Payroll Tax Cut Increases Mortgage Costs

Most people were happy to hear that Congress passed the payroll tax cut extension, extending the tax break for two more months.  But Congress still has a budget to meet, and if taxes are reduced in one place, costs have to increase somewhere else.

So where did they get the money to fund the payroll tax cut?  The answer is simple -- mortgages.  Effective April 1, 2012, Fannie Mae and Freddie Mac will raise the guarantee fees charged to lenders.  The new fees will be in effect until October 21, 2021.   How much will the fees increase?  It's difficult to say how much the fees will go up on any given loan, but overall the increase should average out to about .1% (that is, one-tenth of a percentage point). 

That may not seem like a whole lot on a monthly basis, but your lender will pass this extra cost on to you.  And when you add up the extra money you will pay over the life of your loan, it will add up to quite a bit.  Of course, when they start collecting these fees from ALL mortgages, well, they will make up what income they lost as a result of the two-month payroll tax cut extension.

So the two month payroll tax cut extension translated into a nine and a half year mortgage cost increase.  A little delayed gratification can sometimes go a long way.

Beware of Association Finances Before Buying!

When buying a condominium, or a home that is part of any association with regular monthly assessments, buyers have a lot to worry about these days.  It's not uncommon for a buyer to find a condo or home in an association for an amazing deal.  But as a buyer, you can't just look at the unit you're buying.

Sure, it's an amazing deal.  Sure it's in great shape, and just needs a little bit of touch up.  Sure, the monthly assessment is low and there is no special assessment pending; or, there is a special assessment, but the seller will pay it off.  And hey, it's so cheap you can buy it in cash, you don't even want to get a loan.  But beware, are you buying someone else's headache?

During the course of your transaction, your attorney should obtain a Section 22.1 Disclosure for you.  She should also get you the assocation's budget.  Look at these documents carefully.  Is the association in the red?  Does it appear that a lot of units aren't paying assessments?  Even though your unit may be paid in full by the time you close, how many other units are not paying assessments?  Are there many units in foreclosure?  Has the association spent down their reserves, or do they still have enough money left for a rainy day?

This last year, many a real estate transaction has gone south because the buyer decided that the association was a risky proposition, even though the home they were purchasing was perfect in every other way.  Sad stories abound -- about the association who had to keep the lights off in the hallways during the day because they could barely pay the electric bill, or the associations that had to keep amenities such as pools and clubhouses closed because they could no longer afford the maintenance.  In some instances, associations have had to issue special assessments just to keep up with regular monthly bills. 

If you are financing the purchase, your lender should look into the association's financial health for you.  Loan are often (but not always) turned down because the bank doesn't want to lend money to buy a condominium in a risky association.  Whether or not you are getting a loan, but especially if you are buying all cash, do your research!  You don't want to buy yourself a new problem.

Chicago Condo Conversion Developers May Have to Provide Relocation Assistance

Do you qualify for relocation assistance from your landlord?  You may, if you meet the following criteria established by Section 13-72-060(F) of a new ordinance governing Chicago developers:

1)   Your landlord is converting the property to condominium and recording the condominium declaration on or after July 30, 2012.
2)   You have a lease or other rental agreement to occupy your unit.
3)   The unit is your primary residence.
4)   Your household income is not greater than 120% of median income for the "Chicago-Naperville-Joliet, Illinois Metropolitan Fair Market Rental Area", and you can provide written evidence of your household income. 
5)   You are not buying your unit, or any unit, in the condominium conversion.
6)   Your landlord has not obtained an order of possession for your unit against you. 

If you meet these criteria, you may qualify for a flat relocation fee of $1,500.  If your rent exceeds $1,500, your relocation fee will be higher (up to your highest monthly rent amount), but not exceeding $2,500.  A landlord may not enter into a lease with you which waives this relocation fee; if he does, that portion of the lease will be unenforceable.  Furthermore, the fee, minus unpaid rent, must be paid to you within seven days after you completely vacate your unit.

Chicago Ordinance to Protect Renters and Buyers in Condo Conversions Takes Effect

Effective January 1, 2012, a new Chicago ordinance that was passed last May finally went into effect.  The goal of the ordinance is to protect buyer of new condominium conversions, as well as tenants of buildings that are in the condominium conversion process.

Developers must obtain a license for residential real estate development from the city.  If a developer is recording the condominium declaration after January 1, 2012, the developer must provide a Condominium Disclosure Summary in a format approved by the city.  This summary shall include various details about the condominium development, such as 1) a description of the property's amenities; 2) financial information regarding assessments, budget, reserves, and operating expenses; 3) a description of applicable warranties; 4) parking information; 5) information about the building's or unit's infrastructure, such as appliances, HVAC, hot water heaters, elevators, masonry, and security systems; 6) restrictions such as limits on rentals, sales, or use limitations; 7) association-provided or other monthly service information, such as waste removal or cable; and 8) a list of all contractors who worked at the property, complete with license and registration numbers.  The city may request other pertinent information in the summary as well.  This summary must be filed with the city at least 90 days before the first unit is offered for sale, and must also be delivered to all prospective purchasers.

Before signing any lease after January 1, 2012, the landlord must notify the prospective tenant of the proposed condominium conversion in writing.  This notice should be attached to the lease.  If the developer/landlord intends on recording the condominium declaration on or after for July 30, 2012, the developer must notify all tenants in writing at least 180 days prior to the recording of the declaration.  Depending on the circumstances, the tenant may also qualify for relocation assistance from the landlord.

If a developer fails to comply with the new ordinance, the city will withhold transfer stamps, in essence stopping the developer from selling any of the condominium units, until after the developer complies and pays the fines, or posts a bond equivalent to the maximum fine.

Countrywide Loans Discriminated Against Certain Minority Borrowers

Last week, the Attorney General announced that nearly 200,000 homeowners of African American or Latino descent would be entitled to partake in a $335,000 settlement from Countrywide Home Loans.  Countrywide was sued for discriminatory lending practices, and the Attorney General stated that between 2004 and 2008, Countrywide was charging African-American and Latino homebuyers  more fees and higher interest rates than similarly situated white applicants.  In other words, if a white applicant and a black or Latino applicant had identical income and credit scores, the black or Latino applicant paid a higher interest rate and incurred greater closing costs than the white applicant.

Countrywide was the largest mortgage lender in Illinois between 2004 and 2007.  Once the settlement is approved by a judge, almost 15,000 Illinois homebuyers of African-American and Latino heritgage will be entitled to compensation from Countywide.

How much compensation can they expect?  According to the Illinois Attorney General, that depends on their individual situation.  If Countrywide charged the buyer higher fees than a similarly situated white applicant, the buyer could receive anywhere from several hundred dollars to more than $1,000.  If, however, the Buyer was steered into purchasing a subprime loan even though he qualified for a prime loan, the Buyer could receive nearly $10,000.

Bank of America, which now owns Countrywide, denies any discriminatory practices and has stated that they have agreed to the settlement to resolve the allegations against Countrywide.

Tax Sale Redemptions Can Occur at the Last Minute!

A recent case, A.P. Properties v. Rattner , 2011 IL App (2d) 110061 (October 27, 2011) Lake Co. demonstrates how cutthroat the tax deed business can be.  On the one hand, you have companies that buy taxes at real estate tax sales, with the hope that they will end up owning the property for a fraction of its actual value.  On the other hand, you have homeowners and lenders, trying to redeem the taxes to save the property before the redemption period expires.  And then occasionally, you have companies that reap their profits from buying properties just before the redemption period expires, when homeowners are desparate to salvage some of the value of their home.   The defendants in this case fall in the latter category.

The plaintiff, A. P. Properties, was in the business of buying taxes at tax sales, and they sued the defendants because in two instances, the defendants bought real estate A.P. Properties was hoping to acquire shortly before the expiration of the redemption period.  The plantiff had already petitioned for a tax deed in both cases.  In the first case, in fact, the defendant purchased the property less than 48 hours before the redemption period expired, and then immediately redeemed the taxes.

The court, however, found in favor of the defendant.  The plaintiffs appealed on various technicalities, but at the end of the day, they still lost.  The court stated that the owner or an interested party may absolutely redeem the property during the redemption period.  Since the defendant bought the property, albeit at a bargain price, they had the right to redeem the taxes.  Sure, the defendants profited from their actions, but their actions were allowed, and not legislatively banned.  Moreover, in this way, the people who owned the property were able to sell the property to the defendants for something, even if it was a small sum.  The tax sale buyer, on the other hand, would not have paid the homeowners anything.  The court concluded that public policy supports the sale of properties prior to the expiration of the tax sale redemption period.

So if you are about to lose your home to a tax deed, consider selling it.  And if you are close to obtaining a tax deed, remember, someone can swoop in and buy the property from under your nose!  

Condominium Owners Can't Take Common Areas!

A recent case, Picerno v. 1400 Museum Park Condominium Association, 2011 IL App (1st) 103505 (October 28, 2011) Cook Co., 5th Div., caught by interest:  In 2008, related family members purchased neighboring units at the end of the hall in a condominium building.  Their doors faced each other, and they shared a common wall.  They decided that they would like to install a new door in the hallway, separating off their two units from all of the other units.  The association objected. 

Eventually, the association set forth a proposal which delineated the requirements that the unit owners must agree to in order to install the door and separate their portion of the hallway.  Because of the costs involved, the unit owners did not agree, and the matter ended up in court. 

While the trial court agreed with the plaintiff unit owners, the appellate court sided with the condominium association, stating that 1) the hallway that the plaintiffs sought to incorporate into their unit was a common element; 2) the association had sought payment for allowing the plaintiffs to use the space privately, but the plaintiffs appeared unwilling to pay it; 3) the vast majority of the conditions the association imposed were reasonable, especially in light of the fact that the plaintiffs would be receiving additional space for private usage -- thereby taking that space away from the association; and 4) the court felt that the plaintiff's interpretation of the Illinois Condominium Property Act was incorrect. 

The appellate court decided that if the unit owners followed the rules set forth by the association, they could install their new door.  It remains to see what happens!