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first time homebuyer guide

first time homebuyer guide

Every Year I update our First Time Home Buyer Guide and Brochure.  Way back in 2003; I made the first brochure for a series of home buyer workshops that I spoke at Latin United Community Housing.  Over the years, about 3000 of these brochures have been distributed while I give my 20 minute talk.  If you would like to download this brochure, simply click on the link:  First Time Homebuyer Guide

For more information about where I will be speaking next, please check out our facebook page, twitter presence or call our office at 877-GO-GO-NLO

refinance attorney needed Should I hire an Attorney to Represent me in a Refinance?

Davenport Bank Building Davenport Iowa

Davenport Bank Building Davenport Iowa

refinance attorney needed Should I hire an Attorney to Represent me in a Refinance?

  • Hire Your Refinance Attorney Here. Fill Out Form for Immediate Response




Yes and No.

Yes, it is always good to have attorney counseling you on the meaning of any legal document you are signing.  No, it is not always necessary to have an attorney to sign standardized bank documents in a refinance unless you want to fully understand the refinance and make sure that you are getting what you bargained for.

Bottom line – Having an attorney at a refinance closing is a really great way to make sure that the interest rate your thought you were getting is right, that it is either fixed or is adjustable in the way you understood it.  It is also important to understand the rather large fees charged (and buried) in a refinance.  On average, a refinance costs $5000 in bank fees.  Bottom line – $250 for an hour appearance fee is a drop in the bucket compared to these fees and will help you feel comfortable with what you are signing.

Hiring the attorney, the problem is how to hire and attorney who can make these sorts of appearances profitable and desirable to do and also be qualified.  Usually an attorney belonging the Illinois Real Estate Lawyers Association (IRELA) www.irela.org will be competent in Illinois to represent you and usually has flat rates that are reasonable.

If you are hiring an attorney generically, try these tried and true questions and technics:

1.  Find three attorneys that serve the geographical area you need service in
2.  Confirm that the attorneys speak your language
3.  Call each attorney and ask three questions:

    • How long have you been in practice in Illinois
    • How many residential real estate closings have you done on average over the last five years
    • What is your flat rate for representation at a refinance including any trip charge

Based on your discussed with the attorney, you should be looking for the following answers:

  1. I have practiced in Illinois for over 5 years
  2. I do at least 10 residential real estate closings per year and it is one the core concentration areas of my practice.
  3. I charge a flat rate fee of $250 per refinance for up to 1 hour of representation.  Trip charge is maximum of $100.  {This illustrates that the attorney understands how to be profitable and thereby of good service both in the City and Suburbs}  Attorneys who charge too little and are unprofitable are not motivated to provide good and competent service and should be avoided.  Value is the golden rule in purchasing legal services whereas price is simply irrelevant.

For more information about representation in any real estate matter, call David Nelson at 877-464-6656 or email Dave at:  info@nelsonlawoffice.com

For more information about NLO Nelson Law Office, please go to:  http://nelsonlawoffice.com/practice-areas/ & http://nelsonlawoffice.com/attorney-bio/.

To read reviews of NLO Nelson Law Office, please visit http://www.yelp.com/biz/nlo-nelson-law-office-chicago-2.

chicago residential landlord and tenant ordinance summary attachment

chicago residential landlord and tenant ordinance summary attachment

Do you need to attach a summary of the Chicago Residential Landlord Tenant Ordinance (RLTO) to your residential tenant lease?

Answer:  Yes & No

You DO NOT need to attach a summary if you as a landlord are not subject to the Chicago RLTO.  You are NOT subject to the RLTO if your rental building is six units or less AND is owner-occupied.

You DO need to attach a summary if you are subject to the Chicago RLTO.  All landlords who rent buildings that are NOT owner-occupied ARE subject to the RLTO regardless of whether it is six units or just one unit.  For example if you own a 1 bedroom condominium in Chicago and rent it out but reside in your own home, the rental unit is not owner-occupied and subject to the RLTO.  However, if you own a six flat and live in one of the units, this rental building is an owner-occupied building and NOT subject to the RLTO.

In a nutshell; if you building is six units or less, occupied by you as an owner, your building is not subject to the RLTO and the summary of the RLTO is not required.  The RLTO in general is geared towards regulating non owner-occupied rental buildings with any number of units.  Any time you are an absentee landlord, you are covered under all the provision of the RLTO with some small exceptions – see the RLTO code below.

If you are subject to the Chicago RLTO, please click on the attached link for a copy of the summary required to be attached to your residential lease.  Chicago RLTO Summary

To view a copy of the Chicago Residential Landlord Tenant Ordinance, please click on the attached link:  Chicago RLTO Ordinance

Has it been a while since you tuned up your rental operation?  As a landlord, please consider calling NLO Nelson Law Office to set up a consultation for a leasing and landlord tune-up.  Call 877-464-6656 or click info@nelsonlawoffice.com to email our office for more information.

mold damage claims

mold damage claims

First of all, don’t panic!   Instead, take immediate action.  Within one week, you should have your own mold inspector preparing a report and providing a referral for mold remediation work.  Next, you should see a Plaintiff’s Real Estate Attorney who is intimately family with how to file a lawsuit based on the Illinois Real Estate Disclosure Laws.  Next, if you can afford it, have the mold re-mediated.  If remediation is not possible and the home is a loss, move out, move on and get your litigation going so that your claim is not barred by the statute of limitations.

How do I find an attorney who is a skilled Plaintiff’s Real Estate Attorney, visit IRELA, the Illinois Real Estate Lawyers Association at http://www.irela.org/  and take a look at the membership.  You can also email the current President for referrals.

How do I find a good mold inspector?  First call the home inspector who did your original home inspection for a referral.  Then also consider calling two excellent long time home inspectors for their referrals:

1. Dan Brown, B & G Home Inspections, you can call him at:  312-558-1343

2. Juan Negron, you can call him at: 847-675-4613

Home much for a Mold Inspection?  $1000 or less.

Home much for remediation?  Sometimes as little as $500 depending on the severity of the problem.

Here is an example what can happen when action isn’t taken immediately.

Frank purchases a condominium for $200,000.  Unbeknownst to Frank, the Seller is Developer who is concealing a severe mold and moisture issue in the basement of the building being converted to condominiums.  Frank is buying a unit that has a first floor that is living space with all bedrooms located in the basement floor of the duplex.  Frank hires a home inspector who does not bring up mold at the time of the inspection.  Frank does a walk through of the condominium 3 days before closing and does not see mold.  Frank closes on the property.  At the closing Frank takes a out a $180,000 mortgage.  The monthly payment is $1500 including taxes and insurance.  The condominium association assessment is $150 per month.  Frank moves into the condominium 5 days after closing.  8 days after the closing, Frank smells mold, sees mold showing up through the painted drywall and becomes sick.    Frank moves out of the condominium 10 days after the closing and never returns.

The condominium association files an eviction action one year after the Frank left his condo and obtains an order of possession.  The condo association does not rent the condominium because it is unfit for habitation.  However, the condo association has possession of the condo and changes the locks barring the reentry of Frank.

Frank never speaks to his home inspection to ask about why the mold was not discovered.  Frank never hires a mold inspector and never obtains an estimated cost of remediation and/or determination of whether it is possible.

Frank does spend $5000 on a retainer to hire a law firm to sue the developer.  The law firm files a complaint and can never serve it because the Developer has fled the country to Tahiti.  Frank’s law firm has stopped work on the lawsuit because they need more money for legal fees.

Frank’s lender is threatening foreclosure and a deficiency judgment.  Frank makes $100,000 per year.

What does Frank do?  If his litigation fails, he will most like need to file for bankruptcy.  However, Frank will be forced into a Chapter 13 and with his income will most likely pay at least 40 cents on the dollar to his creditors including the mortgage for a period of 5 years.

Another option for Frank is to sue the attorney he hired for malpractice, however, this claim will be difficult because the attorneys filed a lawsuit within the time limits.

Frank is stuck in between some problems with very few good solutions.  The lesson is to immediate get the home re-inspected, get a mold inspection, get a remediation estimate and then interview 3 different attorneys to determine the best plaintiff’s attorney for the complex claim.  Although not always available, these types of lawsuits often benefit from being contingency fee suits.

For more information about this topic, general real estate issues, bankruptcy and other legal issues, please call NLO Nelson Law Office at 877-GO-GO-NLO or email to:  info@nelsonlawoffice.com

chac voucher program

chac voucher program

In the City of Chicago, the Chicago Housing Authority runs various types of low income subsidized housing. In the past these were often referred to as the “projects” which was a description of several concentrated areas of public housing in Chicago. The three largest “projects” were the Robert Taylor Homes, Cabrini Green and many lesser known housing developments. All of these housing projects were failures. A law enacted in the early 1970’s is largely responsible for these failures. For the most part, all tenants had to pay 40% of whatever their income was. Therefore, there was no way to have super cheap housing and save money over a period of time. Without saving, no working class person could use these units and only the very impoverished used these units as “safety net.” Although these units provided a way to stay off of the street, they were unsafe “prisons” that simply encouraged and literally trapped people in poverty. There was no interaction with working class, middle class or upper class persons and all job opportunities fled as far away as possible from these housing projects.

In the 1980’s, Mayor Daley enacted a long-term plan to close down all of the concentrated low-income housing in Chicago. Part of the program was to create the so-called “scattered” site housing which was essentially 1-12 unit size housing projects. Most the land was acquired by people who didn’t pay taxes and/or were foreclosed upon. Vacant lots in up and coming neighborhoods provided the best opportunities for good housing with these scattered site housing programs. As welfare reform was passed in the middle 1990’s the need for this program began to fade and opposition to these scattered site housing developments intensified causing a shutdown of the program. Bickerdike Housing, Lutheran Social Services and other agencies typically manage these sites today. Today, there is no further building of these types of housing.

With the advent of Welfare Reform and the Creation of “Section 8” Housing came the idea of landlord vouchers. Poor people would be allowed to rent “fancy” market rate units in regular neighborhoods all over the place with not racial or economic boundaries. The reality of this situation was quite different. Section 8 Landlords had to be qualified and typically only desperate landlords in mediocre to bad neighborhoods oftentimes also far away from good jobs.

CHAC Houses are essentially a Section 8 voucher used to purchase a home and then have the mortgage payment paid by Section 8 for up to 15 years. Before you think this is an easy gift for the buyer…..think again. Typically, the buyer has been in public housing for over 20 years and has a lot of getting used to working and not being essentially a ward of the state. It takes a long time to make the transition and usually these buyers have really put forth some good effort to get into the right mindset. Also, the Section 8 Subsidy only covers the principal and interest and does not cover taxes, homeowners/renters insurance or mortgage insurance.
Bottom line: Oftentimes, the buyer is paying up to 1/3 of their housing costs right away. AND they can never return to public housing – ever! They sign this agreement when they accept the CHAC home.

So what are the issues for the seller’s and buyer’s attorney? BEWARE! First of all, as all real estate attorneys known in Illinois, nearly 3/4 of their compensation comes from providing the title insurance policy. This odd and not particularly good situation arises from the introduction of title insurance in the 1930’s. Traditionally attorney’s made 1% of the purchase price as their compensation. Title Insurance Premiums were designed to replace this with only nominal legal fees to the seller. In a CHAC closing, the seller’s attorney is NOT ALLOWED TO PROVIDE THE TITLE INSURANCE. This is done via a forced rider that the seller signs during attorney review. Bottom line, if the seller is desperate to sell the property, then they will essentially need to pay their attorney for the missing premiums which average about $1500. In a good market, the seller will simply refuse to sign the rider and cancel the transaction.

Hopefully, you are starting to see the bad precedent. Bottom line, the title insurance costs ultimately are paid for by the low income buyer and in an amount that is more than they would have been if the seller’s attorney was allowed to provide the title insurance. Also, better properties will typically cancel faster because they can choose standard buyer’s who don’t have “weird” financing and restrictive riders to sign.

Obviously the intent of the creators of CHAC was to provide a low cost title insurance policy to the buyer. However, this ultimately results in a higher price and unavailability of many homes where the seller’s reject the CHAC riders in attorney review. This may be viewed as discrimination and it is, but it’s not prohibited discrimination, just unfortunate.

The buyer’s attorney also needs to be aware that at the first sign your buyer is a CHAC buyer, you need to withdraw. CHAC requires volunteer attorneys. This is also misguided. Good, reasonably priced attorneys who are qualified provide good experience to buyers in how to hire attorneys which they will need in their new non-welfare lifestyle. Requiring free attorneys sets a terrible precedent for these new homeowners where they think that just because they are low income they will have attorneys wanting to offer pro bono (free) services, which is not realistic.

In my opinion, the CHAC program is great except that title should be pulled by the seller’s attorney using existing rate cards and buyer’s attorneys should be hired using reasonable rates. Moving people into the opportunity to own a home is great. The process of getting to home ownership should help train the new homeowner in the way the transaction would ordinarily be conducted outside of CHAC home ownership.

Lastly, I have recently seen where CHAC buyers became “stuck” with the idea that they needed a certain kind of home for a certain kind of price regardless of where it is located and regardless of the effect on their commute. The bottom line: It is my opinion that CHAC counselors should always encourage potential buyers to buy within 10 miles of their employment with a viable public transportation option and near an area that has job growth. A beautiful home that is not near your work is called a “vacation home.” A beautiful home in a depressed economic area is called a museum. A small but practical home near tremendous job opportunities, vibrant communities and good schools is called a HOME.

For more information about the CHAC program, please contact the CHA at http://www.thecha.org/.

For more information about quality real estate attorneys who represent residential real estate sellers and buyers, please contact David Nelson at info@nelsonlawoffice.com.

Fidelity National Title and JP Morgan Steal Buyer’s Attorney’s Fee with Petty RESPA Disagreement

I recently was involved in a closing where JP Morgan Chase and Fidelity National Title ended up “stealing” my attorney fees by not allowing them on the HUD.  How many times has this happened under all sorts of pretenses:  You didn’t request your fees be added to the HUD in writing;  The lender didn’t list you as receiving any attorney fees;  Your fees don’t match the good faith estimate. 

HERE’S THE BOTTOM LINE:  If buyer’s attorneys cannot be paid pursuant to their written fee agreement with their client in a secured way through the HUD, then something is going to have to change.

Specifically, what happened in this case is the following.  Buyer’s had a total fee of $450.  This fee was increased due to a cancellation of a schedule closing less than 48 hours prior to the closing date.  All of these terms were in the written fee agreement which the clients signed.  Under our fee agreements, clients must pay 1/2 of the fee up front which the client’s did.  Therefore at closing, $225 of the regular rate and $225 additional for the abruptly cancelled closing resulted in $450 due at closing.

The $450 was requested to be added to the HUD and Fidelity placed it in line 1307.  Unfortunately, JP Morgan Chase objected and said that the fee should be placed in line 1100 section.  Fidelity’s software supposedly doesn’t allow this.  JP Morgan Chase alleges that this is what the RESPA law requires, but Fidelity doesn’t allow this.

To settle the matter, I ended up slashing my fees by 50% for a payment by check at the closing from the client.  What is most sinister about this is that the client had more than $1000 that they had to forfeit in seller paid credit for closing costs because they could not get money back at closing.  My total fee could have been paid out of this had JP Morgan Chase not objected or Fidelity had their software updated to comply with JP Morgan Chase’s view the RESPA law.

SOLUTION:  All clients should pay 100% of the estimated flat fee to the buyer’s attorney up front and deposit into the client trust account.  Upon the failure of the closing, the buyer’s attorney could specify in their fee agreement that 1/2 of the estimated flat fee be paid from retainer and 1/2 returned.  Upon successful completion of the closing, all fees wold be paid from the retainer.  Any special charges such as trip charges, cancelled closing fees and other miscellaneous charges could be either invoiced to the client outside of the HUD or invoice and paid via the HUD at closing …..subject to lender and title company approval.  Bottom line – most of the time all of the fee would be paid.

The other option is for real estate attorneys to either take these closings on a loss leaders or simply exit the representation of buyers.

Attached is a model representation agreement for review.

To download a copy of our proposed Illinois Buyers Residential Real Estate Client Representation Form, please click Download CRA.

Steel Porches, Building Maintenance and Condominium Assessments

Today, while riding the Red Line L into work, I was struck by how many steel porches are rusting on Condominium Buildings.  About ten years ago, a porch collapsed in Lincoln Park.  The porch was in adequate condition by porch standards of the day, but it was pushed past its limit with nearly 100 people crammed on a porch designed for about 5 people.  Unfortunately for the owners of the building, several people were killled…and guess what, they were wealthy and politically connected.  The result: the new Chicago Porch Ordinance and the witch hunt against landlords and condominium associations to upgrade their porches.

The good news: Chicago has some great porches that are much safer than ordinarily found.  The bad news: many of the condominium conversions of the housing boom now have strong but rusty steel porches.  I remember the ballyhoo of developers discussing how great these “premium”steel porches would be.  Practically no maintenance, incredibly strong and panacea for anyone wishing to avoid the costly replacement of wood porches.

Well, think again.  Steel rusts.  And it rusts really well.  In fact, rust typically starts forming immediately after a painted steel surface is exposed to moisture.  So guess what? – you need to do regular maintenance on these porches, such a sanding, painting and testing the integrity of rusting areas.

Example:

In 1999, Developer converted 12 unit apartment building to 6 condominiums.  Each unit has “miraculously” only paid $150 per month for their assessments which are to cover primarily condominium association insurance and miscellaneous expenses.  The association does not reserve money and has not ever had an increase in assessments.  Since 1999, all of the original owners have sold and moved out with only second or third generation owners present.  The “new” roof is now over 10 years old, there have been reports of small leaks onto the ceilings of the top floor units.  Also, the “deluxe” steel porches prominently featured in the original advertisement for the condominium development have worked out well for 3 units and poorly for the other 3 units.  Apparently the porches don’t all drain outward, leaving puddles after rainstorms.  After ten years, 3 units have consistently rusty areas that really need to be fixed.  The owners are angry but can’t get the association to fix these rusty spots as this is “unnecessary.”

Solution:

Automatically raise assessment 15% each year in the budget regardless of whether the membership thinks this is a good idea to get assessments more in line passively over the next few years.   Propose a modest one-time special assessment for porch maintenance involving sanding and painting and, if the areas are significantly corroded, have an engineer prepare a report indicating that now replacement of the deck is necessary.  Then increase reserves to at least 10% of budget for the current year – this will make the association FHA compliant.  With good maintenance a steel porch can last indefinitely, but unlike treated wood, constant small amounts of maintenance are necessary.

Can I Modify my Home Mortgage in Chapter 13 Bankruptcy?

Mrs. Free's Studios Davenport, Iowa

Mrs. Free’s Studios Davenport Iowa

Can I Modify my Home Mortgage in Chapter 13 Bankruptcy?

  • Schedule Your Free Chapter 13 Bankruptcy Home Loan Modification Consultation




Yes – you can modify your home mortgage in a Chapter 13 Bankruptcy by Stripping Off The Second Mortgage and other junior liens.

Today, you can modify your home mortgage in two ways:  Get a modification from the lender or file a Chapter 13 bankruptcy and attempt to strip off the second mortgage on your home.  Oftentimes, this will reduce the balance on your mortgage by 30%.  While this isn’t perfect, it is oftentimes, the difference between being able to keep your home or being forced to surrender it in foreclosure.

So how does this work.? First it is important to determine whether you should file bankruptcy.  Second you need to file a Chapter 13 bankruptcy.  Third, your bankruptcy attorney files an adversary procedure with the court to rule that the value of your home is less than the balance on  your first mortgage.  Fourth get the Chapter 13 plan confirmed by the court whereby the second (third, fourth, fifth and any junior mortgages) are wholly unsecured and will be paid as unsecured creditors.  At the end of the plan (60 months), the second mortgage and all other junior mortgages are released by the lender and the debtor/s is left with a home with only one mortgage.

Does this work in real life applications?  In the last year over 40% of our firms Chapter 13’s had successful plan confirmations with the second mortgage being stripped.    On average this reduced the principal by 30% on the home indebtedness.

So what is not so great?  The first mortgage still has to be paid off in full with all of the arrearages paid back over 60 months along with the costs of collection plus the first mortgage may still have a balance that is more than the home can be sold for…so why has the court allowed this to occur – the answer is in the intent of the bankruptcy code, the idea was that if home mortgages could be modified in bankruptcy, why would anybody pay their mortgage?  Therefore, to save the ability for consumer to get home mortgages from banks, the bankruptcy code strictly prohibits the modification of a home mortgage this is wholly or even partially secured even if secured by only $1.

Bottom line – Chapter 13 offers a crude type of home mortgage modification by getting rid of unsecured mortgages, however, it does not fix long term problems with a first mortgage.  If your first mortgage is OK by itself then this type of modification is for you.  If your first mortgage is still a problem, then it may be wise to simply surrender the home in the bankruptcy and let the lender take the loss.

What are we seeing now is unbelieveable – it never used to happen in the past, but it is happening now: After filing the bankruptcy  and after stripping the second mortgage, the lender on the first mortgage voluntarily modifies the first mortgage to make the plan easier.

So what is this all about?

Well…here’s the best way to describe it.  Typically, the interest rate is reduced to 2% for the first five years and it increases by 1/2% per year after that until it hits the market rate and then becomes fixed at that rate.  The kicker is that the bank will put the arrears on to the balance of the loan.  Doesn’t seem like a big deal, but it is!  If your old mortgage payment was $2400 per month and you were 10 months behind at the time of your bankruptcy filing, then you owe $24,000 in arrears.  In a typical 60 month chapter 13 plan, you will pay $24,000/60 per month to pay back these arrears.  This is $400 per month.  In this case, the bank basically put this into the balance.  So basically, you are now paying 2% interest on $24,000 over the next 30 years or so.  Around $50 per month.  The benefit is theoretically that your home if you keep it for 15 years will finally be worth more than the mortgage; you can sell it, pay off the mortgage and have a happy life.  This is all true with one caveat.  What if you have to get out of the house one year after your bankruptcy ends and you are still “underwater”   Good luck – you just entered another bankruptcy or years of garnishments.

In a nutshell – if you want to live in your house a long time and don’t have a big need to move soon and don’t believe you will be forced to move, then this is the ticket.  Basically, the bank cuts its price on loaning you the money.  But if you need to be more flexible and actually have the debt load be less immediately, then you are out of luck and better surrendering the home in bankruptcy.

Examples:

Ron and Karla bought a home in 2006 for $200,000.  The first mortgage was $160,000 from Wells Fargo.  The Second Mortgage for $40,000 was from Banco Popular.  Ron and Karla were doing great until Karla lost her job in 2008.  The couple missed 8 payments.  The couple was five months into their foreclosure action when they filed a Chapter 13 Bankruptcy.

Ron and Karla hired David Nelson to file their Chapter 13.  David suggested that they keep their home, but attempt to strip off the second mortgage.  Ron and Karla agreed.

Ron and Karla make approximately $70,000 per year together and have two children.  Their budget is tight and the means test says that they need to contribute on 10% of their plan to paying unsecured creditors.

Ron and Karla have no other debts besides the home.  Their mortgage payment was $1400 on the first mortgage, $500 on the second and their tax escrow was $300 per month.

Ron and Karla were $11,200 in arrears on their first mortgage when they filed their bankruptcy.

Here is how their plan payment is figured.

$1400 for payment of the first mortgage regular payment
$300 for tax escrow payment on the first mortgage
$67  (10% of $40,000 divided by 60 months) for payment of the unsecured second mortgage
$187  ($11,200 divided by 60 months)
$1954 Subtotal
$195  Trustee Fee (10% of payment)
$2149 total payment

So how does this work out with their budget

$70,000 Gross Income Per Year
$5833 Per Month Gross
($1458)  Taxes
$4375 Net Income Per Month

$2149 Plan Payment
$250  Gas & Electric
$800  Food
$194  Clothing
$100  Laundry
$250  Medical
$502  Transportation
$130  Auto Insurance
$4375  Subtotal

Square Budget.  Home Saved.  Overall home mortgage modified by overall reduction by 20%

Bottom line – this Chapter 13 accomplishes good things.  With other applications we might have an auto loan, additional credit card debt or other unsecured debt.  For those discussions, please see my other blog postings.

For more information about bankruptcy, mortgage modification or other debt relief options, please call NLO Nelson Law Office at 877-464-6656 or email us at info@nelsonlawoffice.com

Transfer Tax Real Estate Summary In Illinois

In Illinois, Municipalities can levy a transfer tax on a buyer and/or a seller.  A transfer occurs when a piece of real estate is sold and/or transferred.  Don’t be mislead; a transfer tax is in its very essence a sales tax on the purchase of real estate.

In Chicago, the transfer tax is 0.75% of the purchase price for the buyer.   That means the buyer pays a 0.75% sales tax when they buy a home in Chicago.  For example, if a buyer purchases a new home for $100,000, his or her closing costs will include a $750 sales tax.  Be advised that the seller will also pay a transfer tax as well.

Every City, Town, Village or other municipality has a transfer tax, to determine when your transfer tax will be, please visit the Transfer Tax Summary.  This is a PDF document that is a great resource for realtors, buyers, sellers and anyone interested in the local transfer tax.  Email my office at info@nelsonlawoffice.com to request a copy.

If you are considering the sale of your home and need an attorney, please email my office for a free quote on legal services.

land contract illinois

land contract illinois

Do you need a Land Contract?  Call 877-GO-GO-NLO or Fill out this form to schedule an appointment!

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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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