New Real Estate Transfer on Death Deed - a Solution or a Problem

The Illinois legislature recently passed a bill allowing a homeowner to name a beneficiary  who will receive the property when the owner dies.  The hope was that this new type of real estate deed would simplify estate planning for people with smaller estates.  Unfortunately, it may create more problems than it solves.

The bill will become law on January 1, 2012.  This a link to the full text of the bill. http://www.ilga.gov/legislation/publicacts/fulltext.asp?Name=097-0555&GA=97

How this would work is that a homeowner would prepare a new deed naming one or more people as beneficiaries.  Those beneficiaries would receive ownership of the house when the owner died.  The new deed would have to be signed in the same way that a Will is signed.  So, the homeowner would sign the new deed in front of two witnesses and the witnesses, at the same time, would need to sign the deed too.  

This new deed would have to be recorded with Recorder of Deeds office in the county where the home was located (just like other deeds are now recorded).

When the current owner died, the beneficiaries would need to prepare an affidavit saying that the owner had died and acknowledging that they accept the real estate.  This affidavit would also need to be recorded with the local county recorder of deeds.

This sounds like a great way to avoid the time and expense of probate for people who have very few assets other than their house.  But the legislation has some important restrictions.

Those restrictions may significantly limit the effectiveness of this new deed.  This deed can be challenged anytime within two years after the homeowner dies unless a probate estate has been opened and then the time limit is six months.

Practically what does this mean.  It depends upon how title insurance companies treat this situation. Today, no one can sell a house unless they can provide the buyer with a title insurance policy.  So, how the title companies treat transfer on death deeds will have a large effect on whether such a deed is practical.

I have spoken to underwriters and and attorneys with two of the largest Illinois title insurance companies.  Both of them are analyzing the situation, but neither one of them has adopted formal guidelines. One title insurance company indicated that they anticipate reviewing each situation separately and making individual decisions on whether to issue title insurance.  Another title insurance company indicated that they might charge an additional premium equal to 2% of the sale price for sales within 1 year after the person’s death and a 1% premium for sales more than one year, but less than two years after a person’s death.  

In comparison, a Will  and the cost of probating the Will probably would cost significantly less than a the extra premium on the title insurance policy.

Disclaimer This is a passive blog and the materials contained herein are provided for informational purposes only. Nothing contained in this blog should be interpreted as a solicitation of business and none of the information contained herein constitutes legal advice. The law is subject to change without notice, and the local laws of your residence may be different from the general information displayed on this blog. You should not rely on the information provided on this blog without first consulting an attorney. Contacting this website does not establish and attorney/client relationship between you and its publisher Christopher W. Matern. An attorney/client relationship can only be established with Christopher Matern by engaging in direct person-to-person contact with Christopher Matern. Christopher Matern does not intend to practice law in any jurisdiction in which he is not licensed.

New Requirement for Illinois Landlords

Landlords in Illinois will be required next year to change or “rekey” the locks before a new tenant moves in. Here is link to the new lock changing law. http://www.ilga.gov/legislation/publicacts/97/PDF/097-0470.pdf
 
There are only limited exceptions to this law including rooming houses and buildings with four or fewer units where the owner lives in one of the units.  

If the landlord does not comply with this new law and there is a theft that is attributable to failing to change the locks, then the landlord will be responsible for the tenant's losses.  

I foresee a potential for possible fraud and abuse caused by the law’s requirement that the “theft that is attributable to failing to change the locks.”  Some examples are that the new tenant forgets to lock the apartment door and a burglar walks in the unlocked door.  Alternatively, the new tenant files a fraudulent police report about an alleged burglary and then claims that the door was locked.  If the tenant then sues the landlord for damages and claims that the tenant locked the door before the burglary how will the landlord effectively be able to disapprove that story.

So Illinois landlords to protect themselves from claims by tenants for stolen merchandise will need to change the locks each time they get a new tenant.  

For landlords the current rental market should make it easier to pass this new expense along to tenants.

Disclaimer This is a passive blog and the materials contained herein are provided for informational purposes only. Nothing contained in this blog should be interpreted as a solicitation of business and none of the information contained herein constitutes legal advice. The law is subject to change without notice, and the local laws of your residence may be different from the general information displayed on this blog. You should not rely on the information provided on this blog without first consulting an attorney. Contacting this website does not establish and attorney/client relationship between you and its publisher Christopher W. Matern. An attorney/client relationship can only be established with Christopher Matern by engaging in direct person-to-person contact with Christopher Matern. Christopher Matern does not intend to practice law in any jurisdiction in which he is not licensed.

Another Challenge for the Chicago Condo Market

There is another challenge for buyers and sellers of condominiums in Chicago.  According to a Chicago Tribune article titled Condo deals die in shadows of financially distressed buildings lenders are refusing to make loans in buildings that have a high number of renters, a large percentage of past due assessments or foreclosures.  


This another reason to carefully research a condominium association before purchasing a unit.



Disclaimer This is a passive blog and the materials contained herein are provided for informational purposes only. Nothing contained in this blog should be interpreted as a solicitation of business and none of the information contained herein constitutes legal advice. The law is subject to change without notice, and the local laws of your residence may be different from the general information displayed on this blog. You should not rely on the information provided on this blog without first consulting an attorney. Contacting this website does not establish and attorney/client relationship between you and its publisher Christopher W. Matern. An attorney/client relationship can only be established with Christopher Matern by engaging in direct person-to-person contact with Christopher Matern. Christopher Matern does not intend to practice law in any jurisdiction in which he is not licensed.

Now Paid On Time Isn’t Good Enough

Paying your mortgage on time apparently now isn’t good enough for one of the country’s largest mortgage lenders-GMAC.

Surprisingly, with all the problems mortgage lenders have with loans that are not being paid GMAC has time to make threatening collection calls to its borrowers who are paying on time.

The standard residential loan and mortgage state that payments are due on the 1st of the month, but they will not be considered late if the payment is received by the 15th of the month. Because the payment is not late until the 15th, many people choose to send their payments right before the 15th. This is much easier to do now if you are paying electronically such as with a bank’s online bill pay service.

So one would expect not to receive collection calls if their payments were received by the 15th of the month.

Nonetheless, GMAC starts making collection calls after the 1st day of the month. They make these calls several times a day, everyday of the week. Yes, they do call on Sunday morning too. The caller says you are late with your mortgage payment and if immediate payment is not received they will foreclose.

GMAC customer service representative explains that its “investors” have asked them to make these calls after the 1st of the month even though GMAC knows and admits that the payment is not late if they receive it by the 15th of month.

If anyone has had a similar experience with other mortgage lenders I would like to hear about what are lenders are doing this too.

Disclaimer This is a passive blog and the materials contained herein are provided for informational purposes only. Nothing contained in this blog should be interpreted as a solicitation of business and none of the information contained herein constitutes legal advice. The law is subject to change without notice, and the local laws of your residence may be different from the general information displayed on this blog. You should not rely on the information provided on this blog without first consulting an attorney. Contacting this website does not establish and attorney/client relationship between you and its publisher Christopher W. Matern. An attorney/client relationship can only be established with Christopher Matern by engaging in direct person-to-person contact with Christopher Matern. Christopher Matern does not intend to practice law in any jurisdiction in which he is not licensed.

Springfield Believes in the Fountain of Youth for New Senior Citizen Property Tax Exemption

Our elected officials in Springfield apparently believe in the Fountain of Youth when they passed the residential property tax law that requires senior citizens to re-apply every year for the senior citizen exemption.

Thats right when you turn 65 and apply for your senior citizen property tax exemption, you will need to re-apply for the next year. Using normal arithmetic, the year after you turn 65 you would then be 66.

Using "Springfield Arithmetic" you might turn 64 the year after your 65th birthday. Perhaps our elected officials hope that "Springfield Arithmetic" will make the $13 billion deficit magically decrease over time too.

Their explanation for this amazing possibility -- that you will get younger after you turn 65 is they want the prevent the possibility of people 64 and younger inappropriately applying for the exemption. Apparently, they forgot that when you apply for the exemption you have to provide proof that you are in fact 65.

Here is link to a Chicago Tribune article on this new law.

Governor Quinn has promised to "fix" this provision. Let's hope he keeps this promise. Otherwise our senior citizens will have to remember to let our government know every year that they are still senior citizens--or risk overpaying their property taxes.

Disclaimer: This is a passive blog and the materials contained herein are provided for informational purposes only. Nothing contained in this blog should be interpreted as a solicitation of business and none of the information contained herein constitutes legal advice. The law is subject to change without notice, and the local laws of your residence may be different from the general information displayed on this blog. You should not rely on the information provided on this blog without first consulting an attorney. Contacting this website does not establish and attorney/client relationship between you and its publisher Christopher W. Matern. An attorney/client relationship can only be established with Christopher Matern by engaging in direct person-to-person contact with Christopher Matern. Christopher Matern does not intend to practice law in any jurisdiction in which he is not licensed.

Worker's Compensation Insurance for Condominium Associations - Is it Necessary?

Do condominium associations need Worker's Compensation? For a large high rise with 24 hour security, building engineers and janitors the answer is obviously yes, since all these people are full time employees of the association. For smaller condominium associations the answer is less obvious.

Recently the board treasurer of a 16 unit condominium association asked me about whether his condominium association should have Worker's Compensation Insurance.

With only sixteen units, I asked whether they had any employees on their payroll. He said no. They do have a women who cleans the hallways twice a month. They also have a person who plows snow off the driveways. And they have a scavenger service that picks up the trash. Occasionally, they hire contractors to do work on the air-conditioning, paint, and do other repairs to the building.

Since they have no employees on their payroll, my question was why would you think that you need Worker's Compensation insurance. His answer was that his insurance broker suggested it. The insurance broker explained that since some of the contractors that they hire might not have Worker's Compensation insurance for their employees. Even if this was true, I questioned why Worker's Compensation insurance would be necessary since the condo association has general liability insurance coverage and general liability insurance covers suits by people injured on the property.

One of the arguments that insurance brokers and insurance companies make is what if the person files a Worker's Compensation claim. But unless their real employer has Worker's Compensation coverage, that person (and their lawyer) would probably prefer to file a traditional personal injury suit in the county court. By doing so, they would have the chance to get a much bigger verdict since they could make a claim for pain and suffering (usually several times the amount of their medical bills). Worker's Compensation claims are resolved under a different system and claims for pain and suffering damages are not allowed. Arguably, it would be malpractice for a personal injury lawyer not to file a lawsuit in the county court system where they could get their injured client more money.

The fundamental question is could the employees of the businesses that the associations contracts to perform services be considered employees of the association? The IRS has a number of criteria they consider in determining whether a person is an independent contractor or an employee http://www.irs.gov/businesses/small/article/0,,id=99921,00.html. The Illinois Supreme Court has considered this question too. The Illinois Supreme Court looked at whether the person's services relate to the business purpose of the company. In the Illinois Supreme Court case the company was in the trucking business and the person was an owner/operator of a truck. The court found that the owner/operator was an employee because the trucking company's business purpose was trucking and truck drivers were obviously necessary. In this situation, the business' purpose is a condo association. They are not running a cleaning service company. Similarly, the association is not in the business of snow removal, painting or roof repair.

Applying the IRS criteria, the cleaning lady should be considered an independent contractor. The cleaning lady can decide on what day of the week to come. She can decide what time to start (morning or afternoon). She can hire an assistant to help her. She can send a substitute. She receives a flat fee for the services. The few hours per month she cleans the association's hallways is not her only source of income. She cleans on the other days at many other places. All of these suggest that the IRS would agree that the cleaning lady is an independent contractor.

The snow plow company's relationship is similar. So, it too would be an independent contractor and not an employee.

Then why would the insurance broker and the insurance company think this association needs a Worker's Compensation policy.

There could be many reasons why an insurance broker would recommend that a condominium association with no employees purchase a Worker's Compensation policy. One reason is that the broker wants the client, the association, to be protected to the maximum extent possible. Another reason is that the broker wants to protect itself from a possible claim by the association against the broker for not recommending all the possible types of coverage. One could be cynical and say "follow the money." The insurance broker receives another commission. The insurance broker is going to sell the general liability policy anyway so selling the association a Worker's Compensation policy is an additional policy and an additional commission.

Following the money, the insurance company would rather place a claim under a worker's compensation policy than under a general liability policy because they are likely to pay less. Worker's Compensation claims are handled initially by the Industrial Commission, they are usually resolved more quickly and under Worker's Compensation law the claimant is not entitled to damages for pain and suffering (a significant part of the damages in a traditional lawsuit). So, insurance companies have an incentive to be able to handle a claim under a Worker's Compensation policy.

Whether a condominium association needs a Worker's Compensation policy depends upon the association's specific circumstances. But for many small buildings it may not be necessary.


Disclaimer

This is a passive blog and the materials contained herein are provided for informational purposes only. Nothing contained in this blog should be interpreted as a solicitation of business and none of the information contained herein constitutes legal advice. The law is subject to change without notice, and the local laws of your residence may be different from the general information displayed on this blog. You should not rely on the information provided on this blog without first consulting an attorney. Contacting this website does not establish and attorney/client relationship between you and its publisher Christopher W. Matern.

An attorney/client relationship can only be established with Christopher Matern by engaging in direct person-to-person contact with Christopher Matern. Christopher Matern does not intend to practice law in any jurisdiction in which he is not licensed.

Condo Insurance Requirements

If you live in a condominium or manage a condominum Illinois law specifies minimum amounts of insurance the condominium association must carry.  

As you probably know, in Illinois, most aspects concerning a condominium are governed by statute in 765 ILCS 605, commonly known as the Illinois Condominium Property Act(the “Act”).  Specifically, Section 12 of the Act discusses the insurance requirements for a condominium.  As a condominium you are required to maintain property insurance, general liability insurance, a fidelity bond (if you have more six or more units), and directors and officer’s coverage.

             Section 12(a)(1) discusses the requirements for property insurance.  The property insurance must cover the common elements, the units, and limited common elements.  The individual units should be covered to the extent of the bare walls, floors, and ceilings.  It is the individual unit owner’s responsibility to purchase insurance for the personal contents of the unit.  You must provide coverage for special form causes of loss and increased costs of construction due to building code requirements at the time the insurance is purchased and at each renewal date. Lastly, the total amount of the coverage can be no less than the full insurable replacement cost of the insured property less the deductibles. 

Section 12(b)(2) covers the general liability requirement.  You must have coverage for claims and liabilities arising in connection with the ownership, existence, use, or management of the property.  The amount of the policy has to be a minimum of $1,000,000, however, given the size of your condominium you may want to discuss a larger coverage amount with your insurance agent.  You must include as additional insureds: the board, the association, the manager and their respective agents and employees, and the unit owners to the extent of claims arising out of their use of the common elements. 

 Section 12(3)(A-C) discusses the fidelity bond.  All condominiums with six or more units are required to obtain one.  The bond must cover both the management company and the individual manager, their employees or agents who have access or control over association funds.  The amount of the bond for both the company and individuals must be in the full amount of the association funds and reserves that are in the custody of the association or management company.

 Section 12(3)(D) covers the director’s and officer’s liability coverage.  This needs to cover all contracts or actions taken by the board in their official capacity as directors and officers, excluding actions for which directors or officers are not entitled to indemnification by law.  You may decide the amount of coverage to carry if it is not already established in the declaration or bylaws.  

These are the minimium amounts required by Illinois law.  Like the mininium required amounts of automobile coverage, your situation might warrant having more coverage than the legally required minimum amount.

It might be a good idea to check with your insurance agent to determine whether you have the proper coverage.

Disclaimer

This is a passive blog and the materials contained herein are provided for informational purposes only. Nothing contained in this blog should be interpreted as a solicitation of business and none of the information contained herein constitutes legal advice. The law is subject to change without notice, and the local laws of your residence may be different from the general information displayed on this blog. You should not rely on the information provided on this blog without first consulting an attorney. Contacting this website does not establish and attorney/client relationship between you and its publisher Christopher W. Matern.

An attorney/client relationship can only be established with Christopher Matern by engaging in direct person-to-person contact with Christopher Matern. Christopher Matern does not intend to practice law in any jurisdiction in which he is not licensed.

Bring Your Thumb for the Next Real Estate Closing

On June 1st,  people selling real estate in Illinois will not only have to have their signature notarized, but also they will have to add their thumb print. (Chicago Sun Times Article).

As a convenience some notaries would notarize a signature even though it was not signed in their presence.  This practice has always been improper.  Nonetheless, it probably was not rare.

Now with the thumbprint requirement, physical presence is required.

Disclaimer

This is a passive blog and the materials contained herein are provided for informational purposes only. Nothing contained in this blog should be interpreted as a solicitation of business and none of the information contained herein constitutes legal advice. The law is subject to change without notice, and the local laws of your residence may be different from the general information displayed on this blog. You should not rely on the information provided on this blog without first consulting an attorney. Contacting this website does not establish and attorney/client relationship between you and its publisher Christopher W. Matern.

An attorney/client relationship can only be established with Christopher Matern by engaging in direct person-to-person contact with Christopher Matern. Christopher Matern does not intend to practice law in any jurisdiction in which he is not licensed.

Proposed Bankruptcy Law May Reduce Foreclosures

An article in the Daily Herald (link to article) predicts that new bankruptcy legislation may be passed this month.

This new legislation would empower federal bankruptcy judges to modify residential mortgages including reducing the principal, the interest and the monthly payment.

Bankruptcy is an extreme solution that persons should never take lightly, but with this new legislation it might provide a way for people in financial trouble to keep their homes.

It could also help the real estate market recover.   While real estate appraisers valuing neighboring homes might consider that a bankruptcy judge had reduced the loan principal, which is better for a neighborhood -- an occupied home  home or a boarded-up bank owned house.

Government "Bad Bank" Plan May Slow Mortgage Relief

The federal government has been considering creating a new bank to buy all the high risk loans held by private banks.  This new bank has been nicknamed the "bad bank" because it would hold only high risk loans.

The "bad bank" plan is the subject of an article by Greg Burns in today's Chicago Tribune (the link to the article is below).

In addition to the risks to taxpayers discussed in Greg Burns' article, there is another potential problem.  That is banks that are currently negotiating with their borrowers on modify their loans may decide to wait to see if the Federal Government does in fact create a "bad bank"   Waiting may not be could for borrowers who every day get further behind on their payments

http://www.chicagotribune.com/business/columnists/chi-thu-bad-bank-burns-jan29,0,5378928.column

Federal Goverment May Modify Mortgages

Federal Government Plan on Modifying Mortgages

The Federal Reserve is planning to modify mortgages where it holds the loans as collateral for Federal Reserve payments to the lender.

As Fox News reported (the link to the story is at the bottom of this post), homeowners will not know if the Federal Reserve is holding their loan as collateral.  The homeowners will have to wait for the servicing company to contact the homeowner.

If you or a person you know is have problems paying their mortgage this is something to ask them about.

http://www.foxbusiness.com/story/markets/federal-reserve-modify-mortgages/