Can the Illinois Homeowner Protection Act help you?

The Homeowners Protection Act (HPA) is meant to help Illinois homeowners who are at least 30 days behind on their mortgage payments. Regardless of the homeowner's income or the size of the loan, the law places certain requirements on lenders:

1) Lenders must notify homeowners in writing when the loan is more than thirty days past due.

2) Lenders must provide an opportunity for the homeowner to obtain housing counseling within 30 days. If a homeowner chooses to get counseling, he can contact any U.S. Housing and Urban Development (HUD) certified counseling agency.

3) In their written notice, lenders must clearly state that if the homeowner seeks housing counseling, the homeowner will receive an additional 30 day grace period.

4) Lenders cannot start foreclosure proceedings until they have provided this notice and allowed the counseling and grace periods, if applicable, to pass.

If you are in a situation where foreclosure on your home was initiated prior to April 9, 2009 (when the HPA was signed), it is too late for the protections of the HPA. Additionally, the law only applies to each loan once; if you default on a loan the first time, the HPA will apply. If you are able to work out a payment plan with the lender and default again, the HPA will not apply, and you will receive not further grace periods under the HPA. If the loan is not on your principal place of residence, it does not qualify under the HPA. Moreover, if you have applied for bankruptcy, the HPA will not apply.

Assuming you otherwise qualify for the protections of the HPA, keep in mind that this law will expire on April 8, 2011.

Illinois Down Payment Assistance Program!

For homeowners who are taking advantage of the Illinois Housing Development Authority's (IHDA's) Home Start program, down payment assistance may be available. The IHDA will loan you 3% of your purchase price, up to $6,000, if you meet certain criteria:

1) You must be a first-time homebuyer (unless you are a veteran).
2) You must qualify for and secure an IHDA 30-year fixed rate loan.
3) You must meet purchase price guidelines.
4) You must meet certain income requirements.
5) You must be willing to participate in homeownership counseling.

The IHDA's down payment assistance loan has zero percent interest, payable in 10 years. Moreover, the loan may be forgivable. For more information directly from the IHDA, click here.

Whether or not you qualify for this program does not affect your ability to receive the current $8000 tax credit for first-time homebuyers. For more information on that credit, click here.

Contractors and Lien Notices

Effective January 1, 2010, the Mechanics Lien Act shall be amended to require contractors to provide written notice to a homeowner within ten days after recording any lien against the home. This amendment applies specifically to contractors and owner-occupied single-family homes. Subcontractors and other types of homes are not covered by the amendment. Furthermore, the amendment only applies to contracts entered into after January 1, 2010.

The legislature intends the ten-day rule to be quite strict. If a contractor files a lien and fails to notify the owner of a single-family owner-occupied residence that a lien has been filed, the lien is extinguished to the extent of any actual damages the owner incurs as a result of the lien, so long as the damages were incurred before the contractor provides notice of the lien.

Residential contractors should take care to comply with this new law in order to preserve their liens!

New Tax Incentive Program for Vacant Buildings

Vacant buildings are taking a toll on county tax rolls. In order to encourage occupancy of vacant buildings, the Illinois legislature has approved Public Act 96-755 (HB 4120). Effective January 1, 2010, the legislature will grant local governmental authorities an incentive for abating any portion of property tax on a building that was vacant for at least 24 consecutive months prior to being occupied by a business.

In order for a local government to abate any portion of the property tax, a majority of its governing body must vote in the abatement's favor. The abatement cannot be for longer than two years, and the total tax abatement for all taxing districts involved cannot exceed $4 million dollars.

The legislature hopes that this new tax incentive program will encourage business-owners to buy and take over vacant buildings!

Homebuyer Tax Credit Extended!

Great news for homebuyers! Congress voted to extend the $8,000 tax credit for first-time homebuyers, which was initially slated to expire on November 30, 2009. Not only that, Congress expanded the credit to existing homeowners -- if you are an existing homeowner, you can qualify for a credit of up to $6,500 if you buy a new home.

In order to qualify for the first-time buyers credit, you must not have owned a home in the last three years. For the existing homebuyer credit, you must have owned your home for at least the last five years. To qualify for either credit, you must sign a purchase contract by April 30, 2010, and close by June 30, 2010. Furthermore, the home must be your principal residence, and must cost less than $800,000. Vacation homes are ineligible for the credit.

If you are single and earn less than $125,000, you are eligible for the full credit of $8,000 (for first-time buyers) or $6,500 (for current homeowners). The credit starts to phase out above an income level of $125,000. If you are married, the credit starts to phase out over $225,000 in joint income. Note that the value of the home must be at least $80,000 for you to receive the $8,000 tax first-time homebuyer tax credit, and the value of the home must be at least $65,000 for you to receive the $6,500 existing homeowner tax credit. If the value of the home is less than that, you can get up to ten percent of the value of the home. I.e. if you buy a home for $43,000, you are only eligible for a credit of up to $4,300.

If you qualify and have already filed your 2008 tax return, you can amend it and receive an immediate credit. If not, you can file the credit with your 2009 tax return, or, if you close after 2009 taxes are due, you can amend your 2009 tax return. The credit is a straight credit -- i.e. if you file your taxes and don't owe any money, the goverment will actually send you a check for $8,000 (if you are a first-time buyer and otherwise qualify).

Will these credits stimulate real estate sales? Maybe, maybe not. Some say they do, some say they don't -- what really happens remains to be seen!

Illinois Condominium Property Act and FHA Financing

The Department of Housing and Urban Development (HUD) did not allow FHA financing for condominiums which were part of an association that had a "right of first refusal" in their condominium declaration. Effective November 2, 2009, however, HUD will allow FHA financing for condominiums in associations that have a right of first refusal on their books, so long as the association otherwise meets HUD's eligibility requirements.

In order to assist potential buyers of such condominiums, the Illinois legislature has amended the Illinois Condominium Property Act to clearly state that no association may exercise its right of first refusal just because the buyer is obtaining FHA financing. These new laws are, of course, good news for many condominium buyers who seek to take advantage of the FHA's low down payment requirements!

Cook County Real Estate Tax Increases for 2008 Second Installment

Despite decreased home values, the collective total tax burden for Cook County property-owners will rise approximately 4.2% for the 2008 tax year. It appears that overall, the city's taxes will increase more than suburban taxes, because the collective tax burden for city property-owners will be about 6% greater than last year. Because of the way real estate taxes are calculated, collective property values (for tax purposes only) increased 9.96% in the city and 8.23% in the suburbs.

Both the suburbs and the city are comprised of multiple taxing bodies, such as schools, libraries, park districts, governmental bodies, etc. Even though the value of your home may have gone down, and you may have even had a successful assessed value appeal, the various factors that go into determining your tax rate may have gone up. For example, the Chicago Board of Education increased its tax requirements by over five percent, and the City of Chicago government needed a 1.6% increase. The Forest Preserve District and the Metropolitan Water Reclamation District increased their budgets by 4.5% each.

Is there any good news in all of this? Well, taxes going up is seldom good news. However, as the bills are coming out late, homeowners can hold on to their money a little bit longer.

One more tidbit: Typically, the first installment tax bill of any given tax year in Cook County is exactly half of the previous full-year bill. Starting with the 2009 first installment tax bill, however, this is going to change. The 2009 first installment tax bill will be 55% of the total 2008 tax bill.

The Homeowners Rights Act and Notice to Homeowners in Foreclosure

If you are being foreclosed, the Homeowners Rights Act (Public Act 095-0961) applies to you. Under this act, which took effective at the start of 2009, lenders must attach a Homeowner Notice to residential suits filed in Illinois. The Homeowner Notice should advise homeowners of the options available to them -- i.e. homeowners have the option to (i) have the loan reinstated if they can bring it current within 90 days, (ii) sell the home, or refinance the loan to pay the loan off within the applicable redemption period, and (iii) collect surplus funds if the bank forecloses and then sells the home for a profit. Additionally, the Homeowner Notice must clearly state how the homewoners may contact the lender to discuss a workout package or demand a payoff amount. The Homeowner Notice should also ask the homeowners to consider seeking legal assistance.

What happens if your lender violates the Homeowners Rights Act and does not provide you a Homeowner Notice? Well, you can petition the judge in your case to award you damages for violating the act. You can also receive attorneys' fees and costs if you prevail in the foreclosure suit, a counter-claim, or a motion related to the act. The purpose of the act is not to penalize lenders, but rather to give homeowners clear notice of their rights and options, especially since many homeowners are not aware of what steps they can or should take once a foreclosure suit has been filed.

Landlords and the Tenant Utility Payment Disclosure Act

If you are an Illinois landlord, and you rent apartments where utilities are not separately metered, you should be aware of the Tenant Utility Payment Disclosure Act (765 ILCS 740/1). Under the Tenant Utility Payment Disclosure Act, the landlord must disclose, the formula he uses for determining each tenant's share of utilities when he has multiple tenants and the utilities are not individually metered.

The landlord should disclose this information prior to demanding payment for utilities. The disclosure can be written into the lease, or consist of a separate document. The landlord's formula should take into account the usage of all of the units metered together. Upon a tenant's request, the landlord should also provide a copy of the whole utility bill.

Condominium associations are also required to clarify how they are billing common utilities; however, in the case of most condominium associations, utilities are billed as per the condominium declaration, based on each unit's individual ownership share in the association.

Proper Service of a Five-Day Notice

If you are an Illinois landlord, you may have had the misfortune to come across a tenant who refuses to pay rent. What should you do? Serve a five-day notice. How should you serve the notice? Properly. What does service of a proper notice involve?

1) The notice should be worded properly. For more information on the proper wording of a five-day notice, click here.

2) The notice should be served properly. According to the Illinois Forcible Entry and Detainer Statute, a five-day notice must be served by a) personal delivery, b) leaving the notice with a person who is at least 13 years old and resides at the property, or c) sending the notice to the tenant via certified or registered mail. In the event that the tenant has vacated the premises and no one is living there, you can also post notice on the tenant's door.

Before sending a five-day notice, you should check with your attorney and make sure it is correct in every way. Improperly phrased or served five-day notices can hurt your chances in court. Even if you make it through trial, an improperly served five-day notice can cause landlords a lot of headache at appeal. In fact, in a recent court decision, American Management Consultant, LLC v. Carter (2009 Ill.App.LEXIS 530, 3rd Dist., 2009), the landlord lost the appeal, even after winning at trial, because, among other reasons, the service of his five-day notice was deemed improper.

No Jury Trials Allowed in Certain Real Estate Cases

In a recent case, Anderson v. Klasek (2009 Ill.App.LEXIS 708, 5th Dist., 2009), the Buyers sued the Seller, the Seller's real estate agent, and their own home inspector after closing on a home that was infested with termites and had purportedly been treated for the same. The home inspector settled the case outside of court, but the Seller and the Seller's real estate agent decided to proceed to trial. The real estate agent demanded a trial by jury, which the judge granted.

Subsequently, the Buyers lost the case. They filed an appeal on the grounds that the Residential Real Property Disclosure Act, which was the basis of part of their claim, did not allow for trial by jury. The appellate court agreed, stating that the Illinois legislature had not allowed for trials by jury when drafting the Residential Real Property Disclosure Act. Cases that fall within the purview of this Act should therefore be tried in front of a judge, not a jury. The court also added that the Real Estate License Act and the Consumer Fraud and Deceptive Business Practices Act should also be tried in front of a judge, not a jury.

When bringing cases before the court, attorneys and real estate practitioners should keep in mind that a jury trial might not always be an option!

RESPA and TILA Updates

Buyers and lenders take note! In an effort to prevent deceptive and/or fraudulent loan practices, new federal regulations modifying the Truth and Lending Act took effect at the end of July 2009. Under these new requirements, lenders may not collect upfront application fees from the borrower until the borrower has received the Truth in Lending Disclosure and the Good Faith Estimate. Furthermore, closing cannot take place until at least seven business days after these two disclosures have been issued.

Moroever, after the two disclosures are issued, if there are any further changes to the closing figures that would result in an APR change of greater than .125% (for a fixed-rate loan) or .250% (for an adjustable rate mortgage), the lender MUST redisclose the Truth in Lending Disclosure and Good Faith Estimate, reflecting the changes in the fees and closing figures, to the borrower. Three additional days are required between redisclosure and closing.

Will these changes help prevent deceptive mortgage practices? Well, that remains to be seen. In the meantime, buyers and lenders should work diligently to complete the mortgage process to ensure a timely closing!

Disclosure Act Applies to Homes Being Torn Down Too!

In Skarin Custom Homes, Inc. v. Ross, No. 2 08 0061 (Ill. App. Ct., 2nd Dist., February 26, 2009), the court stated that just because a buyer intended to tear down a home did not mean that the seller was exempt from the provisions of the Illinois Residential Real Property Disclosure Act. In that case, the seller-defendant did not clarify the extent of flooding damage to the home being purchased; in court, the seller-defendant argued that the severity of the flooding was in fact irrelevant, because the buyer intended to destroy the residence on the property and build a new home.

The court did not agree, even though in a prior case, Grady v. Sikorski, 349 Ill. App. 3d 774 (2004), the court had held that if a buyer intends to destroy the home he is purchasing, the Illinois Residential Real Property Disclosure Act serves no purpose. The court distinguished Grady from Skarin Custom Homes, however, because the house in the Grady case was uninhabitable, but the house in the Skarin Custom Homes case was habitable should the buyer change his mind about building a new home.

Bottom line -- sellers beware. If you are selling a home in habitable condition, you should be extremely diligent in completing your Illinois Residential Real Property Disclosure Report, even if the Buyer intends to tear the house down!

Refund of Surplus Money from Foreclosures!

Yesterday the Cook County Circuit Clerk announced that Cook County is holding $18 million dollars in mortgage surplus money. This money has accumulated as a result of profits made when foreclosed homes were sold by the lender who owned them. Approximately 1900 people who were foreclosed, most of whom are probably not aware of it, own this surplus money.

Unfortunately, most of the money is for people who were foreclosed in the early 1990s, up to about 2006 or 2007. Homes foreclosed in the last few years were typically not sold for a profit by the banks, and many remain unsold.

When banks made a profit on foreclosed homes in Cook County, they turned over the money to the Cook County Clerk. While the clerk's office does not track down people whom profits are owed to, it does hold the unclaimed monies for their benefit. When a person makes a successful claim for their money from the clerk's office, they receive not only the profit from the sale, but also any interest earned on those profits.

If you want to see if you qualify for a refund as a result of your foreclosure, call the clerk's office at 312-603-5030, or visit them online here. The clerk's office claims that $1.3 million has already been claimed, and if you are listed as a homeowner who gets a refund, you can get free help from the advice desk connected to the county's foreclosure court.

New Cook County Notary Rules Effective June 2009

Effective June 1, 2009, notary requirements relative to the transfer of 1-4 unit residential property in Cook County changed. The law, Public Act 95-988, is effective until July 1, 2013, and is designed to assist in the prevention of fraudulent property transfers.

Under this new law, an Illinois notary must fill out a Notarial Record for every grantor whose signature is being notarized if the grantor is transferring a single family home, condominium, or other 1-4 unit residential building in Cook County. Each Notarial Record must state the form of identification used to verify the grantor's identity. Such identification may include any ID issued by a state or federal agency, so long as the ID is current and not expired. Foreign identification is not acceptable. The Notarial Record must also include the grantor's thumbprint.

If a notary is an employee of an attorney, a title company, or a financial institution, the notary must deliver the completed Notarial Record to the notary's employer within 14 days. Other notaries must deliver the Notarial Record to the Cook County Recorder of Deeds an pay a $5 filing fee. Notarial Records are retained for 7 years, and are not disclosed except pursuant to a subpoena from a court.

Certain types of Cook County residential real estate is exempt from the requirements of the act. For example, court-ordered and court-authorized transfers, judicial sales deeds, deeds transfering the property to a trust in which the grantor and the beneficiary are the same, deeds from the grantor to himself, deeds from the grantor to himself and another grantee, and deeds in lieu of foreclosure, are all exempted.

Home Windmills and Tax and Energy Savings

While it's rare to see a windmill powering a home in Chicago and its neighboring suburbs, Congress recently passed a thirty percent tax credit as an incentive for people to use home windmills for power. An increasing number of such windmills are popping up in rural areas.

How do home windmills work? Combined with electricity from your local electric company, home windmills are used to power your home. When there is little or no wind, the electricity kicks in. Home windmills are very expensive, and typically it takes years until you save enough money in utility bills to justify the cost of the windmill itself. However, because home windmills are so energy efficient, Congress is attempting to encourage their installation by providing a tax credit.

Unfortunately, the reality is that it is very difficult to install a home windmill in an urban or suburban area. Neighbors will object, zoning ordinances will not allow windmills, and even a person who is considering the installation for him or herself may not be entirely convinced that it's the best way to go. Rural homeowners in Illinois however, may not only be more open to the idea of a home windmill, but they can also reap the benefits of the tax credit.

Short Sales, Foreclosures, and Property Disclosures

In a typical Illinois real estate sales transaction where no short sale or foreclosure is involved, seller provide three disclosures to purchasers: 1) the Illinois Residential Real Property Disclosure; 2) the Illinois Radon Disclosure; and 3) the Federal Lead-Based Paint Disclosure. But what happens in a situation where there is a short sale or a foreclosure? Which disclosures are required?

Well, although the bank is involved in a short sale, the bank does not own the property; the seller is still the property owner, and all deeds, affidavits of title, and other documentation at closing is signed by the seller. TTherefore the Illinois Residential Real Property Disclosure Act and the Illinois Radon Awareness Act both apply. The federal statute regarding lead-based paint disclosures also applies. Bottom line -- a seller in a short sale transaction must provide all three customary disclosures to the buyer, and the seller will be bound by the laws governing these disclosures. Failure to provide the Illinois Residential Real Property Disclosure can have disastrous consequences; click here for more information.

Foreclosures, on the other hand, are a different scenario. Once a property has been foreclosed, it is owned by the bank, and the bank most likely has little or no knowledge of the physical condition of the property. Therefore the bank will not be required to provide an Illinois Residential Real Property Disclosure or an Illinois Radon Disclosure. However, the bank should still provide a lead-based paint disclosure, especially if the property was built prior to 1978.

Vacant Property Ordinances on the Rise

Because of the recent economic downturn, many towns and cities have found that there is now a surplus of vacant homes within their city limits. As a result, vandalism, crime, break-ins and theft have all increased in many towns. Additionally, vacant properties are sometimes unsightly -- the grass needs to be mowed, the yard might need maintenance, there could be some safety hazards, etc.

To combat these problems, an increasing number of towns are enforcing or instituting vacant property ordinances. As an owner of vacant property, you should check if your town has a vacant property ordinance. You should also do everything you need to to keep the property in good repair, and to keep from running afoul of any municipal ordinance.

Municipalities throughout Illinois have been working up a fairly strict set of rules to deal with vacant property owners. Some towns require a code inspection of all vacant properties. Other towns require registration of all vacant properties, sometimes with a hefty, or not-so-hefty, registration fee. Some towns charge daily fines for failure to bring a property up to code, or for failure to mow the grass or maintain the property externally in some other way. Many towns use a combination of such rules to force the owners to keep the property in good repair.

Proper maintenance of a vacant property is in everybody's best interest. It prevents vandalism and theft, and also helps keep the neighborhood safe. Additionally, if a vacant property is in a state of disrepair, the value of the property, and neighboring properties, can be affected. If you own a vacant home, you should take the necessary steps to protect it.

Contractor Insurance Requirements under the Home Repair and Remodeling Act

Under the Illinois Home Repair and Remodeling Act, contractors are required to follow a number of rules in order to enter into a valid and enforceable contract with a homeowner. One of the most important features of the Act is that it requires the contractor to maintain sufficient insurance to protect the property owner in the event of damage. Specifically, contractors must have public liability and property damage insurance of at least $100,000 per person and $300,000 per occurrence in the case of bodily injury. They must also maintain insurance of $50,000 per occurrence for property damage. Additionally, because sometimes repairs fail to comply with applicable state, county, or local ordinances, contractors are required to maintain public liability and property damage insurance of $10,000 per occurrence, the proceeds of which would be used to remedy such non-conformance, if any.

Why is it that many contractors fail to maintain insurance policies such as those described above? Well, the insurance provisions of the Home Repair and Remodeling Act only apply to those contractors who have a net worth of $1 million or more, as stated in the contractor's financial statement as prepared within the last 13 months.

Therefore, when you are looking for a contractor, make sure you discuss insurance openly. If your contractor's net worth is less than $1 million, he may maintain little or no insurance. You need to make sure that your contractor not only has sufficient insurance, but that you, your homeowners' association (if any), and your lender (if any) are also added to the contractor's insurance policy as additional insureds. Any subcontractors working on your property should also maintain sufficient insurance and should also add you to their policy.

FHA and Mortgage Insurance -- What is the UFMIP?

FHA loans help to make real estate more affordable by allowing you to obtain a loan with a relatively small down payment. In today's market, you are required to put a substantial amount of money down for conventional financing, whereas you may be able to get an FHA loan with only 3% down. Because FHA loans are insured by the Federal Housing Authority, they are strictly regulated by them as well.

But the Federal Housing Authority won't insure your FHA loan for nothing. That's where the Up Front Mortgage Insurance Premium (the UFMIP) comes in. The UFMIP is similar to regular mortgage insurance -- it's insurance you, as the borrower, pay for to cover the balance of your mortgage in case you default.

However, the UFMIP is a bit more hefty. Typically, your premium will be about 1.75% of your loan amount (note the FHA changes the premium periodically -- last summer it was only 1.50%). In other words, if you are borrowing $200,000 today, your UFMIP will be $3500. You will pay the premium at closing, and you will also pay monthly premiums with your mortgage payment.

When buying a home with an FHA loan, keep the UFMIP in mind. The cost is considerable. Then again, you also get to buy your home -- and without the FHA and their required UFMIP payment, you may be unable to buy one otherwise.

Mortgage Insurance Basics

So you're trying to buy a home, but you have to pay mortgage insurance. What does that mean? How does it work?

In a standard real estate transaction, a buyer puts at least 20% down. All buyers, however, cannot afford to do that. When you are putting less than 20% down, banks are concerned that you have not invested enough of your own money into your home. They are also concerned that you won't be able to afford your monthly payment if your circumstances change. Mortgage insurance came about as a result of these concerns. Simply put, mortgage insurance is insurance for your lender in the event that you cannot make payments any longer and your lender cannot recoup its losses.

How does mortgage insurance work? If you are putting less than 20% down and have only one loan, your lender will have to arrange for mortgage insurance for you. Mortgage insurance companies typically take from 1-14 days to underwrite a file. A mortgage insurance company may decline your file, and then your lender will have to submit it to a different mortgage insurance company. If all goes well, your loan and your mortgage insurance will be approved. When you close on your purchase, you may pay an upfront premium for the mortgage insurance. Additionally, you will pay a monthly premium with your mortgage payment, depending on the size of your loan. Your lender will be able to tell you how much the mortgage insurance premium will be.

Mortgage insurance is often known as PMI, but this is a misconception. While the terms are used interchangeably, PMI (Private Mortgage Insurance) is actually the name of a specific company that offers mortgage insurance products. While many people refer to mortgage insurance as PMI, PMI is simply a brand. When you close on your purchase, your mortgage insurance may be offered through PMI or one of many other mortgage insurance companies.

Tenant Rights in Foreclosed Chicago Property

During the past year, many Chicago tenants found out that they were living in a foreclosed home, apartment or condominium only when the sheriff's office turned up at their door to make them leave. However, Chicago has laws to protect tenants from sudden evictions, and as a tenant you have the right to expect certain notices in the event of foreclosure.

First of all, if you are signing a lease for a property that is the subject of a foreclosure suit, the landlord is required to notify you before you sign the lease. If the landlord doesn't do that, you are allowed to terminate the lease.

Second, if you are renting a home that becomes the subject of a foreclosure suit after you have already signed the lease, the landlord is required to notify you within seven days after the foreclosure is filed.

Third, if the property you live in has already been foreclosed AND if you are current on rent, you should receive at least 90 days' notice before an evictions action can be filed against you.

Lastly, if you are concerned that you are living in a property that is already foreclosed or is in danger of being foreclosed, you can go to the Cook County Circuit Court and try to find out if any action is pending or completed against your landlord with reference to the home you live in.

Do You Qualify for the Making Homes Affordable Initiative?

On March 4, 2009, the Treasury Department issued new guidelines and created the Making Homes Affordable Initiative, part of which includes a program to modify loans, called the Home Affordable Modification Program. If your lender can service your loan under the Home Affordable Modification Program, you may be able to reduce your monthly payment to 31% of your gross monthly income for five years. Additionally, if you make all payments on time during each of those five years, you may receive $1000 principal reduction per year.

Approximately four million qualifying homeowners will be able to take advantage of this plan. Are you one of them? To qualify, you must meet the following criteria:

1. The home must be your primary residence.
2. The principal balance on your home must not be greater than $729,500.
3. You must have obtained the loan prior to January 1, 2009.
4. You can only modify your loan once, and it must be done prior to January 1, 2013.
5. You must complete and submit certain documentation.

Lenders have until the end of this year to sign up with the Treasury Department to service loans under this program. If they do, they will receive a number of benefits, including financial assistance from the government to help defray the cost of the modification. If you believe you qualify for a mortgage modification, you should find out if your lender is participating in the Home Affordable Modification Program.

CitiMortgage Offers Assistance to Avoid Foreclosure

If you are a cash-strapped homeowner with a loan from CitiMortgage, there may be help on the horizon for you. As more and more homeowners are trying to modify the terms of their loans in an attempt to avoid foreclosure, CitiMortgage announced a plan last week that may help.

Under CitiMortgage's new plan, dubbed the Homeowner Unemployment Assist program, some homeowners will be able to reduce their monthly mortgage payment to about $500 a month. To qualify, you must meet the following basic criteria: 1) You must be unemployed; 2) The primary mortgage on your home must be both owned by and serviced by CitiMortgage; and 3) The home must be your primary residence. In order to determine what other criteria may apply in your situation, you or your attorney should call CitiMortgage to discuss the possibility of a loan modification with them. You may be eligible for assistance, even if you have not made a mortgage payment for the last two months.

If you meet CitiMortgage's criteria, they will put you on the reduced payment plan for three months. If you find a job in that time, you will have to go back to paying your original mortgage amount, or, depending on your set of circumstances, you may be able to work out another solution with the bank to reduce your monthly payments. If you don't find a job in three months, you will have to contact the bank again to try to modify your loan so that you can afford it long-term or at least until you find another job.

If you do not have a CitiMortgage loan but need assistance to avoid foreclosure with another bank, you should consider looking into a loan modification. By changing the terms of your loan, you may be able to afford your payments and keep your home. For more information on loan modifications, click here.

Tax Credits for Energy Efficient Home Improvements Under the New Economic Stimulus Plan

The Stimulus Plan encourages homeowners to make energy-efficient home improvements by providing a sizeable tax credit to benefit homeowners that do. Congress has allocated approximately $4 billion for the tax credit, in the hope that it will not only stimulate spending by homeowners, but that it will encourage owners of existing homes to make improvements in a responsible way which conserve energy use. A recent study conducted in California showed that 70 percent of greenhouse-gas emissions coming from single-family properties come from homes built before 1983. According to that study, new homes are fairly energy-efficient, but existing homes -- particularly older homes -- could benefit a great deal from the use of energy-efficient materials and appliances.

If you need certain specific home improvements and can afford them, now is a great time to do them. Which home improvements are eligible for the tax credit? Well, if you install energy-efficient windows or exterior doors, furnaces, air conditioners, water heaters, heat pumps, solar panels, or insulation, you should be eligible for the tax credit. Again, the goal is to use energy-efficient materials, not just any materials; to be safe, make sure the items you purchase are Energy Star rated.

You can receive 30% of the cost of the improvements you make, capped at $1500. If you spend $1000, for example, you can claim a credit of $300 on your tax return. In order to receive the maximum credit of $1500, you need to spend at least $5000 on your energy-efficient home improvements. Remember to keep all efficiency certifications or Energy Star labels from any products you install, and make sure you have all of the relevant manufacturer information and model numbers; also you must keep receipts for repairs completed by your contractor. You can claim the credit on your 2009 or 2010 tax return, using Form 5695.

Like the new homebuyer tax credit, this tax credit is also refundable. If you are eligible to claim $1500 for this tax credit, and you do not otherwise owe any taxes at the end of the year, you will actually receive a check of $1500 back from the IRS.

Stimulus Plan Tax Credits for First Time Homebuyers

The new stimulus plan, passed just last week, provides an incredible tax incentive to first-time homebuyers if they purchase a home between January 1, 2009 and November 30, 2009. First-time homebuyers can claim a credit of 10% of the value of their home or $8,000, whichever is less, on either their 2008 or 2009 tax return. In other words, if you've already bought your first home in the beginning of 2009, you can claim the tax refund on your 2008 taxes; you don't even have to wait until next year. If you've already filed your 2008 taxes and want to claim the credit now, you can file an amended return.

Moreover, the definition of "first-time homebuyer" has been relaxed. For the purposes of the stimulus plan, a "first-time" homebuyer is anyone who has not owned a home in the past three years. If you qualify as a first-time homebuyer and receive the tax credit, you must live in the home for at least three years, otherwise you will have to pay back the credit.

If you are single, your income must be $75,000 or less in order to claim the full credit. For married taxpayers, income must be $150,000 or less to receive the full credit. You don't need to do anything special to obtain the credit -- just claim the credit on your tax return and file your taxes on time.

The best part is, the credit is actually refundable. In other words, if you buy a home and your outstanding tax liability at the end of the year is zero, then you will actually get an $8,000 check from the IRS in the mail (so long as the value of the home you buy is at least $80,000). If your tax liability at the end of the year is $5,000, you will get a check for $3,000 back from the IRS (again, assuming the value of your home is at least $80,000).

Unfortunately, if you bought your home in 2008, then the new stimulus plan tax credit does not apply to you. However, you may still be eligible for the $7500 credit offered to new homebuyers last year, although that was not a true credit, but rather more like an interest-free loan to be paid back over 15 years. If you bought your home in 2008, click here for more information on last year's tax incentive for first-time homebuyers.

Illinois Tax Proration Credits in Sales Contracts

During the course of a residential closing transaction, the question inevitably comes up: What about the real estate taxes? Well, during the attorney review process, your attorney and the other attorney will typically reach a resolution of what to do with the real estate taxes. It's helpful, however, if the buyer and seller understand how and when real estate taxes in Illinois are billed first, so that they can better understand how and why taxes are prorated at closing. For the basics on how Illinois real estate taxes are billed, please click here.

Once you're familiar with the process, you can understand the following better: In the vast majority of residential sales contracts in Illinois, taxes that have already accrued, but are not yet billed, are credited by the seller to the purchaser at closing. This credit is typically, though not always, final. In certain circumstances, a tax reproration agreement may be used in lieu of or in addition to a credit. Please note that this blog post covers real estate tax credits as they relate to existing property only, not new construction or condominiums in the conversion process.

As a Purchaser, your goal is to make sure you are receiving enough tax monies to cover the taxes the Seller accrued on the property prior to sale. Why? Because taxes in Illinois are billed a year after they are accrued. Therefore, after closing, you will receive tax bills for a portion of time in which the Seller owned the property. For example, if you are closing in January of 2009, you will receive the entire tax bill for 2008 (two bills) after you close, in the spring and fall of 2009. On the other other hand, if you are closing in May of 2009, you will also receive two tax bills for the period of time in which the Seller owned the property -- in the fall of 2009 and the spring of 2010.

Taxes typically go up every year, and many times we do not know exactly what the new tax bill will be. If your property has not received a new assessed value for the last or current tax year, then in Illinois it is typical for the Seller to credit the Purchaser 105%, and in certain circumstances up to 110%, of the last full-year tax bill available, prorated day-for-day to reflect the period of time the Seller owned the property prior to closing for which the Seller has not yet received a bill.

Here's an illustration of how this works: Let's say you bought an existing house in Chicago in December of 2008. That means that you will receive two tax bills for the time in which the Seller owned the property -- one in February of 2009, and the next one in the fall of 2009. Since Chicago was not reassessed in 2008, you probably received a tax credit of 105% of the last full-year available tax bill, which is currently the 2007 tax bill. The rationale behind this is that since Chicago was not reassessed in 2008, your tax bill will probably not go up more than %5 from 2007. Assuming your tax proration credit was final, if the actual 2008 tax bill is less than 105% of the 2007 tax bill, that's great -- you made some money. On the other hand, if the actual 2008 tax bill is greater than 105% of the 2007 tax bill, then you are responsible for the difference.

Now let's use a different example -- Let's say that you did not close in December of 2008. You are still buying an existing home in Chicago, but you will be closing in April of 2009. How will your tax proration credit be different? Well, first of all, you will still receive two tax bills for a period of time during which the Seller owned the property, for which you are now responsible. You will receive one such tax bill in the fall of 2009, and the other one in February of 2010. Again, 2008 was not a reassessment year for Chicago, therefore you will probably only receive a 105% credit for the second half of 2008, although you might receive a little bit more depending on the circumstances and the agreement your attorney reaches with the other attorney. 2009, on the other hand, is a reassessment year for the City of Chicago. Those taxes are completely up in the air -- when you close in April of 2009, it will be too early to determine what your 2009 tax liability will be. To that end, your attorney should make sure that you receive a larger credit for January 1, 2009 through your closing date in April. If both the buyer and the seller decide that they want to resolve the issue once and for all at closing, and don't want to revisit the issue in 2010 when the tax bill is finally available, the seller might agree to provide a larger credit to the buyer at closing -- perhaps 115% - 125% of the last full-year tax bill, prorated for January - April 2009. On the other hand, it might be more prudent to enter into a tax reproration agreement at closing. For more information on what a real estate tax reproration agreement is, please click here.

Now let's say you are buying that same home in Chicago, but in December of 2009. By the end of 2009, the new anticipated assessed value for your property will be known. Based on that assessed value, your attorney will calculate what the tax bill, and the corresponding tax credit, ought to be. Therefore you will probably receive a fairly accurate tax credit for 2009. You will receive the 2009 tax bills in the spring and fall of 2010, and your property will not be reasessed again until 2012.

Your attorney may also consider existing property tax exemptions or the status of any property tax appeals when making his or her determination about how much the tax proration credit should be. Depending on what time of year you are closing, which county you are located in, or which portion of Cook County your property is in (since a different portion of Cook County is reassessed every year), your real estate attorney will guide you as to what is the best option for you -- whether you are a buyer or a seller.

Real estate tax proration credits may seem complex, but a good real estate attorney will know how to structure a proper tax credit intrinsically, and you can look to him or her for advice. While people approach real estate tax prorations differently, I feel it is important to be guided by two fundamentals: 1) What is simple and practical, given each client's individual situation, and 2) What is fair. Remember, the goal of a real estate tax proration credit is not for the seller to try to give the buyer less than what is due to him, or for the buyer to try to get more than what he will actually need. Rather, the goal is to make sure that the taxes are paid without causing undue burden to either party.

What is a Real Estate Tax Reproration Agreement?

During the course of a real estate purchase or sale transaction, the parties' attorneys will work to make sure that a fair tax credit is provided to minimize the burden of real estate taxes on both parties in the transaction. While other methods are used as well, in some instances, a real estate tax reproration agreement is the best option available. Tax reproration agreements are almost universally used in large commercial transactions (though not always in smaller commercial transactions), and are also often used in new residential construction. They are also used in residential resale transactions when an accurate tax credit cannot be determined at the time of closing, which could happen for any number of reasons.

So what is a real estate tax reproration agreement? Basically, it is an agreement between the parties to reprorate the tax bills when they become available in the future. Such agreements come in handy because in Illinois, real estate taxes are billed a year after they accrue; therefore, at the time of closing, the tax liability may be unknown. After closing, the buyer will become responsible for all of the upcoming tax bills, including the tax bills for the year prior to closing.

In a typical real estate tax reproration agreement, the seller will give the buyer an approximate tax credit based on the most current tax information available for the property. When the actual tax bill comes out, the seller will be responsible for any shortage for his period of ownership. If it turns out that the bill is less than the credit that the seller gave the buyer, then the buyer must return the excess funds to the seller.

The primary advantage of using a tax reproration agreement is that if all goes well, the outcome is the most fair outcome you can have -- each party only pays what he actually owes, and nothing more. On the other hand, there are some important disadvantages to note as well. For example, many people prefer to close on a property and be done with it; they do not want to have to revisit the tax issue a year or more after closing. Also, it is always possible that one party to the agreement may not have any money at the time of reproration, and will therefore be unable to fulfill his obligations. Of course, a standard tax reproration agreement allows you to sue the other party in the event of default, but lawsuits can be costly. There is also a chance that one party to the tax reproration agreement might pass away before the taxes are reprorated, and the other party would then have to seek out the deceased's estate to collect any tax monies owed.

Illinois Real Estate Taxes -- How and When Are They Billed?

In the last couple of days, most Cook County property owners have received their 2008 First Installment Tax Bill. During the course of a closing transaction, I inevitably have to explain how and when real estate taxes are billed in Illinois. Here's a primer:

Taxes in Illinois are billed and become due approximately one year after they accrue. In other words, the taxes for January 1, 2007 - June 30, 2007 became due in the first half of 2008. Likewise, taxes for July 1, 2007 - December 31, 2007 became due in the second half of 2008. Similarly, taxes for the first half of 2008 will become due in early 2009, and taxes for the second half of 2008 will become due in the second half of 2009.

Most Illinois counties, including the collar counties (Lake County, DuPage County, McHenry County, and Will County), follow a fairly straightforward system. They determine the new total tax amount due for each parcel of real estate. Then, in the early part of each year, each county sends a tax bill to each property owner for the entire previous year. Property owners are required to pay half of the bill around May (although the actual month will vary by county) and the other half around August (again, the actual month in which taxes become due may vary by county).

Cook County, on the other hand, follows a different system. Like other counties, Cook County property owners typically receive a bill in the early part of each year, albeit a bit earlier than the other counties -- typically by the first week of February. This first installment tax bill is due in early March. The first installment tax bill is always exactly half of the last full-year tax bill available. For example, if you own property in Cook County and if your 2007 total taxes for that property were $5000, then your first installment bill for 2008 (which is not billed or payable until February 2009) will be $2500. If your property was unimproved or in the process of a conversion (i.e. a condominium conversion) in 2007, and if your 2007 tax bill was thus zero, your first installment tax bill for 2008 will also be zero -- because half of zero, of course, is still zero.

Cook County will not send your second installment tax bill until the fall of each year. The entire increase in your property taxes will be included in the second installment tax bill. In the vast majority of circumstances, the second installment Cook County tax bill is higher than the first installment tax bill, since taxes typically go up. How much higher your second installment tax bill is depends on a number of factors, such as where your property is in the reassessment cycle, what new tax exemptions, if any, you are receiving, if a new assessed value is being assigned to your property or not, and what the new tax rate in your area is. Cook County is split up into three parts, and a portion of Cook County is reassessed each year. For some idea about when your area was or will be reassessed, please look here.

Other counties are also reassessed periodically. Lake County, for example, is reassessed every three years. If you own or are purchasing or selling property in any of the collar counties and you're not sure when you will be reassessed, you can call your county assessor's office and ask them. Links to the Cook County Assessor, as well as the DuPage, Lake, McHenry and Will County Assessors' offices, are provided at the side of this page for your convenience.

RESPA Revisions Effective January 2010

In order to make HUD-1 closing statements more transparent for the parties involved, the Department of Housing and Urban Development (HUD) has made a number of changes that will take effect on January 1, 2010. HUD has tried to protect consumers, particularly buyers, during the course of dealing with their lenders and at the closing table. Here are some of the changes:

1) Mortgage brokers will need to calculate their commissions from their lenders (known as yield-spread premiums) as part of the loan origination fee. HUD hopes that by integrating the yield-spread premium into the origination fee, brokers will be less likely to place their customers into loans at the high end of the interest-rate spread.

2) Lenders will have to complete a new good faith estimate form, which will be three pages long as opposed to the current two-page form.

3) Origination fees and transfer taxes on the HUD-1 must be exactly as stated on the lender's good faith estimate.

4) Some costs from entities unaffiliated with the lender (ie. certain title company and inspection fees) can change between the good faith estimate and the HUD-1, but the change cannot be greater than 10%. Note that deals may still close if the discrepancy is greater than 10%, but all discrepancies will have to be reconciled and corrected within 30 days.

Loan Modifications -- How to Afford Your Monthly Payment

Many lenders will work with homeowners who are unable to pay their monthly mortgage. If you are having difficulty making your mortgage payment, you might want to consider trying to get a loan modification. Modifications come in many forms -- you might get a temporary or permanent payment reduction, an interest rate reduction, temporary abatement, extension of the payment period, or some sort of mixture of these options. However, the bottom line is that help may be available to you; most importantly, you may be able to keep your home.

Of course, getting your lender to negotiate their loan with you is not easy. Many lenders won't discuss the matter with you until you've missed a number of monthly payments. You may not want to get yourself in that situation for any number of reasons -- it will affect your credit, you feel it will tarnish your name, you are not comfortable intentionally defaulting, etc. Whatever your reason may be, some lenders have taken a hard-line stance on loan modifications, and they will not consider a loan modification unless you have already defaulted.

However, the good news is that more and more lenders are now trying to be proactive in helping homeowners before they default. For example, last month Fannie Mae announced that its loan servicers must allow "early workout" loan modifications for homeowners, even if those homeowners have never missed or been late on a mortgage payment. If your loan is owned by Fannie Mae and you are reasonably sure that imminent changes in your financial situation or income will case you to miss mortgage payments, you may qualify for a loan modification without having defaulted on your loan.

In order to take advantage of this, you need to find out if your loan is owned by Fannie Mae; Fannie Mae currently owns over 18 million loans nationwide. If it is, you should contact your loan servicer to get the ball rolling. Keep in mind that you will be required to provide a great deal of personal financial information. If your loan modification is approved, you will be placed on a four-month trial period. If you make your payments on time during those four months, your modified loan could become your permanent loan.

Other lenders are also demonstrating increased flexibility with respect to loan modifications. However, each lender is different and has its own set of rules. Before you default or can no longer afford to pay your loan, it is a good idea to contact your lender and proactively work to come up with affordable payment terms so that you can keep your home.

Mortgages and Earnest Money

In today's real estate market, more and more contracts tend to fall apart, often because the buyer is unable to procure a mortgage on satisfactory terms, if at all. As the lending market gets tougher, I hear the following questions a lot from buyers: "Is my earnest money protected? Can I get my earnest money back?" I also hear the inverse from Sellers: "Can I keep the earnest money?"

A standard real estate contract will set forth various contingencies that the parties must meet in order to close. One of these contingencies is the mortgage contingency. For a detailed explanation of what a mortgage contingency clause is, click here. To see how the mortgage contingency affects your earnest money, keep reading!

If the buyer is unable to procure a mortgage commitment stating that the lender's various conditions have been met, and the buyer thus does not have a loan, then the buyer is entitled to a return of all earnest monies under a standard real estate contract (i.e. a realtor-form contract) if the contract had a mortgage contingency clause which protects the buyer and if the buyer notifies the seller that he has not obtained a loan within the mortgage contingency period. Each contract is different, but standard realtor forms for residential real estate in Illinois include such a mortgage contingency, and so long as the contingency is not crossed out when placing the offer, the dates and interest rates listed therein are key provisions in determining whether the buyer gets his earnest money back.

If the mortgage contingency states that the buyer is obtaining a loan for 80% of the purchase price for a 30-year fixed term with an interest rate not to exceed 6.5%, and the buyer is able to obtain such a loan, then technically the buyer is required to close, even if his interest rate might be a little bit higher than he wanted (i.e the buyer got an interest rate of 6.25% and he was hoping for 5.75%). Some contracts also allow the seller to find a loan for the buyer if the buyer is unable to obtain a loan on his own. In such instances, if a buyer's loan is denied and he notifies the seller in a timely manner pursuant to the mortgage contingency in the contract, the seller will have an opportunity to search for a loan for the buyer, though seller need not do so. If the seller chooses to try and is also unable to get a loan for the buyer, then he must return the earnest money as per the terms of the contract.

Keep in mind that in certain situations, the earnest money terms may be different because they may have been negotiated by the parties' attorneys as per their clients' needs, and the contract might have been written by the attorneys, instead of using a form contract. This is true in some residential contracts, and in many commercial contracts. If you are concerned about what the earnest money provisions in your contract might be, you should have the contract carefully reviewed by your attorney.

Seller Preparation -- Documents Needed for a Short Sale

Short sales may be simple or complex, but they are almost always time-consuming. If you are considering selling your home through a short sale, there are certain things you can do to expedite the process.

First and foremost, call your lender. Most large lenders have a division or an outside company that is handling short sales for them; your lender should be able to put you in touch with the right people. Some banks will send you their forms, etc. right away, open a file for you, and then hold it until you have an offer. Other banks will want you to have a contract in hand before starting the process.

Regardless of which route your bank takes, you should assemble documentation to support your short sale right away. If your attorney is negotiating the short sale for you, he or she will want these documents up front so they are prepared for the bank when the time comes. You should have the following documents ready:

1. Completed application package from the lender, if available

2. Signed hardship letter explaining why you cannot afford the home and a short sale is necessary

3. Signed letter addressed to the bank authorizing your attorney to negotiate the short sale on your behalf

4. Copy of your last two months' bank statements for all personal accounts, including retirement and 401k accounts

5. Copy of your last two months' pay stubs

6. Copy of your last two years' income tax returns with W-2s

7. Proof that your property is listed for sale (i.e listing agreement)

8. Monthly budget showing all income and payments made on a monthly basis (if not already included in the lender's application package)

9. Financial statement showing all of your assets and liabilities (if not already included in the lender's application package)

10. Sales contract

Every page of every document listed above should have your name, as it appears on your mortgage, and your loan number or file number written on it. Short sales are time-consuming and buyers often back out because of the long wait. Anything you can do to expedite the short sales process will help you complete the process with less hiccups and as quickly as possible!