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senior exemption cook county property tax

Wartburg College Clinton Iowa

Wartburg College Clinton Iowa

senior exemption cook county property tax

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Buying a house from a Senior?  Has your real estate attorney checked in attorney review to find out of the senior had a senior exemption and/or senior freeze on their Cook County Taxes?  Well guess what?  Not many people do check.   They assume the Senior Exemption and Freeze is great and keeps there taxes low for years.  Well, get ready for a surprise.  Turns out the Senior needs to actually own the house to keep the exemption and the freeze.  This means that after the previous year tax billing ends, next year’s billing can be 2 to 10 times higher.  Sometimes taxes go up thousands of dollars.

Now this isn’t a big problem in terms of taxes being current with what most people pay in a neighborhood.  The problem comes in that you are given a credit at closing for THIS YEAR’s taxes that haven’t been billed yet.  Since the senior isn’t living in the home for the entire year and won’t be living in the house on January 1st of the next year when the exemption is filed, you will end up paying the Senior Seller’s taxes at an average of five times the amount you were given as a credit at closing.

Here’s an example:

Senior Bob has been a senior since 1986.  He purchased his home on the north side of Chicago in 1965.  In 1986, his yearly taxes were $1200 per year.  Senior Bob Currently has a total income of $50,000.  Because Senior Bob’s income is below $55,000 he continues to qualify for the Senior Tax Freeze.  He also qualifies for the Senior Tax Exemption.

Senior Bob’s taxes have not increased since 1986.  They are still billed at $1200 just as in 1986.  Senior Bob’s Senior Exemption is particularly strong because he make less than $55,000.  Senior Bob’s tax bill is $600.00.

Senior Bob’s neighbor known as Neighbor Ned has a home exactly the same as Senior Bob.  Ned is not a Senior.  Ned’s taxes are $10,000 per year.

Betsy Buyer has entered into a contract to purchase Senior Bob’s Home for $500,000.  The closing is scheduled for August 31, 2011.  Betsy Buyer and Senior Bob entered into a contract on June 1, 2011 and attorney review expires on June 8, 2011.  Attorney Andy reviews the real estate contract and see’s that tax prorations are at 105% of the last full year tax bill.  Attorney Andy has only handled two closings before and does not know much about senior exemptions and freezes.  He does not object to the tax prorations.

At closing, a credit is given to Betsy Buyer for the days from January 1, 2011 to August 31, 2011 at 105% of the last full year tax bill.

2010 Tax Bill:  $600
1.05 x $600 = $630
240 days from January 1, 2011 to August 31, 2011
240/360 X 630 = $420 credit at closing.

On March 31, 2012, Betsy Buyer receives her new tax bill and learns she has been reassessed without the senior tax free and does not qualify for the senior exemption.  Her tax bill is $10,000 with 55% of this payable in the first installment on March 31, 2011.  Problem – Betsy received $420 towards a $10,000 tax bill.

HERE is the solution:

Instead of using the last full year tax bill as a guide to future tax bills.  Use 2% of the purchase price as an approximate one year tax bill.  The prorate the 2% amount by 240 days.  Here is the formula:
Purchase Price ($500,000) X  0.02 X 240/360 = $6666.67 credit at closing.

Why the 2% figure?  This is an old estimate that works well with many types of “unknown” taxable properties such as new construction on vacant land, senior exemption/senior freeze property, or other types of properties in super highly volatile pricing areas.

As an attorney, you will find that some sellers will be resistant to this type of tax proration, but if a discussion is had about how this is calculated usually all parties will be in agreement when they realize this isn’t a hidden price reduction.

land contract illinois

land contract illinois

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Have you ever wondered what people do when they can’t sell a home because buyer’s can’t get financing?  Well there are several options:  1)  Simply Rent the Home until a better Selling Market Materializes  2)  Stay in the home and don’t sell  3)  Surrender the Home through Bankruptcy, Foreclosure, Deed-in-Lieu of Foreclosure or Short-Sale……4) OR the venerable Land Contract.

Good Candidates for a Land Sale Contract:

1)  Beautiful Home that is “just too nice” to rent on a short-term basis
2)  Condominium that is highly desirable but with a condominium association that is in bad shape
3)  Home that cannot be sold for a reasonable price except by waiting five years to sell.

Here’s how it works:  Seller and Buyer Agree on a Price.  A land contract is signed with a closing date.  The date of closing is when all documents are finalized and the first month’s payment is collected and permission is given to the buyer’s to move in.  So what are the terms?  Price, Monthly Payment, Taxes & Repairs, Length of contract, Provisions for Eviction in the Event of a Default.

a.  Price:  This is a lot harder than in a normal sale because you are trying to sell the home for fair market value.  What happens if the value of the home is 40% high at the end of the land contract.  Bottom line:  Windfall for the buyer.  So as a seller you are looking to sell for the highest price possible and hopefully no less than is required to pay for the existing mortgage, taxes, and any other expenses of the home.

b.  Monthly Payment:  This is arrived at by the following formula:  Pay-off less than 20% of value of the home, Apply an interest rate high enough to make sure that less than 20% of the value of the home is paid off.  The monthly payment should also make sure to cover the mortgage, taxes and any other seller responsibility expenses.

c.  Taxes and Repairs:  This is a tricky one – sometimes sellers want to be rid of all responsibility and ask the buyers to pay the taxes, make repairs and sometimes even send in payments directly to the mortgage holder.  This is a bad idea.  As the seller, you want to control all of these aspects to make sure that you don’t have unpaid taxes, mortgage and unfinished repairs.  Bottom line – always assume that in the 59th month the buyer defaults and you take the home back via the simple Illinois Eviction Procedures allowed by statute.  Bottom line: you’ve lost your buyer and basically have five years of a rental.   You want to make sure you haven’t lost anything in the value of your home.

d.  Length of Contract.  The Land Contract Cannot be more than 60 months long.  Why?  Because if it is longer than 60 months, the defaulting buyer has to be evicted using foreclosure proceedings which take 9 to 14 months.  Whereas if the contract is 60 months or less, the defaulting buyer’s can be removed in less than 3 months under eviction law.

What happens at the end of the contract, the buyers typically have one month to close on a purchase of the home for the amount of the purchase price that is left.  So what if the buyer can’t purchase the home?  New Land Contract or they leave and new purchasers are found.  Why is so this so amazing?  Because if the buyers default but made 60 months of “rent” payments and kept the home in good shape, you have an opportunity to sell your house in a different and possibly better market at a higher price even though you had a 60 month “lease” where you were paid above average rent.

e.  Provisions for Default – this is the most important issue and is generally regulated by statute and case law except in the determination of what constitutes a default.  It is very important to adequately define what constitutes a default.

How much does it cost to do a land contract transaction?  About the same as an ordinary sale, but the fees are spent in different areas.  Here is a comparison

In a typical sale transaction for a $200,000 home:

a.  Attorney  $700
b.  Title:  $1500
c.  Other seller charges $1000

In a typical land sale contract:

a.  Attorney $2500
b.  Title:  Possibly No Expense
c..  Other seller charges:  $500

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