There are two new laws in Illinois that will affect renters in foreclosed properties by the end of 2013. These laws are intended to ensure that tenants are notified of their rights and address the forcible evictions by banks of tenants after foreclosure.
For the state, Gov. Quinn recently signed into law legislation that would require owners acquiring a property in foreclosure to give tenants at least 90-days notice. Under the new state law, an owner who acquires a property in a foreclosure proceeding can evict a tenant only at the end of the lease or, if there is no lease or a month-month lease, with 90 days’ notice. A bank foreclosing on a rental property also must inform tenants of where they should pay their rent. If the new owner intends to use the property as his or her primary residence, he or she may terminate the lease but must still give 90 days’ notice.
For the city of Chicago, a new ordinance was recently passed called “Protecting Tenants in Foreclosed Rental Property Ordinance”. This will take effect on September 3, 2013 and applies to lenders who obtain residential property through foreclosure and to persons who acquire foreclosed residential property directly at judicial sale. This is not directed towards landlords going through the foreclosure process and is not really directed at investors who subsequently purchase the properties from the bank.
In the foreclosure process, there is a 2-step level of transfer. When the initial owner loses the home in foreclosure, title is transferred back to the lender (or HUD, Fannie Mae or Freddie Mac) by judicial foreclosure deed. When the foreclosed property is later sold to the new investor, title is again transferred by Special Warranty Deed. It’s the period of time where the bank holds title that the Chicago ordinance addresses. In other words, this does not apply to the old landlord or the new landlord (except cases where the new landlord purchased the rental property directly at judicial sale).
Under the new ordinance, the owner of any building acquired through judicial sale or deed in lieu of foreclosure (usually the bank) is required to pay a one-time relocation fee of $10,600 (less any unpaid rent) to a qualified tenant unless the owner offers the tenant an option to either renew or extend the current lease at an annual rate. The rental rate must reflect market level and for the first twelve months cannot exceed 102% of the previous year’s rate. This new ordinance should have the effect of forcing banks to move quicker to get properties off their books and resold. It is also designed to reduce the number of vacant homes in the city.
The lender has up to 21 days to make a good faith effort to ascertain the identities and addresses of all tenants at the foreclosed property and notify them about their eligibility for relocation assistance. They are also required, within 21 days of foreclosure, to post the notice “on the primary entrance” of the rental property. Owners may not lawfully collect any rent, whether in advance or arrears (back rent owed), from any tenant who has not received the notice required by the ordinance. Tenants must also be notified of where they should pay their rent.
Finally, the owner of any property acquired through foreclosure is also required to register the property with the City of Chicago not later than ten days after acquiring judicial title. The registration fee is $250. When the property is subsequently sold to a third-party buyer, the city is to be notified within ten days.
Again, if you are an investor with a property in foreclosure, the relocation assistance fee is not directed to you. If you are looking to purchase a foreclosed rental property from the bank, you are affected only if there are tenants living in the building (you’ll need to deal with the lease). There is some concern that this may have an impact on the lending environment for rental properties but time will tell.
If you are looking to buy or sell real estate in the Chicago area, please give me a call or email.
Millie C Lumpkin, CDPE, SFR
Keller Williams Preferred Realty
Cell: (312) 217-5644