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Over the past several years, there has been an explosion of new condominium developments in Chicago and throughout Illinois. While this boom is great for potential buyers, condominium developers are facing stiff competition and, more recently, less than stellar sales. In this challenging real estate climate, it is critical for condominium developers to comply with the mandatory provisions of the buyer-friendly Illinois Condominium Property Act, 765 ILCS 605/22. Failure to do so could provide an easy out for savvy buyers looking to rescind their contracts.
In order to protect themselves from the whims of fickle buyers, condominium developers should pay particular attention to two of the Act's provisions.
Full Disclosure
For starters, in relation to the initial sale of a condominium unit, the Act requires that the seller make full disclosure (and provide copies to the prospective buyer) of the following: 1) the condominium declarations; 2) the condominium association's bylaws; 3) a projected operating budget, which includes full details concerning estimated monthly payments for the condominium unit, estimated monthly charges for maintenance or management of the condominium property, and monthly charges for the use of recreational facilities; and 4) a floor plan of the condominium and the street address of the unit. Condominium conversions require additional disclosures, which are delineated in the Act.
If a condominium developer fails to make the necessary disclosures, the buyer may rescind the contract at any time before closing and receive a full refund of all deposit money plus interest at the rate in effect for interest on judgments (currently 9%). Notably, the right to rescind the contract is the only remedy provided to the buyer by the Act. If the declarations, bylaws and other documents are available at the time, the developer must fully disclose this information before the sales contract is executed. Once these documents have been furnished to the buyer, the developer cannot materially alter the contents without obtaining the approval of at least 75% of the buyers who then own an interest in the condominium. However, if these documents are not available at the time the sales contract is executed, the buyer has the right to void the contract at "any time up until 5 days after the last item of required information is furnished to the prospective buyer, or until the closing of the sale, whichever is earlier."
Escrow Requirements
A second critical provision, which is often overlooked, states that all deposit money must be held in an escrow account until title is conveyed to the buyer. These escrow funds must be segregated in a separate, interest-bearing account designated solely for this purpose. A separate, non-escrow account is insufficient because the funds would still be subject to attachment1 by the buyer's creditors, by the developer's creditors, or by one who holds a lien against the property in the event that a judgment is entered in their favor. Escrow funds, on the other hand, are safeguarded because they are not immediately subject to attachment.
The Illinois Condominium Property Act is clearly intended to protect the interests of buyers. Therefore, whether you are already a developer or you are just getting started in the business, it pays to familiarize yourself with the Act and make certain you are meeting all of its requirements. Don't give a buyer an easy opportunity to rescind a sales contract over a technicality that could have been avoided.
1According to Black’s Law Dictionary, attachment in this context is defined
© 2010 Much Shelist Denenberg Ament & Rubenstein, P.C.
