and charged back to that Owner, shall not exceed 25% of one months assessment fees. Explanation: 1. When Fair Debt Collection Practice Act requirements took hold in the industry, it impacted lawyers more than anyone else. A few management companies began to disregard limitations on the unauthorized practice of law and began performing legal services under the pretext of saving the Association money. In reality, it was a way to charge fees for services previously performed by the Associations attorney, although attorneys fees are provided for by statute and management fees are not. The turnover fee was in vogue and, in some instances, in order to send a ledger to the lawyer to commence legal proceedings or file a lien on a delinquent account, some managers began charging delinquent Owners as much as $250.00. Then the Board expected the lawyer to recover assessments, costs or legal fees as mandated by the Statute and these turnover fees. 2. In addition, some management companies in concert with their Association clients began to charge in excess of $100.00, $200.00 and even more for closing packets required by lenders and setting arbitrary and unreasonable advance deadlines to request a packet or pay a penalty. Frequently, this is due to the closing not being scheduled until the last minute. This imposed a serious burden on buyers, sellers, their lawyers, realtors, etc.

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Managers are entitled to recover a reasonable fee for additional services outside their contract fee, however, when it is to be paid by an individual Owner, there should be limitations. Just as legal fees recoverable in a lawsuit are set by a Judge, limitations on extraordinary managerial fees should be regulated by state law. Therefore, the Council recommends that the following be enacted: Q. Small Associations

Recommendation: The Council recommends the adoption of a new section of the Act, which relieves Associations of 20 units or less of the following requirements: 1. All Boards can be three Directors or more who will be elected annually. Three Directors must be present for any Board meeting to constitute a quorum. All owners voting shall be on the basis of one vote per unit format.3 The budget, rules and regulations and any special assessment shall be passed by a simple majority of owners. Notices of Board and Owners meetings in single building Associations may be posted without individual notices being required except for off-site owners. Any litigation, except the collection of delinquent assessments, must be approved by the majority of the Owners. Any Amendments to the Declaration or By-Laws shall be passed by a 2/3 vote of all of the Members. The Members of the Association can, by a 2/3 vote, opt out of electing a Board and may hire a property manager, management company or other licensed professional and designate them as an Association Trustee. The Trustee will have the same decision making authority as a Board, shall have a fiduciary duty to the Members, must obtain directors and officers insurance individually, and may be terminated by a simple majority vote of the Members. The Trustee will be required to meet with the Owners quarterly. All bank accounts shall require 2 signatures. All of the other provisions of the Condominium Act would be applicable.

2. 3.

4.

5.

6.

7.

8. 9.

Note This is actually a consideration for all Associations. Voting by percentage of Ownership is really illogical and would certainly simplify all elections.

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Explanation: In the State of Wisconsin, for example, Associations under 20 units or less are relieved of some of the mandatory Association formalities imposed on larger properties. Ultimately, this would keep a lot of smaller Associations out of Court and even promote more harmonious relationships.

Respectfully submitted,

Condominium Advisory Council of Illinois

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