As more and more of my clients are buying foreclosed properties, the question of who is responsible for paying unpaid condo assessments keeps coming up. Buyers feel that it should not be their problem; after all, they didn't own the property when the assessments became due. Associations, on the other hand, want their money; they don't particularly care where it comes from. Because homeowners' associations require payment of assessments by all unit owners in order to meet their budget and keep their property in good repair, the Illinois legislature has sided with them on this issue.
The Illinois Condominium Property Act states that if you buy foreclosed property from the bank, you are responsible for assessments for the six months immediately prior to when the association instituted legal action to collect the assessment, assuming that such assessment is still unpaid. Take note: if the homeowner did not pay assessment for more than six months before the association took legal action, you are still only liable for six months' assessments. If the association never took legal action, you are not responsible for the assessment at all. In fact, I've had a few clients benefit because they were purchasing a foreclosed condo in an association that never filed suit for past due assessments.
The bank that foreclosed the condo is liable for assessments from the first day of the month after the month in which the foreclosure took place, through the date you close on your purchase from the bank.
What happens if the condominium association has instituted a special assessment? Well, your attorney can negotiate with the bank's attorney and try to get you the best possible deal. Unfortunately, many lenders have form contracts they require buyers to sign, which state that the buyer shall be responsible for all special assessments. Some lenders are willing to negotiate some of the terms of the sale; others are not. When a bank does not have its own form, the buyer benefits because the buyer's offer typically is on a standard realtor form, and those forms state that the seller is responsible for special assessments.
Make sure you understand how much assessment you will owe at closing if you're purchasing foreclosed property from a bank!
Monday, July 28, 2008
Friday, July 18, 2008
Illinois Residential Real Property Disclosure -- What happens if the seller does not provide one?
The law states that if the seller of residential property in Illinois fails or refuses to provide the Illinois Residential Real Property Disclosure prior to the sale of the property, the buyer has the right to terminate the contract (765 ILCS 77/55). This is bad news for sellers -- what if they simply forgot to provide the disclosure? The law doesn't care. It doesn't matter why the seller didn't provide the Residential Real Property Disclosure or whether he was acting in good or bad faith. As long as the seller did not give the disclosure to the buyer, the buyer can opt out of the transaction.
While this issue is not litigated often, it did come up just recently. In Muir v. Merano, 378 Ill.App.3d 1103 (5th Dist. 2008), the buyer repeatedly asked the seller for the disclosure statement, but the seller never delivered it. The buyer then terminated the contract pursuant to state law based on seller's failure to provide the Illinois Residential Real Property Disclosure. Seller refused to return all of the buyer's earnest money, stating that he would only only return half of it. As a result, Buyer sued.
In court, the seller argued that since the statute does not state a timeframe for providing the disclosure, seller should be allowed to provide the disclosure just prior to or at closing. The court disagreed, stating that the purpose of the Illinois Residential Real Property Disclosure Act is to give prospective buyers the same knowledge of defects in the home that seller has, allowing the buyers to make an informed decision about whether or not to purchase. If the buyer does not receive the disclosure until just before or at closing, it is too late -- the buyer is already committed to purchase.
So if you are selling your home or rental property, where do you get the Illinois Residential Real Property Report? If you have a real estate agent, he should give one to you. If not, your attorney can provide it. It is imperative that as a seller, you complete and sign this document and give it to your potential buyer.
Lastly, the Illinois Residential Real Property Act clearly states that anyone who knowingly makes false statements on the disclosure shall be liable in the amount of actual damages, court costs, and attorneys' fees. The disclosure should be completed honestly and in good faith. It is better to address problems up front than end up in court later!
While this issue is not litigated often, it did come up just recently. In Muir v. Merano, 378 Ill.App.3d 1103 (5th Dist. 2008), the buyer repeatedly asked the seller for the disclosure statement, but the seller never delivered it. The buyer then terminated the contract pursuant to state law based on seller's failure to provide the Illinois Residential Real Property Disclosure. Seller refused to return all of the buyer's earnest money, stating that he would only only return half of it. As a result, Buyer sued.
In court, the seller argued that since the statute does not state a timeframe for providing the disclosure, seller should be allowed to provide the disclosure just prior to or at closing. The court disagreed, stating that the purpose of the Illinois Residential Real Property Disclosure Act is to give prospective buyers the same knowledge of defects in the home that seller has, allowing the buyers to make an informed decision about whether or not to purchase. If the buyer does not receive the disclosure until just before or at closing, it is too late -- the buyer is already committed to purchase.
So if you are selling your home or rental property, where do you get the Illinois Residential Real Property Report? If you have a real estate agent, he should give one to you. If not, your attorney can provide it. It is imperative that as a seller, you complete and sign this document and give it to your potential buyer.
Lastly, the Illinois Residential Real Property Act clearly states that anyone who knowingly makes false statements on the disclosure shall be liable in the amount of actual damages, court costs, and attorneys' fees. The disclosure should be completed honestly and in good faith. It is better to address problems up front than end up in court later!
Thursday, July 10, 2008
As-is Contract Purchases: Buyers Beware
Typically, even when you buy property "as-is", the seller has a duty to disclose latent material defects. Furthermore, if the seller misrepresents facts to the buyer, the buyer has the right to sue after closing. But buyers beware, a recent Illinois case has held that if you agree to buy property as-is, you are really buying it as-is, and if you learn something about the condition of the property after closing and decide to go after the seller for failing to tell you about it, you may very well lose. Kopley Group V, LP v. Sheridan Edgewater Properties, Ltd., 376 Ill.App.3d 1006 (1st Dist. 2007) illustrates this point.
In Kopley, the buyer purchased a large residential/commercial building as-is. The contract allowed the buyer time to inspect the property, and if the buyer was not satisfied after his inspections, he could cancel the contract and receive a full refund of his earnest money. The buyer chose not to complete any professional inspection of the property.
After the closing, the City of Chicago cited the buyer for various defects at the property, including structural defects, which the buyer repaired at considerable expense. The buyer then sued the seller for breach of contract and for fraudulent and negligent misrepresentation. The buyer asserted that the seller should have disclosed information related to the city's previous inspections of the property and the repairs the seller had completed.
With respect to the buyer's first claim, breach of contract, the court decided in favor of the seller. The contract had an as-is provision and the buyer had enough time to complete an inspection, which he chose not to do. The court stated that the seller did not breach the contract.
With respect to the buyer's second claim, fraudulent and negligent misrepresentation, the court again favored the seller. The seller had made no representations about the structural condition of the property that buyer relied on. Additionally, the buyer had reviewed documentation relating to quotes for certain repairs on the property during the inspection period, and one of these documents was a quote for repairing the shifted brick lintel of the building. Therefore the court stated that the buyer had knowledge of the structural condition of the building, and Seller had not attempted to misrepresent it.
Why is Kopley at odds with other Illinois cases? Well, we can't be sure, but it could be for a number of reasons. Perhaps it was because the buyer in Kopley was a sophisticated party with experience in commercial real estate transactions, as opposed to someone who is just buying a home and may not know much about real estate. Or it could have been because the parties explicitly bargained for and agreed to the as-is provision of the contract. Regardless of the reason, the case is now out there and on the books. If you are buying property as-is, make sure you inspect the property and review all relevant documentation diligently to prevent being in a Kopley situation!
In Kopley, the buyer purchased a large residential/commercial building as-is. The contract allowed the buyer time to inspect the property, and if the buyer was not satisfied after his inspections, he could cancel the contract and receive a full refund of his earnest money. The buyer chose not to complete any professional inspection of the property.
After the closing, the City of Chicago cited the buyer for various defects at the property, including structural defects, which the buyer repaired at considerable expense. The buyer then sued the seller for breach of contract and for fraudulent and negligent misrepresentation. The buyer asserted that the seller should have disclosed information related to the city's previous inspections of the property and the repairs the seller had completed.
With respect to the buyer's first claim, breach of contract, the court decided in favor of the seller. The contract had an as-is provision and the buyer had enough time to complete an inspection, which he chose not to do. The court stated that the seller did not breach the contract.
With respect to the buyer's second claim, fraudulent and negligent misrepresentation, the court again favored the seller. The seller had made no representations about the structural condition of the property that buyer relied on. Additionally, the buyer had reviewed documentation relating to quotes for certain repairs on the property during the inspection period, and one of these documents was a quote for repairing the shifted brick lintel of the building. Therefore the court stated that the buyer had knowledge of the structural condition of the building, and Seller had not attempted to misrepresent it.
Why is Kopley at odds with other Illinois cases? Well, we can't be sure, but it could be for a number of reasons. Perhaps it was because the buyer in Kopley was a sophisticated party with experience in commercial real estate transactions, as opposed to someone who is just buying a home and may not know much about real estate. Or it could have been because the parties explicitly bargained for and agreed to the as-is provision of the contract. Regardless of the reason, the case is now out there and on the books. If you are buying property as-is, make sure you inspect the property and review all relevant documentation diligently to prevent being in a Kopley situation!
Thursday, July 3, 2008
New IRS Rules for 1031 Exchanges in Counties Suffering Storm Damage
Because of the severe storms, flooding and tornadoes in the midwest, the IRS is providing extensions to people or entities attempting a 1031 exchange in certain affected counties in Illinois, Indiana, Iowa, Missouri and Wisconsin. These extensions will allow people to search for or close on appropriate exchange properties without missing the strict IRS deadlines (45 days from the date of your original sale to identify exchange property, and 180 days from the date of your original sale to close -- for more general information on the 1031 exchange process, click here).
So who is eligible for these extensions? Well, first of all, you must be an affected potential exchangor. An affected potential exchangor is anyone (a) who lives in or has its primary place of business in one of the affected counties (see the list below) or (b) who keeps his books or records in an affected county, or (c) whose tax professional's office is in an affected county. Second, you must have sold or exchanged your property prior to the effective disaster date (June 1, 2008 in Illinois). Third, your 45-day identification deadline or your 180-day closing deadline must fall on or after June 1, 2008. If you meet all three of these conditions, you will receive a 120 day extension of any 45-day or 180-day deadline that falls after June 1, 2008.
Which counties are considered affected counties? In Illinois, Adams, Clark, Coles, Crawford, Cumberland, Douglas, Edgar, Hancock, Henderson, Jasper, Lake, Lawrence, Mercer and Winnebago counties are all affected counties. There is a possibility that more counties will be added later. Cook County is not considered an affected county.
All other standard conditions that apply to 1031 exchanges (see here) must be met regardless of any extension allowed. The IRS is trying hard to be flexible and allow people who suffered recent storm damage to get back on track. People who are eligible for the extension and still wish to complete a 1031 exchange should act promptly!
So who is eligible for these extensions? Well, first of all, you must be an affected potential exchangor. An affected potential exchangor is anyone (a) who lives in or has its primary place of business in one of the affected counties (see the list below) or (b) who keeps his books or records in an affected county, or (c) whose tax professional's office is in an affected county. Second, you must have sold or exchanged your property prior to the effective disaster date (June 1, 2008 in Illinois). Third, your 45-day identification deadline or your 180-day closing deadline must fall on or after June 1, 2008. If you meet all three of these conditions, you will receive a 120 day extension of any 45-day or 180-day deadline that falls after June 1, 2008.
Which counties are considered affected counties? In Illinois, Adams, Clark, Coles, Crawford, Cumberland, Douglas, Edgar, Hancock, Henderson, Jasper, Lake, Lawrence, Mercer and Winnebago counties are all affected counties. There is a possibility that more counties will be added later. Cook County is not considered an affected county.
All other standard conditions that apply to 1031 exchanges (see here) must be met regardless of any extension allowed. The IRS is trying hard to be flexible and allow people who suffered recent storm damage to get back on track. People who are eligible for the extension and still wish to complete a 1031 exchange should act promptly!
Subscribe to:
Posts (Atom)
