What is a Reserve Study?

Like all things, condominium buildings get old.  Eventually, things need to be replaced.  The roof might start leaking, the fences may start to deteriorate, or the walkways may begin to crumble.  Maybe these things haven't happened yet, but they could happen soon.  Of course, when the time does come, all of these repairs will cost money.  In these cash-strapped times, who has enough of that?  How can a condominium association plan for these repairs now to prevent financial insolvency later?

As an association begins to age, it should consider completing a reserve study.  A reserve study is usually conducted by a team of building and construction professionals.  The company you hire to do this will probably utilize both engineers and architects in its evaluation.  The professionals will come out to your building and do a thorough review of all of your systems.  After the review is complete, they will give your association the estimated life expectancy of integral items, such as the roof, fence, driveway, siding, etc.  Usually, they can even provide a range for estimated replacement costs.

Based on this information, the association can then begin budgeting appropriately for repair projects they may encounter in the near or distant future.  Many associations have successfully implemented a plan involving one or more of the following to increase their savings for long-term repairs:  1) shopping for new vendors at lower prices; 2) negotiating down current vendor prices; 3) moderate increases in regular assessments; 4) occasional special assessments, especially for smaller projects, so as not to spend down savings; and 5) investing savings in interest-bearing accounts.

Reserve studies, of course, are not free.  A smart condominium association will speak with and obtain proposals from various companies specializing in reserve studies to determine which company they are comfortable with and who provides fair pricing.  But after doing its due diligence, a condominium association may find that the investment it made in the reserve study will pay off in the long-term!

Buying a New Home but Worried About the Neighborhood?

If you're buying a home, you have a lot on your mind.  You love the house, so you're learning about mortgages and insurance and title and inspections.  You still have to figure out whether your furniture will fit, what colors to paint the walls, and what repairs you will have to complete prior to moving in.  And of course, there's the move itself.  A lot to worry about, right?  But there is still more on your mind -- what about my new neighbors?  Is this the right neighborhood to raise my kids in?  Will my family be safe?  A thought is nagging you from the depths of your mind:  am I making the right decision?

Of course, you don't really know what type of people your neighbors are.  Hopefully they'll be kind, friendly people and welcome you with muffins, cookies, and open arms.  You won't really know until you interact with them.  But there is a little bit you can do to put your mind at peace.  At the very least, you can check and make sure none of your neighbors are felons or sex offenders. 

There are some websites that list felons on a national level.  For example, on FelonSpy, you can enter a street address and pull up area felons.  Of course, general websites such as FelonSpy are not necessarily updated regularly, and a felon may move but still appear at an old address and not at his or her new address.

Illinois also keeps a list of sex offenders at its online Illinois Sex Offender Information website.  Because of Illinois registration requirements, this site is fairly up-to-date. 

These sites may help you decide if your new home is in the right neighborhood for you.  While the sites can't help you pack your boxes or paint your new home, at least they'll bring you some peace of mind!

Recent Court Decision Reiterates Importance of Mortgage Contingency Clause

A recent court decision, YPI 180 N. LaSalle Owner, LLC v. 180 N. LaSalle II, LLC (342 Ill. Dec. 879, 2010), reiterates the importance of the mortgage contingency clause in real estate transactions, whether large or small.  In that case, the Buyer put down $6,000,000 in earnest money towards the purchase of a commercial property with a contract sales price of $124,000,000.  The Buyer had arranged for financing from an Irish bank, who later pulled out of the transaction citing Irish and global economic issues beyond the bank's control.  When the Buyer was unable to procure financing elsewhere, the Seller kept the earnest money.

Mortgage contingencies and earnest money are closely intertwined.  If a Buyer fails to timely notify the Seller of financing issues, then according to a typical mortgage continency clause, the Buyer may forfeit the earnest money.  When the buyers in the YPI 180 N. LaSalle Owner case did not receive their earnest money back, they filed suit, claiming that it was impossible to perform their end of the bargain because of the global economic crisis. 

The court disagreed.  Specifically, the court felt that the Buyer should have realized that an inability to obtain financing was a possibility all along.  Moreover, the court stated that the Buyer could have protected itself from such a situation by putting an appropriate contingency in place in the Contract.  The Buyer did not have an appropriate mortgage contingency in place.

Bottom line -- mortgage contingencies are important, now more than ever with loans being denied right and left!

Chicago Foreclosure Rate Second Highest in the Nation

Las Vegas and Chicago are too very different cities in many ways. But they do share one thing. They have the highest foreclosure rates nationwide. Specifically, the Las Vegas Area reported the most foreclosures last year. According to RealtyTrac, Inc., one out of every nine homes in Las Vegas received a foreclosure notice last year. Chicago ranked second, with one out of every twenty-seven homes in the Chicago area receiving a foreclosure notice. In total, there were 138,913 foreclosure or foreclosure-related filings in 2010 in Chicago. This in an increase of over 16% from 2009.

In case you're interested to see where we fall, the third, fourth and fifth highest foreclosure rates were in Detroit, Miami and Atlanta, in that order.

What can distressed Chicago homeowners do to avoid foreclosure? They can try to complete a loan modification to bring their loan back to a point where they can avoid it. They can try to short sell their house and hope a buyer comes along and the bank is willing to accept the offer. They can offer a deed in lieu of foreclosure to the bank and see if the bank will accept. There are many options out there for distressed homeowners who want to prevent foreclosure.