the wasserblawg

MORTGAGE LOAN DEFICIENCIES

2012-01-26T16:30:00.000-06:00

Homeowners are not always "out of the woods" once their home is lost to foreclosure or sold by "short sale." Foreclosures and short sales remove the mortgage lien from a property, but do not eliminate the debt described in the note or loan agreement, or it's promise to repay the debt in full. That remaining balance due is the "deficiency." Contrary to public perception, banks are not only allowing short sales and completing foreclosures, but they are still looking to borrowers to satisfy deficiencies well after closing.

The Illinois Appellate Court has started the new year with a "win" for mortgage lenders. The Court confirmed a bank's right to pursue it's borrower for everything that was due and owing, over and above the recovery from a foreclosure sale. Banks can be awarded deficiency judgments as long as borrowers are given proper notice of the fact that they were being sued. This case held specifically that even a notice (summons) handed to another member of the household - also mailed to too - was a proper notice of the foreclosure lawsuit.

Deficiency judgments go on your permanent record. Unpaid judgments stay there forever. In the short term, they can influence credit scores and employment applications or prospects. More importantly, and over the long term, they can be enforced by wage deductions or asset forfeitures (garnishments). Following proper procedures, a bank can enforce for up to 27 years!

Home owners using short sales to escape their mortgages may also see long term after-effects of their efforts. Many short sale lenders are asking their sellers to either pay additional money out of pocket at closings, to sign new promissory notes agreeing to make further repayments over time, or are simply refusing to waive the right to pursue deficiencies in the future. Second lien holders in particular are very insistent on retaining the right to repayment.

The best way to avoid deficiency complications is to try to get the lenders to waive them, Many will. Often times however, home owners have little choice but to sign loan re-affirmations or modifications. Doing so may be necessary to accomplish the much more important goal of ending the mortgage loan and cutting off liability. Even still, there are several known and effective strategies that people facing deficiencies can employ to mitigate their losses. Legal counsel can and should be able to explore these with debtors and help craft courses of action best suited to the circumstances.

A final problem - there may also be income tax consequences to borrowers where lenders waive a debt/deficiency. Debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. The Mortgage Debt Relief Act of 2007 gives some protection to people who have lost their homes to foreclosure, but this relief is schedule to expire this year. Always best to consult your own tax consultant to evaluate these consequences.

Home Buyers Assistance for Iraq/Afghanistan War Vets

2012-01-24T16:30:00.000-06:00

There are a lot of great ways for real estate agents and mortgage lenders to add value to the service they give their clients. Certainly knowing ways to save clients money are always helpful. Knowing the lenders and loan programs that do so help too. These are, of course, the same reasons it makes sense for Buyers & Sellers to work with the best professionals they can find for their real estate deals too..

Here is a good one: First Advantage Mortgage has a new program benefiting members of the armed forces who have served in Iraq and Afghanistan. Qualifying borrowers are eligible to receive $10,000 in assistance towards the purchase price and/or closing costs on their next home. (Hat tip Bob Brandle)

These funds are available to all veterans using conventional, FHA and VA financing. Buyers on active duty or in the reserves are only eligible for first time home purchases.

The $10,000 grants are actually second mortgages (so do understand that there may be some additional closing costs too), but - as is typical of targeted programs of this sort - the loan is forgivable over a period of time. In this case, the loan need not be repaid if the borrower owns the home for more than two years and who are not otherwise in default on their mortgages.

Don't forget that Vets are also eligible for a Returning Veterans' Homestead Exemption - providing qualifying Veterans a one-time $5,000 reduction to their home's equalized assessed value (EAV) upon their return home, and a Disabled Veterans' Standard Homestead Exemption that provides a reduction in a property's EAV to qualifying property owned by Veterans with service-connected disabilities as certified by the U.S. Department of Veterans' Affairs.

Do YOU know of any other home buyer assistance for military personnel? (other targeted loan assistance programs?) If you do, please let me know.

FEES INCREASE at COOK COUNTY RECORDER

2012-01-19T16:30:00.000-06:00

The Cook County Recorder of Deeds has announced a $2.25 fee increase for all document recording effective January 15th, 2012. Recording a standard two page deed will now cost $52.50, up from $50.00. The fees for longer documents increase based on the number of pages the document contains.

The Recorder's office maintains the County's official public registry of real estate ownership, and record of persons (other than the owner) that may have rights over that property. The record helps owners prove their ownership rights. It helps mortgage lenders, judgment creditors, contractors and others assert their lien interests against those properties, and helps the rest of us research and investigate land transfers and sale histories.

Buyers who use mortgages to purchase Chicago area property typically pay for the recording of two documents with each closing - the Deed and the Mortgage. Sellers pay to record a Release of each existing Mortgage that is being paid-off as a part of the transaction.

Readers are reminded that Fidelity family of title companies recently announced that it was abandoning the practice of collecting the precise recording fees from Buyers and Sellers in favor of a flat fee based on the average of all recording fees without regard for the number of pages in a document. As a result (at least for the time being), Buyers and Sellers will not see any change in their closing costs.

Chicago Abandoned & Vacant Buildings

2012-01-17T16:30:00.000-06:00

We all know that the three most important factors in determining the desirability of a property are location, location, and location. As such, sharp Chicago area home buyers and the real estate professionals who advise them, are discovering - and embracing - Derek Eder's Vacant and Abandoned building finder tool.

Built on data from Chicago's 311 reporting service, this site shows detailed information about known "problem" properties on an easily navigated google map overlay. Mr. Eder built this as part of the Apps for Metro Chicago contest. This app was an AM4C community winner.

At best, abandoned buildings pose a visual blight on their neighborhoods. Unoccupied, they detract from the economic and social vitality to their surrounds. At worst, they abandoned buildings can pose severe safety hazards, criminal and structural. Woodstock Institute research shows that vacate and foreclosed homes contribute to declines in neighboring property values and increases in violent crime.

Savvy owners of such properties can exacerbate the toll unoccupied properties exact on the community by asking the County Assessor to lower property valuations so as to reduce that owners taxes (forcing the rest of us to to pay more). The Chicago of Chicago says it spent $15 million last year alone dealing with more than 2300 vacant buildings – most of that to demolish or board them up. Woodstock Institute places that figure at $36 million.

There are however some limitations to the data set used, as the City has only compiled data from January, 2010. The limited pool of information makes it a bit hard to place the data into any sort of historical context. (Is neighborhood property abandonment "getting better" or "getting worse." One this is certain - the devastation wreaked by the housing market crash is pretty shocking. (The site designer's conclusion that there are more such buildings in poorer neighborhoods than in more affluent areas, may not quite as revealing.

It will be interesting to see how recent changes to the City's vacant building registration law effects the data this web site generates. Last July, the City Council extended registration and maintenance obligation imposed on property owners to the mortgage lenders that also have interest in empty / unused properties. (Owners have been obligated to register and maintain properties that are vacant for more than 30 days since 2008), The hope is that lenders will take over routine maintenance when the owner borrowers give up.

Now, owners of six or more properties, including lenders, must cut grass; shovel snow, board-up entrances, post their contact information on signs in front of these lots, and post security guards at night, and respond to complaints relating to the building;

Vacant and abandoned buildings can and should be reported to the City by calling 311 or by reporting online. When the City receives a report an inspector will investigate to determine whether or not the building is secured (or, as necessary, registered) and will issue violation notices to the owner.

More information is also available at the City of Chicago's vacant and abandoned buildings web page

ATTENTION CHICAGO CONDO OWNERS - TIME SENSITIVE CHANGES TO THE CITY's TRASH REBATE PROGRAM

2012-01-12T16:30:00.000-06:00

Our great City of Chicago offers many many benefits to citizens. One of the less glamorous, albeit greatly appreciated services is garbage pick-up - at least for single family homes and small multi-unit buildings.

The recognized that condominium owners were paying for this service through their taxes, without realizing any benefit. The result, a rebate program to qualifying Condominium Associations to offset some of the costs of waste disposal.

The most recent City budget and recent changes to the municipal ordinance make some very important, and time sensitive changes:

An association can only file for the rebate for the 2011 operating year. Applications for prior years are not being accepted. If your association did not apply for rebates for prior years, you will not be able to do so for 2011 or future years (lets call this one the "you snooze, you lose" provision).
The rebate for 2011 will be limited to a total of $75 per owner-occupied residential unit. (the operative words here being owner-occupied - no rebates for rental units!)
Applications for the 2011 refuse rebate MUST be in our office by January 31, 2012 to be considered, no exceptions. (a new, strict, filing deadline).
The 2012 rebates will drop to $50 per qualifying unit., then down to $25 for 2013, 2014 and 2015.
Applications for future years will need to be on file before the January City Council meetings (whenever they are scheduled). The City is urging that application need to be filed at least two weeks prior to that meeting date.

The Finance Committee is still processing 2008 and 2009 remittances, and will then move on to process 2010 and 2011 applications.

Applications need to include the following:

Claim form (download here)
Association board form of resolution authorizing someone to submit the application for the rebate. The resolution should be signed by the Board President and one other person.
A copy of the arrangement/contract for 2011 salvage collection services
Supporting documentation of the total refuse collection expenses for 2011 - copies of invoices or a statement from the contractor will be sufficient
If not on file with former year applications, the recycling certification form (download here)
Both the Claim form and the Recycling form must be notarized and delivered to your local alderman.

Click here to download a FACT SHEET on the changes

JANUARY is RADON AWARENESS MONTH

2012-01-10T16:30:00.000-06:00

Show of hands, how many of you can name the second leading cause of lung cancer in the United States?

OK, the headline was the give-away, but that would be Radon Gas.

Radon is released by the decay of uranium, a naturally-occurring ore found in our soil. When released, Radon can seep through cracks in basements and foundations into our homes.

According to the U.S. EPA, one in every 15 homes in the United States have radon levels that exceed the recommended radon action level. In Illinois between 2003 and 2007, 42% of homes tested for radon gas had levels above the EPA radon action level. It is believed that Radon is responsible for an estimated 20,000 deaths per year in America.

Unlike tobacco usage where you pretty much know how carcinogens are introduced into the body, Radon is a much more insidious health problem - it is an odorless, colorless and tasteless gas. It is a naturally occurring phenomenon. You will never know you are being exposed to it, unless you specifically test the home you live in.

Illinois home sellers have been obligated to disclose test results and known radon hazards to prospective buyers for more than three years now.

Illinois Schools and Day Care Centers have been supposed to test for radon hazards too, based on recommendations in an amendment to the Illinois School Code that became effective in 2010.

Now, effective January 1, 2012, Illinois residential landlords are also going to be required to disclose test results and known hazards to tenants renting dwelling units below the third story above ground level.

A STRONG CAUTION FOR BUYERS & RENTERS - You must understand that the Radon Awareness law ONLY requires a disclosure of unsafe test results and known radon issues. The law DOES NOT mandate testing OR remediation.

Fortunately, Home buyers can (and in my opinion) should give strong consideration to radon testing as a part of any professional home inspection. Tenants, particularly with young children, may wish to test before signing a lease. Test kits can be purchased at most hardware or home improvement stores. They are simple to use and relatively inexpensive.

If a home or apartment has unsafe levels of radon, there are radon reduction systems that are effective and not too terribly costly. Quite often a seller can and will absorb the cost of remediation.

I am often asked whether or not Radon testing is worth while. It certainly adds to the cost of "due diligence" investigation for home buyers. Money is tight enough and closings are plenty expensive already, before adding in "optional" tests.

Well, certainly the health benefits cannot be over-stated. Of course you want to be healthy in the home you intend to live in. We all do. Check out these statistics from the Illinois Emergency Management Agency (IEMA) Radon Program for homes tested for Radon between 2003 and 2007:

COUNTY Pct. Of Homes Tested Pct. Of Homes with High Radon Levels
Cook   0.40 %   25.50 %
DuPage 4.40 %   39.50 %
Kane 5.20 %   43.60 %
Will   4.10 % 41.10 %

More than one quarter of all homes tested in Cook County during this five year period had Radon problems. more than one third of all homes in the "collar" counties did too.

Is testing worth the cost? Boy I sure think so.

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

2011-12-29T16:15:00.003-06:00

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

2011-12-29T15:30:00.000-06:00

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

2011-12-29T10:07:00.001-06:00

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.

Cover story: Incentives upgraded in down market - Washington Times

2011-12-20T12:05:00.000-06:00

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.

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

2011-12-13T15:04:00.001-06:00

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

FUNDS AT CLOSING - UPDATE - UPDATED

2011-10-26T21:17:00.002-05:00

First American Title Insurance Company announced today that it too will no longer accept third party checks at Chicago area residential real estate closings. They join Chicago Title and PNTN, who already declared an end to the age old practice of telling buyers to bring funds to closing in the form of cashiers checks made payable "to themselves."

These net effect of these three announcements (and the many more that are about to follow) is that the rules have changed for ALL local closings... and anyone not keeping abreast is going to have an unfortunate problem at their next closing.

1st American's notice takes the issue even one step further, and this will be of particular concern and import to real estate lawyers: First Am will no longer accept third party title insurance company checks either. In other words, Buyers who intend to use the proceeds of a sale to close their next purchase at First American better have a lawyer (or realtor) who is hip to the new requirements --- or enough time to have that title company check clear into their bank account, and be able to document ("source") the funds to satisfy their mortgage lender.

Date: October 26, 2011

To Our Valued Customers:

Consumer banking technology now allows people to directly deposit checks into their bank accounts using Smart Phone applications and other computer technology. There have already been documented cases of fraud associated with this new technology. As such, we now require that all funds presented to us be payable directly to First American Title.

In addition, if a customer is presenting a title company check to us from a different transaction, the title company check must be made payable directly to First American Title.

When requested to redirect proceeds from our closing to another title company, First American Title will accommodate with written direction from the seller.

Thank you for your cooperation. Should you have any questions, please feel free to contact XXXXXXXXXXXXXXXXXX

It will be interesting to see how rigidly this rule is enforced over the next couple of weeks, but I see a very painful learning curve ahead for a lot of us.

Careful practitioners are not only going to have to update their own office procedures and client-closing instructions.... they are going to have to educate their clients, Realtors, and opposing counsel too!

UPDATE: GOOD FUNDS AT CLOSING - DON'T MAKE THAT CHECK PAYABLE TO YOURSELF -

2011-10-24T14:15:00.000-05:00

Title Companies are changing the way some Buyers are going to need to bring purchase money funds to closing. If these changes are rigidly enforce, the transition is likely to be a rough one and anyone with a purchase or sale closing coming up in the near term should expect a greater likelihood of delays / aggravation.

The long standing "best practice" for having Buyers bring funds to a closing table has been to instruct them to bring cashiers' checks to a closing table made payable to themselves.

Until now, it has just the way things have been done my whole career.

Back in June, I reported seeing a notice from one of the local Chicago Title offices indicating that CT would require all checks be made payable directly to the title company. At that time, only one or two offices were actually requiring this, and everything was business as usual.

Closing bays at Chicago Title's flagship offices in Chicago now sport notices that CT will no longer accept such 3rd party checks.

Now, effective October 27th, Professional National Title Network, Inc (PNTN) is also requiring that only incoming checks made payable directly to PNTN will be accepted. Checks made payable to individuals to be endorsed over to the title company will no longer be acceptable.

I expect that other companies in the Fidelity National family, and agencies underwritten by CT will likely follow suit soon.

Closings will still take place, but i can already envision a great many of them will be delayed while uninformed or ill advised buyers rush back to their banks to replace the checks they bring to closing with checks that the title companies will actually accept.

Help Nice Cream get back in business

2011-08-19T21:56:00.000-05:00

Think for a moment about the pure ecstasy of that sweet first lick of ice cream on a hot summer day.

Client Kris Swanberg needs your help.

Kris is the brains and brawn behind Nice Cream, the reigning champion of Chicago-based artisanal frozen dairy confections. No offense to the late great Kid Millions (i miss you guys a lot). This is the good stuff.

Stoopid state regulators are shutting her down for not having a "dairy" license - insisting (suggesting) she is committing for the high crime of using REAL strawberries instead of syrup;

PLEASE support Kris & Nice Cream: - Save Chicago Ice Cream!" http://www.eventbrite.com/event/2027922571/estw via @eventbrite

Nice Cream works to get back in business

HUD ANNOUNCES FINAL RULE SETTING STANDARDS FOR STATE COMPLIANCE WITH SAFE ACT

2011-06-29T21:52:00.001-05:00

Big news today from Washington, for sellers who would consider offering financing to potential buyers and for
lucky souls who's parents or other benevolent freinds or family might consider financing their real estate purchases - HUD announced rules that may actually let you execute on your plans.

Shockingly, the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, or SAFE Act seems to have outlawed these sorts of financing tools. The SAFE Act established minimum standards for state
licensing of residential mortgage loan originators in order to increase uniformity, improve
accountability of loan originators, combat fraud, and enhance consumer protections. but in enacting restrictions on their qualifications and authority, the law included everyone in the universe who made, or wanted to make, mortgage loans.

The SAFE Act defines “loan originator” to mean “an individual who takes a residential mortgage loan application; and offers or negotiates the terms of a residential mortgage loan for compensation or gain," including individuals who “engage in the business” of a loan originator.

As interpreted in Illinois, a parent could not lend money to a child to purchase a home or condo unless that parent was a licensed Illinois mortgage lender or originator. Making even a single loan is deemed to be a venture for compensation or gain.

Sad to say, I have had several clients who's plans were dashed by this nasty, and surely unintended consequence of SAFE act implementation.

Today's HUD announcement 11-133 appears to (finally) change all of that.

HUD notes that nothing in the SAFE Act rule prohibits an individual property owner from financing the sale of his or her own property, nor does the SAFE Act require an individual to become a licensed loan originator in order to provide financing in the sale of his or her property.
The rule change also clarifies that individuals are not required to be licensed by states) when offering mortgage loans on behalf of an immediate family members.

To soon to know how the State of Illinois will interpret this one, but it seems pretty clear. Seller financing and parent-financing of mortgages can resume in Illinois. Buyers who are looking for "creative financing" have some new options - that is to say, some classic old-school financing tools that fell out of favor may be back.

Have a question about seller financing or other family-funded financing of your next real estate purchase? give me a call.

This is what the 'Next wave' of mortgage fraud looks like

2011-06-23T12:57:00.000-05:00

I do not really know why I am so fascinated by mortgage fraud, but I just am. Here is a fascinating description of the level of sophistication and determination of the fraudsters.

Next time you - or your client - or your client's buyer complains about all the paperwork they need to submit to document their loan applications, consider how much tougher it must be when you are making the stuff up as you go along...

'Next wave' of mortgage fraud strikes | StarTribune.com

BUYER BEWARE: the Mortgage Loan Handoff Rip-off Scam is Back

2011-06-20T19:13:00.000-05:00

There are about as many ways to scam the unwary real estate consumer as their are stars in the sky, or so it seems. This one is an oldy, but a goody: the mortgage hand-off scam.

The con is a pretty simple one:

send an official looking notice to a hapless homeowner (typically, but not always, an unsophisticated new buyer).

Tell the owner that his mortgage has been sold to Mega Mortgage Financial Security, Co. and direct all future payments to the scammer's post office box.

Collect a couple-three payments and move on before the real lender starts calling on the homeowner to find out why he stopped paying on the loan.

FEDERAL LAW REQUIRES A "WELCOME" FROM YOUR NEW LOAN SERVICER and an "EXIT" FROM THE OLD ONE - NEVER MAKE A CHANGE UNTIL BOTH CONFIRM THAT A CHANGE IS TAKING PLACE.

A more detailed report here, from the Chicago Tribune:

Beware the hand-off rip-off scheme

I have been warning home buyers about this particular fraud for years now. I hope and trust that no one I have represented has fallen victim.

Do let me know if you have seen this - or any similar scam in the area.

Feel free to contact me if you have any questions about these or other mortgage rip-offs.

CHICAGO TITLE ANNOUNCES NEW POLICY FOR ACCEPTING CHECKS AT CLOSINGS

2011-06-02T09:59:00.000-05:00

The old standard operating procedure for Chicago area residential closings may be changing a bit, based on an announcement I recently received from Chicago Title.

Outbound emails from CT's REO unit in Carrol Stream now advise recipients that the title company will no longer accept third party checks at closings. Apparently, company auditors want all funds to be made payable directly to the title company. The new rule is effective May 1, 2011, but I am told that Carrol Stream is implementing a "soft" introduction of the new rules to allow time for word to get out of the change.

The rule of thumb for as long as I have been handling Chicago area real estate closings has been that any funds a Buyer (or Seller) would bring to the closing table would be in the form of a wire transfer or a cashiers/certified check made payable to that Buyer (or Seller). Once the parties were satisfied with all of the closing documents and settlement figures, the Buyer would endorse that check over to the title company, who routinely accepted and deposited funds into the closing escrow.

If something went wrong at closing, the conventional wisdom holds that a Buyer can more easily reclaim the funds intended for closing by merely endorsing and re-depositing funds back into his or her own bank account.

Sure from time to time, instructing a client to write a check payable to "your self" had unintended consequences, but the system has worked well for my clients up to this point and Buyers had that extra measure of confidence that their money is safe and that they have full control over it up until the last possible moment in the closing process.

Switching over to the new system should not be too much of a problem - at least for those "in the know." There will no doubt be lawyers, loan originators and real estate agents who do not get (or read) the memo, who's clients will have to make an emergency run to the bank from a closing to get their closing checks re-issued. The rest of us will sit at the closing table and wait.

REALTOR ALERT - International Scammers Have You In Their Sights

2011-05-24T10:10:00.000-05:00

I previously posted about this last September. It appears that the problem persists, and is worsening:

Last week, WalletPop reported:

The Internet Crime Complaint Center's latest scam alert includes a counterfeit check scheme targeting real estate professionals.

Alerts by the IC3, a partnership between the FBI and the National White Collar Crime Center(NW3C), reflect recent cyber-crime trends and new takes on existing scams. Here's a summary of the new threat:

Counterfeit Check Scam Targets Realtors and Real Estate Attorneys

The IC3 says it's received complaints about counterfeit check scams for years, which typically involve criminals convincing unsuspecting victims to cash checks or money orders and then wire them a portion of the funds overseas. Only after wiring the funds do the victims learn the check was fake -- leaving them holding the bag for the full amount.

The latest variation on this scam targets realtors and real estate attorneys, who are being contacted by overseas fraudsters purportedly interested in purchasing property in the U.S.

After requesting information on property listings, the criminals indicate their desire to pay cash for the property they're interested in, and ask the realtors for the name of a local attorney to handle the purchase and conduct the closing.

Once a selling price is negotiated, the real estate attorneys receive checks typically written for hundreds of thousands of U.S. dollars. Once the attorney deposits the check -- but before it clears -- the scammers contact them with a plausible reason to wire them a portion of the funds to their account.

The checks used in these scams, the IC3 says, are often from legitimate business accounts that have been appropriated illegally by the fraudsters.

If you think you've been the victim of one of these online scams -- or any other -- you can file a complaint with the IC3 here.

How Freddie Mac REO Selling Agents Can Make an Extra $1,200

2011-05-18T07:42:00.000-05:00

How Freddie Mac REO Selling Agents Can Make an Extra $1,200

‘Sweet Home Chicago’ affordable housing ordinance passes

2011-05-05T13:14:00.000-05:00

WBEZ Reports: ‘Sweet Home Chicago’ affordable housing ordinance passes

In one of his final legislative acts, Mayor Richard Daley compromised with the Chicago City Council on an ordinance to fund affordable housing.

It took nearly two years of stalling, back and forth negotiations and political maneuvering.

But now some tax money is available to developers to buy and rehab vacant Chicago homes or apartment rentals. The money comes from a pot known as tax increment financing – or TIFS.

Ald. Walter Burnett worked with the neighborhood coalition known as Sweet Home Chicago to get the measure passed. Advocates see it as a way to mitigate the foreclosure crisis.

"People need some relief and they need some help. And this is a good step in the right direction. We pray that the next administration -- that it won’t take as long or be as hard," Burnett said.

The ordinance allows developers to receive up to 50 percent of the cost of purchase and rehab of multi-family rental buildings if more than half of the units go toward affordable housing – families earning no more than half of the area median income.

Sweet Home Chicago originally wanted a mandated percentage of TIF dollars to go toward affordable housing.

But activists said they are pleased with this compromise.

COMMENT - This is a good development (ha) for the City. Ask anyone who looks at Real Estate for a living and they will tell you more than you want to know about dilapidated, abandoned housing stock. Ask your local real estate developer or construction tradesman how business is, and they will almost certainly tell you that they could use another job or project to work on.

Is this TIF funding the sort of incentive we have been waiting for to kick-start a new rehab boom?

PLM title follow up - when title companies go bad -

2011-04-05T10:04:00.000-05:00

The late great PLM Title closed under mysterious circumstances nearly three years ago. I previously blogged about this here and here. As reported in yesterday's Morning Herald, a mystery no more. That ugly saga represented one of every real estate lawyers worst nightmare scenarios. The evil doers apparently took funds from closings that were supposed to be used to pay-off old mortgages for their own use. Those unpaid mortgages hampered many otherwise innocent buyers and sellers.

Could this happen again? Sure, I suppose so. Fortunately however, Illinois home buyers and sellers are now protected by a recent change to the Illinois Title Insurance Act that requires mandatory closing protection letters. Every title insurance agent's underwriter must now assure the buyer, new mortgage lender, and seller that no loss will be suffered as the result of a dishonest title agent. Of course, buyers and sellers are paying new fees for that protection, but lest we gripe about those new charges too much, it is worthwhile to look back to remember why.

Two plead guilty in massive DuPage mortgage scam
Read more: http://www.dailyherald.com/article/20110404/news/704049854/#ixzz1If41E4hy

Cook County Property Taxes - (stuff they dont want you to know)

2011-03-31T10:36:00.000-05:00

A last minute reminder that 2010 1st Installment Cook County property tax bills are due tomorrow, April 1st. Starting Saturday, delinquent taxpayers will have to pay a 1.5% late charge for each month they are late.

Of all the nuances in my work helping buyers and seller close their real estate transactions, few facets of the process cause as much confusion as Cook County property taxes. There are a great many reasons for this, but on the bottom line, it is just darn messed up.

The property tax system pits citizen tax payers against citizen consumers of governmental services. We want the good services and benefits our State, County, and City...but we would like them a whole lot better if someone else would pay for them.

Carrie Porter over at the Morton Grove Patch is running a week long series on the Cook County property tax system. I highly recommend taking a look at her reports:

A video explaining the basic computation of property tax bills
A look at the extra burden our tax system places on business owners. (You think your residential bill is unreasonable?)
An explanation of how / why owners of neighboring houses of the same relative value can pay radically different tax bills
A fascinating peak at the way local governmental units work together to fight back against property owner tax appeals

It ain't pretty folks, but it is uniquely ours

MAYOR DALEY PROPOSES TIF FINANCING FOR SOME DISTRESSED PROPERTIES

2011-03-17T10:59:00.000-05:00

Lets see how City Council reacts on this one, but the Mayor introduced a pretty interesting little ordinance that might be a real boon to first time area home buyers willing to buy and rehabilitate some bank-owned properties.

Progress Illinois reports that the mayor's bill, introduced on March 9:

"seeks to tackle the growing problem of vacant homes that are blighting neighborhoods across Chicago, and in particular in minority communities.
Called the Vacant Building TIF Purchase and Rehabilitation Ordinance, the bill (PDF) proposes allowing residents with a household income no greater than 100 percent of the regional median income to apply for a tax increment financing (TIF) grant that would pay for up to 25 percent of the cost of purchasing and rehabilitating an empty residential property. Single-family empty homes or units in condo and cooperative buildings with four units or fewer are eligible. The empty homes must be located in a TIF district and must be in need of at least $25,000 in fix-up costs, the proposal states. Homebuyers would be required to live in the property they are purchasing and fixing up and must be first-time purchasers. The full city council would have to approve each and every grant.
"We needed to incentivize a way to get these vacant buildngs back into productive use," said Department of Housing and Economic Development spokeswoman Molly Sullivan. "We have a huge amount of vacant buildings and most of them are from foreclosures."
According to the Woodstock Institute, banks filed 23,364 foreclosure cases (PDF) against Chicago mortgage holders in 2010, up 3 percent versus 2009. And while 10,569 properties completed the foreclosure process last year, there are an increasing number of vacant, deteriorating homes in the city that have gone into foreclosure but have not emerged from it with any clear outcome".

Could this really work to encourage buyers to start returning abandoned / foreclosed properties back to life?

UNSAFE: UNINTENDED CONSEQUENCES OF SAFE MORTGAGE LICENSING ACT OF 2008 MAKE IT HARDER FOR SOME LOCAL BUYERS TO FINANCE THEIR HOME PURCHASES

2011-02-15T09:15:00.000-06:00

Local buyers hoping to finance their home purchases with a loan from a parent or other family member are going to need to change their plans. Quickly. Sellers offering financing to prospective buyers too. As of January 1st, 2011, ONLY Illinois mortgage licensees, regulated/licensed banks, savings & loans, credit unions, insurance companies, and the like can make residential mortgages for gain or profit..

Non-interest bearing mortgage loans are still allowed.

The new rule was enacted to implement a Federal law intended to enhance consumer protection and reduce fraud in the mortgage industry. That protection it seems, comes at a cost. Consumers have no choice now. Licensed mortgage lenders are the only game in town. At least for residential transaction.

THE FEDERAL LAW:
The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“SAFE Act”), was passed on July 30, 2008. The federal obligated each of the 50 states to enact their own laws requiring licensure of mortgage loan originators (lenders) according to national standards and to participate in the Nationwide Mortgage Licensing System and Registry (NMLS). The Act sets minimum standards for licensing and registration of state-licensed mortgage loans. The Department of Housing and Urban Development (HUD) is charged by the SAFE Act with establishing and implementing a system for mortgage loan originators in States that do not meet the minimum requirements

State-licensed loan originators must
• complete pre-licensure training,
• pass written tests,
• take annual continuing education courses,
• be fingerprinted,
• submitted to a national registry and to the FBI for a criminal background check;
• provide authorization to the registry to obtain an independent credit reports, or provide appropriate surety bonds.

The SAFE Act required the states to have a licensing and registration system in place by either July 31, 2009 (for states whose legislatures meet annually) or July 31, 2010 (for states whose legislatures meet biennially). The federal registry itself just opened on January 31, 2011.

THE PROBLEMATIC FEDERAL PROVISION:

This law applies to any individual who, for compensation or gain, takes a residential
mortgage loan application or offers or negotiates terms of a residential mortgage loan application. There are no apparent exceptions. This means that anyone who expects to collect interest on a mortgage loan, including say, sellers wishing to give a buyer financing or parents intending to help a child out, are deemed to be receiving compensation or gain in the process. They must take the classes, tests and otherwise enter the federal registry.

THE PROBLEMATIC STATE PROVISION:

Although Illinois law exempts individual who offer loans with immediate family members and who offer loans secured by their own residences from registration as loan originators, the Illinois Residential Mortgage License Act prohibits the funding, originating and servicing of residential mortgage loans without a license.

HELP ON THE WAY:

Last week, Senator Michael Frerichs introduced SB1603, seeking to exempt anyone who makes three or fewer residential mortgage loans a year from licensure. If and when this bill is enacted into law, seller financing, and intra-family secured mortgage lending may resume.

REALTOR® Magazine-Daily News-Addicts Snatch Drugs From Homes for Sale

2011-02-02T13:44:00.000-06:00

I have not heard of this from friends or colleagues, have you? Hard to argue with the general advice though:

Addicts Snatch Drugs From Homes for Sale
Addicts are posing as home buyers and cleaning out medicine cabinets in homes for sale, according to recent police reports.

"It's commonplace – more common than you think," Detective Dennis Luken, vice president for the Ohio chapter of the National Association of Drug Diversion Investigators, told the Cleveland Plain Dealer. "It's everywhere."

In one recent case, a man showed up to an open house and while the real estate agent was distracted with other customers he went through the home owner’s medicine cabinet. The agent overheard the man going through the drawers, and he was later questioned by police officers. He admitted that he went to the house looking for pain pills and that he learned the trick from peers at a drug treatment program.

Authorities say some criminals also copy information off the home owner's prescription label and then call to have the drug refilled so they can pick it up later.

Carol Woodard, chair of the Cleveland Area Board of REALTORS®, says she advises clients who have a house on the market to have a filing cabinet or locked drawers to stow away any medicine, personal records, credit cards, mail, and any identifying information on their children.

As reported on realtor.org website, Source: “Addicts Pose as Homebuyers, then Nab Prescription Drugs From Houses That Are Up for Sale,” Cleveland Plain Dealer (Jan. 31, 2011)

REALTOR® Magazine-Daily News-Addicts Snatch Drugs From Homes for Sale

NEWS FOR THE NEW YEAR - "GOOD FUNDS" LAW REVISITED

2011-01-13T07:58:00.000-06:00

With the new year upon us, the “Good Funds” section of the Title Insurance Act is now one full year old. Illinois home buyers (and the professionals that represent them) are the beneficiaries of a bit of a "birthday present" from our friends down in Springfield - an amendment that addresses the three biggest issues that were complicating closings over the last 12 months. The good funds rule regulates the way anyone bringing money to a closing can deliver it to the closing agent. Basically, funds in excess of $50,000 must be sent by wire transfer. Funds less than $50,000 can be delivered by wire or cashiers, certified, or (approved) title company check.

As amended,

• Earnest money held by a real estate broker or attorney is no longer aggregated with the buyer’s bottom line. As long as those funds are less than $50,000, title companies can now accept a realtor's or attorney's check drawn on a trust account. Note: this is not a slam dunk - the title company must has reasonable grounds to believe that sufficient funds are available for withdrawal from the account - so there is some measure of discretion here.

• A purchaser wired funds of $50,000 or more, but comes up short due to a last minute change in the closing figures may now be able to bring in a supplemental cashier’s check or other “non-wired funds” to closing to cover the difference, again, subject to the title company's personal check limits.

• purchasers, sellers, and lender are all considered "single parties" to the transaction, regardless of the number of purchasers, sellers, or lenders involved in a transaction, in other words, two buyers cannot each each bring a $50,000 cashiers check. Their aggregate $100,000 would need to be wired in to the title company.

A good many closings last year were delayed as buyers (and sellers) failed to appreciate the strict compliance that the original rules demanded. I know a great many real estate offices were having trouble getting earnest money wired to title companies and most were grousing about the bank charges assessed when wiring. Buyers who were wiring in "exact" bottom line amounts were also being frustrated by last minute changes in the numbers that required $10 or $20 supplemental wires. The revisions should make their closings a whole lot easier.

NOW, if we could only legislate a way to get the banks to timely wire their funds to our closings.....

City of Chicago - In Color

2010-12-21T18:28:00.000-06:00

I am a real estate lawyer. I help buyers buy and sellers sell their homes, their condos, their apartment buildings. One at a time.

Each deal I work on is the most important contract in the local real estate market. To my clients and the parties on sitting accross the table they are. And because each individual transaction is to each individual client, that specific deal is also the most important case I am working on too.

But in a wholly other sense, each transaction is part of a larger real estate marketplace. Each transaction adds another data point that economists and sociologists can pick over and analyze. The collective information gleaned from all transactions informs us all about the larger trends and patterns in our communities. The collective body of information gathered in real estate conveyancing and from census data, all helps paint a very different picture.

It is real estate pointillism. Think of Georges-Pierre Serat or Chuck Close.

Now check out this New York Times interactive mapping display and see the bigger picture. Plug "Chicago, IL" into the search bar and chew on the images that NYT generates. Uptown Libertarian does an interesting analysis of my local environs. Take a moment and see what you can learn about your own, too.

2010-12-18T10:20:00.000-06:00

Homeowners - think back a moment to your last re-finance or purchase transaction....

How did you chose your lender? According to a just released study by Lending Tree & Harris Interactive, chances are you probably signed on with the first lender you spoke with. True? Lending Tree reports that roughly 40% of homeowners surveyed went with the first loan officer they spoke to.

As restated in a Forbes article on the report, 2 out of 5 buyers take the very first home loan deal presented to them, regardless of whether a better one could be had.

Curiously, 96% of the survey participants said they compared prices when shopping for anything else besides mortgages. Heck, the average consumer compared at least three home computers before buying. And special question for all the Realtors: How many houses did that buyer look at before picking "the one" to make an offer on? The end result? Only 28% surveyed felt confident that they got the best possible deal on their mortgage loans.

Even in the current marketplace, there are hundreds of loan originators to chose from; mortgage brokers, mortgage bankers, credit unions and federally chartered retail banks. They offer any number of different loan programs. Different types of loans. Different lending guidelines. An array of up front closing cost requirements; loan durations, interest rates. Their are a veritable smorgasbord of money lending options.

Sure those choices can make the process seem overwhelming, but we live in a society where we choose from 20 or 30 different types of ragu spaghetti saucees or 41 types of crest toothpaste in the shopping aisle most every day. We are used to making choices.

A reputable loan officers can help a buyer sort through those offering to hone in on the best products and get the job done, but why only speak to one loan officer? Any given loan comes to a borrower at a price; Two actually; upfront closing costs and then interests payments over the life of the loan. Combined they can add up to tens and hundreds of thousands of dollars.

I have long counseled clients to speak to two or three different lenders in order to ferret out the very best options available to them. I always stand ready to help my clients chose the best loans offered to them. I know many other lawyers who do so too. It only seems reasonable to me to try to help clients get the cheapest loans they can, don't you think?

Federal law makes this easier than one might think. Every lender is required to provide their loan applicants with two documents to facilitate comparison shopping; a Truth in Lending Disclosure and a Good Faith Estimate of Closing Costs. The Good Faith Estimate even has room to allow for comparisons of different loans, right there on the form!

Buyers looking for purchase money mortgage loans and owners looking to re-finance are urged to take a second look - that is, talk to a second (or third) lender to find the best loan on the best terms possible. Feel better than the 60% of those survey participants who did not bother to shop around. Close with confidence.

Let your closing lawyer know if you have trouble comparing various offerings from the lenders you engage. We can help.

Unexpected Results....

2010-12-15T10:19:00.000-06:00

A brief experiment with Google AdWords produces at least most unintended (but pleasant) result:

http://www.youtube.com/adwords10?x=459beb1a5a3a4028a1d562c03c60cc34

Closing Costs Heading Higher (again) ... another State Mandated Fee

2010-11-15T17:55:00.000-06:00

Buyers and Sellers (and the knowledgeable lawyers, Realtors, and mortgage originators that represent them) should all brace themselves as title charges are going up again as of January 1st. When an amendment to the State's Title Insurance laws kicks in. Buyers should expect to pay at least $25 more on each transaction. Sellers will be shelling out at least $50 more. Those are minimum fees folks. Be on the alert for title agents who may charge more.

Make no mistake about it either, the new requirements for Closing Protection Letters are important. We will address the specific reasons why in a future post, but on the bottom line, they afford some parties to a closing aadditional title insurance coverage against losses caused by errors or infidelity of closing agents in the handling of the transaction. Important? Ask anyone who lost money when a mortgage loan was never actually paid off from the proceeds of a sale or loan re-finance, or who's title agent disappeared overnight, never to be seen or heard from again.

GET READY - YOUR COOK COUNTY PROPERTY TAX BILL IS IN THE MAIL

2010-11-08T16:44:00.000-06:00

Cook County Homeowners - be prepared to put some of that gift-giving money aside.... those property tax bills that were supposed to be mailed out back on August 1st are heading towards your mailbox on Wednesday and will be and payble by December 13th. http://cookcountytreasurer.com/default.aspx

SHOULD LISTING AGENTS DISCLOSE HOW FAR UNDERWATER THE SELLER IS?

2010-10-29T14:37:00.000-05:00

It has long been a standard operating practice in my office to make immediate inquiry with Sellers and in the public records to try to ascertain the status of a seller's mortgage liens at the outset of every Chicago area short sale transaction I work on. Buyers certainly want to know information like this as they determine how much (or whether) to make an offer in a short sale situation. If the deal is unworkable, why bother putting up earnest money or wasting time, right?

Do listing agents have a duty to disclose this, even without a specific inquiry? According to one appellate court in California, the answer seems to be yes.

RIS Media reported today on a California appellate court decision earlier this week (Holmes v. Summers) to the effect that real estate practitioners (Realtors) have the same responsibility as sellers to disclose information they have that affects the “value and desirability of the property.”

In that case, the seller and the listing associate withheld from potential buyers knowledge of three mortgages against the property totaling $1.141 million. The sellers accepted a buyer’s offer of $749,000, but the deal fell apart because the sellers couldn’t deliver clear title. According to RIS, the would-be buyers sued the real estate firm and the court found that the real estate practitioner had a greater duty to disclose facts affecting the desirability and marketability of the property than he did to protect the privacy of the seller.

Analysts say this decision makes it incumbent on practitioners with short-sale listings to provide specific information about circumstances surrounding the sales, including approvals required for the sales to close.

This is not Illinois law, but certainly seems like good advice to listing agents out there. Buyers and Co-operating agents should be asking this question as a matter of course as well.

Do You REALLY Need Homeowners Insurance at Closing? (yes)

2010-10-19T08:42:00.000-05:00

A cautionary tale for all my friends and colleagues who represent buyers in real estate transactions.

I had the good fortune to help a long time client close on her purchase of a three flat last Friday. In a year that has been replete with difficult transactions, this one was pretty easy. An all cash purchase of a bank owned property. Clean title to boot. (What can possibly go wrong, right?) The deal came together pretty quickly. We closed in just three weeks.

It is a lovely building (purchased by a delightful client). The bank that was selling had foreclosed on a developer who (like many others) had apparently run out of money before he could complete a conversion from a rental to condominiums. Overall the place was in good shape. The first floor unit lacked finish plumbing, fixtures and appliances on the first floor, but the second and third were pretty much rent-able and ready to go. The purchase price seems a bargain. My client is very likely to do well on this one

But in the run up to our closing, there was just one little nagging thing; hazard insurance. It can be hard enough to shell out money for insurance under the best of circumstances, but for whatever the cause reason, we were getting towards a closing date and still no insurance. There were distractions at work. A trip out of the country. Some delays in getting the agent to return calls. Typical sorts of things. At my insistence however, the client did finally get purchase insurance the day before closing our Friday afternoon.

Not even four hours later, I took a frantic phone call from the client. While we were at the closing table, the burglars stripped out the second floor kitchen, liberating all the cabinets and appliances!

Yes, there will be a deductible to pay. Yes, this throws her off schedule to rent that unit out for November. Certainly the hassle and aggravation levels have risen. But can you imagine the loss she would have suffered if she had not placed her insurance?

This is only the second time in 25 years that I have heard of a day-of-closing break in (I represented the seller in that one) but that is hardly the point.

Do not go to closing before your insurance is in place. Just. Don't. Do. It.

Note: This is not so much of a problem where a Buyer uses mortgage financing to make the purchase; lenders all insist on seeing proof of insurance before they will draw closing documents, let alone fund the closing. Cash buyers however have no one to "force" them to buy the coverage. It is up to us as lawyers and Realtors to nudge them to do so. In this instance, at least one client is glad that I did.

REALTOR ALERT - International Scammers Have You In Their Sights

2010-09-30T15:01:00.001-05:00

Realtors - What would you think of representing an all cash buyer who is moving his family to Chicago from out of the Country, and who needs your urgent help to find a suitable home? Sounds nice, right? He needs you to send him listings ASAP as he really needs to move quickly. Even better. Oh yeah, one more thing, he wants to wire you money, lots of it now, so that he can have it ready for the closing. Still interested?

If you are, better take a deep breath before reading on. This is the script to a fairly elaborate - and pervasive scam that is being perpetrated on unsuspecting Realtors all across the country. I have seen it now twice in just the last three weeks. One agent was approached via Trulia. The other received a lead directly from the brokerage's web site.

More details about the scam can be found in this Trulia posting, and this Orlando, Florida lawyer's blog.

The first time this came up, I advised the inquiring agent to take extra care to try to verify the would-be buyer's funds and identity. He sent photocopies of a passport and a bank statement, but quickly disappeared and dropped contact when we started making inquiries with the bank.

I was curious enough about the scam, that when a second agent called to ask about the same scenario a week later, I opened up an email correspondence with the purported buyer. He asked to hire me to represent him at his intended closing. I agreed, provided that he send me a non-refundable $750 retainer, together with two photo identifications.

Well, he did. Kind of. No identification, but the attached letter and check purportedly sent by the prospective client's Canadian lawyer. The trouble is, (a) I had only asked for a $750 retainer but the check is made out for $155,000' (b) there is no "contract" (c) the web site URL on the check is bogus, (d) the phone number too, and (e) the letter's author is not employed by the law firm.

This a real law firm. I call their offices and spoke to a staffer who knew I had received a check just as soon as I asked to speak to "the lawyer." She told me that they had already received at least 500 such inquiries from across the US.

There is an old real estate lawyer-told joke in which the prospective client calls the intrepid lawyer to ask for a fee quote on a "simple" transaction. The lawyer responds, "I'll let you know just as soon as I participate in one." This is reason number 387 why. There just aren't any. Not anymore, anyway.

If you EVER hear from a prospect who is suggesting a deal that is too good to be true, do yourself a favor. Call me, or some other trusted advisor first.

UPDATE: Cook County Property Tax Bills will be mailed out (eventually)

2010-09-29T12:59:00.001-05:00

Some news is (finally) starting to leak out regarding those inevitable Cook County property tax bills everyone has been waiting for.

We all, of course, know that local property tax bills are sent out in two installments. The first installment, a/k/a the estimated bill, is always taken as a percentage of the previous years levy. Formerly half of the prior years taxes, the most recent bill demanded 55% of the last known taxes, owing to a recently changed state law. The County, it seems, needs more money sooner. A prior blog post alerted readers to this change earlier this year.

The second, of final installment of the tax bills is supposed to get mailed out in August, providing a theoretical due date of September 1st. These bills are very often mailed much later. Last year they went out in November and were due December. There has been a good deal of rumor mongering and speculation about the timing of the second installment 2009 tax bills. Harken back to this report in the Daily Herald from back in April for a tasty example. Both the County Treasurer's office, and Today's Tribune confirms that the tax bills will indeed be delayed until middle or late November, well after the November 2nd elections. At least we can finally start preparing for the inevitable reckoning and divert worried eyes from the mail box for the next couple of weeks.

But news of the timing of the tax bill is only the beginning of the story. We still await word as to the size of those tardy invoices. That news too is starting to leak out and the news is not very pretty, offering yet another reason why the delay is taking place.

At least one learned colleague is reporting that the 2009 Cook County tax equalization factor (a/k/a the "multiplier") is increasing by more than 13%. The multiplier is intended to achieve uniform property assessment throughout the state. The equalization factor does not cause individual tax bills to go up or down, local taxing bodies determine tax bills when they finalize their budgets and request the dollars needed to provide services to their respective citizens. The assessment process determines how the bill will be divided among taxpayers, from County to County and Township to Township.

Tax bills are determined (essentially) by multiplying a property's assessed valuation by the local tax rate, and by the multiplier. In 2007, the Cook County multiplier was 2.8439. For 2008 it went up to 2.9786. This year, it soars to 3.3701.

Check out your assessed valuation on the Cook County Assessors's web site. That tax rate? stay tuned.

Latest Real Estate Closing Disaster? Federal (flood) Disaster Declaration

2010-08-23T10:49:00.000-05:00

Ronald Reagan famously remarked that "[T[he nine most terrifying words in the English language are: 'I'm from the government and I'm here to help.'"

I am reminded of the quote as a wave of emails and voice messages cascades through the office today. Last Thursday's declaration that Cook, DuPage and five other local counties are federal disaster areas should be a great help for the hundreds of homeowners and small business that were adversely effected by last months severe storms and flooding.

The disaster declaration however is fast becoming a disaster of its own for many Chicago area buyers and sellers hoping to close their contracts this week.

As a direct result of the declaration of a flood-related disaster area, most mortgage lenders are requiring re-inspections on all appraisals dated August 7th, (the last date of the storm/flooding "incident" or earlier.

How many closings will be delayed as lenders and appraisers scramble to document the absence of flood damage to homes now under contract?

Mortgage Fraudsters - if we could only harness their powers for good and not evil

2010-08-18T07:44:00.000-05:00

I am continually amazed by the creativity and effort that goes into mortgage fraud. Ask anyone who has been through the process of trying to use a mortgage loan to buy a home or condo in the last two years. Dollars to donuts you are going to see an eye roll, hear a clucking noise, or a heavy sigh before that person describes an ordeal of verifications, re-verifications, and cross-verifications. The majority of transactions I have worked on this year have been delayed as loan originators and underwriters try to parse every bit of data presented in a loan application.

Lest your toil be for naught dear borrower, check out this story reported on Crib Chatter today that picks up on a report from Reuters about the scam running over by Back of the Yards.

How big is the problem?

In its first-quarter report, Interthinx said its Mortgage Fraud Risk Index rose 4 percent to 151, the first time it had passed 150 since 2004. A figure of 100 on the index would indicate virtually no risk of fraud.....Back of the Yards -- ZIP code 60609 -- had an index of 309.

So basically, the wicked scammers found a way to exploit lenders even with their newly improved, more rigid underwriting systems, and loan guarantors (FHA, Fannie Mae, Freddie Mac) (taxpayers) will continue to eat the losses. In the mean time, legitimate borrowers will still have to dot all I's, cross all T's, and show receipts for their last three ATM withdrawals, with letters of explanation for the use of those funds.

FED BANS YIELD SPREAD PREMIUMS

2010-08-17T10:37:00.000-05:00

On Monday, the Federal Reserve Systems' Board of Governors issued a final rule that places strict new limits on the way in which mortgage loan originators can get paid.

The new order:

Prohibits lenders from paying originators added compensation when borrowers agree to accept higher interest rates or other loan terms than they might otherwise qualify for (the yield spread premium or "YSP").
Disallows originators receiving compensation from lenders or other third parties if the borrower pays them too, and
Mandates that originators not "steer" consumers to loans that increase originator compensation but that are not in the consumer's best interest.

Consumers have long been at risk when dealing with loan originators who are compensated based on the terms of the loans offered. Loan officers, having superior knowledge about various loan programs were often offered very lucrative inPublish Postcentives (i.e. more money) if they could convince (or mislead) borrowers to take higher-cost loans. The Fed's action will now require lenders to at least show borrowers the cheapest costing loans and lowest interest rates available to them.

The new rule does not go into effect until April, 2011

Mercury Title - Closed

2010-08-05T14:30:00.000-05:00

I was very sorry to learn today that Mercury Title Company closed its doors yesterday. Great company. Really nice staff. Another victim of the down real estate market. Mercury is transitioning all active files and post-closing matters over to Chicago Title.

Fallin' & Flying

2010-07-23T14:20:00.000-05:00

I really enjoyed watching Crazy Heart on the Netflix with Susan last week. A whole lot more than I expected to. The scenery and music were really nicely captured. A fair mix or sweet/sappy romance and fortune re-gained. Nice show, with one significant problem - every time Bad Blake hit the chorus on Fallin' & Flyin' my mind kept wandering from whatever west Texas bowling alley or honky-tonks he was singing in to that other Southwester icon, Wile E. Coyote. More specifically, the look on Wiley's face every time he ran off a cliff while chasing road runner, just after he lost all forward momentum, and looked down. In terms of Chicago area real estate transactions, I wonder - where are we on the falling/flying continuum?

This weeks' Illinois Association of Realtors news release certainly has a lot of pundits feeling lighter than air. The headline says it all really: Illinois Home Sales Up 10 Months in a Row, Chicago Region a Full Year, Statewide Home Prices Stabilizing. In Chicago, June closings this year bested last year by 27.5%. Comparing the first six months of 2010 to 2009, the numbers increase by 41%. Since then? Well the story seems to be changing. Dramatically. Preliminary numbers suggest that closings are down more than 40% over the first weeks of July. See here and here.

Is the market changing? Over the last six months, the market has been driven by three types of buyers: all-cash buyers, little or no cash buyers (using FHA 95% or 96.5% loans) and buyers who capitalized on the (now expired) federal first time home buyer tax credit. Those channels all seem to be drying up. There are only a finite number of buyers who have the financial strength to make all cash purchases. Those ranks must be dwindling. The tax credit? sure buyers who missed the "close-by" deadline got a three month reprieve, but that pipeline dried up on May 1 when the "contract-by" deadline passed. That ship has sailed.

Which leaves our hopes for a continued real estate recovery pinned squarely placed on the backs of buyers using FHA guaranteed mortgage loans. - Folks who cannot (or do not want to) put much of any money into transactions. Folk who, in many cases, are making the down payments with gifts from families, withdrawals from retirement funds, and seller concessions. Folks who (I suggest) are going to be least able to stay afloat in their mortgages if things go from bad to worse - the most vulnerable of all buyers

FHA, for its part, recognizes that the loans it is guarantying are risky - and they are tightening up. FHA Reform Act H.R. 5072 will increase the annual mortgage insurance premium for an FHA loan from .55% of the total loan amount to up to 1.25%, which is paid monthly throughout the year. Additionally, proposed changes in lending guidelines will further limit seller concessions, mandate higher down payments and credit scores for loan eligibility. All these steps, taken together will likely deter use of FHA loans, and this will in turn, slow home sales further.

What will bring more buyers into the market? The Coyote, I suspect wants us to call his friends over at Acme to get some sort of price eroder or tax incentivisor or perhaps their new, easy, no cost financing kit. Perhaps we just need to find the right gadget to keep us from crashing back to earth. If we go that route, I hope we find one that will do the trick, but for the life of me, I just cannot recall a single cartoon episode where Acme products worked out as intended.

Bad Blake on the other hand was falling hard, but he fought back and flew again - certainly higher that he was at the start of the show. He did it using hard work, and discipline, with a healthy dose of help from some supportive friends.

These past few months, closing real estate has felt like flying (just a little bit). Deals may get harder, and harder to come by, but my aim in the coming months - as always - remains the same. Work hard to help clients soar or to at least keep from falling as they make and close real estate contracts... Let me know how I can help you do the same

Buyers/Sellers Prepare to Pay More to Close your Contracts - Title Rates are Going Up

2010-07-15T11:31:00.000-05:00

Chicago Title Insurance Company sent out notice today that, effective August 1st, it is increasing escrow closing fees and title insurance premium charges for residential closings. Escrow services will cost an additional $100 per transaction. Fees charged for Owners and Lenders insurance policies will also rise, $50.00 each.

I have not yet checked with any of the other title insurance companies but do not be surprised if others follow suit with rate increases of their own in the coming months. For the records, this is CT's 4th rate increase in the last in the last three years. Owners policy premiums have increased 20% since July, 2007. Lenders policies are up 33%. The cost of escrow closings, depending on the amount of insurance purchased, have increased as much as 55% in that time span as well. (To be clear, these historical rate increases span the whole Chicago Residential Market, not just at CT).

Chicago Title remains my preferred source for title services. I am an attorney-agent and am proud of that affiliation. The company has provided my clients with excellent service over the years and I really like working with its closers, examiners and the other support staff I interact with. That said, costs matter - especially in this tough market environment. There are (at least for now) other, somewhat cheaper alternatives available. One of the many reasons why I write title with several companies. Does a $50 or $150 cost increase matter in the relative scheme of things? For most people, probably not, but all the same, it has got to be hard for sellers confronting the deflation of home values (and resulting losses of equity in a sale) to bear increasing costs. Cheaper alternatives exist and I am grateful to have the ability to offer my clients choices.

Let me know if you have any questions about title insurance charges for your next real estate transaction or if you have leads on other cheaper (high quality) alternatives.

Illinois Housing Development Authority Awards $2.8 Million to First Time Home Buyers

2010-07-14T06:50:00.000-05:00

Last week, the I.H.D.A. announced that it awarded a total of $2.8 million to 436 first time home buyers in the form of down payment assistance and contributions towards closing costs of up to $5,000 and subordinate financing (0% loans of up to $30,000). The funding for this program is derived from the Illinois Affordable Housing Trust Fund, which itself is funded from property transfer taxes.

Has the economic slowdown impacted this very important and valuable program? You betcha. In 2009, the IHDA awarded $4,178,000.

Welcome to the Machine: the Illinois Anti-Predatory Lending Database Now Playing in Peoria. Kane & Will Counties, Too

2010-07-01T17:27:00.002-05:00

Two years ago today, the Illinois Department of Financial and Professional Regulation initiated the Illinois Anti-Predatory Lending Database (IAPLD) project. Since then, details of most every Cook County mortgage transaction have been manually entered into the State's super computers, not once, but twice, sometimes even three times.... all at additional expense to the borrowers the process aims to protect. Closing are taking longer too. Predatory lending, while "discouraged," remains legal.

Today, the program expands to three neighboring counties, Kane, Will and Peoria. As with Cook, all three have been hit hard by foreclosures, many the result of those too-good-to-be-true loans we saw so much of back in those go-go days before the bubble burst.

The APLD law requires loan originators to enter details of proposed loans into a state database. The state computer screens the loan and - where appropriate - mandates that would-be borrowers attend loan counseling from a HUD approved agency before proceeding to a closing. This (theoretically) reduces the number of foreclosures resulting from unfair loans. The counselors cannot stop borrowers from taking high risk loans, but at least buyers are alerted to risks associated with inappropriate loan programs.

Title company closing agents must also enter loan details into the system to assure that the loan being closed has similar characteristics to the loan entered by the originator (and counselor). Whenever a closing agent discovers material changes to the terms of the loan, the closing must be called off until further re-counseling takes place.

In my experience thus far, I have had many, many closings delayed while data is entered into the system by loan originators and title companies. I have not yet seen a single closing called off due to a change in the terms of the loan.

Here is a quick refresher to see just what loans trigger the counseling requirements:

> The rules apply to one to four unit, owner occupied residential properties.

> Non-owner occupied, commercial, government, and multi-unit (5 or more) properties are exempt.

Counseling is requires if ALL of the borrowers are first time home-buyers or the loan is refinancing a primary residence. AND

The loan permits interest-only payments, OR
the loan allows for 'negative amortization," OR
the borrower must pay 5% or more in total points and origination fees, OR
there is any pre-payment penalty, OR
the loan has an interest rate that can change (adjust) within three years of closing.

Keep your eye on Chicago City Council

2010-06-22T10:19:00.000-05:00

Is the City of Chicago preparing to start taxing foreclosures?

@ Properties agent Robert Darrow of @ Properties posted an interesting piece yesterday on his always informative blog, suggesting that very thing, Apparently, 26th ward Alderman Roberto Maldonado has introduced proposed legislation to the City Council, assessing the transfer tax on bank acquisitions of foreclosed properties. There is not much other information on the internets to flesh this story out, so it may be a bit premature to take sides on this one. What the heck, here is my take so far:

A Brief History of the Transfer Tax

The City collects a transfer taxes on most all real estate transactions, currently set at $5.25 per $500 of sales price. The tax is projected to bring $57.0 million into City coffers for 2010, roughly 4.5% of all City tax revenue. The tax grew out of the State of Illinois' grant of home-rule authority to cities and villages in 1970. Since then, the tax was expanded broadly back in 2005 to add new "types" of real estate transactions. In 2008, the tax rate was increased by 40%, when the City added a seller-paid levy of $1.50 for every $500 of the sales price to then existing $3.75 per $500 that buyers pay. At the peak of the real estate boom, transfer taxes brought in a whopping $242.3 million in revenue.

The City's Dogged Pursuit of Tax Collection
As with many other critical yet shrinking revenue streams, the city has been doggedly pursuing enforcement of the tax ordinance, deploying teams from the Department of Revenue and Law Department to scour transaction records and search for unpaid, underpaid and late-paid taxes (together with applicable late fees and penalties). Most notable of the collection efforts have been efforts targeted against title companies who are occasionally slow to record deeds / pay the transfers taxes (which are due at the time of sale, not time of recording) and divorcing couples that record deeds to transfer title to from the couple to a single (former) spouse. To put the aggressiveness of the campaign in proper perspective, I have seen and heard of inquiries regarding four and five year old transactions. They are looking that far back,

Not All Transactions are Taxable
Certain types of property transfers remain tax free. The declaration form taxpayers must file when making the tax payment lists re are thirteen (13) specific types of real estate transfers that are exempt from taxation. Exemption "M" frees mortgage lenders of the tax obligation when acquiring title from their defaulting borrowers. If Bob Darrow's report is correct, it looks to me like the City is trying to remove the exemption.

Leave it to the economists, appraisers, and real estate sales agents to say how this will actually effect the markets. Banks that incur the new cost of acquiring properties through foreclosure will surely want to recoup those costs at the time of sale in the way of higher asking prices. That may narrow the asking price ranges between REO and non-REO markets, but ultimately, I suppose it will buyers that decide whether lender "desires" will warrant higher purchase offers. I just do not see REO buyers caring even a little about the relative degree of loss banks suffer as a result of the likely City Council action.

What do you think?

Fannie Wants Second Credit Report Pulled

2010-05-18T07:48:00.000-05:00

It is just not getting any easier for home buyers hoping to finance their deals with mortgage backed loans.

Beginning June 1, lenders originating mortgages being sold to Fannie Mae will have to pull a second credit report just before the loan closes. According to the National Mortgage News, the new quality control requirement is designed to prevent a type of mortgage fraud called "shotgunning," a mortgage scam in which someone obtains several loans (from multiple, unwitting lenders) on the same property. all at the same time. Typically, a shotgun fraudster skips town with the proceeds of all his loans. Most of the lenders do not recoup a cent because their mortgages are subordinate to the first one recorded and the home will not fetch enough in a sale to cover the junior liens.

The second credit reports, it is thought, will alert lenders to other creditors who have recently requested information about the mortgage applicant.

Buyers are cautioned (as always) to defer major purchases like cars or boats in the months leading up to a home closing or to otherwise request new lines of credit in order to avoid last minute hassles as lenders may insist on delaying closings while they investigate last-minute credit inquiries.

Bicycle Rush Hour Utrecht (Netherlands) I

2010-05-15T07:05:00.001-05:00

direct from the you tube:

markenlei — April 28, 2010 — Morning rush hour in the 4th largest city in the Netherlands. Streets look like this when 33% of ALL trips are made by bicycle!

This is an ordinary Wednesday morning in April 2010 at around 8.30 am. Original time was 8 minutes that were compressed into 2 minutes, so everything is 4 times faster than in reality. The sound is original.

This is one of the busiest junctions in Utrecht a city with a population of 300,000. No less than 18,000 bicycles and 2,500 buses pass here every day. And yet Google Street View missed it. Because private motorized traffic is restricted here.

These cyclists cross a one way bus lane (also used by taxis and municipal vehicles), two light rail tracks and then a one way street that can be used by private vehicles.

Behind the camera is a railway (you can hear the squeaking sounds of the trains passing) and the main railway station is very close too. A number of rental bikes from the station pass and many of the cyclists will have come by train for the first part of their commute.

For those who frown upon the total absence of bike helmets in this video, consider these findings from a US study:

"Cycling in the Netherlands is much safer than in the USA. The Netherlands has the lowest non-fatal injury rate as well as the lowest fatality rate, while the USA has the highest non-fatal injury rate as well as the highest fatality rate. Indeed, the non-fatal injury rate for the USA is about 30 times higher than for the Netherlands.

Injury rate per million km cycled: USA 37.5; NL 1.4
Fatality rate per 100 million km cycled: USA 5.8; NL 1.1"

From: Pucher, John and Buehler, Ralph (2008) 'Making Cycling Irresistible: Lessons from The Netherlands, Denmark and Germany'.
http://policy.rutgers.edu/faculty/puc...

SO FAR - The Long Strange Trip Continues

2010-05-07T18:29:00.000-05:00

Not only is Sunday Mothers Day and my sister Judy's birthday, it marks the 25th anniversary of my admission to the Illinois Bar. A heart felt thanks Mom (& Dad) for encouraging me in my studies, and in my pursuit of a life-long dream. Thank you to everyone who has supported my efforts and who helped me reach this goal.

Thank you.

EZ Dec Goes Live - here goes nothing.

2010-02-09T09:01:00.006-06:00

The concept of exchanging a deed & keys for money still remains the same, but the steps to the crazy tribal dance we perform while helping buyers buy and sellers sell keep changing.

Whereas closings ten years ago could best be thought of as graceful arm in arm waltzes and minuets, todays closings are more akin to post-modern amalgams of sudden thrusts, breaks, pops, and martial arts-flavored acrobatics.

The dance just keeps on changing and anyone who's lawyer is not prepared to embrace these changes is going face a heck of a time trying to get their closings done.

The new year has already delivered a massive revision of the settlement statements we all use at closings; reformatting of the Good Faith Estimates of closing costs our clients rely on as they shop for mortgage financing; and a "good funds" law that restricts the way buyers (and sellers) must deliver monies to the closing table.

Now, a change in the way we file local, county, and state property transfer tax declarations. After a couple of false starts, it looks like the EZ Dec web-based system has finally gone live. More EZ Dec details in my October, 2009 blog post, here.

As near as I can tell, none of the local title companies are mandating it's use, but are alllowing early-adapters to start using it.

Let me know if you need a dance partner who knows the tune, and how to lead. I can help.

You lost your house - but you still have to pay

2010-02-03T10:36:00.003-06:00

This morning, CNNMoney.com reports on an ugly phenomenon - the fact that many mortgage lenders are chasing borrowers for "deficiencies", the difference between what is owed and what is recouped whether by "short sale" or foreclosure or a deed in lieu of foreclosure.

You lost your house - but you still have to pay

Posted using ShareThis

Notes, Mortgages, and Deeds are all legal documents. Short sales and Foreclosures are transactions that significant legal consequences. The cases described in this report all seem to have involved borrowers who entered into these arrangments with their mortgage lenders without legal counsel.

Good Lawyering can help distressed homeowners avoid these sorts of deficiency judgments. I have helped clients avoid these and other pitfalls as they try to extract themselves from distress situations.

Please let me know if I can help you (or anyone you know) too.

2010 North & Northwest Suburban Triennial Property Tax Reassessments

2010-02-02T13:37:00.008-06:00

Local property tax bills are computed using a formula that takes four important variable into consideration:

Governmental tax rates (set every year based on the budget needs of the various taxing bodies that collect property taxes
Assessed Valuations (what the County thinks your property is worth)
The State Equalization Factor, a/k/a the multiplier (a formula used to balance the assessment formulas used by various counties state-wide), and
Exemptions (special discounts afforded to particular classes of tax payers, such as Homeowners, Seniors, and Veterans).

All Cook County properties are all reassessed on a triennial basis (see graphic), that is, once every three years. Properties in our north and northwest Townships are due for re-assessments in 2010.

The County Assessor is reviewing it's land valuation records and in the coming months, will start mailing out notices of proposed assessments one township at a time.

The operative word is proposed. All property owners are given opportunity to contest the Assessor's valuations, whether based on incorrect property descriptions, or based on fairness, in the case of otherwise comparable properties in a community being assessed at different levels.

Owners of properties in the affected townships are strongly encouraged to stay alert for mailed notices of proposed assessed valuations.

Where appropriate, owners are strongly encouraged to challenge those proposals, in an effort to reduce tax liabilities.

As always, please feel free to contact me if you have any questions or would like assistance in tax assessment matters.

Chicago Property Tax Assistance Grants

2010-02-02T13:33:00.002-06:00

A friendly reminder to readers who own real estate in the City of Chicago -

If you call Chicago your home and reported income of less than $200,00o, the City wants to give you back some of your tax money.

For real!

Up to $200 of it.

Details here.

The deadline for this program is March 31st. Do not delay.

As always, please feel free to contact me if you have any questions or would like additional information about this program.

Cook County Property Tax Bills

2010-01-24T21:04:00.004-06:00

We all know that the first installment, the "estimated" installment comes out every spring - due and payable on the first business day in March. (March 2nd for us here in 2010).

Two big changes this year - one expected and one a surprise:

First installment tax bills are higher than in past years - Previously, the County assessed 1st installment taxes at 1/2 of the previous year's taxes. This time, we will pay 55%.

Now the surprise - bills were mailed out this week and hit many mail boxes this weekend - a full week earlier than in past years.

What does this say about the state of governmental cash flows?

FHA "no-flip" Rule to be Suspended for 1 Year

2010-01-18T06:00:00.004-06:00

A significant change in FHA lending guidelines is likely to spur quicker rehabilitation and absorption of foreclosure properties back into the real estate markets. On Friday, the Department of Housing and Urban Development announced that it is suspending the "90-day no flip" rule for one year, beginning on February 1, 2010.

Simply put, FHA policy denies mortgage loan guaranties to buyers if the seller had owned the property for less than 90 days. Buyers and Sellers that were agreed on sale terms were being forced to sit on the sidelines and wait until the Seller's title was properly "seasoned." This loan regulation tripped up several would-be buyers and sellers that I worked with last year. No doubt many other buyers and sellers hit the same road block.

"Flipping" is the practice of selling a property quickly after acquiring it. The idea of course is to buy low and sell high. The idea here is to enable entrepreneur/rehabbers to purchase bank-owned or distressed properties, fix them up, and sell them as soon as they have been rehabilitated. Having to wait 90 days - even if it only takes 21 days to complete a property renovation - adds to a flipper's carrying costs and lowers the bottom line. The new rule will streamline this process of bringing distressed REO properties back to market condition, and should help stimulate interest in this class of properties for buyers who intend to use FHA financing.

The 90 day rule is a necessary regulation to guard against the sort Flipping abuses that plagued the market for years before the bubble burst (and lets face it, folks, many of these REO properties that will be rehabbed & flipped became REO properties because of bad flips in the first place). Recall that many scammers were buying properties at below market prices and selling them (often the same day or week as they bought 'em) to unsuspecting buyers at inflated prices. Some of the more brazed schemes produced "laddering" of sales that inflated prices well above market. The most outrageous schemes involved flipped condominiums that were never even completed or occupied.

WHAT THIS MEANS FOR LOCAL HOME BUYERS AND SELLERS:

The rule change is likely to encourage rehabbers to buy distressed properties and to bring them to market as quickly as possible. Many of the investor - rehab deals that I have been seeing have been the properties that are most attractive to first time buyers - "starter" homes and condominiums. These are also the buyers most likely use FHA guaranteed loans. The timing of the announcement should make a wider array of these homes available to buyers as the spring market approaches.

These homes will likely feature a combination of newly completed or renovated kitchens and bathrooms, fresh paint, and upgraded electrical systems, all attractive benefits to first time buyers.

This will necessarily cause some disadvantage to sellers of non-distressed "starter" homes. These more lived-in properties will likely compete for buyers' attention with older, more worn, fixtures and appliances and perhaps dated design schemes. Developers who are still selling off condo conversion inventory will likewise face stiffer competition from the one-off investors.

As with all of these loan guideline and regulation changes, there is of course some fine print. Stricter procedures and higher loan costs will be charged when the prices FHA financed buyers pay exceed the investor's aquisition purchase price by more than 20%.

I can help buyers and investors alike as they evaluate the impact this change will have on their real estate transactions over the coming months.

Let me know if you have questions about any of this. Until then, the complete details of the waiver requirements are lined, here.

Mortgage Foreclosures up 33%

2010-01-14T06:18:00.003-06:00

In all likelihood, someone you know is facing (or has already had to address) some sort of mortgage delinquency. One in every 31 households in the Chicago area received a foreclosure filing last year. That is up 33% from 2008 and nearly five times the number in 2007.

No doubt many news outlets and real estate bloggers will be reporting this data as well, but for more of the gory details, check out FRANCINE KNOWLES' summary in the Sun Times.

There are many ways that homeowners confronted with delinquency notices or foreclosure lawsuits can minimize - or avoid - financial loss. This can only happen if the homeowner is willing to confront the problem and acts quickly to mitigate potential losses.

Homeowners facing mortgage delinquencies or foreclosures should consult an experienced real estate lawyer to evaluate their situation and to help deal with their lenders.

There are often several options available including -

loan forbearances
loan modifications
deeds in lieu of foreclosure
short sales

Each of these options have significant legal consequences that should be carefully considered before proceeding, as mortgage loans are binding contracts and all of these options involve some aspect of enforcing or changing the terms of those legal documents.

If you do know someone facing foreclosure, the best thing you can do to help them, it is to urge them to seek legal counsel at the earliest possible opportunity.

Please let me know if you want to learn more, if you know anyone who is in need of assistance.

CHICAGO PROPERTY TAX ASSISTANCE GRANTS - HOW TO CLAIM YOURS

2009-12-17T13:31:00.008-06:00

Anyone out there interested in a Visa Check Card loaded with money? Did I mention that it is free? A gift, from the City of Chicago?

Our fair City is offering checks of up to $200 to help offset the costs of higher property tax bills to qualifying homeowners. Here are the details:

To be eligible, homeowners must have

a principal residence in the City of Chicago,
make $200,000 a year or less, and
an increase in their 2008 property tax bill, when measured against the 2007 tax.

The amount of "tax relief" is based on a combination of income level and the size of the your property tax increase. This chart breaks it down:

Anyone who wants to apply for a taxpayer relief grant must

Complete the application
Attach a copy of his or her 2008 tax bill
Attach a photocopy of a government-issued photo I.D. that shows the same home address.

Relief checks will be distributed on a first-come, first-served basis, and applications will be taken until March 31, 2010. The City anticipates processing times of six to eight weeks.

That said, I suggest that you to get your application in as quickly as possible...

Do let me know if you have any questions about this program or if you need help determining your eligibility.

Encouraging Everyone to Use Protection....

2009-12-16T08:31:00.003-06:00

If you use Adobe Acrobat programs, take a quick moment to fiddle with the settings and turn javascripts off. there seems to be a new virus going around..... ok, maybe its not a virus; it is being called an "exploit" and a "vulnerability," and i am not in a good position to know the differences or distinctions of any of them. What I do know is that pdf formated documents play a hugh role in the residential real estate process, and none of us really want (or can afford) to have to deal with this sort of thing.

details here:

ComputerWorld

ZD Net

Shadowserver

Adobe's own "Product Security Incident Response Team "

Seems easy enough to protect yourself from this one - at least until someone gets around to fixing the problem.

IRS Providing New Guidance, Forms, to Claim the 1st Time Home Buyers Tax Credit

2009-12-07T11:47:00.004-06:00

A new IRS bulletin, released just before Thanksgiving is offering new details that should clarify many of recurring questions about the First Time Homebuyers Tax Credit.

The most important takeaway in that bulletin however is that anyone who closed on their purchase after November 6, intending to claim the tax credit better wait a couple-three weeks until the IRS releases a newly revised Form 5405.

Critical details released last month:

CO-OWNERSHIP SITUATIONS

an otherwise qualifying unmarried individual who purchases a home together with someone who does not, can claim the full $8,000 credit.
an otherwise qualifying son or daughter who purchases a home with parents who do not qualify can also claim the entire $8,000 credit.

PURCHASE PRICE,INCOME, & AGE LIMITATIONS

Single taxpayers earning up to $125,000 in "modified adjusted gross income" and joint filers earning up to $225,000 qualify for full tax credit benefits (up from $75,000/150,000).
Singles filers with incomes between $125,000 and $145,000 and joint filers with incomes from $225,000 to $245,000 may be eligible for reduced credits.
Purchases cannot cost more than $800,000. This is an uncompromising, "off the cliff" threshold.
No one under age 18 can claim the credit, under any circumstances.
No one who can be treated as a dependent on anyone else's federal tax filing is eligible for the credit.

ARMED FORCES / DIPLOMAT EXTENSION

Members of the armed forces, diplomats, & intelligence personnel serving in foreign countries will get an extra 12 months to buy a home and still qualify for the credit.

CITY CLERK DEBUT'S NEW TIF PROPERTY SEARCH

2009-11-11T06:09:00.005-06:00

WHY EVERY CHICAGO PROPERTY OWNER OUGHT TO CHECK IT OUT

Those property tax bills every Cook County owner received over the last week or two? Did you notice how they have that very detailed table that shows you "who gets what" from your tax dollars? Pretty detailed, right?

Well maybe not so much, if your property is in one of the City's Tax Increment Financing districts (TIFs). TIFs cover nearly one third of the City now. TIF districts divert money from the regular property tax stream to help "combat blight" in those areas.

For years, there has been no public accountability or accounting of its use. Property tax bills do not show any amount of directed being directed to the TIFs (nothing). In reality, TIFs fund a budget nearly 1/6 as big as the "official" city budget. Some quirk in the law or other allows them to hide the numbers from us.

A stunning Chicago Reader expose on TIF financing here. Among the many revelations - City funds will be used to refurbish the Willis (fka Sears) Tower and to help new tenant United Airlines move in. The Chicago Tribune editorial board opines on the matter, here.

Enter City Clerk David Orr. The Clerk''s web site has a new TIF property search function. Enter any property tax identification number, and see how what portion of a tax bill is diverted from the City's budget through the TIF programs.

Progress Illinois took a look at the Mayor's property tax bill in the context of the TIF controversy. It's report, here. (a whopping 92 percent of his property taxes were redirected into the Near South TIF last year. By contrast, cash-strapped schools get a mere 3.9 percent of the Daley's property tax dollars).

THANK YOU

2009-11-05T05:51:00.003-06:00

More than 2,300 new Illinois lawyers will be admitted to the bar today, nearly 1,900 more for the Chicago area. Welcome to the fraternity - make sure they show you the secret handshake.

That swells our ranks to roughly 86,000 souls.

Collectively, we only closed 76,800 or so home and condo sales in the first 9 months this year - which works out to fewer than one contract per counselor - ok - 2 per, if you allow for a buyer's lawyer and a seller's lawyer on each deal.

I have been fortunate to work with a good many terrific buyers and wonderful sellers this year. There are obviously a great many lawyers to choose from. Thank you, for everyone's kind referrals, and Thank you to everyone who has referred a client or two along the way.

NOVEMBER MONTH END CLOSINGS - A Warning

2009-11-03T09:10:00.002-06:00

Many are first time home buyers trying to squeak "under the wire" in hopes of closing contracts before November 30th - the sunset date for the Federal First Time Home Buyer's Tax Credit. The impending deadline presents some unique challenges for Buyers and Sellers.

That November 30th deadline comes smack dab at the end of the Thanksgiving day weekend. (What genious in Washington did that?) That means a host of closings are being scheduled for Friday the 27th and Monday the 30th the last two possible days to get closings done.

Will the title companies and lenders cancel all holiday vacations and work at full capacity to get these closings done expeditiously, or will be have to sit for hours at the closing table while closers handle multiple simultaneous closings?
Will loan officers and processors get files to the underwriters with time enough for review and to satisfy conditions before the inevitable holiday slowdown, or will some Buyers be disappointed when there lenders "blow" the November 30 deadline?
What about those pesky property tax bills?

That last one worries me a bit more than the others. Don't forgot the interplay between the federal tax credit deadline and Cook County's Property Tax Deadline.

Cook County taxes are, of course, theoretically mailed in August to be due on September 1st. This year, as in what 16 of the last 17 before it, the taxes came out late; Mailed last week and due December 1st.

Sellers are going to have to pay those taxes at or before closing. If the Seller's mortgage lender pays the taxes from an escrow, the Seller is going to have to somehow prove to the title company that they in fact did so. We may be able to prove payment three different ways:

Show a paid receipt
Confirm payment on the County Treasurer's web site.
Show proof on the lender's mortgage payoff statement that the tax payment was disbursed (even if not posted paid by the County).

Lenders do not all pay tax bills as soon as they are received (do you?) Most wait until the deadline nears before sending the payments in. The Treasurer does not report payments to her web site in real time. No title company is obligated to accept that payoff statement as a proof of payment. Many might refuse them altogether. Others may require sellers (or their attorneys) to sign "personal guaranties or hold money aside from the closings.

Sellers, Attorneys, and Real Estate Agents are strongly encouraged to coordinate property tax payments with mortgage lenders as possible to minimize the possibility of a title clearance problem or a hold back of seller proceeds.

Mortgage Fraud still a Growth Industry?

2009-10-31T09:00:00.006-05:00

New Report Predicts How, & Where its Happening

We may be done with the recession, but there is still a lot of pain left for the mortgage industry and for property values in distressed areas. A new report predicts increases in mortgage fraud ahead for states with high foreclosure rates. When fraud risks rise, increased foreclosure activites follow.

Nevada has the highest mortgage fraud risk, California Arizona and Florida. Chicago notwithstanding, Illinois risks trail the national average.

An abundance of distressed borrowers, oversupply of foreclosed properties, and relaxed lender valuation guidelines (??) all seem to be fueling new schemes.

Most involve property valuation fraud. A trend towards undervaluing REO and short-sale properties is noted, but most often values are falsely overstated so that borrowers can extract more equity from properties. Increased reports of inflated appraisals continue "with a vengeance", (the National risk index is up 25% in the last quarter alone, a trend that started in Q4 2006.

No surprise to me that appraisers are missing the mark high or low. I have seen plenty of deals that have been impacted by "problem" appraisals, but I am a bit impressed that scammers have figured out how to get "the right" valuations on distressed properties - for sales and re-fis, what with the whole HVCC thing and all.

The 2009 3rd Quarter Mortgage Fraud Risk Report was released by Interthinx, a mortgage industry "risk mitigation" firm that apparently screens loan applications for client mortgage lenders.

BONUS: You gotta love the introductory video on this firm's web site. Simply wonderful.

EZ DEC to debut soon

2009-10-29T05:56:00.004-05:00

Cook County real estate professionals will soon need to follow new protocols and procedure in the reporting of property transfer taxes due in their client's transactions. The new EZ Dec system is said to be going live next week, and in the new year, it will become the only way to do so.

Transfer taxes are assessed against just about every real estate transaction. The State, County, and City each levy a tax based on the sales price. In 2008, the City tax was famously increased to give a new revenue stream to the CTA. At present, we file three separate forms - one to pay each transfer tax. Frankly, the process is a collosal pain. The forms each ask for a whole lot of common information, but each form is (predicatbly enough) worse than the next. The County gets all the data it needs in a 2 page form. The State form runs 4 pages. The City's 7. Data idata input is sloppy, often inaccurate. I cannot even begin to speculate how cumbersome it is for the tax revenue agents to unspool the reported sales information or monitor compliance.

The new process funnels everything to a singe web portal. According to the Illinois Department of Revenue:

Combines City, County and State real-property transfer forms (over 300 fields) into a cohesive online website;
Eliminates five real property transfer tax forms;
Automates tax calculations, and identifies exemptions;
Eliminates tens of thousands of real property transfer tax paper declarations;
Validates property data electronically with Cook County;
Enables title companies to sell, print and issue a "smart" stamp that can be placed on the deed that captures the amount of tax to be paid to each governmental body including the CTA. The new application:
Creates electronic files for appropriate agency data that will be distributed to each governmental body on a daily basis.

This change should certainly streamline things on the goverment side of the tranfer tax process. It should not probably cause to much inconvenience on the user side of the deal either, though I imagine that there will some rough patches as lawyers and title companies change their work flows to integrate this new procedure.

For myself, I prepare closing documents using a proprietary set of forms using HotDocs. It took me a long time to get the transfer declarations coded properly so that I could full them out automatically at the same time I prepare all the other necessary paperwork. The key benefit has always been that I need only enter data into my computer one time. Everything is produced from a single "answer file." Looks like I am going to have to enter most of that data onto the EZ Dec platform as a separate task. Bummer.

For Buyers, Sellers & Realtors at large, this is going to cause some trouble whenever a deal involves a legal Luddites who or unrepresented seller that is not "computer enabled" or one of the 70,000 or so Illinois lawyers who handles one transaction every five years or so. The rest of us are going to have clue them in early - or do the work ourselves in order to avoid delays at the closing table.

(Cook County Property) TAX MAN COMETH

2009-10-20T20:08:00.005-05:00

The Cook County Clerk's Office has released the 2008 annual property tax rates. The state has set out the equalization factors. Look forward to the County treasurer's letter soon folks. Property tax bills will be due December 1st.

The Sun Times reports that, on average, Chicago landowners can expect to see a collective 6.04 %increase from last year. Across Cook County, property owners will pay 4.2% percent more.

Property taxes are computed using four factors:

A property's assessed value (look it up here.);
The property tax rate (check it out here.);
The state equalization factor of 2.9786 (aka the "multiplier") up 4.74 % from last year; and
Applicable exemptions (described here)

Homeowners exemptions (available to anyone who lived in the property as their principal residence as of 1/1/08) can vary based on the property's location and any increase in assessed valuation over the three year assessment cycle, but the minimum homeowners exemption increased for the 2008 tax year, from $5,000 to $5,500, for all Cook County homeowners, Next year this minimum is scheduled to increase to $6,000.

The Senior Citizen Exemption entitles qualifying residents to an additional $4,000 exemption, up from $3,500 last year.

FHA LOAN STANDARDS GETTING TOUGHER

2009-09-19T07:39:00.004-05:00

At the same time that conventional lenders are starting to show interest in the Chicago condo market, FHA seems to be pulling back a little bit.

On Friday, FHA announced plans that will tighten many lending standards, some outline below. This action is thought to be a pre-emptive effort as FHA will soon notify Congress that its capital reserve ration is dropping below 2% - the minimum threshold mandated in the legislature.

Under the announced changes:

Refinance loans will require tighter income & asset verifications and quality controls
Appraisals will be required whenever a borrower wants to add closing costs to the transaction.
Mortgage brokers will be prohibited from ordering appraisals, but will not be required to use appraisal management companies. (changes here are consistent with the Home Valuation Code of Conduct, or HVCC).
Appraisal reports will only be valid for 4 months, down from 6.

There are a couple of less restrictive changes proposed too:

Appraisals will be portable (a borrower can ask one firm to turn over an appraisal report to another if he/she decides to change lenders. In some circumstances, they will be allowed to order a 2nd appraisal.
FHA approved lenders must will have to prove more than $1,000,000; up from $250,000.
FHA supervised lenders will be required to submit annual audited financial statements to assure their financial stability (WAIT - they don't already require this?)
Mortgage brokers on the other hand, will not have to file financial statements, meet net worth requirements or register directly with the FHA. Instead, the FHA direct endorsement (approved) lenders they deal with will have guaranty all brokered loans.

NEW HOPE FOR THE CHICAGO CONDO MARKET

2009-09-19T07:12:00.005-05:00

Some mortgage lenders are dipping their toes back into the Chicago condo market, a development that could re-ignite local sale transactions. In recent weeks, I have learned of at least two different programs targeting area home buyers who do not want to make large down payment.

Mark Johnson at US Bank is offering a 97% LTV program. Vassili Sakkas at Wells Fargo recently turned me on to his company's new 95% loan products.

Yes, you read that right. At least two lenders are offering conventional, low down payment loans to Chicago are home buyers.

Chicago are condo buyers (and sellers) have faced a pretty tough challenge of late. The only game in town have been FHA guaranteed loans. The underwriting has been tough. Not all condominium buildings qualify for loans, let alone buyers.

The return of conventional lending alternatives should re-engergize the market. At least it will offer Buyers some new choices.

Please let me know if you hear of other lenders offering comparable products.

CLOSING COSTS ARE GOING UP (AGAIN)

2009-09-17T14:02:00.002-05:00

Well, what else would you do if the volume of your business is down, and if the pricing scale for your product is tied to real estate sales prices , and the stockholders & financial rating services are upset that the dividends are being cut? Raise the rates!

Chicago Title has announced another fee increases (The third in the last 15 months). The new fees go into effect October 1.

I understand that Greater Illinois Title has announced a fee increase as well.

Watch for the rest of the still viable title companies to follow suit soon.

Compare title rates on my web site, here.

FHA CONDO GUIDELINE CHANGES - DELAYED

2009-09-16T12:56:00.002-05:00

Back in June, HUD issued FHA Mortgage Letter 09-19, announcing several dramatic changes to mortgage loan guidelines effecting condominiums. For the first time, FHA direct endorsement lenders will be able to approve condominium projects in whole, rather than on an ad hoc or "spot approval" basis.

Those changes are all ON HOLD for at least 30 days. The Federal Housing Administration is delaying the Oct. 1 effective date of its new condominium policies while it finalizes several modifications. "We'll be issuing new guidance soon, with several modifications to the policy described in Mortgagee Letter 09-19," a HUD spokesman said, with a November 2 effective date.

Title Insurance Company Woes Continue -

2009-09-16T12:12:00.003-05:00

The slow real estate markets continue to wreak havoc on title insurance companies.

Fitch Ratings, has downgraded the financial strength rating of Stewart Title Guaranty Co., from "A-" to "BBB+" and the default rating from "BBB" to "BBB-."

Separately, Fitch also downgraded First American's default rating from from "BBB" to "BBB-" and the senior unsecured debt rating from "BBB-" to "BB+".

WHY THIS MATTERS:
Title insurance is only as sound as the company that provides it. A policy is of little good to a homeowner if the title insurer is insolvent and cannot pay claims. Thus, a careful Buyer wants to make sure that the title insurance issued will come from a strong, secure entity.

In Chicago, Sellers select the title company and purchase the title insurance that protects Buyers.

That decision is almost always left to the Seller's attorney who, more often than not, recommends an insurance company that will pay the attorney a compensation for cases they work together on.

Buyers want quality, but many attorneys use different critera: chose the insurer that pays highest compensation, or the one that is closest to the office.

WHAT YOU SHOULD BE DOING NOW:
Buyers can, and should, demand that title insurance be provided by a first class company. If a title claim arises, Buyers want to know that they have reliable insurance to cover any risk of loss.

Sellers should do so as well. If the insurance does not cover a claim, Buyers will likely sue their Sellers for a breach of (title) warranty. Absent title coverage, those Sellers will have to defend lawsuits and pay damages on their own. out of pocket.

I demand quality insurance for all of buy Chicago area home buying clients. I recommend only the best title companies to sellers as well.

UPDATE - Sept 17:
Yestterday, Fitch also dropped Fidelity National's (parent of Chicago Title, Ticor and LandAmerica) default rating by two notches, from "BB" down to "B+."

Who is (is not) Likely to Provide your Next Mortgage Loan

2009-09-10T17:46:00.003-05:00

Sitting around the closing tables (business may be slow, but i do close every now and then) I have been noticing far fewer buyers using mortgage brokers to close their loans lately... and far fewer brokers still in business.

Consolidation and tough, tough market changes are taking a toll on that segment of the money lending industry. How bad is it? Check out this report from National Mortgage News:

The dollar amount of mortgages funded through loan brokers hit a new low in the second quarter in terms of market share — just 14.9% of all originations. Wholesale lenders tabled funded just $87 billion in loans in Q2, out of a total origination pie of $583 billion. Loan brokers' dominance of mortgage lending peaked in the fourth quarter of 2007 just shy of 30%

Business volume cut in half over the last 18 months? yikes!

On the bright side, the brokers who are surviving seem to be doing very nice loans for my clients. The processing times seem to be running shorter than the retail lenders. The "hassle factor" right now seems to be FAR FAR lower too. The retails tout low costs and low rates, but my gosh, can it possibly be worth the aggravation and delays that borrowers must endure to get there? (no.)

If you are in the market for a new home, or have a client or colleague who is, I will be more than happy to introduce you to the survivors - and to the opportunities they afford.

ALERT: NEWLY ENACTED COOK COUNTY PROPERTY TAX LAW (and two more pending changes to watch out for)

2009-09-01T06:03:00.005-05:00

Like most all of you (I imagine) I have been spending every waking hour by the front door, staring at the mailbox, waiting for the letter carrier person to deliver my 2008 2nd Installment Property Tax bill. OK, maybe not. For the 16th year of the last 17 (by my count, anyway) tax bills will be delivered late. No word from anyone I've spoke with on when to expect them.

But let us leave that sleeping dog lie for a moment. Lets look forward to next year's property taxes... and to pieces of legislation still pending action

NEWLY ENACTED:

Two weeks ago, Governor Quinn signed SB2125 into law. Beginning in 2010, the 1st installment of property tax bills in Cook County will be computed at 55% of the total of each tax bill for the preceding year (up from 50%) The purpose of the bill is to reduce payment pressure on taxpayers when actual tax numbers are calculated and reflected in the second bill.

Counties with 3 million or more residents (i.e., Cook) can also now change their tax cycles from two annual installments to four.

This change does not increase over-all payments in any way. It just puts more of our tax dollars into government coffers earlier in the year.

Homeowners who do not escrow for property taxes with their mortgage lenders should plan accordingly.

Still on the Docket:

HB 250 would suspend the Cook County Assessor's traditional triennial reassessment of Cook County properties (residential, commercial, and industrial) for another year and compel reassessment of the whole county again for 2009. The bill would also preclude the Assessor from using a mathematical or other mechanical factor to conduct the reassessment.

Given the continued decline in property values this year, another re-assessment will likely benefit many taxpayers (yeah!) put added cost into the administration of the assessor's office (ouch!), further diminish governmental tax revenue (so sorry) and - i imagine - cause further reductions of governmental services (oops).

HB296 is the third, triennial legislative revisiting of the "7 percent" Alternative General Homestead Exemption, (actually a 7% percent assessment cap-on-the-cap). Way back in the good old days (2004?), when property values were soaring ever higher, tax assessments (and tax bills) naturally started to follow as well. The cap was a temporary device that would dampen the effects of rising tax valuations by limiting how high a taxpayer's assessments could increase from year to year over the course of the first (and subsequently second) three year cycle.

Perhaps it may seem a bit silly to revisit this "problem" right now, given that property values have (by and large) declined over the last three years, but why should that stop our heroes in Springfield?

As proposed, the cap would increase from $20,000 to $60,000 and finally become permanent. As with HB250, this bill is also currently in the House Rules Committee.

Assessing Mortgage Appraisals

2009-08-31T19:32:00.003-05:00

Chicago area real estate contract live or die depending on the results of mortgage lender appraisal reports. If the property value does not justify the loan, the contract is going nowhere.

As the market defalted over the last two years, many of my clients saw contracts collapse based on low appraisals.

A great many Chicago area Realtors, bloggers and other real estate pundits were quick to place blame for low property valuations on the Home Valuation Code of Conduct that became effective this past May. Frankly, the low appraisals were already a problem long before HVCC went into effect. For all the uproar, I am seeing a rather interesting (positive) trend of late. More on that in a moment. First a quick recap.

The HVCC is not so much law, as it is the result of an agreed settlement entered into by Fannie Mae, Freddie Mac, and the office of the New York State Attorney General.

The idea was to stem the tide of appraisal fraud and abuse by changing the way that lenders select their mortgage appraisers. Rather than rely on appraisers who were "friendly" or beholden to the brokers that hired them to "get" the right valuations, lenders must now assign appraisers using staff that have nothing to do with the loan production.

The Code has been pretty roundly criticized, perhaps even justifiably, as lenders began to employ third-party appraisal management companies to select appraisers. AMCs are middlemen. They receive appraisal requests from lenders and then assign them to an appraiser from a list of approved vendors who agreed to take assignments. Not everyone on the list is necessarily familiar with the localities they are assigned to work in. By design, it is harder for loan brokers or real estate agents to influence the valuations (for good or for bad).

So, how are things working out under the new system?

Curiously, I am seeing many more appraisals coming in significantly higher than the contract purchase prices. Really, truly, honestly. Significantly higher. Today, I saw a reported valuation 50% over the contract price. Valued fully $100,000 over what the seller agreed to sell for. Only one contract all month that came in below the contract price, and we quickly and easily negotiated an appropriate price reduction for our buyer.

Is this the result of a strengthening marketplace? Is this a positive effect of the HVCC? Hard to say at this point.

One way or another, it sure seems to bode well for my buyer-clients. Listing agents may want to hold just a little bit firmer on their asking prices too.

Anyone else having similar experiences?

Need to Negotiate with your Mortgage Lender? New Instructional Video Shows You What To Expect

2009-08-27T16:13:00.002-05:00

Have you tried to modify a client's mortgage loan, negotiate a short sale or tried to discuss a file in process with an underwriter recently? If not, this video pretty much sums up what the experience is feeling like.

Ok, the dialogue is in russian, but watch it anyway.....

You'll get it.

Another New Real Estate Contract Debuts...

2009-08-17T16:56:00.004-05:00

I had the good fortune this afternoon to be retained in another Chicago condominium purchase. After an introductory phone conversation, I asked the client to forward his contract for review.

Much to my surprise (and delight) I immediately recognized that the newest local form contract is finally in circulation.

Ladies & Gentlemen of the real estate community, I give you "Multi-Board Residential Real Estate Contract 5.0.

A more complete exploration of the Multi-Board 5.0 form will follow in another post or two.

I know that a lot of realtors do not like the form for its shear heft (14 pages compared to the Chicago Board's 4 pager), but I like this one and encourage everyone to at least give some consideration to "trading up"

These two features alone make it the best available contract for local transactions:

A new font and larger type make this one emminently more readable, even if faxed 3, 4, or 7 times back and forth during negotiations.
The electronic form (5.0e) is based on the Adobe PDF file format. It is easy to navigate from field to field and page to page when making offers or counters. it even allows for easy digital signature (you do have one of those, don't you?)

Oh and substantively, this one solves my most severe criticisms of the 4.0 and prior versions and of the several CAR forms.

A big thank you to the Illinois Real Estate Lawyers Association, the Will County, DuPage County and Northwest Community Bar Association members who draft this gem and to the several local Real Estate Boards that have given it their seal of approval.

Call me if you want to learn more about how 5.0 is going to make your deals work better

AMENDED ILLINOIS PROPERTY DISCLOSURE LAWS

2009-08-13T10:51:00.002-05:00

Its Official -

The Governor signed off on PA-96-0232 this week.

Illinois homeowners are now required to give a 23rd disclosure to prospective purchasers to comply with the Real Property Disclosure laws; knowledge of the property's past use for the manufacture of methamphetamines.

FHA Loans: New Refinance Option for FHA Borrowers Allows Second Interest-Free FHA Loan | ThinkGlink

2009-07-31T06:52:00.002-05:00

This programs, as reported may be "just the trick" for some distressed homeowners. Turns 30% of an existing mortgage loan balance into an interest free 2nd loan, not repayable until (if ever) the remaining 70% is paid off.

the catch? (you knew there was one, didn't you?)

the program is available only to borrowers who's loans are guaranteed by the fha.

lets put that in perspective for a moment. in 2006, less than 4% of all home loans in the us were FHA backed. In 1990, they wrote 19% of all loans.

FHA Loans: New Refinance Option for FHA Borrowers Allows Second Interest-Free FHA Loan | ThinkGlink

Posted using ShareThis

NEW FEDERAL "REGULATION Z" CHANGES START TODAY - and how at least one contract was saved from its clutches...

2009-07-30T06:16:00.004-05:00

The rules of the game change today as new federal regulations governing "Good Faith" Estimates of closing costs (GFEs) and Truth in Lending Disclosures (TILs) go into effect. TIL statements disclose a loan's APR - a measure of the effective interest rate after taking certain closing costs into account. The days of quick mortgage-financed closings are gone. Period. End of Paragraph.

Simply put, the fastest anyone is going to possibly be able to close is 7 business days after the lender delivers its GFE and TIL. That assumes everything goes flawlessly in the mortgage approval process. If there was a significant mis-statement of closing costs that results in a 1/4 % change in the APR before closing, new disclosures must be given and a new 3 business day waiting period must follow.

These regulations are likely to wreck havoc with closing schedules for the foreseeable future - at least until mortgage lenders and title companies adopt new work flows. Preliminary GFEs and TILS are notoriously inaccurate documents. Lenders routinely under-estimate actual closing costs. Under the current system, the documents would simply be amended & buyers would re-sign them at the closing table. Now, we will cancel closings and wait three days.

Good luck to anyone who schedules movers or cancels their lease, or plans to buy a new home the same day they sell their old one.

How are the title companies planning to deal with this change? I've spoken to representatives at First American and at Chicago Title, the two largest operators in the Chicago market.

One indicated that they are hiring and training new respa / closing department personnel to contact lenders as early as possible, once a closing is scheduled to try to better coordinate on the preparation of preliminary HUD-1/RESPA settlement statements. Their goal is to let lenders know if there will be a change in the TIL early enough to allow them time to issue out revised / final TILs without delaying closings. I suppose this strategy could be likened to the early bird hoping to catch the worm.

The other is planning on issuing title commitment invoices that include every conceivable title charge - whether needed, or requested - to encourage lenders to issue GFE's that OVERSTATE the actual charges and resulting APRs. That company's interpretation of the new law suggests that revised TILs will only be needed when they understate charges. In essence, their approach is "better safe, than sorry."

Will either approach work? Only time will tell. The real problem here is not going to be title company communication with lenders. It is going to be the lenders who habitually wait until days or hours before closing to get things done. Lenders, you see, simply do not clear many loans to close until days (hours) before the scheduled closings. RESPA settlement statements (showing all of the closing costs) are not prepared until lenders loans are approved, and they get around to telling the title companies what charges to include on those settlement statements.

SO HOW WILL THIS PLAY OUT FOR REALTORS & CLOSING LAWYERS? Contracts simply must be drafted with realistic mortgage contingency and closing dates. I am recommending that my clients do two things: (a) set closing dates at least 30 days after the date of the contract and (b) lengthen the time between the mortgage contingency date and the closing date to no less than seven calender days. Setting unrealistic targets is only going to anger clients and frustrate their abilities to plan for their move-ins and move-outs. Building more time into the contracts will at least allow the possibility that the lenders and title companies will have opportunity to coordinate and get timely, accurate TILs to buyers, so that we can all close on time.

Please let me know if you have any questions about this important change in the law; or how you can protect your contract or your client's contract

FREDDIE MAC OFFERS BUYERS A NEW INCENTIVE

2009-07-21T06:43:00.005-05:00

Good news for Buyers willing to purchase a foreclosure property. Not so much for anyone else who wants to sell a home.

Someone at Freddie Mac must to be watching a lot of late night television infomercials. The nations #2 mortgage finance company is offering comprehensive two year home warranties and will pay up to 3.5% of the purchase price to qualified buyers of their HomeSteps foreclosures.

The "Smart Buy" sales promotion is intended to help the mortgage giant unload a larger share of its growing portfolio of repossessed homes.

It is no secret that glut of foreclosed homes is weighing on Freddie Mac, just the same as other financial institutions. Freddie had 29,145 homes in its "real estate owned" portfolio as of March 31st, more than double that at the end of 2007. The costs have deepened the company's losses, which have forced it to draw $51.7 billion in government support.

Foreclosure inventory is costly to maintain and difficult to unload.

So, what does any good retailer do when they cannot move the merchandise? They have a sale!

Here is the script for the fast talking guy who reads the disclaimer at the end of the commercial

offer valid for initial purchases made by Oct. 31, 2009, with deals that close by Dec. 31, 2009.
Owner-occupied, principal residence only.
Homes costing less than $25,000 do not qualify
Sorry, offer void only in the continental 48 states.
Buyers must complete a SmartBuy Buyer's Closing Cost registration form, and obtain a coupon that must be presented both at the time of the original offer and at closing.

A great many savvy buyers are already demanding that their sellers offer closing cost credits and home warranties, but there are several key differences in this announcement.

First, the warranties cover a two year term, twice the conventional one year offer.

Second, even the warranties comes with bonus features: Cross Country Home Services will cover electrical, plumbing, air conditioning and heating systems, as well as ductwork and many major appliances. They will guarantee repairs for 180 days and will replace appliances that can't be repaired with comparable units. The warranties also include a discount buying program for up to 30% on the cost of name brand appliances and up 15% on installation.

These incentives should draw a lot of interest from home buyers, and likely will lead to many more sales of Freddie owned homes. Burning off that inventory is good for Freddie and in turn, good for the overall economy, but man, this is going to smack a lot of home owners in the pocket book. hard. Prospective buyers are drawn out of the "conventional" marketplace and into the foreclosure pool. Fewer Buyers looking willing only lead to more downward price pressures for the rest of the home-selling world.

Gotta figure that this is going to play out, just like it does when retailers and airlines announce price cuts, rebates and other incentives; everyone else is going to have to match those discounts or suffer a loss of market share. Stay tuned for similar announcements from some other the REO portfolios

ARE YOUR REAL ESTATE BROKER's CHARGES LEGAL?

2009-07-17T08:37:00.007-05:00

Real estate brokers charge fees for their services. That seems only fair.

Traditionally, commissions are based on an agreed percentage of a property's sale price. More recently, some brokers have adopted flat fee commission protocols.

Over the last several years, a growing number of local real estate brokers have begun to add fixed administrative brokerage charges to their sale-price based commissions. The admin charge is supposed to cover office overhead or related expenses. The fee amounts seem to vary from office to office. To the best of my knowledge and understanding, they are not shared with sales agents, but are retained by the office.

A recent court decision handed down by a Federal District Court in Alabama, Busby v. JRHBW Realty, calls the legality of such fees into question.

The 11th Federal Circuit has ruled that such charges violate the Real Estate Settlement Practices Act because the brokerages that impose the fees do not provide any additional services to the consumers who are being asked to pay them; they are unearned fees.

Does that make local broker admin charge RESPA compliant?

We here in Chicago are part of the 7th Federal Circuit, not the 11th. The two have historically had very different view of the RESPA regulations and there are some conflicts in their respective interpretations of the law. But the 7th Circuit has not yet made any pronouncements on these issues, so we might not have a clear answer any time soon.

Contact me for a review and recommendation or let me know if you have any questions about this issue.

(hat tip on this post to Los Angeles attorney Sherwin Root)

UPDATED: 7/21/09: more on this story here.

$8,000 FIRST TIME HOME BUYERS TAX CREDIT CAN BE USED AT CLOSINGS! (in Mass, anyway)

2009-07-16T06:10:00.002-05:00

Remember HUD Secretary Shaun Donovan's proclamation back in May?

"We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a downpayment".

I blawged about it here.

I've represented a dozen or so first time home buyers in Chicago area closings since then. I've seen many more first time buyers while representing sellers, too. Still waiting to see someone who is actually use the tax credit at the closing table. Noone in Illinois seems to have figured out how to implement the FHA's proposal.

Not so for Massechusets. The Commonwealth's MassHousing loan program, announced yesterday, is one of the only programs accross the nation that actually monetizes the tax credit (allows Buyers to use the tax credit at closing, rather than wait for a benefit when they file their federal income tax returns).

Those cream pie eating, red hose wearing, celtic loving types better act quick. The program ends in November. More details here.

FANNIE MAE TIGHTENING LENDING GUIDELINES (AGAIN)

2009-07-10T07:58:00.003-05:00

The FBI released it's annual report on mortgage fraud earlier this week. Virtually all law enforcement and industry statistics show an upswing in mortgage fraud activity.

The Mortgage Bankers Association released the National Delinquency Survey last week, reporting that the increase in foreclosure rates between quarters has reached its highest point since 1972 (when the records were first kept). The increase in foreclosures on first time mortgages increased by 36% between the first quarter 2008 and first quarter 2009.

Little wonder why lenders are scrutinizing loan applications with an even finer toothed comb.

Nor should it come as any surprise that lending guidelines are getting even tighter than they already are. Fannie Mae recently announced several new underwriting / eligibility guidelines that will become effective September 1st.

Some key changes all Chicago area home buyers (and their agents) need to know:

Buyers wishing to purchase owner occupied 2 flats will need to make 20% down payments. Investment 2 flats will be limited to 75% loans. (These new loan to value ratios conform to existing standards for 3 & 4 unit buildings).
Stocks, bonds, and mutual funds will only be valued at 70% of the current worth (reduced from 100%); Retirement accounts at 60% reduced from 70%). Stock options & non-vested restricted stock will not be eligible for use as reserves at all. (Lenders are hedging against further stock market declines)
"Trailing secondary wage earner income" will be disallowed. (projected employment & income anticipated, but not currently earned by a borrower, such as a spouse relocating who is currently employed but does not yet have a job lined up here in Chicago).
Tip income can only be used qualify for loans if a borrower can prove tip earnings for two years and if his or her employer indicates that tip income will "in all probability" continue. Such income will be counted based on a 2 year average.
The maximum age of credit documents will be reduced from 120 days to 90 days. (The paperwork used to "prove" a borrowers assets and income). New construction buyers get 30 days more - Buyers need to have good (current) records of their assets to support their applications.
2nd loans & HELOC lenders will be allowed to recoup closing costs paid on behalf of the borrower if the borrower pays the HELOC or second mortgage off early, regardless of whether the lender labels this as a prepayment penalty. (Costs on 2nd loans are going to go up).
Borrowers will be required give lenders two sets of tax return authorization forms (once during the application process, and again at closing). Fannie is strongly encouraging lenders to actually pull tax returns from the IRS as part of the underwriting process
Final pre-closing verifications of employment must be well documented.

Buyers relocating to Chicago, Commissioned and tip-based workers, and folks intending to buy two-flats are going to be most severly impacted by these changes. But even with these new guidelines, well qualified Buyers will still be able to find lenders willing and able to make loans. It is just going to take a whole lot more effort to prove that they are indeed well qualified and they might find that they will be able to borrower substantially less money than they might have otherwise hoped to.

Savvy Buyer-agents are well advised to encourae their clients to start the loan pre-qualification process early, so that they can know know exactly what type of documentation they will need to gather for their loan underwriters and so that they can make reaslistic assessments of the loans they will be able to qualify for.

As always, I am available to answer questions about these guideline changes, and to help with other closing-related matter.

2008 FBI Mortgage Fraud Report Reminds Buyers (and Sellers) Why it is So Darn Hard to Get that Loan Approval

2009-07-09T07:03:00.003-05:00

It is getting harder and harder to satisfy mortgage loan underwriters these days. Ask anyone who makes a living helping Chicago area home Buyers or Sellers close their real estate contracts.

Tight mortgage lending guidelines are requiring Buyers to document every last nickel of income and savings, the sources of those funds.
New appraisal rules are insulating property appraisers from real estate agents and loan officers.
Lenders are requiring specific (and increasingly careful) examination of chains of the transfer of title ownership.

There is a lot more paperwork being required. Its taking Longer. Frankly, it is a pain in the kishkes trying to manage the process and keep deals together as a loan application winds its way through the lending pipeline.

I hear a lot of grousing from Buyers, Sellers & Real Estate Agents. (OK, I grouse about it too)

But then, Tuesday's FBI report on Mortgage Fraud reminds us all why we are working so much harder. Our present day (would be) borrowers are bearing the consequences of the sins of our predecessors.

Some key findings & conclusions:

The downturn in the economy, spike in foreclosures and defaults, & diminishing credit availability are fueling rampant mortgage fraud fraught with opportunistic participants desperate to maintain or increase their current standard of living
In 2008, suspicious activity reports increased 36 percent to 63,713 after 46,717 filings were reported in 2007.
at least 63% of all pending FBI mortgage fraud investigations during 2008 involved losses totaling more than $1 million.
In 2008 FBI mortgage fraud investigations totaled 1,644, a 37 percent increase from 2007 and a 100% increase from 2006.
Popular schemes include builder bail-out, short sale, foreclosure rescue, credit enhancement, loan modification, illegal property flipping, seller assistance, bust-out, debt elimination, mortgage backed securities, real estate investment, multiple loan, assignment fee, air loan, asset rental, backwards application, reverse mortgage fraud, and equity skimming.

As lenders tighten the screws on lending guidelines and procedures to stem the tide of frauds, I imagine that future reports will show a decline in the number of overall suspicious activity cases. Scammers will move on to other, more lucrative schemes.

None of this makes it any easier for our clients, or our workloads. But at least it helps remind us why things are the way they are right now.

The Cost of Selling (Some) Condominium Units is Going Up (and the Process is Getting Harder, Too)

2009-07-08T15:28:00.006-05:00

Some Chicago area Condo Sellers are facing newly increased closing costs and timing hassles, as one of the largest local property managers has instituted new charges and procedures to issue out closing related paperwork. Wolin-Levin, Inc. recently implemented a new web-based facility to generate paperwork needed in connection with condo sales and leases. My review of the new product, and the undesirable effects it will have on condo transactions follows.

Condominium Managers & Disclosure Requirements

Condominium Buyers should do at least some due diligence investigation of the Association's over-all financial condition. No one wants to buy a new condominium and then learn about the $20,000 special assessment that they have to pay the month following.

Illinois law allows for this. If a Buyer asks, the Seller must produce information, such as the organisational documents (Declaration and By-Laws) and financial records (Budgets and Financial Statements). The association must also state whether there are any known liens against the individual unit, known or planned special assessments or capital improvements for the property, and whether or not there is a reserve of funds set aside to pay for those improvements.

Collectively, the list of required disclosures are set out in Section 22.1 of the Illinois Condominium Property Act. Creative minds that we are, Buyer's lawyers ask Seller's lawyers for "22.1 disclosures." (Some Chicago area real estate agents refer to them as Rider 5 disclosures, a reference to the form number for the Chicago Association of Realtor's contract attachment that formalizes a request for this information.

If a Buyer does asks, but does not receive this information, or if a Buyer receives, but does not approve of the information provided, the Buyer can cancel the contract, and demand a refund of Buyer's earnest money.

Whoever makes the request, and whatever the request is called, some one has to provide the requested information. When an association is professionally managed, the property manager is charged with making the disclosures.

Condominium Paid Assessment Letters
At closing, Sellers must also produce a letter from their association(s) confirming either that all monthly assessments have been paid in full or otherwise stating the amount that must be paid to bring the unit's account current. Property closings cannot take place without this letter. Again, when an association is professionally managed, the property manager is charged with generating paid assessment letters ("PALs").

Wolin-Levin has been managing Condominiums, Co-ops and rental properties in Chicago for more than 50 years. Reports suggest that they manage over 300 properties totalling more than 17,000 residential units. About five years ago, they were acquired by FirstService Corporation, a publicly traded national provider of property management and related services.

The New Wolin-Levin Web Platform

Wolin-Levin recently migrated all requests for 22.1 disclosures and PALs to a web site - welcome-link. Sudler Property Management implemented CondoCerts.com a similar web-based platform in 2006.

It would appear that the new web site is an "efficiency" that was driven by the parent entity, and created without little or no regard for Chicago area lawyers or condo owners. The product is unreasonably expensive, unduly burdensome, the system conflicts with local custom and practice, and the web site is anything but welcoming.

The Problems (besides the cost)

Wolin-Levin's new web site troubles me, and I believe will aggravate many transactions, for a number of reasons:

Selection: Wolin-Levin has taken an all or nothing approach to the delivery of sale packages. Whereas Sudler allows uses to pick and choose from an a la carte menu of documents and disclosures (i.e., just a paid assessment letter; just a declaration and by laws; just a 22.1 disclosure, etc), Wolin-Levin requires that everyone order (and pay for) every single stinking document - whether they want 'em or no).
Delivery: Documents ordered from a Chicago area property manager by a Chicago area requester are sent in some as yet undetermined (but I'll bet electronic) format to Lexena, Kansas, where they are sent by UPS in hard-copy format back to the Chicago area requester. By contrast, Sudler allows for immediate electronic delivery of documents. A much more efficient, and environmentally friendly approach. Easier and cheaper to forward things to a Buyer or Buyers' attorney this way too.
Timing: Wolin-Levin gives users only two timing options: 30 day delivery, or, for a significantly higher fee, expedited handling. The condo act allows property managers 30 days to respond to requests for 22.1 disclosures, but the typical real estate contract calls for delivery of these materials within two or three days of contract acceptance. Sellers must choose to either pay the expediting fee or delay their contract contingencies and closing dates.
File Identification: Local Attorneys, title companies, real estate agents, and parties to a deal refer to the transaction by the property address and/or the Buyer and Seller names. These are universally known and understood. Not Wolin-Levin. Even though they require a use to input the condo's property address and buyer/seller names, all welcome-link communications refer to their order number ONLY. If you do not know your order number, you will not be able to identify any email or correspondence to any given file. (How hard would it be to reference orders using any descriptor the rest of the world besides Wolin-Levin & Welcome-Link uses?

The bottom line for sellers of property's managed by Wolin-Levin?

expect to pay more for these transactional services. for the sole and simple reason that Wolin Levin is making you use Welcome-Link
don't expect to close within 30 days of signing that contract, unless you are willing to shell out an additional $100-150 for the privilege of doing so.
understand that the condominium due-diligence contingency is likely to stay for a long, long period of time after your contract is signed.
expect to pay a fee to produce and deliver the condo declaration and bylaws to your buyer - whether you need to order those documents or already have them. Since there is no a la carte selection, your gonna pay whether you need them or not.

Call me or email if you have questions or comments about the impact of new Wolin-Levin's new procedures on your Chicago Condo transaction, or if I can be of service in any other matter.

Minnie Solos Can't Use "& Associates" in their Firm Name

2009-07-02T13:30:00.002-05:00

Peter H. Berge at Minnesota CLE reports today that

"At least in Minnesota, it is now unethical for solo practitioners to use "& Associates" in the law firm name. The Minnesota Lawyers Board of Professional Responsibility just adopted that rule in its new Opinion 20.
The stated reason for the rule is that Rule 7.1 prohibits false and misleading statements and Rule 7.5(a) shall not use a firm name or letterhead that is in violation of Rule 7.1. Using the term "& Associates" in a firm name, the LBPR reasoned, is misleading if there are not more than two licenses attorneys in the firm. While recognizing that "Associates" has other meanings in general use, the term has come to have a specific meaning in the custom of law firms.
Needless to say, there has been consternation among some solo practitioners. Many solos feel they are being unfairly picked on; that if large law firms could continue to use the names of dead partners they should be able to intimate non-existent "Associates." (That is specifically dealt with in the comments to the Minnesota Rule 7.5 - a firm can continue to use the name of a dead partner if their is a continuation of practice or a trade name.)

Not an issue for me of course. I practice solo. No associates. No clerks. Just a computer or two. Neither the law office nor the computer has a name (and for the record, no dead partners either)

UPDATE on the TITLE INSURANCE MARKET CONDITIONS

2009-07-02T09:47:00.010-05:00

I've reported from time to time over the past year about Title Insurance Companies that have closed up shop; fallout from the overall collapse of the real estate markets.

Title Insurance provides critically important protection for property owners. Savvy Buyers insist that sellers provide a policy of insurance as part of every purchase transaction. It affords indemnity insurance against financial loss from defects in title to real property. It protects an owner's financial interest in real property against loss due to title defects, liens or other matters. The insurer will defend against lawsuits attacking the title. or reimburse the insured for actual monetary losses incurred, up to the dollar limit of the insurance policy.

Problem is, what happens when the title insurance company shutters its doors?

Contracts that are "in process" grind to a halt. Mortgage payoff checks or other checks issued from closings that are "in the mail" or otherwise un-cashed may no longer be good. Loans can go unpaid. Claims and Liens may not get released. If the company did not re-insure risks, policy holders may lose their insurance protection.

Past blawg reports detailed the demise of PLM Title, Guaranty Title & Trust, and LandAmerica. Now joining the on the scrap heap, are the late great local title agencies Absolute Title and LaSalle Title. Not quite ash-canned, (still fully operational) but certainly of note is a late-breaking announcement from Professional National Title Network. Details follow below.

Absolute Title
Appears to have closed down operations, without announcements of any sort or advance warnings. It was, at one time, the largest issuing agent for Stewart Title Guaranty Company in the state of Illinois. Based in Schaumburg, it serviced a great many north-west suburban real estate lawyers, and had a strong market niche providing insurance for smaller condominium developers. According to one insider I spoke with, Absolute may have fallen victim to numerous instances of closings involving mortgage frauds.

LaSalle Title
LaSalle Title's phone number is disconnected and appears to have closed hastily in the wake of last week's federal indictments in which the US Department of Justice alleges that LaSalle and three other businesses allegedly schemed to obtain more than $10 million in loans on 70 residential properties in Chicago, resulting in losses totaling about $5.8 million to various mortgage lenders.

Professional National Title Network
PNTN is NOT CLOSED and is not in financial trouble (that I am aware of anyway), but its underwriter, The Florida based Attorney's National Title Fund may have been. attorney-agents were notified this week that the Florida Fund has formed a "joint venture" with Old Republic Title Insurance Company and that, going forward, they must all sign new agency agreements with Old Republic. As "the Fund" operates primarily in Florida, which was one of the epicenters of the recent real estate bubble. Apparently is suffered a substantial decline in surplus funds and was unable to continue operations. It will continue to cover claims on existing policies, but will not sell new insurance as an independent underwriter. The Fund's press release announcing the joint venture is here.

It has long been my practice to do business with only large, well capitalized title insurance companies to minimize the risks associated with a title insurer's collapse. My Seller-clients are assured that the insurance purchased for their Buyers is strong and can be reasonably relied upon. My long-standing practice has been to demand that other Sellers likewise provide my clients with insurance from reputable companies.

Please let me know if you have questions or concerns about your title insurance provider or your Chicago area closing. I will be happy to be of service

New government regulations may well dictate when you will close your next transaction

2009-07-01T12:51:00.005-05:00

A big hat-tip to Wells Fargo Mortgage Consultant Martha VanBendegom for sharing information with me, so that I can share it with you.

Everyone knows that a Buyer and Seller set out the terms of their real estate deal by writing and signing a contract. All agreed terms get spelled out, including the sales price and the closing date.

The parties set the closing date in the contract. It gets written in stone, so to speak, no? Well, more written in sand than stone. Sand on a shoreline smacked over and over again by pounding waves of mortgage rules and procedures. Waves that erode the shoreline of that contract, and that will all but wipe those closing dates clean off the beach.

Regulations spawned by the Federal Housing and Economic Recovery Act of 2008 go into effect at the end of July. The new regulations, coupled with Fannie Mae & Freddie Macs recent implementation of the Home Valuation Code of Conduct are going to take that "false illusion" of a fixed, certain, closing dates clear out of great many transactions.

Buyers and Sellers who rely on a contract closing date when they arrange their moves-in and moves-out are likely going to be in for big, frustrating, costly surprises. Savvy lawyers, realtors, and especially loan officers better start spreading the word, so that there clients are not adversely impacted, or disappointed by the delays that will inevitably follow.

According to the Wells Fargo summary, there are a couple of key points everyone is going to need to understand. My thoughts follow.

These changes are only going to apply to residential transactions - first and second homes purchased with mortgage financing (and for re-finances as well).
The EARLIEST date that a contract can close will be 7 business days AFTER the buyer receives mortgage initial written disclosures from the lender. (truth in lending, good faith estimate, fair credit, etc.).
Lenders will not be allowed to collect upfront fees for appraisals (any upfront fees at all - other than for credit reports) until the next business day AFTER those initial disclosures are received.
Closings cannot take place until 3 business days after Homebuyers receive copies of their appraisals (at least this requirement can be waived).
New Truth in Lending disclosures will be required if a buyers interest rate (technically, the APR) changes by more than 1/8th% from an initial disclosure. If necessary, closing cannot take place until 3 business days after it is received. If the lender mails that new TIL, it is considered "received" 3 business days AFTER the mailing date.

So what does all this mean? Well, on the one hand, a contract is still a contract. A binding set of promises & obligations undertaken by the Buyer and the Seller. That contract specifies a closing date and if the Buyer's loan is not ready to go, the Seller is (as now) going to have a right to sue the Buyer for a breach of the contract. But really, the Seller didn't sign-on to sue anyone. The Seller just wants to sell and wants to know when that sale is going to happen. If it cannot happen until the loan is ready, the seller (more often than not, certainly) is going to have to just "hang-in" and wait for the loan to get done. Sellers will be entirely at the mercy of the Buyers, Lenders and Title Companies in terms of this sort of regulatory compliance.

How will this impact buyers?

Any buyer who does not intend to apply for a mortgage loan, in person, is going to see longer processing times on their loans. The waiting times increase when documents and checks pass back and forth by mail. Delays will become the new norm in such instances.
Anyone who does not lock-in an interest rate, who changes loan amounts, who changes loan programs, or takes time after the contract is signed to decide what type of loan they want (or who's lender suddenly discontinues or changes the intended loan program), and those who decide to add a second mortgage into the mix), will need new/updated Truth in Lending Disclosures and will force mandatory three day waits for closing. In my practice, that seems to cover about 90-95% of all mortgage-financed transactions.
Poor communication between loan processors and title companies will lead to inevitable last minute changes on TiLs, to include charges for new or additional title searches / services after the initial TIL is given out, that will trigger the waiting periods. Again, in my practice, this is the case in an overwhelming majority of cases (but not so, with certain highly regarded and well organized lending institutions.
Title companies change in fees for services will automatically trigger the same.
Appraisals will be ordered even later in the process, since Buyers will be unable to pay for them at the time of a first meeting with their loan officers and many lenders refuse to order them without a buyer's cash in hand.

Real estate agents and attorneys representing clients - on both sides of the deal - and loan officers will all have to make sure that their clients understand the timing ramifications of these new regulations to make sure that expectations of a closing happening on time are realistic.

Buyers will be best served by (a) applying for their mortgage loans in person, (b) using highly reputable and well established loan officers (c) who communicate regularly and reliably with their borrowers, attorneys and agents. Sellers, attorneys, agents, and title companies will be happy too.

Let me know if you have any questions about the new regulations or how they may impact your Chicago-area home deals (or your client's deals as well). I can also help you find those highly sought after "good" lenders who will minimize the inconvenience these new regulations will cause, and can help you deal with those not-so-good ones, and the consequences of lender delays too.

Another Dispatch from the Department of "...huh"?

2009-06-26T14:29:00.004-05:00

If these stories were not true, they would likely be pretty amusing. This one is true. Not at all funny.

My client wants to sell his home. The Buyer's loan is approved. The Seller has moved out. Just need one last piece of paper: a payoff statement from the mortgage holder so that we can repay the loan and so the bank will release its lien against the property. (Yes, my client and I are dealing with one of the national lenders). Most often, asking for a payoff letter a simple enough proposition. Call the bank's super-computer; key in some identification information and a fax number; voila: a computer generated payoff statement arrives in my fax in-box. Not so here.

The property is in foreclosure. Things go a bit differently. Gotta go through the foreclosure attorneys (which we have). Gotta send in a written request (which we have). Gotta have the borrowers written authorization (we have). The process takes a bit longer. Started two weeks ago for goodness sake.

Understand, we can pay the loan off IN FULL. We are able to pay the loan in full. I dare say we want to pay the loan off in full.

Honestly!

Ask yourself this quick question:

If you were the bank, what would make you bank happier? A borrower's repayment of the loan, including foreclosure costs, legal fees and interest? or, an order of foreclosure, adding the property into the REO inventory and hoping to sell it off some time in the future at a below-market price, all the while incurring costs associated with owning the property?

Now ask yourself whether do you think the Bank would agree with you? (hint: you are wrong.)

All we need is a pay-off letter. Show us in writing what we owe. We are going to give it to you. Now. We're ready. Have been for two weeks.

I've called the bank. I've called the attorneys handling the foreclosure. I've faxed the bank. I've faxed the attorneys. I've sent them both my client's signed authorization more than once. My client has called the bank as well. No nothing. Don't they want their money back?

The bank just cannot or will not tell us what we owe. Their lawyers cannot tell us what we owe because the bank will not tell them.... or even explain the reason for delay.

two weeks into the process, the bank finally tells me that they have sent an email to their lawyers with the preliminary payoff figures. (the lawyers need to add in their costs and fees, then the bank has to approve those numbers before they become available to us).

GET THIS: the bank uses an email system with its venders called "venderscape." e-mail messages sent via vender-scape take 3-5 business days to be delivered. email that takes 3-5 days?

Huh?

RELIABLE

2009-06-25T06:26:00.002-05:00

Every Chicago are real estate closing I participate in has some sort of allocation of property taxes between the buyer and seller; the tax pro-ration. Calculating the pro-rations amount is based, in part, on the day of the year on which the closing takes place. So, as a lawyer who helps clients buy and sell their homes, I refer frequently to the "day of year" counter on my title-company issued desk blotter monthly calender. Which is why I am so very aware of the fast approaching chronological mid-point of the year.

So, how are we doing in residential real estate?

The Illinois Association of Realtor's monthly activity report came out again this week. Analysts who sifted through the data were able to find a few shiny nuggets of good news, but things still are not quite trending the way we might hope they would be. 422 fewer condos sold in Chicago, (1,053 fewer total residences sold in the metro area) May 2009 compared to May 2008. Drops of 27.5% and 18.7% respectively.

Put that into perspective from the previous year's numbers: Chicago area home sales in May 2008 were down 29.0 percent from 9,751 sales in 2007. Chicago condos were down

Real Estate Brokerages are feeling the squeeze. Coldwell Banker NRT, the area’s largest residential real estate firm announced last week that it plans to close a Naperville office by summer’s end. That would be the 3rd office closed this year. It closed 2 others late last year too. Sudler Sotheby's closed its old flagship office on Wells Street. Baird & Warner also closed an office just down the street from Sudler's. Both had been Old Town presences for more than two decades.

The pool of mortgage lenders is shrinking too. Many, like Residential Loan Centers of America are simply shutting their doors. Others, are folding into larger firms (Professional Mortgage Partners, Revere Mortgage and others for example have all morphed into Wintrust Mortgage).

Title Insurance Companies also continue to shutter offices and reduce staffs.

Me, I am still accepting new clients for all manner of real estate transactions.

CONDO LOAN GUIDELINES ARE CHANGING - AGAIN

2009-06-18T07:16:00.003-05:00

Stop me if you have heard this one before.

FHA financing has become more prevalent in the market over the last two years as Fannie Mae and Freddie Mac tightened the reigns on low down payment condo loans. More and more condo deals (at least the ones I am seeing) are being financed by FHA backed loans - they are still guaranteeing loans for up to 97% of a purchase price.

That may change soon in the wake of FHA's Mortgage Letter 09-19, issued earlier this week. Lending guidelines for condominiums are changing. again.

Basically, FHA requires that both the borrower and the property must satisfy lending guidelines. Condo approvals come in three different flavors:

The Condominium is already on HUD's approved list;
The developer or association apply for an approval of the entire building/project (to get on that list) - a "blanket" approval; or,
The specific unit is approved on an ad hoc basis - a "spot" approval.

Spot approvals require certain specified requirements be met in order to obtain HUD’s blessing (Typically a two page questionnaire). A pain, but faster & easier than submitting the ream of documentations necessary for a blanket approval for an entire condo project.

HUD has announced that, effective October 1st, it is eliminating the spot approval process. Early reports suggest that some lenders stop processing applications for spot approvals even sooner (yikes!).

I strongly encourage anyone who is shopping for a condominium, and intends to use an FHA loan so as to make a minimal down payment, to get going NOW, before this rule changes. Blanket approvals might get somewhat streamlined, but are going to take time. Too much time to make them viable options for any single buyer or resale situation.

There are, at least, two silver linings in all of this

elimination FHA's prohibition of the right-of-first-refusals, and
and end to the "1-year waiting period" for condo conversion project approvals.

HB0155 APPROVED - WOULD BAR CONDO RIGHTS OF FIRST REFUSAL

2009-06-18T06:28:00.005-05:00

Back in March, I wrote about HB0155.

The bill would effectively prohibit a condominium from exercising a right of first refusal to bar a potential buyer from purchasing a unit because that buyer wants to finance the deal with an FHA loan. That bill, slightly amended, has passed out of the State House & Senate and awaits the Governor's signature or veto (more on that below).

Many Condo Declarations contain a broad rights of first refusal over sale contracts. FHA lending guidelines prohibit them, that is to say, they will not lend to buyers wishing to purchase into associations that restrict sales in this manner. (Don't get me started on the "logic" behind the guideline - I have only seen the right actually exercised once in the last 10 years).

This new law would simply tell Condo Associations - hey, don't even think of exercising that right you aren't going to use anyway.

So if we ban Associations from asserting the right of first refusal, does that mean that the FHA will lend? I don't know. I hope so, but I have not seen anything from FHA or anywhere else that suggests that the law will trump the guideline or that HUD will change the guideline. After all, the right of first refusal will still exist, even if it cannot be exercised. The law could be repealed, or ruled unconstitutional by the Courts. If the FHA feels so strongly about re-sale restrictions, is it going to take that risk?

But perhaps the more interesting questions right is this one:

Will the Governor sign the bill?
HB0155 joins 498 others awaiting the Governor's action (House Bills: 356) (Senate Bills: 143)

(Apparently they may have run out of pens in Springfield due to the budget crisis)

COWALUNGA 2009

2009-06-12T13:52:00.003-05:00

an open invitation to join in on the fun.

COWALUNGA! runs August 1, 2, 3

a three day bike ride (1 and 2 day options available too) from Gurnee Mills Shopping Mall into Wisconsin.

ITS FUN! (really!!) (no, really!!!)

Support the Respiratory Health Association of Metropolitan Chicago!

Promote healthy lungs and fight lung disease through research, advocacy, and education.

details: www.cowalunga.com

NEGOTIATING A BETTER REAL ESTATE CONTRACT - SELLER CONSIDERATIONS part IV

2009-06-03T08:04:00.004-05:00

These days, it (still) is really very hard to find Buyers who are willing to submit a written purchase offer.

and perhaps a somewhat less obvious truth:

That's just half the battle.

stated interest rates that are at or below current market rates. What good is it to accept a contract that requires a 4.75% loan when current market pricing is 50 more basis points higher?
contingency expiration dates that are (obviously) too short. Most of the major banks that engage in direct retail lending (Chase, Bank of America, National City, etc) are taking 30-45-60 days to approve loan applications. Mortgage brokers that have to underwrite loans have long processing times as well. FHA loans, "non-warrantable" Condominiums, new construction? Same deal. So what is gained by accepting an offer that sets the contingency date as 10 days from contract acceptance? The Buyer is going to (necessarily) ask to extend the deadline (then again, then again) for the month or two everyone knows it is going to take to gain the loan approval.
contingency expiration dates that are on (or after) the closing date. If Sellers are willing to take their property off the market and close only if a Buyer can get a loan, then this isn't a real concern. In the real world however, Sellers want some assurance at some point that the contract is going to close. Sellers rely on that assurance to finalize their move out plans and to firm up their purchase closings or rental arrangements. If a loan contingency date goes to deep into the closing time line, Sellers take too much risk and loose any reasonable assurance of a closing.
closing cost credits or possession arrangements that exceed loan guidelines. Sellers seeking to make deals quite often agree to pay some Buyer closing costs or credit for some other consideration. These concessions become integral parts of the deal. But again, why agree to these types of monetary adjustments if the Buyer's lender will not allow them? Too often, unwary Buyers and Sellers do not learn of a lender's rejection of credits until they arrive at the closing table. At that point, there are NO easy work-arounds. No one likes these types of surprises. They are much better addressed during the contract formation period.

There is a seductive temptation to accept mortgage contingency terms that seem "too good to be true." Very often they are. After all, the burden falls on the Buyer to "watch the clock" and to either get a lender to meet a deadline or to ask for appropriate extensions. More sober and realistic contingency terms seem far more preferable. Every time a Buyer must ask to extend a deadline a Seller must expend time and effort to respond. Every time a contingency deadline is pushed back, that Seller must take on additional risk - closer to an impending closing date - that the deal will not come together. The longer the contingency remains open, the longer the property stays off market, and the greater the likelihood of a lost opportunity to find a more qualified Buyer.

Prudence dictates a realistic evaluation of any proposed loan contingency. Ask me how I can help you undertake that evaluation.

THE NUTS & BOLTS OF USING THE FIRST TIME HOME BUYERS TAX CREDIT AT CLOSING

2009-05-31T09:21:00.012-05:00

FHA (finally) Reveals the Details

U.S. Secretary of Housing and Urban Development Shaun Donovan made headlines two weeks ago when he first announced that the FHA would allow first time home buyers to apply their $8,000 tax credits immediately, at their closings (The credit would otherwise be claimed when the buyer files his or her Federal Income Tax return).

Last Friday, FHA released mortgage letter 2009-15 which sets out the rules to implement this new policy. Welcome the latest form of secondary mortgage financing - the Tax Credit Advance Loan.

A big hat tip to Peter Olson's CCRE for alerting us all to the FHA's announcement.

The concept seems pretty straight forward. Buyers are going to offered the opportunity to take a second loan at the closing that roughly equates to the amount of their tax credit. The loan will be repaid or forgiven over time as would the tax credit as originally formulated.

WHY CHICAGO AREA BUYERS WANT TO USE THE CREDIT AT CLOSING

This might be helpful for buyers want to lower their monthly mortgage interest rates by either

making larger down payments, or
buying down the interest rate with discount points at closing

WHAT THE FHA EXPECTS TO SEE - THERE WILL BE SOME STRINGS ATTACHED:

The tax credit cannot be transferred from a Buyer to anyone else, so Buyers are not going to be able to "lease" their tax benefit like, say, a parking meter or a toll road to Indiana. Rather, these are going to be more like payday loans or advances against income tax refunds - only this time the loans will be secured against real estate.

Of course, there will be restrictions:

Home buyers will NOT be able to take cash back at closing. No walking away money.
The advance loan CANNOT be used towards the first 3.5 % of the purchase price, used as a down payment.
The advance loan CANNOT exceed the total of a buyers' down payment, closing cost and pre-paid expenses (pretty much the same as not being able to take cash out, isn't it?)
The loans cannot have a balloon re-payment period of less than 10 years.
If the loans call for "short" re-payment schedules, and buyers fail to repay on time, the loans must provide for a repayment schedule with principal & interest specified or that the loan goes "soft."

BUYERS WILL HAVE TO PAY TO PLAY:

Closing costs, that it. The FHA is suggesting that anything more than 2.5% of the credit amount ($200 on an $8,000 credit) is excessive. Anyone want to bet what the lenders are going to charge to make these tax credit advance loans? (Me, I am thinking ....$200). Then again, I will not be surprised to see some lenders "push the envelope" on that suggestion and some will certainly charge more. There don't seem to be any apparent or immediate penalties for charging "excessive" fees.

Depending on the title insurance requirements for these secondary loans, Buyers could reasonably expect to see $500 or more in additional title company charges too (second loan closing fees, second loan policies, recording fees and the like).

Interest rates for these loans will be set by the markets.

EXPECT EVEN MORE PAPERWORK

Lenders are going to have to verify that

the home buyer is eligible for the tax credit
the credit advance loan doesn't exceed the amount of the credit.
the buyer actually applies for the credit, and that
there are no offsets against the credit (i.e. wage garnishments, other tax liabilities or unpaid student loans)

We will have to see what terms lenders actually affix to these different options to decide which makes more sense for Buyers. The notion of using the credit towards the purchase price certainly seems like a good deal, particularly for buyers who intend to live in their first home for three or more years. Lowering monthly interest payments offers substantial savings over time.

On the other hand, I see two potential drawbacks.

First, it seems to me unlikely that these credit advance loans are going to be forgivable. The tax credit itself has a repayment period only if the home is resold within the first three years. Does it make sense to pay interest over a period of years to advance an otherwise free benefit?

Second, if the credit advance loan has to be applied to closing costs and pre-paids, Buyers will lose flexibility in negotiating inspection-related credits. There are only a finite number of costs and pre-paids. Interests rates can only be bought down so far. Negotiation of inspection issues for Buyers who intend to use advance loans will be much more restrictive.

Let me know if you want further details about Credit Advance Loans, or if they are going to make sense for you closing.

One Reason Why Condo Buyers Pay More to Get their Mortgages

2009-05-29T06:01:00.004-05:00

I helped some clients sell their condo apartment yesterday. As we sat at the closing table, the topic of conversation turned to the recent pricing increases and still tighter lending standards that were recently implemented for condo purchase money mortgage loans. The loan officer, real estate agents, and buyer were all commiserating & railing against the higher cost as being pointless and painful.

Then, on my return to the office, I saw an email from Kathleen Robson, a loan officer at Wintrust, that helped remind me why the lenders are still being so cautious.

She described 2 recent files she had worked on: The one involved a developer apparently had been collecting money from unit owners but then suddenly left town (presumably to a country with no extradition) and no one was left to run the condo association. The other involved a developer that simply was not collecting assessments from the owners of sold units (or paying assessments on the unsold units) but may have lied on paperwork submitted to the lender to say that he was.

No lender wants to loan money against a Condominium that is not operating honestly (or not at all). No Buyer wants to own in this scenario either. If the association does not have funds on hand, it cannot pay for say... water, electricity, insurance, property taxes or any of the other common expenses. If there is no management, there is no forum to address problems or manage the property.

Kathleen asked if there is any way to verify, independently, whether or not a developer - controlled condo is operational. There is none. The developers handling of assessments is just one of many risks involved in a purchase transaction. Lenders see the risks the same way as I do, (and we both charge clients more because of those risks)

A large part of any Chicago area real estate lawyer's practice involves the purchase and sale of condominiums, at least mine does. A large portion of my condominium practice involves purchases and sales of newly-built or newly converted condominiums.

I've been seeing these scenarios too for the last couple of years. Of all the condo purchase opportunities out there in the world right now the riskiest (to me, anyway) are:

conversion projects built since 2006,
by small and medium sized developers,
with fewer than 70-75% of the units sold

I routinely URGE clients to steer clear of these. New construction condos of similar provenance to be nearly as dangerous.

In Illinois, a developer is required to turn over control within 60 days of (the earlier of) closing 75% of the project or within 3 years of recording the Declaration. Once they turn-over, the unit owners run the show themselves, and there is much less risk of financial malfeasance. But until the turn-over? There's the danger zone.

When the markets are hot, turnovers happen pretty quickly. In the doldrums, Developers have been holding on to many unsold units and are retaining control of associations for much, much longer. Very few of them have the sort of financial "transparency" that allows for owners - or prospective buyers - to get much comfort.

We simply can't stop unscrupulous developers form lying on questionnaires or financial statements, but we can be more exacting in our due diligence as we review contracts prior to closing. I for one have begun asking developer-attorneys to prove that assessments will be paid into a segregated, single-purpose bank account established for the association's funds alone - as an additional provision in the purchase contract. I am also asking for photo-copies of bank statements to support the existence (and use) of the account.

Even then, no one can force the developer who is collecting assessments checks to actually deposit them after a closing.

The good news here is that, at this point, the "bad guys" are doing this more out of
desperation than greed. they are not making sales so they are not making any money. if this is all that is left to them, they must be pretty desperate. the small-time, under-capitalized developers are dying off. before too long we will be rid of them.

a little more on inspections

2009-05-22T07:17:00.003-05:00

Either shear coincidence and good timing or industrial espionage (you decide)

Alan May, a Coldwell Banker Realtor in Evanston also blogged on inspection contingencies today. Well worth checking out.

NEGOTIATING A BETTER CONTRACT - SELLER CONSIDERATIONS

2009-05-21T18:19:00.007-05:00

These days, it (still) is really very hard to find Buyers who are willing to submit a written purchase offer.

and perhaps a somewhat less obvious truth:

That's just half the battle.

Its just as hard (harder?) to get contracts to close. Doubt me on that one? Ask any realtor or real estate lawyer, mortgage broker or loan officer. Ask at the title companies too. They will all likely sigh heavy and confirm it. A great many contract are taken that never close. Even the contracts that can and do close have their problems.

However, with care and caution, savvy Sellers, and the real estate agents & attorneys that represent them, can minimize the risks of delay, and the disappointment of failed closings.

This series explores some steps proactive sellers can take to improve the odds

Tip #3
INSPECTIONS CONTINGENCIES ARE NOT FOR THE FAINT OF HEART

No buyer should go forward on a contract without a professional home inspection. That inspection give Buyers re-assurance that the home they are interested in is free of material defects and life-safety hazards - or at least lets them know just what hazards and defects are apparent so that they better understand what they are getting themselves into.

This is an important safeguard for Buyers. I cannot stress that enough. But be that as it may, the inspection contingency should not be allowed to give a Buyer open license to renegotiate the sale price, or demand concessions simply for the sake extracting something more from the seller.

But few Buyers seem to "get it," and Buyers routinely ask Sellers to address issues that are merely cosmetic or routine maintenance issues. Conventional wisdom (and hungry agents) suggests that a Seller must whatever it takes to appease their Buyers, which only seems to goad Buyers into taking more unreasonable positions and making more onerous demands on the Sellers.

Sellers are giving away far too much, and leave their transactions feeling "nickled and dimed" to death.

Smart Sellers avoid these losses by avoiding actively managing the inspection contingencies. There are at least two defensive plays here. First and foremost, the Seller, Seller's agent and attorney must make clear to the Buyer, at each and every opportunity that presents itself, that the house is being sold “as is.”

To be totally clear about this, the Seller should warrant that everything is safe and works fine, but that the Seller does not intend to negotiate minor repair issues. The buyers should be given free reign to conduct a home inspection with that understanding. The transaction should be framed as a take-it and love-it or a leave-it and leave-us-alone proposition. In some instances, this will avoid inspection related requests altogether. In others, it will at least set an expectation, for the buyer that he should not expect to receive concessions for any but the most significant (deal breaking) mechanical or safety issues.

I firmly believe that there are few buyers, even in this market, that will absolutely reject the condition of an otherwise acceptable property based solely on an inspection - unless there is a very serious defect. But setting the proper expectations from the start is critical to the successful negotiation. Few Buyers will accept the "as-is" concept if they hear about it for the very first time after the inspection.

A second, and perhaps more daring play is for a Seller to engage a home inspector BEFORE listing the property for sale. Pre-contract inspections serve dual purposes, both of which will maximize the profit from a sale. They frame the issues that can be topics of negotiation, and they limit the amount of time it takes to negotiate those issues to resolution.

A Seller inspection will likely alert Sellers to those easily corrected safety issues and functional problems that the Buyer's inspector will surely pick up. Things that the Seller either over-looked or ignored over the course of home-ownership. These can be corrected - or disclosed as the seller deems fit. If the Buyer is aware of these things before the offer is submitted, the price already takes that condition into consideration. Sellers has eliminated those topics from the discussion.

Depending on the overall condition of the home, a Seller may wish to take the additional step of deliberately seeking out one of the "tougher" inspection services to evaluate the home. Many of these inspectors are considered "deal-breakers," known to strike fear in their Buyer-client's hearts by pointing out all of a property's blemishes, large and small. At worst, their inspections give the seller the “worst-case” scenario evaluation of their homes. At best, these reports give even greater comfort to potential Buyers. They know that the "worst" inspector has seen the property and now know all that he/she could detect.

Controlling the inspection contingency also helps manage the contingency clock. Negotiations over repairs and repair credits frequently bog down when contractors must be called in to prepare subsequent evaluations and cost estimates. A five day inspection period can easily blow up into a three or four week process. The contract remains uncertain far too long. Sellers lose market time and opportunity.

The quicker these issues can be resolved, the sooner Sellers (and their lawyers) will be able to sleep soundly.

LEGISLATIVE ALERT: CHANGES LIKELY for ILLINOIS REAL PROPERTY DISCLOSURES

2009-05-18T10:25:00.004-05:00

Our real property disclosure covers 21 specifically enumerated types of material defects ranging from unsafe drinking water, to defects in the roof or ceiling, to boundary and lot line disputes. This disclosure is a critically important safeguard for home buyers and is one of the very first things I look for when I am representing Buyers and Sellers.

Last fall, I blawged about an emerging trend on the National scene, requirements that Sellers disclose their knowledge of whether or not a home has ever been used as a meth lab.

Illinois seems poised to "go with the flow" on that one, and before too much longer, we will likely be adding disclosure point number 22. HB0214 would mandate the disclosure of known usages of residential properties for the manufacture of methamphetamine. The bill was introduced by Pekin, Illinois State Rep. Michael K Smith, and flew through the legislature, passing both houses last Friday (May 15) and awaits the Governor's signature.

Sure, it would be nice to know if the home-of-your dreams was previously used to manufacture illegal narcotics. The argument in favor of disclosure posits that there are toxic by-products involved in the manufacture of methamphetamines.

But does anyone really think that an owner is going to be truthful about his or her home-pharamcology business?

no, i didn't think so.

THREE THINGS SELLERS SHOULD EXPECT WHEN THE NEW LY REVISED ILLINOIS NOTARY REQUIREMENTS TAKE EFFECT

2009-05-15T17:27:00.003-05:00

Things get a bit more complicated next month for Sellers who want to Close on Real Estate Transactions in Chicago, and the Lawyers who represent them.

We've watched the progress of Public Act 95-988 for some time as it winded its way through the legislative process last year. The new law takes effect in just two weeks. Based on my conversations with several other local practitioners and title company representatives, I think that sellers can certainly expect three significant changes with regard to their intended real estate closings.

First, a quick recap.

Public Act 95-988 creates a pilot project that is effective June 1, 2009 and terminates June 30, 2013.
The new law affects the notarization of transfers of residential real estate in Cook County.
Illinois notaries public who notarize documents of conveyance of qualifying residential real estate in Cook County will be required to create a Notarial Record,
Take a thumbprint of the seller(s), and providing for record keeping of the Notarial Record to the responsible parties.
The new law requires all Illinois notaries public to verify a person’s identity with a currently valid state or federal photo identification document that bears a photographic image of the individual’s face and his or her signature
Depending on whether the notary is an agent/employee of the title company or not, the Notarial Record must be retained delivered to the title company or County Recorder, and stored for 7 years.

The Three Things Sellers Should Expect:

First, Sellers are (what else?) going to pay more. Notaries are allowed to charge $25 for each notarial act that requires the thumbprint notarial record. At least two of the major title companies intend to impose the maximum fee.

Second, it is going to get harder (and this summer for sure, a whole lot harder) to find a notary public willing to perform notarization of deeds. Its going to be bad enough for notaries having to buy the equipment and notarial record forms, and learn how to use them. It is going to be a pain for many of them to establish appropriate record retention and preparation policies. Worse still, they will also have to comply with the Illinois Biometric Information Privacy Act. Which requires establishing additional written policies, disclosure protocols, and storage/confidentiality considerations. For many, I fear, it just won't be worth the bother.

As a result, I expect a lot of sellers who would otherwise pre-sign documents let their lawyers handle closings will be attending themselves, watching buyers sign loan documents and waiting for funding approvals.

Third, they will be participating in an endeavor that requires the thumbprint custodian to retain records to comply with one law that will conflict with the obligations to destroy records to abide by another. That's right folks. The good legislators in Springfield have mandated a seven year retention policy for notarial records, but that Biometric Records act? It directs that all such records be destroyed within three years (if not sooner).

So what happens to a record custodian who violates the records act to comply with the notary act? Well the penalty for an intentional violation is $5,000 per occurrence.

I say Yikes.

Then again, as one title rep assured me, this will be fixed down state, eventually. "Don't worry Mike, Springfield has three years to fix this "oversight."

NEGOTIATING A BETTER CONTRACT - SELLER CONSIDERATIONS part II

2009-05-12T22:14:00.000-05:00

PART 2:
DON'T DELAY- Do The DUE DILIGENCE NOW

Current market conditions present two unfortunate realities for prospective home sellers: prices are declining. Market times are not. As a result, there are a lot of unsold homes languishing on the MLS and many, many more that are not currently active, but are available if there were Buyers willing to Buy. Worse still, merely accepting an offer does not assure an actual closing.
A great many contracts are falling apart before the closing. So why do so many Sellers shoot themselves in their collective feet by not being fully prepared to go forward on acceptable offers?

Sellers simply MUST do better. A great start is to compile the necessary due diligence materials when the property is first readied for market, well in advance of that acceptable offer.

Every seller of residential real estate in Illinois must make certain legal disclosures, to be given to prospective Buyers. For homes and condominiums that are considered "re-sales" these requirements include:

Chicago homeowners are also required to provide a heating cost disclosure.

Optionally, Chicago area homeowners may also be asked to provide mold hazard disclosures.

All Condominium owners and owners of properties located in planned developments or within homeowners associations must also produce association Declarations, By-Laws, financial statements, budgets and other related information. (as set out in the 'infamous' "rider 5") or in section 22.1 of the Illinois Condominium Property Act.

Failure to provide any of these documents or disclosures gives Buyers an easy way to back out of the deal, right up to the time of closing - and, in some situations, to even rescind a contract after it closes.

Why allow a buyer such an easy way out?. As an attorney representing Buyers, I typically see contracts well after they have been signed. One of the first things I do is request copies of all the applicable disclosures. Other competent lawyers do the same.

I am constantly amazed (but frankly, not at all surprised anymore) that it can take days to get Sellers to complete those disclosures. It can take weeks, sometimes a month or more, to collect the Condominium materials.

Its not like asking for them is going to come as a surprise to anyone in the business, and yet time and time again, Sellers and their listing agents fail to act proactively to have these things ready to go. The list has not changed in years.

Everyone knows the list. Everyone knows that the disclosures must be made... and that until the buyer sees ... and approves.... the disclosures, the Buyer can weasel out of the deal. So again, why would you let the buyer have free reign on this contingency?

Have everything ready to go, before the offer is received. Give it all to the Buyer the MOMENT her offer is accepted.

Start the clock as early as possible in order to close the contingency as early as possible. Get the deal closed.

TAX RELEIF - for some Suburban Cook County Homeowners

2009-05-11T15:55:00.001-05:00

CRAINS CHICAGO BUSINESS:

County to lower home assessments

By: Lorene Yue May 11, 2009

(Crain’s) — Residents in some suburban Cook County townships will see a reduction in the assessed value of their homes as the tax system catches up with the real estate downturn.

But because tax bills are paid in arrears, it won’t be known if homeowners will see any benefit until next year.

Homes in 30 suburban townships will have their assessed values lowered by 4% to 15%, Cook County Assessor Jim Houlihan announced Monday. The reduction is being made to accommodate market changes at a time when suburban areas are not up for reassessment, which happens every three years.

“After careful analysis of market sales and foreclosure data, we determined those townships should not have to wait until their next reassessment for the impact to be reflected,” Mr. Houlihan said in a statement.

River Forest Township will receive a 5% reduction, while Cicero Township gets a 15% reduction.

“Areas hit hard by foreclosures and market drops will see the biggest reductions,” he said in the statement. “The percentage reductions will change if the conditions warrant it.”

The assessors office has begun reassessing Chicago residences this year, and Mr. Houlihan said some homes in the city may receive lower assessments.



Date: October 26, 2011 To Our Valued Customers: Consumer banking technology now allows people to directly deposit checks into their bank accounts using Smart Phone applications and other computer technology. There have already been documented cases of fraud associated with this new technology. As such, we now require that all funds presented to us be payable directly to First American Title. In addition, if a customer is presenting a title company check to us from a different transaction, the title company check must be made payable directly to First American Title. When requested to redirect proceeds from our closing to another title company, First American Title will accommodate with written direction from the seller. Thank you for your cooperation. Should you have any questions, please feel free to contact XXXXXXXXXXXXXXXXXX