Closing Chicago Real Estate

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In transactional real estate land, title insurance is one of the most misunderstood products by lawyers and non-lawyers alike. Yet it needn’t be…if you understand what car/homeowners insurance does there’s no reason you shouldn’t have a basic understanding of what title insurance does. And this recently reported First District (Rhone v. First American, No. 1-09-1216) case provides a nice back-drop for a rich and thorough title insurance discussion.

You really just need to understand a couple things and you’ll “get” title insurance just like you “get” car insurance. Every insurance policy will have some “effective date.” The confusing issue with title insurance is that whereas a car insurance policy would cover damage the day AFTER the policy’s “effective date” with title insurance, the policy would cover damage the day BEFORE the “effective date.” Title insurance looks backward whereas the car insurance looks forward. Okay?

The case above includes an interesting mix of property tax law and title insurance law. The Plaintiff’s close/buy (on) a Chicago townhome 8/31/06 that had been taxed as vacant land for 2004-2006 so it was undertaxed quite a bit for those 3 years. Interestingly, the parties to the real estate transaction DID have a tax reproration agreement but only for 2006 taxes (not ’04-’05).  In February 2008 the Plaintiff’s get a Cook County tax bill entitled, “2007 Omitted Assessment Property Tax Bill” from the county treasurer that charged them for the 2004 and 2005 taxes (no longer classified as vacant land). Plaintiff’s then make a claim against their title policy from First American which was denied.

In June 2008 they bring suit regarding First American’s failure to pay their claim for the 2004-2005 taxes. The appellate court sided with First American citing a mix of property tax and contact law. Obviously, the big question was how should the 2004-2005 taxes be viewed…are those obligations that arise in 2004-2005 whereby First American would be on the hook OR do they not actually arise until 2008 when the tax bill is issued. I won’t delve into the tax code too much here, but the court held that the property tax lien doesn’t arise until 2008 (for the 2004, 2005 taxes) therefore these bills weren’t covered on the title policy.

Putting on my real estate transaction lawyer hat for a second, this is a bit of a scary scenario and primarily because it’s not that easy to find-out previous year tax information for a property. For example, look at the Cook County Treasurer’s site, it’s one click to look back one year but there’s not an obvious way to go back any further. And I do typically take a very close look at property taxes during a transaction. I suppose if you get something fishy like this case above where it’s a Chicago townhome that’s classified as vacant property you’ve got to really look under all the rocks to see what’s what.

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Comments (1) Jul 01 2010

Here’s what I’ve been reading in real estate around the Web…

Home Buyer (11/6/09 version) Tax Credit:  10 Things to Know. I sometimes call myself a real estate lawyer but have been admittedly slow in getting up to speed on the revised tax credit…I do get to celebrate a few holidays, no? For my money the big change is the $6,500 credit to home buyers who have previously used the same home as principal residence for at least 5 of the last 8 years. Also note that military members on extended duty outside the U.S. have until 4/30/11 (a year beyond the rest of us) to take advantage of the credit. For the most part, the “first time” homebuyer part of the credit remains the same expiring 4/30/10 (or 6/30/10 for properties under contract by 4/30/10).

Here and Here are 2 somewhat complimentary stories on the success/not of the Making Home Affordable program…one a more national and the other more Illinois focused. On the upside, mortgage loans ARE now being modified (the lack of modification efforts used to be a favorite rant of mine). But, at least in Illinois only 7% of the modifications are permanent. So, does the program simply serve to lengthen the housing crisis by giving false hope to homeowners who in the end won’t be able to afford their homes in the end regardless??

Don’t Buy a House–Yet. I think the op-ed makes a compelling argument…namely, real estate prices likely haven’t hit bottom and the market’s recovery will be agonizingly slow so what’s the rush? Foreclosure rates remain near their high and banks haven’t even fully released all of their inventory onto the market and the unemployment rate is going to remain around 10% through the end of this year…those are facts.

Town house or condo. The difference isn’t always so obvious. Usually the townhomes are multi-story with the small front/backyard that you actually own whereas a condo is a self-contained unit on a single floor and the rest of the building is commonly owned. But it’s not always so stark…legally look at the declaration, a condo must use “condominium” is the legal title of the association and of course the Illinois Condominium Property Act governs condos but only section 18.5 governs town homes.

And lastly…

Debtor’s Dilemma:  Pay the Mortgage or Walk Away. A fairly lengthy piece from the Journal focusing on people who CAN afford to pay their mortgage loans but are choosing not to based on the property’s plummeting value. Hard for me to empathize too much with these people…I think this debate is centered in futile, American vanity. Namely the focus on your home’s value…if you’re like what 75% of people who aren’t planning on relocating, you needn’t/shouldn’t care if your home value has dropped. Banks aren’t offering lines-of-credit anymore anyways. Sit back, take that mortgage interest deduction, and enjoy the view.

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Comments (5) Jan 16 2010

The noted Seinfeldian holiday is honestly the first thing I thought about when I read this story about a Lake Bluff homeowner’s attempt to be exempt from property taxes by classifying his home as a church.

The homeowner signed up to be an ordained minister with Spirtual Humanism and drew a cross with marker on a photo of his home as proof that his home was a church. Interestingly, the state department of revenue initially approved the application before Lake Bluff challenged the exemption and it got overturned.

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Comments (0) Jul 29 2009

What we’ve been reading the last week or so…

The Second City is Becoming Second-Home City. I’m seeing this up close…we’ve had two closings in the last month where older, empty-nesters are buying second homes in downtown Chicago. Interesting commentary from a Swiss family who loves the vitality and affordability of Chicago and it’s easy to commute anywhere in the world. Chicago’s cool again.

Tax Bill Appeals Taking Rising Toll on Governments. Well you knew this had to come, right? I’ve been impressed in my local community we’ve seen many municipal workers agreeing to not take pay raises and the like to control costs. I don’t know much about municipal governance but many local taxing bodies are capped at a 5% increase aroung Illinois so there may be more blood in the streets.

Paper Avalanche Buries Plan to Stem Foreclosures. Just had to throw this in here…yada, yada, yada, yada multiplied by 50. A blurb exemplifying the problem:

Ms. Montenegro, an intern at a local company that seeks loan modifications, dials Washington Mutual to check on the status of an application for a homeowner whose income has plummeted. She endures a Muzak-scored purgatory while on hold. Syrupy-voiced customer service representatives chide her for landing in the wrong department. She learns that the documents her company sent in have simply vanished — for the third time since November.

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Comments (0) Jul 10 2009

Heard a new twist on the above from an accountant friend I have breakfast with once in a while. He said he’s been advising clients and filing/amending tax returns claiming the first time homebuyer credit BEFORE people have actually purchased a home. In other words client is PLANNING on purchasing a home before the 12/1/09 cutoff but has NOT actually bought it. He claims this is a great way to get money in a potential buyers pocket in advance of the purchase. Here’s the IRS explanation of the credit.

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Comments (0) Apr 28 2009