Understanding the transfer on death instrument for real estate.

The transfer on death instrument (TOD) is one of several estate planning tools that a property owner may wish to employ. The transfer on death is an automatic transfer of one’s interest in residential real estate to a named beneficiary, upon the death of the interest holder (owner), without probating the estate.

It is a mechanism by which a real property title holder can transfer their interest upon their death, to a designated beneficiary or beneficiaries. It is statutory, codified in 755 ILCS 27 (Illinois Residential Real Property Transfer on Death Instrument Act). When the owner dies, their interest transfers to the named beneficiary(ies).

What categories of real estate are eligible under the Act?

The Act is specific, and as the name suggests it only applies to residential real estate. More specifically, it limits the transfer to real property with 1-4 units; condominium units; condominium parking (if individually owned or allocated to a specific residential condominium unit); and agricultural land with a single family residence (but limited to 40 acres or less, and must be a single tract of land).

Who is responsible for taxes and maintenance if I execute a transfer on death instrument?

A transfer on death instrument has no effect on the owner’s rights to sell transfer or encumber the property. Additionally, the TOD should have no effect on the owner’s and the beneficiary’s rights to public assistance.

What if I change my mind after I file a Transfer on Death Instruments?

If you change your mind after recording the Transfer on Death instrument, it can be revoked. However, the revocation cannot be done through a Will, it must be recorded.

Will a transfer on death instrument help avoid creditor’s claims upon my death?

No, the owner is still permitted to encumber the property and the transfer on death instrument does not affect the rights of the owner’s creditors, regardless of whether they are secured or unsecured creditors.

What should be done when the owner dies?

The beneficiary can file what’s called a Notice of Death Affidavit with the recorder’s office. This notice must contain: the name and address or each beneficiary, a legal description of the property, the street address and parcel identification number of the property; the date of the Transfer on Death instrument and its recording document number; the name of the deceased owner; the date and place of death; and the name and address for mailing of future tax bills. However, regardless of whether the Affidavit is filed, the title still transfers at death.

Can the owner executing the Transfer on Death be a corporation, trust, LLC, etc.?

No, the statue defines an “Owner” as an individual who owns an interest in real property. Which makes sense, since corporations, LLCs and trusts can, at least in-theory, survive in perpetuity. However, the beneficiary of the transfer on death may be a legal entity (trust, corporation, LLC, etc.), such as a charitable entity.

This blog and any materials available at this web site are for informational purposes and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between the Law Office Of Christian Blume, LLC or Christian Blume and the user or browser.

Increasing the Attractiveness of Your Offer – Real Estate Buying

In a fast paced real estate market, with multiple offers, you might want to get creative in making a more attractive bid. Although offering a higher purchase price could increase your chances of going under contract, that means paying more for the property. Focusing on and adjusting other conditions in the contract may be just what it takes. 

  • Financing. Cash is King. Many homebuyers purchase pursuant to a mortgage contingency, where the lender must approve both the credit worthiness of the buyer(s) as well as the appraisal value of the home.  If either one of these contingencies aren’t met, the closing may be cancelled. A cash offer removes those contingencies. However, a cash offer requires actually having the cash available to close, and many first-time homebuyers are unable to buy without financing.
  • Closing Date.  This can swing both ways, some sellers may want to close as soon as possible, and others may need additional time to close, for whatever reason(s).  Real estate agents could discuss the seller’s intentions before putting an offer in, and the buyer can adjust their offer accordingly. Additionally, if closing needs to take place sooner, the parties may be able to negotiate a post-possession closing period, where the seller is permitted to stay beyond closing.  
  • “AS-IS Condition” and/or Waiver of Professional Inspection.  If you are using the Multi-Board 7.0 Contract, paragraph 36 can be selected if you are willing to take the property ‘as-is’.  It doesn’t mean that you can’t conduct an inspection and a buyer is still permitted to cancel the contract if the condition of the property is unacceptable following the inspection. If purchasing with financing (mortgage), certain lenders or financing programs may be harder to obtain if the property is being sold “AS-IS”. 
  • Increasing the Earnest Money. Earnest money, usually held by a third-party or one of the parties Agents/Attorneys, can be increased to show additional ‘earnestness’ to follow through with the purchase. It doesn’t mean the seller is permitted to keep the earnest money if the contract is rightfully cancelled by either party, but it is held and can be used to cover potential damages from a wrongful termination of the contract by the buyer.  
  • Expediting the Attorney Review Period.  This isn’t one that will help your offer get initially accepted, but it may help prevent the seller from backing out during the attorney review. If an attorney review period is extended and extended, it may give pause to the seller to re-think the contract and the buyer’s willingness to purchase the property. Asking for too many repairs, credits, or other assurances may also give a seller concern, and they may opt to cancel the contract. Having the right attorney to assist you in this process can make a huge difference.

This blog and any materials available at this web site are for informational purposes and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between the Law Office Of Christian Blume, LLC or Christian Blume and the user or browser.

Do I need a Deed to Transfer Real Estate?

In feudal England, real property possession was conveyed through a symbolic act, termed ‘livery of seisin’ (or seizin). Livery of seisin roughly translates to the delivery of possession of land. It could be a lump of soil, a tree branch, or even a fixture of the house. When the grantor passed this symbolic item to the transferee, possession was conveyed.

Although the Illinois Conveyances Act recognized livery of seizin, it provides that this symbolic act in not necessary (765 ILCS 5/1). Instead of passing lumps of soil or tree branches, we currently rely on deeds of conveyance to transfer interest in real property. In Illinois property is routinely transferred by warranty deed or via quit claim deed.

A Warranty Deed transfers title with the grantor’s warranting that title is free of any adverse claims. This includes adverse claims that might have occurred prior to the grantor’s period of ownership.

By conveying via warranty deed, the grantor is basically warranting: (1) that the grantor is the lawful owner of the estate in fee simple and has the right to convey the property to the grantee; (2) that there are no encumbrances (such as a mortgage, lien, lease, etc.); and (3) that there aren’t any adverse claims against the land and title, and if there are then the grantor will defend against those claims. These warranties become part of the conveyance regardless of whether they are expressly stated in the deed. The exact language of the grantor warranties can be found in 765 ILCS 5/9.

A Special Warranty Deed is a deed that limits the warranties. It can be limited to claims that might have occurred during the grantors period of ownership or claims that could have occurred by the grantor. The deed will need to include operative language to the effective limitation(s). Special Warranty Deeds are more common when the grantor acquired the property through a tax sale, foreclosure, or other debt related transfer. In those cases the grantor may limit the warranties to claims by, through or under the grantor. Unlike Warranty Deeds, Quit Claim Deeds provide no warranties as to title, and the grantee takes title subject to any adverse claims.

This blog and any materials available at this web site are for informational purposes and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between the Law Office Of Christian Blume, LLC or Christian Blume and the user or browser.

Chicago Code Violations: How to Navigate the Administrative Hearing Process

Chicago Municipal Code Violations often times carry a potential fine. Know the process, know your rights!

Much like the federal government or state governments, local municipalities in Illinois are permitted to enact and enforce laws. In Chicago these laws are codified in the Chicago Municipal Code, and prescribe: building codes, business licensing, taxing authority, and many more.

While many of these laws are related to “public health, safety, welfare, morals and quality of life of the residents of the City of Chicago”, a violation may result in costly fines. Furthermore, as in the case of building code violations, or violations relating to the care of property, if those fines go unpaid, they may result in a lien against the real property.

For example, the current fine for not cutting or controlling weeds to the required length (§ 7-28-120) can range from $600 to $1,200. Each day the violation exists is a separate offense, which means that the fine can be multiplied by the number of days, and could potentially grow to an even larger amount, much like rapidly growing lawn weeds.

Does the City of Chicago always seek the maximum fine permitted by law? No, but the City could-and would-be within its legal right to do so.

Let’s say you have a neighbor that notices out of control weeds growing on your front lawn, and that person decides to report this alleged violation by dialing 311. The Department of Streets and Sanitation can send out an inspector to make a determination if a violation exists. If there is an alleged violation observed, the violation can be referred to the the City’s Corporation Counsel to prosecute and enforce the Chicago Municipal Code.

The prosecution of the ordinance violation(s), in many cases, is filed at the Chicago Department of Administrative Hearings (DOAH), a ‘quasi-judicial body’, and heard before an Administrative Law Judge (ALJ). ALJs are licensed attorneys, contracted to hear Administrative cases; they are not elected judges.

The rules for prosecuting Administrative Law cases are not as stringent as those in Circuit Court or Federal Court. One difference is that the City need not obtain personal jurisdiction over the individual or business being sued. In most civil cases, personal jurisdiction can be obtained through service of process, whereby the Sheriff or a special process server physically delivers a copy of the summons and complaint to the individual or entity being sued. When the City prosecutes an ordinance violation through the DOAH, it can serve the notice of the violation and hearing by regular mail.

On the date of the hearing, you (or your attorney) will likely file your appearance a-one-page form with your case information and contact info. Typically you (or your attorney) will meet with the Assistant Corporation Counsel (City Attorney), that will be prosecuting your case. During this meeting the City may request that you agree to an order to be entered on that day. Critically, you do not have to agree to the order being requested by the City and you have the right to be represented by your own lawyer at this meeting.

Depending on the nature of the case and what the City is seeking, your first hearing may be the last, and the case may conclude on that date. However, in instances where corrective action is sought, such as building code violations, there may be a return date, or dates, to ensure that the corrective action was taken. The case is called by the ALJ, and if an agreement was reached with the City Attorney, the ALJ will likely enter that order. If no agreement is reached, a hearing will likely be conducted by the ALJ, in which both the City and you will have the opportunity to present evidence, and argue the case. The ALJ will ultimately make a determination as to whether a violation existed and enter a judgement. If the judgment is not entered in your favor, you will have an opportunity to appeal that decision to the Circuit Court, but there are time constraints and specific requirements for filing an appeal.

What happens if you miss the notice by mail, and do not attend the hearing? Likely a default judgment will be entered against you, and the notice of the default judgment will be mailed. Does that mean you have to pay that amount? Not necessarily, you (or your attorney) can file a motion to set-aside the judgment, but there is a time limit to file this motion, in order for it to be considered timely.

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This blog and any materials available at this web site are for informational purposes and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between the Law Office Of Christian Blume, LLC or Christian Blume and the user or browser.

Buying or Selling Real Estate in Illinois: What Does a Lawyer Cost and Do I Need One?

For Illinois residential real estate closings (buying or selling a home), attorneys typically charge their clients (buyers or sellers) a fixed-fee for the entirety of the representation.  It is common for residential real estate closing attorneys to collect their fee only if the closing actually takes place; or a lessor portion if the closing does not take place. 

When representing sellers in residential real estate closings, attorneys will often act as title agents as well.  Sellers typically deliver a title commitment for a title insurance policy, which covers potential defects/issues with title that may appear after closing. Most of the work preparing the title insurance is done by an agent of the title insurance company.  If an attorney is representing you in the sale of your home and is also acting as the title agent, then your attorney is required to disclose this to you and the other party.  Attorneys generally collect a portion of the title insurance premium, which sellers and buyers pay to the title agency, for their work as title agents.  

For commercial closings, attorneys in Illinois might charge a flat fee or an hourly fee, depending on the Attorney and the transaction.  Commercial closings may include more time and resources than a residential transaction.  

As a buyer or seller of real estate in Illinois, you are not required by law to have an attorney; however, there are many legal technicalities and issues a trained and experienced attorney may be able to spot, that you may not. In many cases, a real estate purchase may be the first time an individual or couple ever hires a lawyer.

A residential real estate attorney can draft the contract, but the contract is often drafted by the listing or buying broker and signed by the client prior to any discussion with an attorney.  After a contract is drafted and signed, an attorney will review the contract and discuss the content of the contract with the client.  An attorney can determine if the contract aligns with the client’s understanding and objectives.  Based on experience and each client’s unique situation, attorneys propose modifications to the contract during the attorney review period.  Attorneys also review modifications proposed the other party (seller/buyer).  Common modification requests can include: property tax proration amounts, mortgage contingency deadlines, inspection defects (either to be repaired or a resolved with a credit at closing); and the closing date.

After the review period is complete, attorneys will make sure deadlines are met and proper documents are prepared correctly.  This can include mortgage contingencies, pre-closing inspections, surveys, pay-off letters, transfer documents, title commitment documents, transfer tax stamps, and compiling and reviewing closing numbers.  At closing the Attorneys will review the closing documents and explain the significance and meaning of the documents to their respective clients.  When representing buyers, attorneys walk their clients through complicated mortgage loan documents.  Additionally, the Attorneys may resolve disputes that arise at closing. 

*Christian is an Illinois business and real estate lawyer and is happy to speak with you and assist with your start-up or small business. Call (773-706-7514) or email (christian@attorneyblume.com)

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This blog and any materials available at this web site are for informational purposes and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between the Law Office Of Christian Blume, LLC or Christian Blume and the user or browser.

Illinois property law – tenancy by the entirety

Illinois is one of several states that permits real property to be held in tenancy by the entirety. Tenancy by the entirety is similar to joint tenancy, but with the added element of marriage and that the real property must be maintained or intended for maintenance as a homestead by both spouses together. Spouses must obtain the ownership interest at the same time, through the same title, with equal ownership interest, with equal rights to possess the whole of the property, and the property must be maintained as a homestead by both spouses. It is important to note that Illinois permits parties to a civil union to hold property as tenants by the entirety.

Like joint tenancy, holding property as tenants by the entirety permits a right of survivorship (i.e., property passes to the surviving spouse when one spouse dies).  Unlike joint tenancy, one spouse cannot sever the tenancy by the entirety unilaterally by transferring his or her interest to the property. Property held in tenancy by the entirety protects the homestead property from creditors of only one spouse. A creditor can’t attach a lien and foreclose on a property held in tenancy by the entirety, if the debt is only owed by one of the two spouses, whereas a creditor can attach a lien and foreclose on a property held in joint tenancy. For example, if one spouse owes a debt for a credit card held in his name only, the credit card company cannot attach a lien or foreclose on property owned by both spouses as tenants by the entirety.

If property is held in tenancy by the entirety and the spouses divorce, the ownership interest will become a tenancy in common as a matter of law. If the spouses decide to elect to maintain another property together as a homestead (e.g., move to a new home and maintain ownership of the old property), the tenancy by the entirety becomes a joint tenancy. Additionally, both spouses must execute any deed, contract for deed, mortgage, or lease of homestead property held in tenancy by the entirety for it to be effective.

This blog and any materials available at this web site are for informational purposes and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between the Law Office Of Christian Blume, LLC or Christian Blume and the user or browser.

How to Limit Personal Liability When Starting a Home Based Business

Have you thought of starting a home based business, as a side-hustle or maybe even full-time? Maybe you have a great product idea that you could sell from your home, or a service you can offer. Are you concerned with the potential liability? Limiting liability through business insurance is an option that should be explored, but this article focuses on entity selection.

By failing to form a separate business entity, you are by default operating as a sole-proprietor (individual) or partnership (more than one individual). Depending on the business, it may be a wise choice to form a separate entity for your home based business (such as selling homemade foods).

Sole-proprietor:

Operating as an individual with no separate legal entity.  It is the default classification if you operate as an individual.  A sole-proprietorship is simple to maintain, but offers no liability protection for the owner.

Partnership:

Illinois recognizes several distinct partnerships, but generally a partnership is “the association of two or more persons to carry on as co-owners a business for profit…whether or not the persons intend to form a partnership.” Similar to a sole-proprietor, a partnership may be formed without the partners’ specific intent to form a legal partnership and without any specific filing by the partnership.  That means, if you meet the statutory definition of a partnership, you are a partnership. Partners generally remain personally liable for the debts of the partnership, but are taxed as individuals.

Limited Liability Partnership:

A Limited Liability Partnership (“LLP”) is a recognized form of partnership covered by statute An LLP requires a filing of a statement of qualification with the Illinois Secretary of State.  LLPs, unlike general partnerships, limit the personal liability of partners for the partnership’s obligations.  (805 ILCS 206)

Corporation:

A separate legal entity, defined by statute, and permits different classes of stock and shareholders, and provides liability protection of shareholders.  However, requires more detailed filing requirements.  To form a Corporation in Illinois you must comply with the Illinois Business Corporation Act of 1983 (805 ILCS 5).  The Act requires keeping of corporate records, minutes of proceedings, and other requirements.   For tax treatment purposes, a corporation can elect to be treated as a C Corporation, or as an S Corporation.  A Corporation is subject to double taxation (tax of both the corporate entity and distributions to shareholders). 

An S Corporation is organized like a corporation and provides liability protection to its shareholders. S-Corporations are treated as a pass-through entities for tax purposes. S Corporations are restricted as to the number of shareholders (no more than 100), only one class of stock is permitted, and there are limits on the type of shareholders (must be individuals, with some exceptions).

Limited Liability Company (LLC):

LLCs are governed by the Illinois Limited Liability Company Act (805 ILCS 180).  It is a separate legal entity, and the filing requirements are less complex than Corporations. The current fee for filing Articles of Organization is $150, and the filing of an annual report is $75, which is a one-page form.  The simplicity of an LLC makes it an attractive option for many small-business start-ups. 

Corporations and LLCs need to list a registered agent with a physical address (cannot be a P.O. Box) in Illinois.  The registered agent may be served summons, notice and demands made on the entity.

Many home based businesses may choose to operate as an LLC, which permits limited liability protection of the members, and pass through taxation. Since the filing requirements in Illinois are less complex, and recently reduced filing fees, this is an attractive option.  However, each situation is unique and discussing your options with a business lawyer, may provide additional insight.

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This blog and any materials available at this web site are for informational purposes and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between the Law Office Of Christian Blume, LLC or Christian Blume and the user or browser.

How important is the appraisal when buying real estate?

The appraisal is an important part of many mortgage loan financed residential real estate purchases. The appraisal is usually ordered at the buyers requests, and sometimes paid for prior to closing. The appraisal is done by a third-party appraiser, who provides an opinion as to the value of the real estate. The opinion is based on the type of analysis the appraiser performs.

Common appraisal methods include: the Sales Comparison Approach; the Cost Approach, and the Income Approach. The Sales Comparison Approach uses recently sold properties that are similar to the subject property, applying adjustments for variations, to determine an estimated value.  The Cost Approach basically uses an estimation of the value of land and the price it would cost to build an equivalent building on that land (Cost of Land + Cost to Build – Depreciation).  The Income Approach uses the income or anticipated income generated by the property to determine a value.          .  

What happens if the appraiser’s estimated value comes in lower than the agreed upon purchase price?

Sometimes there is subjective value to a buyer that exceeds the appraisal done by a third-party appraiser, and that buyer may decide to proceed with the real estate purchase knowing the appraisal was lower than the purchase price.  Lenders may permit the buyer/borrower to provide additional funds at closing to cover the difference.  If a buyer/borrow cannot come-up with the difference, or even if they can, the buyer and seller might agree to a reduction in the purchase price to reflect the appraisal value.  Additionally, a buyer might want to contest the appraisal, pointing to errors or omissions in the report.      

What can I do to protect myself, if the appraisal doesn’t come in at the agreed upon purchase price?

Some attorneys will negotiate a clause, pursuant to the Attorney Review (Section 10 in MBRE 7.0), permitting the Buyer to cancel the contract if the appraisal doesn’t meet or exceed the agreed upon purchase price, or to allow the parties to negotiate a lower price.   Even without such a provision, if a buyer cannot obtain financing because the appraisal value was too low, they won’t be able to get the loan commitment, and therefore won’t be able to close on the purchase.    

Does a Seller have to lower their purchase price if the appraisal comes in low?

No, unless that is a stipulation in the contract. However, a seller may be compelled to reduce the purchase price, because there is no guarantee that a subsequent prospective buyer may be able to get a better appraisal, and/or the seller may not want to re-list the property.

If you are unsure about your obligations/rights, or would like to speak with an Attorney regarding your real estate purchase/sale, please contact Blume Law

This blog and any materials available at this web site are for informational purposes and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between the Law Office Of Christian Blume, LLC or Christian Blume and the user or browser.

Mortgage or cash offer when purchasing a home in Illinois

The majority of residential real estate financing in Illinois is loan contingent (mortgage) or cash (no mortgage), with variations as to each.  This post focuses on the financing options as used in the Multi-Board Residential Real Estate Contract (“MBRE”) 7.0.  The following are three types of financing used in the MBRE 7.0: 

Loan Contingency (Paragraph 7(a) of MBRE 7.0):

If the parties agree that the transaction will be subject to a Loan Contingency (mortgage), the buyer is only required to purchase the property if they are able to meet all the terms of the Loan Contingency.  The Loan Contingency provision protects a buyer from having to purchase real estate when they don’t qualify for the agreed upon loan terms (or better, with some terms), including: (a) the percentage of the purchase price to be borrowed; (b) the maximum interest rate for the loan; (c) whether the rate is fixed/adjustable; (d) the specified period of time for loan repayment; and (e) the maximum amount of ‘points’ to be paid by buyer. 

If the Buyer is unable to provide loan approval and serves notice to the Seller by the ‘Loan Contingency Date’, the Contract shall become null and void.  The default ‘Loan Contingency Date’ is either 45 days after the date of acceptance or 5 business days prior to the date of closing, whichever is earlier. Although, this date can be modified during the Attorney Review, or may be extended by mutual agreement of the parties.

Cash transaction with no mortgage (Paragraph 7(b) of MBRE 7.0):

This should be selected if the buyer wants to pay cash (no mortgage loan).  It also has the added benefit of splitting the escrow fee between the buyer and the seller (unlike when financing with a mortgage).  A seller may ask the buyer to verify they have the requisite funds to purchase the property, and the buyer may be required to provide financial information to verify those funds.  This option can be used when a buyer has sufficient money to cover the purchase, and when acquiring property that may be difficult to obtain with a mortgage loan. Unlike the Loan Contingency, the buyer is generally obligated to purchase the property, regardless of their change in financial circumstance.

Cash transaction, mortgage allowed (Paragraph 7(c) of MBRE 7.0):

This option may be selected if the buyer has the funds to purchase without a mortgage, but would like to have the option to purchase using a mortgage loan. Regardless of whether the buyer is able to qualify for a mortgage/loan, he or she is still required to purchase the property.  Some buyers that have the cash available to make the purchase, but would like to explore the option of a mortgage may choose this option.  It may appear as a stronger offer to the seller, since they know the buyer will not be able to back-out for inability to obtain a mortgage loan.   The escrow fee will be split between the seller and buyer if purchase without a mortgage loan, otherwise the buyer will pay the entire escrow fee.   

If you are unsure about your obligations/rights pursuant to the selected financing, or would like to speak with an Attorney regarding your real estate purchase/sale, please contact Blume Law

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This blog and any materials available at this web site are for informational purposes and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between the Law Office Of Christian Blume, LLC or Christian Blume and the user or browser.

How to ‘Hold’ Real Property with Other People

Illinois recognizes several distinct types of real property ownership when multiple people/parties are involved, this blog article will discuss the three most common: Tenancy in Common, Joint Tenancy and Tenancy by the Entirety.

Tenancy in Common:

In Illinois, tenancy in common is the default method of holding property with multiple owners. That is, unless otherwise expressly stated in the deed conveying ownership, multiple owners will hold the property as tenants in common. (See 765 ILCS 1005/1). Tenants in common have equal rights to possess the property, regardless of their percentage ownership interest.

Tenants in common need not own equal percentages of the common property, and may acquire their property at different times and through separate conveyances. Each tenant in common is permitted to sell or otherwise transfer their interest in the property at any time. However, each owner’s interest is subject to creditor’s claims. There is no right of survivorship amongst tenants in common; when a tenant in common dies, their interest in the property passes to their heirs or as otherwise provided in a testamentary document.

Joint Tenancy:

Holding property in joint tenancy requires the “four unities”: time, title, interest and possession. That is, all owners must take title at the same time, via the same title instrument, with an equal ownership interest, and with each having a right of possession. Additionally the title instrument conveying the property must expressly indicate that the property is to be held in joint tenancy.

Joint tenants have what’s called a right of survivorship; when one joint tenant dies, their interest passes to the other joint tenant(s), as a matter of law. The right of survivorship in property held in joint tenancy supersedes any testamentary document that might provide otherwise.

The joint tenancy can be severed, if any one of the four unities (time, title, interest, possession) is broken. An individual’s interest in real property held in joint tenancy is subject to their creditor’s claims.  And, a joint tenant cannot be a non-individual, such as a corporation, LLC or partnership.

Tenancy by the Entirety for Marital Property in Illinois

Illinois is one of several states that permits real property to be held in tenancy by the entirety. Tenancy by the entirety is similar to joint tenancy, but with the added element of marriage and that the real property must be maintained or intended for maintenance as a homestead by both spouses together. Spouses must obtain the ownership interest at the same time, through the same title, with equal ownership interest, with equal rights to possess the whole of the property, and the property must be maintained as a homestead by both spouses. It is important to note that Illinois permits parties to a civil union to hold property as tenants by the entirety.

Like joint tenancy, holding property as tenants by the entirety permits a right of survivorship (i.e., property passes to the surviving spouse when one spouse dies).  Unlike joint tenancy, one spouse cannot sever the tenancy by the entirety unilaterally by transferring his or her interest to the property. Property held in tenancy by the entirety protects the homestead property from creditors of only one spouse. A creditor can’t attach a lien and foreclose on a property held in tenancy by the entirety, if the debt is only owed by one of the two spouses, whereas a creditor can attach a lien and foreclose on a property held in joint tenancy. For example, if one spouse owes a debt for a credit card held in his name only, the credit card company cannot attach a lien or foreclose on property owned by both spouses as tenants by the entirety.

If property is held in tenancy by the entirety and the spouses divorce, the ownership interest will become a tenancy in common as a matter of law. If the spouses decide to elect to maintain another property together as a homestead (e.g., move to a new home and maintain ownership of the old property), the tenancy by the entirety becomes a joint tenancy. Additionally, both spouses must execute any deed, contract for deed, mortgage, or lease of homestead property held in tenancy by the entirety for it to be effective.

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This blog and any materials available at this web site are for informational purposes and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between the Law Office Of Christian Blume, LLC or Christian Blume and the user or browser.

The Importance of Earnest Money in Real Estate Transactions.

Earnest Money can demonstrate a buyer’s intent to follow-through with a real estate contract and also entice a seller to accept an offer.  This blog article will primarily look at the Earnest Money as it applies to residential real estate transaction, and specifically in the Multi-Board Residential Real Estate Contract (“MBRE”) 7.0.  The MBRE is not the only real estate contract template that provides for earnest money.  

Do I have to deposit earnest money when buying real estate? 

No. Earnest Money is not required, like many other aspects of a real estate purchase agreement earnest money can be negotiated.  However, it is quite common, and a Seller may be reluctant to accept an offer without earnest money. 

How much should the Earnest Money amount be? 

This is something to discuss with your broker, if you are using one.  Some brokers may use 1% of the purchase price as a starting point.  However, if the listing is more competitive (multiple offers), then a broker might advise their buyer to increase the earnest money, in order to make their offer more competitive.  Like many other aspects of the agreement, the amount of earnest money can be negotiated between the parties.    

Who holds the Earnest Money?

The Earnest Money is held in trust by an Escrowee for the mutual benefit of the parties to the contract.  The Escrowee can be designated in the offer or determined during an attorney review period, it can be the Buyer’s/Seller’s Brokerage the Buyer’s/Seller’s Attorney, or any other designated party.  It is important to note that an Escrowee is responsible for complying with the terms of the earnest money disbursement, and may be held liable for improper distributions.

Can Earnest Money be increased as the purchase and sale progresses to closing?

Yes.  Some contracts may call for the deposit of initial earnest money, followed by additional earnest money to be deposited at a later date, such as after the Attorney Review and Inspection periods are completed.

Is the Buyer’s liability limited to the amount of the Earnest Money?

No.  The Earnest Money is not a default amount (or liquidated damages amount) to be paid in the event the Buyer breaches the real estate purchase agreement.  Parties can certainly limit damages to the amount of the earnest money, which is not an uncommon request in attorney modification letters.  Without any such limiting language/agreement, the Seller can seek to recover damage in excess of the Earnest Money amount, if the Buyer breaches the contract.   

What happens to the Earnest Money if the Real Estate Contract is declared null and void?

If using the MBRE 7.0 the disbursement of earnest money is generally governed by paragraph 26, which requires Earnest Money to be refunded upon the joint written direction by the Parties to the Escrowee, or upon an entry of an order by a court of competent jurisdiction.  Without consensus amongst the parties, either party may file suit seeking a court order directing the disbursement.

What can the Escrowee do if there is a dispute over the disbursement amount(s)?

If the parties cannot agree in writing as to the disbursement of earnest monies, either party can seek a court order directing disbursement.  If using the MBRE 7.0, the Escrowee may elect to give written notice as to how they intend to disburse the funds at least 14 days prior to the date of intended disbursement.  Absent an objection by either party, the Escrowee may disburse the funds as so stipulated in their written notice.   Alternatively, or in addition to the above option, the Escrowee may file lawsuit for Interpleader and deposit the earnest money with the Court, less any amount to reimburse the Escrowee for court costs and reasonable attorney’s fees.    An Escrowee that fails to properly handle/disburse the Earnest Money may be held liable.

Since Earnest Money is a common part of many residential real estate contracts, it is important for Brokers, Agents, Sellers and Buyers to understand the implications of using Earnest Money. If you would like to speak with an Attorney regarding the sale or purchase of real estate in Illinois, please reach out Christian Blume, 773-706-7514.

This blog and materials available at this web site are for informational and marketing purposes. You can contact an attorney to obtain advice with respect to any particular issue or problem or for representation. Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between the Law Office Of Christian Blume, LLC or Christian Blume and the user or bro

A Big Closing Cost (sometimes): determining real estate tax prorations at closing in Illinois.

When selling residential real estate, a significant closing expense is often the real estate tax prorations made at closing, in the form of a credit, which can dramatically decrease the amount of money a seller might receive at closing. Real estate tax prorations are one of the items that can be negotiated when a real estate contract is executed and/or during an attorney review period.

In Illinois real estate taxes are paid in arrears, the taxes you pay this year cover the property taxes incurred for the prior year; which is why sellers typically provide a credit to buyers for property taxes not yet due, or otherwise not paid. 

Since the total tax amount to be credited is often not known at the time the property is transferred, many residential real estate contracts call for a proration based on the “the most recent ascertainable full year tax bill.” And, often times the taxes are prorated at 105% or 110% of the most recent ascertainable full year tax bill, which can protect a purchaser from anticipated property tax increases.     

Sometimes lawyers will modify the language to use various taxing metrics to calculate the prorations, multiplying the prior year equalized assessed value (EAV) by the current year tax rate, if known, is one alternative.

Calculations for Tax Prorations when using “most recent ascertainable full year tax bill”

Prior Year Taxes to Prorate = (“Proration %” multiplied by “the most recent ascertainable full year tax bill”) less any taxes already paid in prior year (if any).

Current Year Tax to Prorate = (“Proration %” multiplied by “the most recent ascertainable full year tax bill”) x (day of year of closing/365(366 in leap years)).

This blog and any materials available at this web site are for informational purposes and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between the Law Office Of Christian Blume, LLC or Christian Blume and the user or browser.