Caveat Emptor—Short Sales and the First Time Purchaser
March 2008

Short Sales are becoming more common and it is likely that a first time purchase will come into contact with this circumstance.

Typically, a “short sale” occurs when a seller is attempting to sell a home with a mortgage that is greater than what the current circumstances of the market will bear.  This results in offers that are insufficient to pay off the mortgage and therefore are short.  These kinds of transactions may require more time than non-short sales because lender approval is required to proceed. 

The incentive to a lender to complete a short sale is that they will forego a costly foreclosure procedure followed by an expensive effort to sell real estate in a difficult market.  The incentive to the owner is that a short sale will generally extinguish the obligation that the owner has to the lender.

Mortgage interest rates for qualified individuals remain low making first time purchasers take a harder look homes for sale, including short sale homes.

First time purchasers must continue to be vigilant in performing their due diligence in purchasing homes.  Financial difficulties of sellers create what are sometimes irresistible incentives to avoid complete disclosures.  While this may not occur with great frequency overall, it is well worth the time to have a thorough inspection and review of the physical condition of the property prior to a commitment to purchase.

In the Cook and collar county areas where most of the Realtor® purchase agreements provide for an inspection period and a work-out period following signing, the first time purchaser would arrange for access and inspection during the 10 days following the acceptance of the offer to purchase by the seller.  This is an important time as the purchaser must often interview licensed home inspectors while the clock ticks on the inspection period.  This places some pressure to hire the inspector, schedule and perform the inspection and evaluate the results.  In most instances, there is adequate time to complete the process.

In hiring an inspector, it is helpful to know whether the inspector has worked with the type of housing in the location of the prospective purchase.  Experience will help with the inspection by providing insight into a variety of the kinds of issues that may be present generally in housing of the type under consideration.  Familiarity with the area will provide some insight to any local issues that may affect the property.

In short, this is no time to forego a thorough inspection and review of the financial, zoning and building circumstances of any prospective purchase involving a short sale situation.

State, County & Municipal Transfer Taxes
May 2006

More taxes. As if April was insufficient to satiate your thirst for information on the topic. Now, in this spring and summer season, here is another discussion regarding taxes-real estate transfer taxes.

With few exceptions, when selling or buying property in the Chicago area, transactions are taxed on the local, county and state level. Each one has a transfer tax form, and each one is generally paid at closing. Who pays is a matter of ordinance or statute.

The State of Illinois imposes a tax on real estate transfers in the amount of $1.00 per thousand dollars. The seller is customarily the one the pays.

Cook County levies a fee on the seller in the amount of $.50 per thousand, which is the same rate for DuPage, Lake, McHenry and Will.

When it comes to cities, each one needs to be evaluated as there are a wide variety of circumstances. Some municipalities have decided to assign the responsibility to the buyer, some the seller, some to both, some to none.

In Chicago, for example, the primary responsibility is placed upon the buyer. So, if you are moving into the Windy City, it’s going to cost you an additional $7.00 per thousand for the right to own. You do not pay Chicago again when you leave however.

If you sell property in Cicero, you will pay $10.00 per thousand as this city charges you when you leave as you would in Harwood Heights. In Oak Park, it will cost you $8.00 per thousand at the exit. In River Forest, the exit charge to a seller is $1.00 per thousand. And, in Westchester, it will cost the seller $150.00 as a flat fee. Melrose Park however has taken the approach of levying no transfer tax. The circumstances can have a significant impact when one sells and buys within the Chicagoland Area.

One extreme example would be illustrated by the following hypothetical: If you sell a Cicero property and purchase one located in Harwood Heights, you will pay $20/$1,000 on the combined transaction. If the combined value of the purchase and sale amount to $750,000 for both properties, the municipal tax would amount to $15,000.00. Ouch.

One thing to remember is that it is entirely possible to negotiate who pays the municipal transfer taxes with the other party to the real estate contract.This would be done at the time of the offer or acceptance. While it is not common in many circumstances, it is entirely possible. And if you were selling Cicero and buying, Harwood Heights, you may want to look into it.

THE SMALL ESTATE AFFIDAVIT
May 2006

We have received a number of questions involving the use of the Small Estate Affidavit. A Small Estate Affidavit (SEA) is an affidavit that will permit the personal representative of a decedent to direct the disposition of certain assets without opening a formal probate estate in Illinois. It is permitted when the value of the estate is not greater than $100,000.00.

The SEA is a useful and convenient tool in an appropriate circumstance in the context of the amount noted above. Where the financial circumstances of the deceased are straightforward and uncomplicated, it can be used to effectively transact business necessary to the final administration. In such instances, the affidavit can be used to close an account, transfer assets, or to obtain information related to the deceased’s financial affairs.

The form itself is readily available and easy to complete. A copy is often provided by the local county court clerks. To obtain a copy for decedents whose last residence was in Cook or its collar counties, visit the web site of that county, or send an email or fax to my office. These are available at no charge and we would be happy to forward a copy via fax or email.

There are a number of issues that must be considered in using the SEA aside from the value of the estate. Some of these include whether there is agreement among the heirs, whether this is a will that directs probate, whether the nature and extent of creditors exceeds the assets of the estate, and whether there is any real estate owned. In such instances, it is important to consult an attorney. And there are circumstances in which the estate is less than $100,000 and the opening of a probate estate is advisable and should be properly evaluated if you have any questions.

IF YOU GO FSBO, HIRE A GOOD ATTORNEY
March 2006

As the number of “For Sale By Owner” (FSBO) offerings increase, owners are directly involved with buyers and the legalities involved. Whereas a Realtor® not only provides marketing advice and lists a property with the Multiple Listing Service, Realtors® also provide assistance in filling in the usual and customary documents. Thus, if you consider FSBO, do your marketing and legal homework first.

After you have decided that you are going to put up a for sale sign and advertise in the local newspaper, the next item to consider is what happens when someone wants to make an offer. Once you have agreed upon price and a possible closing date, you want to formalize the discussion with a contract. You may already have a contract for purchase. But before you sign, make sure the agreement at least includes a provision for a five to 10 business day attorney approval rider or attorney approval clause.

The rider and clause allows an attorney time to review the provisions of the contract with a critical eye for how the contract protects the seller(s) needs and circumstances. In many contracts, such a clause provides for a five-business day period, during which time certain provisions may be added and existing provisions within the contract may be modified. Without this review, you unintentionally commit yourself to a variety of obligations that may cost you money and/or time. Attorney’s fees for these services generally are affordable and a good investment in the transaction. After all, no one would like to save money on commissions only to spend it on costly repairs or other legal issues related to the sale.

SPRING CLEANING YOUR CREDIT
February 2006

Spring is here and if you are involved in any fashion with a purchase, sale or refinancing, you may want to review your once a year free credit report. The program under a recent amendment to the Fair Credit Reporting Act established a free credit program and required Equifax, Experian and Trans Union to provide consumers, at their request, with a free copy of their report every 12 months. The program began March 1, 2005.

It has been reported that there are some "copy cat" sites that appear to offer the reporting service for free, but that in fact they are fee for services sites. Lisa Madigan, the Illinois Attorney General, has recommended that consumers be sure to obtain their free report from the authorized centralized source created by the reporting agencies. To obtain reports, you can call, order online, or order by mail.

• Call 1.877.322.8228;
• Order @ www.annualcreditreport.com;
• Obtain a from at www.ftc.gov/credit and mail the completed form to:
  Annual Credit Report Request Service, PO Box 105281, Atlanta, GA 30348-5281.

The credit report is important not only in borrowing, but in making sure others have not acquired your identity. Now that the three large reporting services are obligated to provide a copy, it makes sense to take a look.

The following is contact information to obtain a report, which are also available on the Illinois Attorney General's web site at www.illinoisattorneygeneral.gov.

TRUSTS, WILLS & DNR's
May 2005

It seems like every news item during the past several weeks addresses "end of life" issues. So much so that recently an alderman suggested that Living Will forms be made available at libraries.

Living Wills, which are distinguishable from Living Trusts, are documents that express our desires to our lawyers, doctors and families as to how we want things to be in the event we are unable to do so. It addresses such issues as how much effort we would like to keep us alive. A DNR or Do Not Resuscitate instruction is another form that individuals often provide their family physicians for guidance. Ms. Schiavo and Pope John Paul II illustrate medical conditions that may prompt family and doctors to look to such direction.

In Illinois, there is statutory language that many find useful in seeing what a Living Will actually says. The citation, which can be looked up on-line is 755 ILCS 35/3. This law provides specific language that can be used to express your intentions in the event of an incurable or irreversible injury, disease or illness. For those who would like a downloadable copy, the form is in Adobe Acrobat Reader Format (PDF). Get the Adobe Reader - it's free.

YOU DON’T HAVE TO BE IRISH....
March 2005

March brings St. Patrick's Day and we all know that the “Wearin' o’ the Green” is supposed to bring good luck. But you don't have to be Irish when you make your own luck!

Robert Evans, the legendary film producer, is quoted as saying, "Luck is when opportunity meets preparation." If you believe in making a plan work and then working that plan - "luck" will come your way. You'll become an "overnight" success just like countless others who have designed their future by preparing for opportunities when they present themselves.

Planning for successful investment in your home or investment property is 10% inspiration and 90% perspiration and we need to have a plan. A plan for acquisition, a plan for capital investment and an exit plan.

I have clients that focus on revenue derived from investment in real estate. For every successful investment, it is not uncommon that there are 25 efforts that did not proceed due to issues raised from inspections, better opportunities, and details arising during negotiations.

So as the end of the first quarter of 2005 draws near, take some time for advance planning and envision how your balance sheet should look on December 31.