It's been a while since I posted any legal humor. Most of us lawyers can take an occasional jab at our profession. Here's one someone sent me recently, though I have no idea who wrote it!
After his graduation from college, the son of a reknowned lawyer was considering his future. He went to his father and asked if he might be given a desk in the corner from which he could observe his father's practice. His observations would help him decide whether or not to become a lawyer. His father thought this was a great idea and immediately agreed.
The first client the next morning was a tenant farmer -- a rough man with calloused hands who was dressed in workman's clothing. He said, "Mr. Lawyer, I work for the farm on the east side of town. For many years I have tended their crops and animals, including some cows. I have raised the cows, fed them and looked after them. And I was always told that I was the owner of these cows. Now the farmer has died and his son has inherited the farm. He believes that since the cows were raised on his land and ate his hay, the cows are his. In short, we are in dispute over who owns the cows."
The lawyer said, "Thank you. I have heard enough. I will take your case. Don't worry about the cows!"
The next client to come in was a young and well-dressed man. He said, "I own the farm on the east side of town. We have a tenant farmer who has worked for my family for many years, tending crops and the animals, including some cows. I believe the cows belong to me because they were raised on my land and were fed my hay. But the tenant farmer believes they are his because he raised them and cared for them. In short, we are in dispute over who owns the cows."
The lawyer said, "Thank you. I have heard enough. I will take your case. Don't worry about the cows!"
After the client left, the lawyer's son could not help but express his concern. "Father, I know very little about the law, but it seems we have a conflict of interest, not to mention a very serious problem concerning these cows."
"Don't worry about the cows!" the lawyer said. "By the time we're done, the cows will be ours!"
Sunday, June 29, 2008
Thursday, June 19, 2008
Enterprise Zones and Losing a City of Chicago Transfer Tax Exemption -- Ouch!
Recently I heard about a case that made its way to appellate court last year. The case involved an Enterprise Zone. What is an Enterprise Zone? Well, the City of Chicago has designated certain geographical areas in the city as Enterprise Zones. If you are a business in the Enterprise Zone, the city provides you certain benefits, including tax incentives, in order to encourage the growth of your business. If you purchase commercial property in an Enterprise Zone and continue to use it for commercial purposes, you are typically exempt from paying the hefty City of Chicago transfer tax.
Some time ago, a Buyer in Chicago bought commercial property within an Enterprise Zone. Under the Enterprise Zone Program, the Buyer did not pay any transfer tax to the city. He also did not take occupancy of the property at closing. Rather, he leased it back to the Seller for a period of eleven months, in which the Seller continued to operate the same business as prior to the sale. That's continued commercial use, right? Wrong.
The City of Chicago reviewed the transaction and determined that such temporary "continued" use was not sufficient to fall within the purview of the Enterprise Zone program. The key factor in the city's decision was the Buyer's intended use of the property, which was to turn the parcel into residential condominiums. Even though that may have been the Buyer's business and was a commercial use to him, once a property is converted to condominium or residential use, it is no longer commercial property and is ineligible for the Enterprise Zone Program. The case was appealed and the city eventually won. Metro Developers, LLC v. City of Chicago Department of Revenue, 377 Ill.App.3d 395 (1st Dist. 2007).
So why did I include the word "ouch" in the title to this post? Because the City of Chicago transfer tax is no joke -- the Buyer's share of the transfer tax is $7.50 for every thousand dollars of the purchase price. The purchase price in the above case was $5,900,000.00. That translates into $44,500.00 in transfer tax, from the Buyer alone! Ouch!
Some time ago, a Buyer in Chicago bought commercial property within an Enterprise Zone. Under the Enterprise Zone Program, the Buyer did not pay any transfer tax to the city. He also did not take occupancy of the property at closing. Rather, he leased it back to the Seller for a period of eleven months, in which the Seller continued to operate the same business as prior to the sale. That's continued commercial use, right? Wrong.
The City of Chicago reviewed the transaction and determined that such temporary "continued" use was not sufficient to fall within the purview of the Enterprise Zone program. The key factor in the city's decision was the Buyer's intended use of the property, which was to turn the parcel into residential condominiums. Even though that may have been the Buyer's business and was a commercial use to him, once a property is converted to condominium or residential use, it is no longer commercial property and is ineligible for the Enterprise Zone Program. The case was appealed and the city eventually won. Metro Developers, LLC v. City of Chicago Department of Revenue, 377 Ill.App.3d 395 (1st Dist. 2007).
So why did I include the word "ouch" in the title to this post? Because the City of Chicago transfer tax is no joke -- the Buyer's share of the transfer tax is $7.50 for every thousand dollars of the purchase price. The purchase price in the above case was $5,900,000.00. That translates into $44,500.00 in transfer tax, from the Buyer alone! Ouch!
Thursday, June 12, 2008
What happens to your house if you die?
This question comes up a lot in my practice, both in terms of real estate and estate planning. For most people, their home is their largest investment. Moreover, people are often emotionally attached to their home. They want to make sure that their home is protected as much as possible, and they want to be certain that it passes to their spouse, children or other family members.
The simplest way to control who gets your home or the proceeds from its sale upon your death is to prepare an estate plan. Your attorney will explain which estate planning options are best for you based on your individual needs. You can control the distribution of your home within a properly drafted will, trust, or land trust. In most situations, you will not need to re-draft your will or trust if you sell your home and purchase a new one.
Additionally, as part of an effective estate plan to protect your home, you may consider buying a life insurance policy that will be sufficient to pay off the outstanding debt on your home in the event of your death. If you are leaving your home to family members who reside there and who depend on you to pay the mortgage , they could be left out in the cold if they cannot afford the montly payments. Funds from your life insurance could keep your loved ones in their home.
If you don't have an estate plan, then the laws of intestacy apply to your home and to your estate in general. What happens to your home depends on your individual situation. For example, if you are married and own your home jointly with your spouse, your home passes automatically to your spouse upon your death. If your spouse pre-deceases you, your home and estate will be transferred to your heirs at law -- either your children or your parents or your siblings or other family members -- depending on your personal circumstances. If your spouse inherits the home and later dies without an estate plan, the home will be passed to his or her heirs; in other words, if you have no children, then your spouse's relatives could inherit your home. If you have never been married and own a home solely in your name, then your heirs at law are your parents or your siblings and then your other relatives -- again, this depends on your personal circumstances. If you have no heirs at law, a local municipality may step in and take possession of your home. For example, in Cook County, the Cook County Public Administrator's Office takes over such homes and eventually auctions them off. It never fails to surprise me that so many homes are lost in this way every year, when all the owner had to do to protect the home and his heirs was prepare a will or other estate planning document.
Every homeowner should know how their property is deeded, and what will happen upon their death. Dig through those old papers and find the deed from when you purchased your home. If you ever prepared an estate plan, look through it and make sure your home, your prized possession, is being dealt with in the proper manner. If you do not have an estate plan, now is the time to prepare one. Not only can a thorough estate plan protect your family's place of residence, but it can protect your family too.
The simplest way to control who gets your home or the proceeds from its sale upon your death is to prepare an estate plan. Your attorney will explain which estate planning options are best for you based on your individual needs. You can control the distribution of your home within a properly drafted will, trust, or land trust. In most situations, you will not need to re-draft your will or trust if you sell your home and purchase a new one.
Additionally, as part of an effective estate plan to protect your home, you may consider buying a life insurance policy that will be sufficient to pay off the outstanding debt on your home in the event of your death. If you are leaving your home to family members who reside there and who depend on you to pay the mortgage , they could be left out in the cold if they cannot afford the montly payments. Funds from your life insurance could keep your loved ones in their home.
If you don't have an estate plan, then the laws of intestacy apply to your home and to your estate in general. What happens to your home depends on your individual situation. For example, if you are married and own your home jointly with your spouse, your home passes automatically to your spouse upon your death. If your spouse pre-deceases you, your home and estate will be transferred to your heirs at law -- either your children or your parents or your siblings or other family members -- depending on your personal circumstances. If your spouse inherits the home and later dies without an estate plan, the home will be passed to his or her heirs; in other words, if you have no children, then your spouse's relatives could inherit your home. If you have never been married and own a home solely in your name, then your heirs at law are your parents or your siblings and then your other relatives -- again, this depends on your personal circumstances. If you have no heirs at law, a local municipality may step in and take possession of your home. For example, in Cook County, the Cook County Public Administrator's Office takes over such homes and eventually auctions them off. It never fails to surprise me that so many homes are lost in this way every year, when all the owner had to do to protect the home and his heirs was prepare a will or other estate planning document.
Every homeowner should know how their property is deeded, and what will happen upon their death. Dig through those old papers and find the deed from when you purchased your home. If you ever prepared an estate plan, look through it and make sure your home, your prized possession, is being dealt with in the proper manner. If you do not have an estate plan, now is the time to prepare one. Not only can a thorough estate plan protect your family's place of residence, but it can protect your family too.
Thursday, June 5, 2008
Cook County Predatory Lending Database Program -- What is it?
Real estate buyers will soon have to contend with new procedures regarding predatory lending in Cook County. Because of the increasing numbers of homeowners falling behind on mortgage payments and record foreclosure rates, the Illinois legislature has enacted a new measure, Public Act 95-691, aimed to protect the borrower in certain loans that can be considered "high-risk". This new measure is effective July 1, 2008. Even if the new procedures do not apply to your loan, in order to record a mortgage in Cook County you will still need to file a Certificate of Exemption, stating that the loan is exempt from the requirements of Public Act 95-691. Your attorney and the title company will assist you with this at closing.
So what kind of loans do fall within the purview of the Cook County predatory lending program? Will it affect you as a buyer? It may, if you and/or your loan meet the following criteria:
1) Your mortgage broker or loan originator is subject to the Residential Mortgage License Act, and is licensed by the Illinois Department of Financial and Professional Regulation, AND
2) You are a first-time homebuyer and are purchasing 1-4 unit residential property in Cook County that you will live in. Note that if there is more than one buyer, then the loan is only subject to the predatory lending program if ALL buyers are first-time homebuyers, AND
3) Your loan falls into one or more of the following categories: a) You are allowed to make interest-only payments; and/or b) Your loan could result in negative amortization; and/or c) The fees and points you pay in order to close are greater than 5% of the value of the loan; and/or d) Your loan has a prepayment penalty; and/or e) You are getting an adjustable rate mortgage where the interest rate can change during the first three years.
If you fall into categories 1 and 2 and 3 above, your mortgage broker must enter your loan information into a database maintained by the Illinois Department of Financial and Professional Regulation, and you will be subject to counseling. Your mortgage broker will direct you to an approved counselor in your area, and should also bear the cost of the counseling, if any. If you refuse to attend counseling, you cannot proceed with your purchase if you require a mortgage. If you do obtain counseling, then even if the counselor advises you not to proceed with the loan, the final decision is yours. You may proceed against the counselor's advice if you wish, althought this is not recommended. If you choose to continue with your purchase, a Certificate of Compliance will be issued at closing, stating that you have met the counseling requirement. Either this document or the Certificate of Exemption, as described above, must be presented in order to record a mortgage in Cook County.
So will there be any practical benefits to the new predatory lending program? Well, theoretically there should be a decrease in predatory loans, leading to a corresponding decrease in missed mortgage payments and foreclosures. Whether or not this actually plays out is yet to be determined!
So what kind of loans do fall within the purview of the Cook County predatory lending program? Will it affect you as a buyer? It may, if you and/or your loan meet the following criteria:
1) Your mortgage broker or loan originator is subject to the Residential Mortgage License Act, and is licensed by the Illinois Department of Financial and Professional Regulation, AND
2) You are a first-time homebuyer and are purchasing 1-4 unit residential property in Cook County that you will live in. Note that if there is more than one buyer, then the loan is only subject to the predatory lending program if ALL buyers are first-time homebuyers, AND
3) Your loan falls into one or more of the following categories: a) You are allowed to make interest-only payments; and/or b) Your loan could result in negative amortization; and/or c) The fees and points you pay in order to close are greater than 5% of the value of the loan; and/or d) Your loan has a prepayment penalty; and/or e) You are getting an adjustable rate mortgage where the interest rate can change during the first three years.
If you fall into categories 1 and 2 and 3 above, your mortgage broker must enter your loan information into a database maintained by the Illinois Department of Financial and Professional Regulation, and you will be subject to counseling. Your mortgage broker will direct you to an approved counselor in your area, and should also bear the cost of the counseling, if any. If you refuse to attend counseling, you cannot proceed with your purchase if you require a mortgage. If you do obtain counseling, then even if the counselor advises you not to proceed with the loan, the final decision is yours. You may proceed against the counselor's advice if you wish, althought this is not recommended. If you choose to continue with your purchase, a Certificate of Compliance will be issued at closing, stating that you have met the counseling requirement. Either this document or the Certificate of Exemption, as described above, must be presented in order to record a mortgage in Cook County.
So will there be any practical benefits to the new predatory lending program? Well, theoretically there should be a decrease in predatory loans, leading to a corresponding decrease in missed mortgage payments and foreclosures. Whether or not this actually plays out is yet to be determined!
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