A Paid Assessment Letter is a receipt from the Homeowner’s Association that discusses your property’s account status. It will indicate whether your property has any outstanding fees, dues, special assessments, or fines. When the property is subject to an HOA, you will always disclose this on your purchase agreement. If you live in a townhome or a condominium, chances are that the Paid Assessment Letter will be an important step in your transaction. Sometimes, it can be a pain to find out who can prepare this document, even for attorneys.
Typically, the management company or Homeowner’s Association (HoA) issues your Paid Assessment Letter (PAL). Succinctly, paid assessment letters reflect the HoA’s balance due on the unit or home. Crucially, the PAL is required prior to closing a condominium or any HoA property under Illinois Law. To clarify, the PAL informs all parties that property is clear of any problems with the Association. This step will be critical for obtaining title insurance for your transaction.
Why do I need a Paid Assessment Letter?
Particularly, Illinois Law (Chapter 765, Section 605/22.1) requires a letter when selling a home governed by an Association:
(2) A statement of any liens, including a statement of the account of the unit setting forth the amounts of unpaid assessments and other charges due and owing as authorized and limited by the provisions of Section 9 of this Act or the condominium instruments.765 ILCS 605/22.1(b)
In fact, we call these documents “22.1 disclosures” because that’s the number of this law. Those documents are provided in every single condominium sale and for good reason. The Homeowner’s Association has great authority over your property. In fact, the law looks at them as someone who sort of owns that property just like you do. In reality, most homes have liens and covenants on them, whether they’re from utility companies, HoAs, or just simple mortgages. Importantly, those liens and covenants must be disclosed fully so everyone knows about them at the sale.
22.1 Disclosure in Illinois
The 22.1 disclosure must include a whole heap of documents under Illinois law. Some of the documents it must include are as follows:
- Association documents, including the original declaration, most up-to-date bylaws, and any other rules, and regulations.
- The contact information (including addresses, and typically phone numbers) for the Condominium Board, the HoA president, and other relevant parties inside the association.
- Outstanding liens, any unpaid assessments, and fines or other charges due within the building.
- A copy of the projected budget and capital expenditures (like the roofing, driveways, and common areas).
- The previous year’s financial statements.
- Disclosures of active legal action involving the homeowner’s association, the condominiums, or the land.
- Reserve funds, reserve studies, and a breakdown of how each of those funds may be spent.
- Any information on the building’s condominium (HO-6) insurance.
- Charges and concerns that may be relevant to the particular unit that will be sold.
What is a Paid Assessment Letter?
A paid assessment letter states that the homeowner has paid all dues, and lets the title company know that the property can close freely. When the Title Company receives this document, they know the Homeowner’s Association will be happy with the sale. So, just getting the Paid Assessment Letter helps everything go smoothly.
You might ask, what’s in a PAL? Well, it contains a good bit of financial information. Particularly, it should contain the monthly fees, the account balance, and disclose any moving fees. This is even in addition to the 22.1 disclosures we just talked about!
Therefore, if you’re selling a condominium or a townhome in Chicago, you’ll want to look closely at the PAL before you close. A good, informative Paid Assessment Letter will inform you about a number of requirements for the condominium including:
- The Overall Monthly Fees for the Condominium Association
- Whether there are any outstanding monthly fees.
- If there are any pending special assessments on the property.
- Whether the condominium’s Homeowner’s Association has any move-in or move-out fees.
- Which company to send the payments to, and what their address is.
- Whether the property has any inspection violations that might cause new fees to accrue.
Homeowner Association Specifics for Chicago
If you live under an HoA, assessment fees are a regular part of your life. These fees reflected on a paid assessment letter may include fees for the upkeep of your property. Usually, the monthly assessment typically includes landscape services, hallway cleaning, parking lots, and air conditioning. But, we often see other assessments include sanitation, heating, gas, and water bills. These usually depend on your specific HoA.
Sometimes, the HoA’s Board will vote to impose a special assessment for expenses that monthly fees can’t cover. Similarly, when the Board incurs raised service costs, they often use special assessments to pay those expenses. HoAs can and should avoid some of these surprise fees by asking the homeowners to contribute to reserve funds.
However, the homeowner is usually aware of pending special assessments. Sometimes, you may get a letter in the mail, inviting you to a meeting to discuss the unforeseen expense. Some common special assessment fees we see include resurfacing parking lots, roof repairs, and tree removal. While those issues aren’t exhaustive, for our communities that covers most of it!
Generally, fees are shared between all homeowners equally and proportionately, based on the number of units they own. The HoA sets the due dates for payment. As one would expect, refusal to pay fees can lead to legal action. Ultimately, in a worst-case scenario, this can sometimes end with the owner losing their properties in assessment foreclosure proceedings. This is quite a rare outcome, but having a Paid Assessment Letter in hand can help guard against shock and surprise.
How much does a Paid Assessment Letter cost?
The real answer is that the cost is dependent on the Homeowner’s Association. Now, while we see some variance in price across suburban Chicago, usually a Paid Assessment Letter costs about $100. Sometimes, when a seller orders the letter, the HoA charges them extra fees for administrative expenses, too. However, the best practice is to anticipate spending one month of dues in fees once you decide to sell your home. This will appease your HoA and help your transaction go as smoothly as possible. Everyone is happy with a smooth transaction.
What does a Paid Assessment Letter tell the Buyer?
If you are looking to purchase a property under an HOA you should research the assessments and include that in your monthly budget. You should also talk to current owners about how well the association manages their money and if possible see the HOAs reserve study. Buyers can also request additional documents and records if they ask. Commonly, buyers ask for additional documents like meeting minutes. Between the 22.1 Disclosures and the PAL, you might end up spending a few hundred dollars, but it will allow your attorney to give you a better picture about the investment you’re making into a new home.
Do I need a Paid Assessment Letter for every type of Sale?
No! But, you’re going to want to run a title search on every type of property. If you are purchasing a property at sheriff’s sale, you’ll wish you had the luxury of the PAL. Illinois has a somewhat obscure law, 765 ILCS 605/9(g)(1) and (g)(3), stating that purchasers at foreclosure sales or purchasers as a deed in lieu of foreclosure take subject to the liens existing on the condominium property at the sale. The past due assessments are a statutory lien that survives the foreclosure sale. So, if you are buying at the last step of foreclosure and bidding on sheriff properties, please call us before you do. We can save you thousands of dollars by examining the assessments and whether they’re paid!
While a Paid Assessment Letter seems like a simple document it can come with a lot of complications. Whether you’re a seller or a buyer, if you have an HoA you need to know how to navigate this process. With the aid of a knowledgeable attorney, you can be prepared to complete the transaction. Once you know the law you will save time, money and frustration at the closing table. We hope this article helped you, and if it did, please share it with the buttons below.
Credits and References:
This article was written jointly between Justin Abdilla and Kaylee Leffel.