Under the Illinois Home Repair and Remodeling Act, contractors are required to follow a number of rules in order to enter into a valid and enforceable contract with a homeowner. One of the most important features of the Act is that it requires the contractor to maintain sufficient insurance to protect the property owner in the event of damage. Specifically, contractors must have public liability and property damage insurance of at least $100,000 per person and $300,000 per occurrence in the case of bodily injury. They must also maintain insurance of $50,000 per occurrence for property damage. Additionally, because sometimes repairs fail to comply with applicable state, county, or local ordinances, contractors are required to maintain public liability and property damage insurance of $10,000 per occurrence, the proceeds of which would be used to remedy such non-conformance, if any.
Why is it that many contractors fail to maintain insurance policies such as those described above? Well, the insurance provisions of the Home Repair and Remodeling Act only apply to those contractors who have a net worth of $1 million or more, as stated in the contractor's financial statement as prepared within the last 13 months.
Therefore, when you are looking for a contractor, make sure you discuss insurance openly. If your contractor's net worth is less than $1 million, he may maintain little or no insurance. You need to make sure that your contractor not only has sufficient insurance, but that you, your homeowners' association (if any), and your lender (if any) are also added to the contractor's insurance policy as additional insureds. Any subcontractors working on your property should also maintain sufficient insurance and should also add you to their policy.
Illinois Real Estate Law Blog
Wednesday, April 22, 2009
Sunday, April 12, 2009
FHA and Mortgage Insurance -- What is the UFMIP?
FHA loans help to make real estate more affordable by allowing you to obtain a loan with a relatively small down payment. In today's market, you are required to put a substantial amount of money down for conventional financing, whereas you may be able to get an FHA loan with only 3% down. Because FHA loans are insured by the Federal Housing Authority, they are strictly regulated by them as well.
But the Federal Housing Authority won't insure your FHA loan for nothing. That's where the Up Front Mortgage Insurance Premium (the UFMIP) comes in. The UFMIP is similar to regular mortgage insurance -- it's insurance you, as the borrower, pay for to cover the balance of your mortgage in case you default.
However, the UFMIP is a bit more hefty. Typically, your premium will be about 1.75% of your loan amount (note the FHA changes the premium periodically -- last summer it was only 1.50%). In other words, if you are borrowing $200,000 today, your UFMIP will be $3500. You will pay the premium at closing, and you will also pay monthly premiums with your mortgage payment.
When buying a home with an FHA loan, keep the UFMIP in mind. The cost is considerable. Then again, you also get to buy your home -- and without the FHA and their required UFMIP payment, you may be unable to buy one otherwise.
But the Federal Housing Authority won't insure your FHA loan for nothing. That's where the Up Front Mortgage Insurance Premium (the UFMIP) comes in. The UFMIP is similar to regular mortgage insurance -- it's insurance you, as the borrower, pay for to cover the balance of your mortgage in case you default.
However, the UFMIP is a bit more hefty. Typically, your premium will be about 1.75% of your loan amount (note the FHA changes the premium periodically -- last summer it was only 1.50%). In other words, if you are borrowing $200,000 today, your UFMIP will be $3500. You will pay the premium at closing, and you will also pay monthly premiums with your mortgage payment.
When buying a home with an FHA loan, keep the UFMIP in mind. The cost is considerable. Then again, you also get to buy your home -- and without the FHA and their required UFMIP payment, you may be unable to buy one otherwise.
Sunday, April 5, 2009
Mortgage Insurance Basics
So you're trying to buy a home, but you have to pay mortgage insurance. What does that mean? How does it work?
In a standard real estate transaction, a buyer puts at least 20% down. All buyers, however, cannot afford to do that. When you are putting less than 20% down, banks are concerned that you have not invested enough of your own money into your home. They are also concerned that you won't be able to afford your monthly payment if your circumstances change. Mortgage insurance came about as a result of these concerns. Simply put, mortgage insurance is insurance for your lender in the event that you cannot make payments any longer and your lender cannot recoup its losses.
How does mortgage insurance work? If you are putting less than 20% down and have only one loan, your lender will have to arrange for mortgage insurance for you. Mortgage insurance companies typically take from 1-14 days to underwrite a file. A mortgage insurance company may decline your file, and then your lender will have to submit it to a different mortgage insurance company. If all goes well, your loan and your mortgage insurance will be approved. When you close on your purchase, you may pay an upfront premium for the mortgage insurance. Additionally, you will pay a monthly premium with your mortgage payment, depending on the size of your loan. Your lender will be able to tell you how much the mortgage insurance premium will be.
Mortgage insurance is often known as PMI, but this is a misconception. While the terms are used interchangeably, PMI (Private Mortgage Insurance) is actually the name of a specific company that offers mortgage insurance products. While many people refer to mortgage insurance as PMI, PMI is simply a brand. When you close on your purchase, your mortgage insurance may be offered through PMI or one of many other mortgage insurance companies.
In a standard real estate transaction, a buyer puts at least 20% down. All buyers, however, cannot afford to do that. When you are putting less than 20% down, banks are concerned that you have not invested enough of your own money into your home. They are also concerned that you won't be able to afford your monthly payment if your circumstances change. Mortgage insurance came about as a result of these concerns. Simply put, mortgage insurance is insurance for your lender in the event that you cannot make payments any longer and your lender cannot recoup its losses.
How does mortgage insurance work? If you are putting less than 20% down and have only one loan, your lender will have to arrange for mortgage insurance for you. Mortgage insurance companies typically take from 1-14 days to underwrite a file. A mortgage insurance company may decline your file, and then your lender will have to submit it to a different mortgage insurance company. If all goes well, your loan and your mortgage insurance will be approved. When you close on your purchase, you may pay an upfront premium for the mortgage insurance. Additionally, you will pay a monthly premium with your mortgage payment, depending on the size of your loan. Your lender will be able to tell you how much the mortgage insurance premium will be.
Mortgage insurance is often known as PMI, but this is a misconception. While the terms are used interchangeably, PMI (Private Mortgage Insurance) is actually the name of a specific company that offers mortgage insurance products. While many people refer to mortgage insurance as PMI, PMI is simply a brand. When you close on your purchase, your mortgage insurance may be offered through PMI or one of many other mortgage insurance companies.
Tuesday, March 31, 2009
Tenant Rights in Foreclosed Chicago Property
During the past year, many Chicago tenants found out that they were living in a foreclosed home, apartment or condominium only when the sheriff's office turned up at their door to make them leave. However, Chicago has laws to protect tenants from sudden evictions, and as a tenant you have the right to expect certain notices in the event of foreclosure.
First of all, if you are signing a lease for a property that is the subject of a foreclosure suit, the landlord is required to notify you before you sign the lease. If the landlord doesn't do that, you are allowed to terminate the lease.
Second, if you are renting a home that becomes the subject of a foreclosure suit after you have already signed the lease, the landlord is required to notify you within seven days after the foreclosure is filed.
Third, if the property you live in has already been foreclosed AND if you are current on rent, you should receive at least 90 days' notice before an evictions action can be filed against you.
Lastly, if you are concerned that you are living in a property that is already foreclosed or is in danger of being foreclosed, you can go to the Cook County Circuit Court and try to find out if any action is pending or completed against your landlord with reference to the home you live in.
First of all, if you are signing a lease for a property that is the subject of a foreclosure suit, the landlord is required to notify you before you sign the lease. If the landlord doesn't do that, you are allowed to terminate the lease.
Second, if you are renting a home that becomes the subject of a foreclosure suit after you have already signed the lease, the landlord is required to notify you within seven days after the foreclosure is filed.
Third, if the property you live in has already been foreclosed AND if you are current on rent, you should receive at least 90 days' notice before an evictions action can be filed against you.
Lastly, if you are concerned that you are living in a property that is already foreclosed or is in danger of being foreclosed, you can go to the Cook County Circuit Court and try to find out if any action is pending or completed against your landlord with reference to the home you live in.
Friday, March 20, 2009
Do You Qualify for the Making Homes Affordable Initiative?
On March 4, 2009, the Treasury Department issued new guidelines and created the Making Homes Affordable Initiative, part of which includes a program to modify loans, called the Home Affordable Modification Program. If your lender can service your loan under the Home Affordable Modification Program, you may be able to reduce your monthly payment to 31% of your gross monthly income for five years. Additionally, if you make all payments on time during each of those five years, you may receive $1000 principal reduction per year.
Approximately four million qualifying homeowners will be able to take advantage of this plan. Are you one of them? To qualify, you must meet the following criteria:
1. The home must be your primary residence.
2. The principal balance on your home must not be greater than $729,500.
3. You must have obtained the loan prior to January 1, 2009.
4. You can only modify your loan once, and it must be done prior to January 1, 2013.
5. You must complete and submit certain documentation.
Lenders have until the end of this year to sign up with the Treasury Department to service loans under this program. If they do, they will receive a number of benefits, including financial assistance from the government to help defray the cost of the modification. If you believe you qualify for a mortgage modification, you should find out if your lender is participating in the Home Affordable Modification Program.
Approximately four million qualifying homeowners will be able to take advantage of this plan. Are you one of them? To qualify, you must meet the following criteria:
1. The home must be your primary residence.
2. The principal balance on your home must not be greater than $729,500.
3. You must have obtained the loan prior to January 1, 2009.
4. You can only modify your loan once, and it must be done prior to January 1, 2013.
5. You must complete and submit certain documentation.
Lenders have until the end of this year to sign up with the Treasury Department to service loans under this program. If they do, they will receive a number of benefits, including financial assistance from the government to help defray the cost of the modification. If you believe you qualify for a mortgage modification, you should find out if your lender is participating in the Home Affordable Modification Program.
Friday, March 13, 2009
CitiMortgage Offers Assistance to Avoid Foreclosure
If you are a cash-strapped homeowner with a loan from CitiMortgage, there may be help on the horizon for you. As more and more homeowners are trying to modify the terms of their loans in an attempt to avoid foreclosure, CitiMortgage announced a plan last week that may help.
Under CitiMortgage's new plan, dubbed the Homeowner Unemployment Assist program, some homeowners will be able to reduce their monthly mortgage payment to about $500 a month. To qualify, you must meet the following basic criteria: 1) You must be unemployed; 2) The primary mortgage on your home must be both owned by and serviced by CitiMortgage; and 3) The home must be your primary residence. In order to determine what other criteria may apply in your situation, you or your attorney should call CitiMortgage to discuss the possibility of a loan modification with them. You may be eligible for assistance, even if you have not made a mortgage payment for the last two months.
If you meet CitiMortgage's criteria, they will put you on the reduced payment plan for three months. If you find a job in that time, you will have to go back to paying your original mortgage amount, or, depending on your set of circumstances, you may be able to work out another solution with the bank to reduce your monthly payments. If you don't find a job in three months, you will have to contact the bank again to try to modify your loan so that you can afford it long-term or at least until you find another job.
If you do not have a CitiMortgage loan but need assistance to avoid foreclosure with another bank, you should consider looking into a loan modification. By changing the terms of your loan, you may be able to afford your payments and keep your home. For more information on loan modifications, click here.
Under CitiMortgage's new plan, dubbed the Homeowner Unemployment Assist program, some homeowners will be able to reduce their monthly mortgage payment to about $500 a month. To qualify, you must meet the following basic criteria: 1) You must be unemployed; 2) The primary mortgage on your home must be both owned by and serviced by CitiMortgage; and 3) The home must be your primary residence. In order to determine what other criteria may apply in your situation, you or your attorney should call CitiMortgage to discuss the possibility of a loan modification with them. You may be eligible for assistance, even if you have not made a mortgage payment for the last two months.
If you meet CitiMortgage's criteria, they will put you on the reduced payment plan for three months. If you find a job in that time, you will have to go back to paying your original mortgage amount, or, depending on your set of circumstances, you may be able to work out another solution with the bank to reduce your monthly payments. If you don't find a job in three months, you will have to contact the bank again to try to modify your loan so that you can afford it long-term or at least until you find another job.
If you do not have a CitiMortgage loan but need assistance to avoid foreclosure with another bank, you should consider looking into a loan modification. By changing the terms of your loan, you may be able to afford your payments and keep your home. For more information on loan modifications, click here.
Friday, March 6, 2009
Tax Credits for Energy Efficient Home Improvements Under the New Economic Stimulus Plan
The Stimulus Plan encourages homeowners to make energy-efficient home improvements by providing a sizeable tax credit to benefit homeowners that do. Congress has allocated approximately $4 billion for the tax credit, in the hope that it will not only stimulate spending by homeowners, but that it will encourage owners of existing homes to make improvements in a responsible way which conserve energy use. A recent study conducted in California showed that 70 percent of greenhouse-gas emissions coming from single-family properties come from homes built before 1983. According to that study, new homes are fairly energy-efficient, but existing homes -- particularly older homes -- could benefit a great deal from the use of energy-efficient materials and appliances.
If you need certain specific home improvements and can afford them, now is a great time to do them. Which home improvements are eligible for the tax credit? Well, if you install energy-efficient windows or exterior doors, furnaces, air conditioners, water heaters, heat pumps, solar panels, or insulation, you should be eligible for the tax credit. Again, the goal is to use energy-efficient materials, not just any materials; to be safe, make sure the items you purchase are Energy Star rated.
You can receive 30% of the cost of the improvements you make, capped at $1500. If you spend $1000, for example, you can claim a credit of $300 on your tax return. In order to receive the maximum credit of $1500, you need to spend at least $5000 on your energy-efficient home improvements. Remember to keep all efficiency certifications or Energy Star labels from any products you install, and make sure you have all of the relevant manufacturer information and model numbers; also you must keep receipts for repairs completed by your contractor. You can claim the credit on your 2009 or 2010 tax return, using Form 5695.
Like the new homebuyer tax credit, this tax credit is also refundable. If you are eligible to claim $1500 for this tax credit, and you do not otherwise owe any taxes at the end of the year, you will actually receive a check of $1500 back from the IRS.
If you need certain specific home improvements and can afford them, now is a great time to do them. Which home improvements are eligible for the tax credit? Well, if you install energy-efficient windows or exterior doors, furnaces, air conditioners, water heaters, heat pumps, solar panels, or insulation, you should be eligible for the tax credit. Again, the goal is to use energy-efficient materials, not just any materials; to be safe, make sure the items you purchase are Energy Star rated.
You can receive 30% of the cost of the improvements you make, capped at $1500. If you spend $1000, for example, you can claim a credit of $300 on your tax return. In order to receive the maximum credit of $1500, you need to spend at least $5000 on your energy-efficient home improvements. Remember to keep all efficiency certifications or Energy Star labels from any products you install, and make sure you have all of the relevant manufacturer information and model numbers; also you must keep receipts for repairs completed by your contractor. You can claim the credit on your 2009 or 2010 tax return, using Form 5695.
Like the new homebuyer tax credit, this tax credit is also refundable. If you are eligible to claim $1500 for this tax credit, and you do not otherwise owe any taxes at the end of the year, you will actually receive a check of $1500 back from the IRS.
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