Category: chicago

Why Chicago Landlords Should Not Take Security Deposits

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I should first and foremost make it perfectly clear that the follow advice is geared specifically toward Chicago (and maybe also Evanston) residential landlords.  If you are a commercial landlord, or a residential landlord somewhere else in Illinois, feel free to scroll past this to another blog post, because it does not apply to you.

Now that I have the major disclaimer out of the way, let me tell you why it’s a bad idea to accept security deposits in Chicago.  The City of Chicago has a law on its books called the Chicago Residential Landlords and Tenants Ordinance (RLTO).  The RLTO imposes a number of fairly onerous requirements on landlords with respect to security deposits.  For example:

  • Security deposits must be held in a federally insured interest-bearing account and cannot be commingled with with the landlord’s assets.
  • The name and address of the bank where the deposit will be held must be disclosed  conspicuously in the lease.
  • Upon accepting the deposit the tenant must be given a written receipt with the name of the person receiving the deposit, the name of the landlord (if not the person receiving the deposit), the date, and a description of the dwelling unit.  The receipt must also be signed by the person receiving the deposit.
  • Interest must be paid to the tenant on all deposits held more than six months.  Interest is paid once a year at a rate established by the city comptroller.  The landlord is responsible for figuring out how much.
  • Any deductions from the deposit for repairs must be itemized in a written statement, accompanied by supporting invoices.  These documents must be given to the tenant within 30 days.

And the list is not exhaustive!  The consequences for violating any of these requirements are damages in an amount equal to the amount of the security deposit and payment of the tenant’s legal fees and costs!  And believe me, there are handful of attorneys here in Chicago, who are more than happy to build up a massive bill just to stick it to the landlord.  Can you imagine owning a 100 unit building and having to comply with all of these requirements for every deposit you receive?  You would never get anything else done.

Fortunately there is a solution called the non-refundable move-in fee.  Some savvy landlord figured out that if the up front payment by the tenant is not refundable, it is not a deposit.  The fee is typically $500-$1,000 for each move-in, and it is not given back to the tenant at the end of the lease term.  Now that it isn’t a deposit, you do not have to meet the requirements of the RLTO; at least with respect to security deposits.  Importantly, the Courts have endorsed this strategy.  In Steenes v. MAC Property Management, LLC, the Illinois First District Appellate Court held that a move in fee is not a security deposit under the RLTO, as long as the amount of the fee is considerably less than the monthly rent and it is not refundable. 2014 IL App (1st) 120719.

Let’s face it, the upside for having a security deposit is far outweighed by the potential liability faced for a violation.  Take my word for it, the Courts take the RLTO very seriously, and if you find yourself in this situation, it will be expensive.  It also makes sense from a business perspective.  Unless you don’t properly vet your tenants, most of them are not going to trash your place, regardless of whether or not you are holding a security deposit.  If you bank the move in fees, you’ll have money in your pocket to deal with the naughty tenants.  And you’ll never have to write a check to a tenant who has already stiffed you on rent (or their attorney).

I spend an inordinate amount of time writing on real estate transactions, so this one is for all of you landlords.  An eviction is a big deal for any landlord.  They are expensive.  Not only are you paying an attorney, but you also have to fund mortgage payments and other costs out of pocket until you can get rid of the bad egg and replace them with a paying tenant.  If you find yourself in this situation, I recommend acting quickly.  The eviction process can be lengthy, so the sooner you call me, the better.

As always, please do not hesitate to contact me at 773-632-8330 or patrick@loftus-law.com.  And finally, as always, I am honored by your referrals.  To learn more about my practice, please contact me!

Closing Costs Part 4 – Miscellaneous Charges

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In the first three installments of my series on closing costs, I addressed real estate tax credits, title charges and lender costs.  This fourth, and final, last installment will address the last category of closing costs – everything else.  As you review your closing costs with your attorney at the closing table, it may feel like everyone is taking their pound of flesh from the transaction.  That is because it is essentially true.

Transfer Taxes

Whenever you buy or sell real estate, the government sticks its hand in your pocket.  The amount of the tax depends largely upon the location of the parcel.  The State of Illinois always gets $1 per $1,000 of the purchase price and the county gets half of that.  Municipalities have the authority to set their own individual taxes.  Some have none at all (eg. Palatine), and some are fairly hefty (eg. Chicago – $7.50 per $1,000 of the purchase price for the buyer and $3.00 per $1,000 of the purchase price for the seller!).  Unfortunately, in most instances these taxes are unavoidable.

Real Estate Broker Commissions

The brokers are paid from the Seller proceeds.  The amount they are paid is determined by the terms the listing agreement.  The brokers’ commission is usually 5% or 6% of the purchase price.  Regardless of the total commission, the listing broker gets a broker co-op commission of 2.5% of the purchase price paid by the listing broker from the total commission.

Recording Fees

The title company will record the deed and mortgage at the county recorder’s office to let the whole world know that you now own the property (and a mortgage on said property).  Of course, the buyer is expected to pay the recorder’s for this.  The cost is usually between $120 and $130 total.

Survey

If the property is a single-family, detached residence, the seller is required to provide the buyer and title company with a survey.  The cost of a survey is roughly $450.  If the property is a condominium, no survey is necessary.

Attorney Fee

Obviously, this is the most important cost of all!  It is crucial to have a good attorney (like me) to protect you when hundreds of thousands of dollars are at stake.  Attorneys, such as myself, who handle residential real estate transactions charge a flat fee paid at closing.  At the time of publication, LoftusLaw charges $500.  What a bargain!

Thus concludes my series on closing costs.  Your experience may vary, as each transaction is unique.  If you have questions about closing costs, or any other real estate matter, as always, you can contact me at patrick@loftus-law.com or 773-632-8330.  To see what my clients have to say about me, please visit me at avvo.com or on my Google + page.

New IHDA Program Offers Up To $50,000 In Assistance To Under Water Homeowners

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The painful memories of the housing bubble are quickly fading amidst the red-hot real estate market here in the Chicago area.  However, the good news is not universal.  Some homeowners live in sort of a limbo where they can just afford their mortgage payment, but they cannot possibly sell their home due to the fact that they owe more than the property is worth.

There may be hope for some of you.  The Illinois Housing Development Authority (IHDA) has introduced a program for qualifying homeowners to receive up to $50,0o0 toward the balance due on their mortgage and refinance into a more affordable loan based on the market value of their home.  The following eligibility requirements must be met:

  • Current on your mortgage for at least 12 months
  • Live in the home as your primary residence
  • Credit qualify for a new IHDA mortgage through a participating lender
  • Be within IHDA’s income and home price limits 
  • Credit score must be at or above 640
    • 640 for Conventional, VA and USDA
    • 660 for FHA
  • Pre-assistance combined loan-to-value must be greater than 110%
  • Post-assistance loan-to-value will be 90-97%

The income and home price limits for the Chicago area vary depending on the number of people in your household and whether your home is new construction, existing or multi-unit.

If you qualify, I would strongly encourage you to reach out to one of the participating lenders.  Free money, after all!

If you have questions about this program, or any other real estate matter, as always, you can contact me at patrick@loftus-law.com or 773-632-8330.  To see what my clients have to say about me, please visit me at avvo.com or on my Google + page.

Closing Costs Part 3 – Lender Charges

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The third installment of my posts on closing costs focuses on charges you may incur at closing from your lender.  The vast majority of buyers do not have the cash to plunk down a few hundred thousand dollars to buy a home.  As a result, most real estate transactions involve a loan through a mortgage broker.  Not surprisingly, lenders do not work for free, and there are a number of costs you can expect to incur in connection with borrowing their money.

Unlike title charges and real estate tax credits, lender charges vary quite a bit depending on the lender and loan product you choose.  However, there are some charges and costs that you can generally expect to see on the closing statement.

Origination Fee

Lenders often charge an origination fee for a new loan.  Ostensibly, this is the charge for the work necessary to vet you as a borrower and process the loan.  This charge is typically in the range of $1,000, although it varies from lender to lender.

It is worth mentioning, that the lender is making much more than just the origination fee in terms of profit from originating the loan.  Mortgage brokers make the bulk of their money on something called the yield spread premium.  The yield spread premium is the difference between the interest rate at which the broker can borrow money from the end lender and the interest rate at which you borrow the money from the broker.  That may sound a little unfair; however, it is important to understand that, as a borrower, you do not have access to end lenders who provide the funds.  In addition, banks the fund loans from their own money do not offer better rates than mortgage brokers.

Appraisal Fee

Whenever you borrow money to be secured as collateral for repayment of the loan, the lender wants to know that the collateral has enough value to repay the lender if you cannot.  Fair enough.  As such, part of the loan process involves having an appraiser determine the value of the property.  Typically, this costs somewhere between $300 and $500.

Miscellanous Fees

There are several fees you may see on the settlement statement of a relatively small amount, which I typically characterize as “junk” fees.  For example, there may be a credit certification fee ($10-$100).  This is the fee from the service used by the lender to obtain transcripts of your tax returns from the IRS.  Sometimes you will see a flood certification fee (usually around $10).  The lender wants to see whether the property is in a FEMA flood zone, and determine whether to make you pay for flood insurance.  You may also see a fee for obtaining your credit report (between $10 and $50).

Prepaid Interest

When you make a mortgage payment, you pay interest for the preceding month.  As a new borrower, your first mortgage payment will not be due until the beginning of the second full month after the closing date.  This leaves interest for the month of closing unaccounted for in the loan payments.  Since interest accrues daily, it is customary to pay the interest for the remaining day in the month of closing at closing.  This is not exactly a loan charge, but it is something you will need to pay at closing.  The amount varies depending on the amount you borrow, the interest rate and the time of the month you close.

Impounds

In most cases, the lender will set up an escrow account for the borrower to handle payment of property taxes and insurance.  Every month, the borrower pays some money into the escrow, and when the bills are issued, they are paid from the funds in escrow.  At closing the borrower puts some money into the escrow to get it started.  As with prepaid interest, it is not a charge, insomuch as the money still belongs to the borrower and will be used to pay the borrower’s property tax and insurance bills.  The amount that goes into the escrow varies depending on the amount of the annual tax and insurance bills and the time of year the closing occurs.

As mentioned above, the lender costs can vary quite a bit depending on the lender and loan product.  Do not necessarily be concerned if your settlement statement has additional costs or is missing some of these charges.  What you should do to make sure you are not taken to the cleaners is to hire a good real estate attorney, like me, to make sure the charges are accurate!

If you have questions about real estate closings, or any other real estate matter, as always, you can contact me at patrick@loftus-law.com or 773-632-8330.  To see what my clients have to say about me, please visit me at avvo.com or on my Google + page.

Chicago Property Tax Rebates End Tomorrow

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Many of us were caught by surprise when the second installment of the 2015 real estate tax bills arrived in the mail this past July.  Steep increases were the norm, especially for homeowners in parts of town that experienced healthy increases in property values over the past few years.  That’s the bad news.

The good news is that the City is offering many of us rebates of up to $200.  The amount can be more if you are eligible for a senior or enhanced grant.

From the City’s website:

     Eligibility:

     In order to qualify for a City of Chicago property tax rebate, homeowners must meet      all the following eligibility requirements:

  • Chicago Resident and Homeowner;
  • Received the Cook County Homeowners’ Exemption in the most recent property tax year;
  • Household adjusted gross income of $75,000 or less in 2015;
  • City of Chicago portion of property taxes increased on most recent tax bill;
  • Current on the payment of property taxes;
  • Do not owe real estate taxes on other property located in Chicago; and
  • Do not have City debt (e.g. parking tickets, overdue water bills). In cases where City debt is owed, the rebate will be applied to the debt.

For more details on the City’s “free” money, visit this link.  You can apply at any one of 26 neighborhood locations around the city.

Time is running short on this program.  However, if you are one of the many people who took this week off, here’s the perfect way to spend your Friday morning…

Happy New Year to everyone!  Hat tip to Curbed Chicago for the heads up on this program.  As far as I know, it was not very well publicized.

Checking Your Significant Other’s Email For Evidence of Cheating May Violate Federal Law

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As if divorce cases weren’t bizarre and petty enough, an “innovative” divorce litigant has figured out yet another way to torture his soon-to-be former spouse.  According to an article in the ABA Journal:

“Paula Epstein, the defendant in the case, was sued by her husband, Barry Jay Epstein, the Chicago Daily Law Bulletin reports. The couple are in the process of divorcing, according to the opinion (PDF), and Paula accused Barry of “serial infidelity.” His attorney asked for proof, and her attorney produced email correspondence between Barry and several other women. According to the opinion, Barry did not know that Paula had access to his emails until they showed up in discovery. He alleges that she must have arranged for his emails to be automatically forwarded to her.”

Although the federal district court dismissed Barry’s complaint, the Seventh Circuit reversed the district court’s decision in part and reinstated the claim against Paula.  To its credit, the Seventh Circuit seems a bit disgusted with itself for essentially choosing form over function as it pertains to enforcing the Wiretap Act, with Judge Posner stating in his concuring opinion:

“Her husband’s suit under the Federal Wiretap Act is more than a pure waste of judicial resources: It is a suit seeking a reward for concealing criminal activity.  Had the issue been raised in the litigation, I would vote to interpret the Act as being inapplicable to—and therefore failing to create a remedy for—wiretaps intended, and reasonably likely, to obtain evidence of crime, as in this case, in which the plaintiff invoked the Act in an effort to hide evidence of his adultery from his wife.”

However, the fact stands that the case will move forward against Paula back in  district court.  Regardless of the outcome, the tactic seems to have worked in terms of creating leverage for Barry in the divorce case, as Paula will have to consider potential liability in the federal case as it pertains to the remaining issues in the underling divorce.  I’m sure that is what Congress intended when it enacted the Wiretap Act.

As it stands now, if you are going to snoop on your no good cheating husband, you’d better bone up on your knowledge of the Wiretap Act.  Otherwise, you might find yourself being sued in federal court in addition to being embroiled in a messy divorce.

Credit to today’s ISBA E-Clips for pointing this story out to me.  Further credit to ABA Journal and Stephanie Francis Ward for authoring the article.

Quick Reference Guide For Informed Judicial Voting

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Another election day looms in less than one week, and I know you are racking your brain trying to answer one crucial question:  What judges should I vote for on Tuesday?

The Good news is that once again, I have some cheat sheets for all of you to print and bring to the polls:

  1. Illinois State Bar Association ratings for judicial candidates.  You can see the ISBA’s ratings by county here.  This site will help if you are outside of Cook County.
  2. Chicago Bar Association has a handy pocket guide for you Chicagoans headed to the polls on Tuesday.
  3. Chicago Council of Lawyers is a non-partisian public interest bar association, and they too evaluate judges.

Finally, for those of you who really have nothing better to do, voteforjudges.org has all sorts of great information about judicial elections.  Feel free to pop over if you are somehow curious about such things.

Good luck voting!