Changes at the Chicago Water Department affect home sales in Chicago

On November 12, 2007, the Chicago City Council passed a number of amendments to the Municipal Code of Chicago that affect the City of Chicago Water Department and real estate transactions in the City of Chicago.

It is expected that, beginning December 17, 2007, the City of Chicago will increase double price charged to obtain a "Full Payment Certificate" also known as a "Water Certification" from $25 to $50. (See changes to 11-12-530)

In addition to the fee increase, the City has reinstated the requirement that a "Full Payment Certificate" be obtained for condominium property. In addition to the normal requirements for obtaining an FPC, a condominium request must also include a paid assessment letter current for the month of closing that includes the condominium unit number, the condominium assoication water account number, the name of the condominium unit owner, a statement from the association that the condominium association pays the water bill, and a statement from the association that the to be conveyed unit's monthly assessments are paid in full and up to date. (See changes to 11-12-531)

The alleged policy behind the FPC is that the City is given a final chance to make a seller pay their water account in full before being allowed to sell property and flee the city. Is this really necessary for condominiums where the association is responsible for payment of the water bill?

So what does this mean to sellers of property in the City? Increased fees and more hassles. Condominium Sellers who will be selling early in any given month will need to pre-pay their assessments so that they can timely obtain a paid assessment letter that conforms to the City's requirements. The new law will also likely cause a major disruption in obtaining FPCs.

If the City needed more money, they should have just imposed a new tax on the sale of real property. Instead, they increased the bureacratic workload by forcing hundreds more people to stand in line to obtain FPCs for condominium units where the association already pays the water bill.

Do we need to get a C.L.U.E.?

All real estate buyers will be required by their lender (and good sense) to obtain hazard insurance. In most cases, the insurance is an afterthought, but maybe it should not be. The Multi-Board 4.0 Real Estate Contract contains a provision that allows a buyer to check with an insurance agent to determine if the property being purchased can qualify for form HO-3 hazard insurance at "preferred permium rates" and provides an out from the contract if that detemination is made and timely notice provided to the seller.

When underwriting a homeowner's policy, insurance companies usually review claims information and can deny coverage to a potential buyer based upon prior claims at the property address. In such a situation, a buyer will be forced to purchase "non-standard" coverage or coverage through the government, usually at extremely high premium rates.

In any event, in order to make a determination about policy availability at preferred rates, Buyers need to get involved with an insurance agent much earlier in the buying process. Generally, the insurance agent will order up a "C.L.U.E. report". C.L.U.E. stands for "Comprehensive Loss Underwriting Exchange" which is basically a database that tracks prior claims against a property. The company that runes C.LU.E. currently indicates that the report has information about the most recent seven years of claims activity.

This information can be interesting potential buyers and may be a valuable resource when purchasing a home. A Seller can now obtain a version of a C.L.U.E report stripped of personal information (such as social security numbers) for their buyers for about $20. The information contained there can be valuable to prevent the purchase of a lemon or to provide piece of mind to a buyer that there is not a history of problems at a particular property. In any event, insurance inquiries must be made earlier in the process.

Merger of damages - does the landlord owe you 10 times damages?

Section 5-12-080 of the Chicago Residential Landlord Tenant Ordinance sets forth the requirements a that Chicago landlords covered by the ordinance must follow. Among these are the requirement to provide a receipt for a deposit; to keep the deposit in a segregated account; to pay interest on the deposit; to return the deposit within a prescribed time period or to properly deduct from that deposit; and to properly transfer the deposit upon a change of ownership of the property.

Section 5-12-080(f) provides:

"If the landlord or landlord's agent fails to comply with any provision of Section 5-12-080 (a) - (e), the tenant shall be awarded damages in an amount equal to two times the security deposit plus interest at a rate determined in accordance with Section 5-12-081. This subsection does not preclude the tenant from recovering other damages to which he may be entitled under this chapter."

Thus, in addition to the regular damages a tenant can recover for a landlord's violation of the ordinance, a tenant can also recover a penalty of two times the deposit as a penalty. (As an aside, the ordinance also provides elsewhere that a prevailing tenant can recover attorney's fees and court costs from the landlord)

I have found that when a landlord violates the ordinance, he or she usually does it in a big way. That is, if the landlord fails to return a deposit, it is also likely that the landlord did not provide a receipt for the deposit, that the landlord probably commingled the deposit and that the landlord likely violated many of the other requirements of the CRLTO.

Accordingly, many tenant's attorneys will bring a multiple count complaint against a landlord for various violations of the CRLTO. Until recently, these attorneys would plead for (and sometimes get) a penalty for each and every violation of Section 080 of the ordinance.

In the middle of 2006, a case was decided by the Illinois Appellate Court, KRAWCZYK v LIVADITIS, that clarified the situation. In that case, the Court followed two prior appellate decisions and determined that "the payment of a security deposit is a singular event and the RLTO does not specify double damages for "each" violation of 5-12-080".

Thus, a landlord can only be penalized once for violating Section 080 of the ordinance, regardless of the number of counts against the landlord. Following the KRAWCZYK ruling, a landlord who commingles a security deposit, does not provide a receipt for a deposit and fails to pay interest on the deposit will only be charged with a single penalty of two times the deposit (in addition to any other legal damages).

I am not sure I agree with the court's reasoning in this case. Frankly, the application of a single penalty actually encourages a landlord to violate the ordinance. Because ordinance violations cannot be cured, the penalty has a chilling effect on landlords becoming compliant.

For example, a landlord who commingles (and thus, has violated the ordinance and now owes two times as a penalty if sued) has no incentive to later segregate the account (except to segregate it and hope the statute of limitations passes) and even less incentive to pay interest or follow any of the other requirements of Section 080 because no matter what the landlord does, the landlord is on the hook for a penalty capped at two times the deposit.

Regardless of my belief that the decision has a chilling effect on landlord compliance, I am amazed at the number of tenant's attorneys who try to bull landlords with multiple claim counts and wild assertions that they are due the penalty for each violation. I recently spoke with another attorney dealing with a four count complaint. The tenant's attorney offered the landlord's attorney to settle the case, based on a security deposit approximately $1000, for about $10,000 claiming that he was entitled to eight times the deposit if he prevailed on all of the counts. Either this tenant's attorney is not very smart or he is smart like a fox. Landlords need to be careful of traps like this one.

If the landlord's attorney merely stipulated to the violation, he likely would pay no more than $3000 plus some interest and some minimal attorneys fees. Some deal!

Major changes to evictions in Cook County

Evictions in Cook County are never fun and are never fast - just ask any landlord. Until this year, the Sheriff typically enforced a court order for possession in about three weeks. Currently, the timeframe for removing a tenant in Cook County is more like six to ten weeks. Within the last few months, I have had the unfortunate opportunity to witness some serious delays in the enforcement of orders for possession by the Sheriff of Cook County.

In at least two cases, my clients have reported that despite thier presence to meet and "greet" the Sheriff (Having a "greeter" on behalf of the landlord is a requirement of the Sheriff in the enforcement of the order for possession obtained in an eviction order), the Sheriff did not appear to enforce the order. Upon checking into the situation, in both cases, the Sheriff indicated that he was present to enforce the orders and no one was at the property to meet him, so the evictions were called off. That means we need to pay an additional fee and get back at the end of the line. To add insult to injury, the landlords took time from work and were present at the property all day! It is possible that the Sheriff is telling the truth (ie. the landlord was present and the sheriff was present and they were unable to recognize each other). Unfortunately, there is no way to coordinate this process with the Sheriff. The Sheriff's eviction desk is of no help (they can tell you what happened the day after it happens, but they do not coordinate "just in time evictions"), so the system is, at best, handicapped.

In another recent case, the Sheriff called to indicated he would be out to evict the tenant "tomorrow". On the morning of that expected eviction, the Sheriff called my office to tell me that the eviction was cancelled and that the Sheriff would handle the eviction "tomorrow". After spending half a day at the building on the prior date, my client sat at the property on the new eviction date from 8am to 2pm (the time period provided by the Sheriff). The Sheriff never appeared. As one would expect, the landlord was fairly upset. When I followed up with the Sheriff's office the next day, they indicated that they were unable to make all of the evictions scheduled that day and that they would reschedule it "some time in the future". The Sheriff had no further information. Unfortunately, a short time after the two failed dates, the eviction order became "stale" (too much time had elapsed between the entry of the order and enforcement). The expiration was, in large part, due to the fact that the Sheriff failed to enforce the order in a timely fashion. I must admit that the tenant added some time with some fairly frivilous motions to extend their stay. As a result, the landlord had to motion the court to extend the court order, give notice to the tenant (adding to the landlord's expense in attorney fees and costs and providing yet another opportunity for the tenant to delay or stall the process) and the order could then be re-placed with the Sheriff (and we would get back in line at the beginning to wait again).

Luckily for us, the tenant got tired of waiting for her things to be thrown on the street and decided to leave on her own.

The current delays for the enforcement of an eviction are akin to those that occur in the winter months as a result of inclement weather and the Holiday moratoreum (extremely long). I don't fault the Sheriff for this as I suspect that the volume of evictions is overwealming considering the state of the economy.

As of July 19, 2007, the Sheriff has implemented a new procedure, I suspect, to increase the number of evictions that can be performed in a day and to reduce the current backlog of evictions. Prior to the new procedure, the Sheriff actually moved the tenant's property from an apartment as part of the eviction.

Effective August 06, 2007 the Cook County Sheriff’s Office will no longer arrange moving services for evictions. Landlords are now responsible for making arrangements to have the tenant's personal property removed from the real property after the Sheriff has enforced the Order for Possession and tendered possession of the real property to the plaintiff. In conjunction with the change, the cost of an eviction has decreased from a deposite of $225 to $60.

Despite my hope that the new rule will reduce the long wait for Sheriff enforcement, I suspect that landlords will now face a slew of new problems relating to the actual eviction of their tenants.

Two problems come to mind immediately.

First, the landord will have to deal with the problem of actualling moving the property. Likely, this will require the landlord to employ a professional moving company or some form of paid movers. I assume that the professionals will charge a greater amount than the Sheriff had charged, thereby increasing the landlord's eviction costs. The landlord will also have to determine when and where to actually remove the property. Should the landlord wait 24 hours? Should the landlord do it immediately? Should the landlord store the property and give the tenant an opportunity to retrieve the property? Should the landlord move the property to the curb or ally? A spokesman for the Sheriff recently indicated that once the eviction is processed by a Sheriff's officer, the landlord is free to move the property to the curb or ally regardless of weather conditions or other circumstances.

Second, landlords may have to deal with the recently dispossessed tenant's claims of property damage or theft by the landlords. It is easy for a tenant to claim that he or she had an expensive television and lots of cash among the tenant's possessions and can claim that the landlord stole those items or broke them while transporting them to the curb. Because the Sheriff will not be present, tenants and landlords could be prone to physical confrontation over the tenant's personal property.

I don't know how these issues will shake out, but I am certain that until some procedure is formalized, landlords and tenants will get into further disputes.

What about Caveat Emptor?

Perhaps the biggest change in legal philosopy over the past 50 years could be summed up in that the law has changed from a world of "caveat emptor" to one of "I am my brother's keeper".

There is no area of law where this shift can be demonstrated better than in the field of corporate law. Fifty to one hundred years ago, the likes of Conrad Black and Kenneth Lay would have roamed free like the captains of industry that preceded them. Today, the law favors consumer protectionism over the technical protection of corporate officers, directors and shareholders.

Corporations and other limited liability entities like limited liability companies and limited partnerships are formed by entrepreneurs in an effort to limit the entity's owner's risk. A properly formed and run entity should be able to insulate its owners, directors and agents from personal liability for the actions of the entity.

In certain cases, however, a court may still reach through the liability shield and reach the individuals behind a limited liability entity's actions. The concept, known as "piercing the coprorate veil", is one in which a plaintiff is able to break through the limited liability protection of the entity to receive relief from a shareholder, officer or other agent of that entity.

Illinois employs a two-prong for piercing the corporate veil: (1) there must be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist; and (2) circumstances must exist such that adherence to the fiction of a separate corporate existence would sanction a fraud, promote injustice, or promote inequitable consequences. People ex rel. Scott v. Pintozzi, 50 Ill. 2d 115, 128- 29 (1971).

So, generally, if it can be demonstrated that a person exercises control over a corporation such that the person running the corporation is using the corporation as an alter-ego in a situation where some person is harmed, then the corporation liability shield can be broken and the person in charge can be personally responsible for the corporate action.

The Illinois courts have indicated that a non-shareholder of an Illinois corporation can be found personall liable for the actions of and damages done by the corporation. In the case, Fontana v. TLD Builders, the Illinois courts found a non-shareholder personally liable for the actions of the corporation when it was demonstrated that the corporate officer and not his shareholding spouse was found to have a unity of interest with the corporation and the building contractor corporation had caused over one million dollars in damage to a customer. The corporation was not properly capitalized and failed to follow many of the typical corporate formalities.

Corporations and limited liability entities need to take a long hard look at how they conuct operations. Directors and shareholders need to understand and document what they are doing. In all cases, gross negligence is going to be subject to liability. However, if a corporation wants its liability protection to have real meaning, then the corporation will need to adhere closely to the corporate formalities in a material way.

Ever hear of the Chicago Residential Landlord Tenant Ordinance?

These days, I am finding more and more work related to the Chicago Residential Landlord Tenant Ordinance (CRLTO) from landlords who have run afoul of the provisions of the Ordinance without knowing that the ordinance exists!

Nearly all of these landlords have called me for reasons not related to their own issues with the ordinance. Instead, these issues are discovered during the course of discussions about tenant evictions, lease reviews or other "bad tenant" related issues and worse yet, when the issue comes up in regard to a real estate transaction!

Most of the folks I speak with are disappointed (and sometimes disbelieving) when I begin to explain the ordinance requirements and the penalties for failure to comply to them. The CRLTO governs most residential real estate tenancies in the City of Chicago (there are a few exceptions to the ordinance, but nearly all landlords must abide by the provisions). The ordinance supercedes any common law of Illinois and any terms of a lease or other agreement between the parties. The CRLTO governs all sorts of issues related to the landlord tenant relationship, from the proper care and feeding of security deposits to invalid, illegal or unenforceable lease terms all the way to the obligation of the landlord to make himself or herself known to a tenant. The penalties for violation of the CRLTO are severe.

After I inform a client of the serious repercussions of violating the CRLTO and, usually, a moment of silence and disbelief, the landlord asks me if I am serious. Unfortunately, I am. The CRLTO exists, it is real, it is slanted in favor of the tenant and Landlords need to comply with it. This has been confirmed time and again by the appellate courts and the Supreme Court of the State of Illinois.

While I don't want to discuss the merits of the CRLTO here, I do think that attorneys need to do a better job informing clients of the obligations under the CRLTO and landlords need to do a better job complying.

I will be writing in this blog regularly about the ordinance, its penalties and how landlords can better comply. I will also lobby herein for some reasonable amendments necessary to make the ordinance more "workable".

When do I call an attorney to help sell my house?

When do you need to get an attorney involved in selling your house? The quick answer is right away.

The first time you should consult an attorney is before you sign a listing agreement with a realtor. Many of the "standard" or "form" listing agreements are heavily slanted against the seller or contain provisions that surprise sellers when they actually find out what the agreement says, usually when it is too late to do anything about it.

Most of the listing agreements in the Chicagoland market indicate that a real estate broker's commission is earned once the broker has produced a "ready, willing and able" purchaser of your property. "But what if the deal does not close, I don't owe a commission, right?" Wrong. If your buyer defaults on the transaction after satisfying all of the buyer's contingencies (ie. the buyer defaults and fails to close), the seller likely owes the real estate brokers a commission.

In reality, many real estate brokers do not try to collect this commission. They want to keep goodwill with their seller client and they understand that they will get a commission when the property does eventually sell. But what about the selling agent who is out a commission and what about the listing agent who has had a falling out with the seller during the course of a deal. They may want their commission... and they are entitled to it.

There are more than a few reasons to take a look at the listing agreement before it is signed. Among others, the attorney can assist a seller to determine the rights and obligations of the seller if the seller finds the buyer without the help of the agent; if the seller has any right to avoid a commission for people who looked at the house before it was listed; and in the event that the real estate agent acts as dual agent. Other questions can be answered such as how does the seller terminate the agent relationship?; is a commission owed to the agent if the seller gets a contract after terminating the agent?; or are there any "hidden fees"? (sometimes a commission will actually be "5% of sale price plus a $225 processing fee). In most cases, under the terms of the "standard" listing agreement, the real estate agent will come out on top in regard to those issues.

Many real estate agents are excellent to work with and understand some of the shortcomings of the form listing agreement. In fact, many are very willing to make modifications to the agreement so that the seller can preserve some rights and better deal with some of the situations which can arise during the course of an agency agreement.

Hello!

This page will be the blog spot and brother site of www.illinois-attorney.com which is the website for Reda Ciprian Magnone, LLC, attorneys at law. Our firm practices in the areas of real estate law (residential, commercial, landlord-tenant); probate (deceased person's estates, minor's estates, disabled person's estates); corporate law (business organizations, purchase and sale of business, contracts); and estate planning (wills, trusts). I hope to periodically keep this blog up to date with information and musings on the law as related to those topics. As always, please know that you should not rely upon the information contained in this blog as "legal advice" as every factual situation is different. Please, always consult an attorney before acting to understand your rights and duties.