On June 5, 2013, the Chicago City Council passed a new ordinance protecting renters in Chicago. Chapter 5-14 of the Chicago Municipal Code, or the Protecting Tenants in Foreclosed Rental Property Ordinance, went into effect September 24, 2013, and is aimed at keeping renters in their apartments even when the building goes into foreclosure.
The law has two main purposes: 1) to protect renters who might fear being displaced after the former owner loses the building to foreclosure; and 2) to cut down on the number of buildings in Chicago that become vacant as a result of foreclosure. The law requires buyers of properties at foreclosure auctions to make a good-faith effort to find out the names of the tenants who had been living there, and to offer them the option to renew or extend their leases, whether they were written or oral. The law requires buyers to do so within 21 days of purchasing the property. Buyers who do not do this may be required to pay the tenants $10,600 for relocation assistance.
Obviously, $10,600 is a lot of money to help someone move, so really the law is meant to stop buyers from kicking out hold-over tenants. Renters no longer have to deal with the hassles of packing up and relocating due to the misfortune of the former owner.
Who the Law Affects
The law only applies to properties that are either sold pursuant to a judicial sale or that are given back to the lending bank in lieu of foreclosure (deed in lieu of foreclosure). For the most part, this means that the ordinance will affect investors who buy properties at foreclosure auctions and banks who purchase properties after they foreclose on the defaulting owner. When a bank forecloses on a property, it also asks the court to order the sale of the property. The bank often will buy the property back in order to sell the property at a better price to a third party. Third parties who buy foreclosures from banks or investors do not have to comply with the new ordinance.
One of the the effects of the new law is that banks will need to keep servicing and maintaining foreclosed properties while trying to find a buyer. Before the ordinance, banks would close up foreclosed properties, winterize them by shutting off the water service, and do minimal maintenance until they found a buyer. Some properties would sit vacant for months, allowing vandals, squatters, and disgruntled former owners ample opportunity to damage the property or steal fixtures. In order to keep track of foreclosed properties, the law also requires buyers to pay $250 to register their new buildings as foreclosed properties with the Chicago Commissioner of Buildings.
The new law affects virtually all rental units in Chicago, including condominiums and single family homes that are being rented out. The law will affect any properties purchased after the law was enacted (September 24, 2013) but does not cover tenants whose spouses, parents, or children were the former owner(s) of the property. Also, tenants whose rent was substantially below the fair market rate or whose rent is subsidized by the government are not covered by the law. Rental units in cooperative buildings are not affected.
Buyers who do not comply with the new law may face additional fines and fees in addition to the relocation assistance. Foreclosed properties can be great values and may allow DIYers to fix up buildings that have been neglected. However, if you are thinking of buying a property at a foreclosure auction, check with Villalobos & Associates to make sure you comply with all applicable laws.
If you are a renter and your building is going into foreclosure, you may be covered by the new law. Check with Villalobos & Associates to make sure you know your rights.