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from Local Attorney, Michael H. Wasserman

Thursday, December 29, 2011

NEW YEAR - NEW REQUIREMENT FOR (SOME) CHICAGO REAL ESTATE TRANSFERS

A recently amended municipal ordinance that becomes effective on January 1st is likely  to cause some headaches for unsuspecting  real estate practitioners and will definitely increase fees that some of our clients are going to have to pay to effect property transfers

The City of Chicago has long required that real estate sellers obtain a water department "full payment certificate (FPC)" before a sale transaction is completed.  The Chicago Department of Revenue will not seller property transfer tax stamps without the full payment certification, and the Cook County Recorder of Deeds will not accept a deed without the transfer tax stamps.

Certain classes of transactions are exempt from having to pay transfer taxes and have been historically also exempt from the requirement of obtaining / presenting a full payment certification. These include transfers to add a spouse (or other party) onto a title; transfer to change the form  of ownership of a property, and transfers that are gifts. This includes transfers that are made for estate planning purposes, and transfers between current owners of the property among themselves.

Effective January 1, 2012, all transfers of property will require a FPC, including previously exempt transaction.

Does the City of Chicago really expect to recoup enough money in delinquent or unpaid water bills from "exempt" transactions to cover the extra cost of labor to process all the additional paperwork?

I do not know, but I do see a couple of issues for consumers and attorneys.

Additional Cost to the Consumer:
The City charges a $50 fee to issue out a full payment certification. Most law firms rely on clerking services to procure the FPC paperwork - who charge an additional  fee to do so. Thus in a typical sales transaction, the seller will pay both an FPC fee and clerking service fee.

However, transactions exempt from transfer taxes will also be exempt from paying the City's $50 FPC fee. Most lawyers will still employ clerking services to procure the paperwork - or charge clients their hourly rates to do so themselves. (consumers will not be "exempt" from paying the "new" clerking fees or additional legal fees).

Aggravation and More Work for Unwary Attorneys:
I predict that more than a few hapless attorneys will try to record quit claim deeds in the coming weeks, unaware of this new policy. They will waste time (and perhaps charge clients) for their resulting additional efforts.

Unfortunately for all of us, the City did not do much of anything to announce this change. I only learned of this yesterday, having run into a learned colleague while we were both in line at City Hall to purchase FPCs for purchase/sale clients (thanks Bob!) and later confirmed by a call over to the Water Department.



FHA EXTENDS WAIVER OF ANTI-FLIPPING REGULATIONS THROUGH 2012

Goods news this week from Washington, DC for real estate investors, and the real estate agents that represent them -

The temporary waiver of FHA’s "anti-flipping" regulations has been extended through 2012.

"Flipping" is the industry term of art for a real estate purchase that is quickly followed by a resale - presumably for a higher price and resulting (but not excessive) profit.

With certain limited exceptions, FHA rules prohibit insuring a mortgage on a home owned by the seller for less than 90 days. In other words, Buyers willing to purchase a property that want to rely on an FHA guaranteed loan would only be able to do so if the seller has owned the property long enough.

The FHA temporarily waived this regulation in 2010 through January 31, 2011, then extended the waiver through year's end.

The extension allows buyers to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales.

The idea here is to allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

The Waiver does contain strict conditions and guidelines to prevent the predatory practices often associated with property flips - where properties are quickly resold at inflated prices to unsuspecting borrowers.

According to FHA waivers are limited to sales meeting the following conditions: 

  • All transactions must be arms-length between unrelated buyers and sellers.
  • If a re-sale price is 20% or more above the seller’s acquisition cost, the lender must document justification for the increase in value; and
  • The Waiver is limited to forward mortgages.
FHA research finds that in today’s market, acquiring, rehabilitating and reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential 
FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.

NEW TITLE COMPANY POLICY MAY ACTUALLY HELP BUYERS / LENDERS ESTIMATE CLOSING COSTS ACCURATELY

Title Insurance Companies owned by Fidelity National (including Chicago Title Insurance) have a announced a new policy that will, among other things, help Buyers, Mortgage Lenders, and Attorneys estimate closing costs more accurately.

Effective January 1st, 2012, the Fidelity companies will charge Buyers a flat rate to record closing documents with local county recorders of deeds.

County Recorders of Deeds keep the "official" public registry of all land title transfers and liens placed against real estate, such as mortgages, foreclosure proceedings, and the like. The Recorders charge fees based on the number of pages in any given document,

This causes problems for residential mortgage lenders who are obligated by federal regulations to give their borrowers accurate "good faith estimates" of their closing costs, but may not know exactly how many pages of mortgage paperwork a borrower will need to sign at closing,. This  happens because the loan originator may not know what end lender may be making the loan, what  loan product will be used, what riders may need to be attached to the mortgage, or what document preparation service or software will be used to generate the mortgage paperwork.

In turn, this causes problems for attorneys who also want to give their clients an estimate of the cash to closing (aka the "bottom line") for a closing.

And most importantly of all, it adds to the problems Buyers have trying to figure out precisely how much money they will need to fork over at the title company office to close the deal.

Going forward, Chicago Title, Fidelity National & Commonwealth will all be charging Buyers at flat rate to record deeds and mortgages based on the average recording charge per transaction, rather than based on the actual number of pages to be recorded.

For Cook County transactions, the (purchase) flat rate will be $143.00

In DuPage, Kane, and Lake  Counties, the fee will be $74.00

Kendall and McHenry County recordings will cost $86.00

Side effects? of course.

Cash  Buyers will end up paying more for recording than they would have under the old system, as the average recording fee is certainly skewed by multi-page mortgage documents that they do not have to record.

By that same token of course, Buyers using first & second  mortgages will likely receive a significant savings, again, because they will only be charged the average, and based on the additional second mortgage recording fees.  

No word from the other local major title companies at this time.

Tuesday, December 20, 2011

Cover story: Incentives upgraded in down market - Washington Times

What will it take to get your property sold these days?

An attractive home, in a nice neighborhood, well staged and ready for showings? An attactive price ?
Of course these things help, but cannot assure a sale, let alone an offer.

Many sellers are resorting to various forms of promotions  to entice buyers agents to show/sell their offerings. Other promotions are geared directly towards buyers.

Here is a great article from the Washington Times on some of the various techniques being used.
Cover story: Incentives upgraded in down market - Washington Times:

The article falls short a bit for Chicago area home buyers and sellers. There are some pitfalls to be avoided. Mortgage underwriting guidelines may limit the types (and amounts) of concessions a buyer can take from a seller. Some concessions can have unintended tax consequences for unsuspecting sellers.

Do your homework before agreeing to offer - or accept a seller incentive. Better yet, do your homework, AND check with your lawyer.

Tuesday, December 13, 2011

A Landlord's (new) Duty to Re-Key Locks

Declining property values over the past several years have caused many property owners into reluctant landlords.

The difficult lending climate has turned many would-be home buyers into  temporary tenants.

Whichever side of the Landlord-Tenant relationship a person finds himself on, at least some familiarity with local landlord-tenant statutes is worth while.

City of Chicago landlords and prospective tenants ought to take note of a newly enacted provision of the State of  Illinois Landlord Tenant Statute.

Effective New Years Day, 2012, many landlords in Chicago will be obligated to change or re-key locks for incoming tenants.

The law APPLIES to:

  • City of Chicago Landlords
  • Who rent residential dwelling units
  • In buildings with 4 or more residential units, OR fewer, if the Landlord does not live in the building. 

The law EXEMPTS

  • Owner-occupied buildings with 4 or fewer apartments
  • Written leases that obligate the tenant to change or re-key the locks
  • Rentals of a singe room within a private home. 
Landlords are liable to their tenants where a theft occurs in an apartment because the landlord failed to re-key.

The new law can be read in full here:  765 ILCS 705/15