Author: Law Office of Andrew Szocka

TAX PRORATIONS IN A REAL ESTATE CLOSING: AN EXPLANATION BEHIND THE EQUATION.

TAX PRORATIONS IN A REAL ESTATE CLOSING: AN EXPLANATION BEHIND THE EQUATION.

If you are buying or selling a house, one of the more complicated issues you may encounter is the real estate tax proration.  Properties in Illinois are subject to taxes set by the county in which the real estate sits.  The paid taxes are distributed to the local government.

Real estate taxes are paid in “arears.”  This means that in the year 2021, you are paying the taxes for the year 2020.  Tax bills are payable twice a year in two installments.  If your property taxes are $2,000 per year, you receive a bill for $1,000 generally due in June, and a bill for $1,000 generally due in September.

If you are buying or selling a house, the taxes should be prorated based on the amount of time the seller lived in the house prior to the sale.  In other words, the buyer should not have to pay property taxes during the time that the seller occupied the property.

A tax proration is not necessarily a difficult calculation.  But it can seem tricky without an understanding of the underlying equation.

First, most real estate purchase contracts prorate taxes at a rate of 105%.  This is because taxes generally increase each year.  A higher percentage is better for the buyer because it causes the seller to pay a larger credit to the buyer for past taxes.  In some counties, such as Cook County, a proration of 110% is standard because taxes tend to increase in Cook at a faster rate than in other Illinois counties.

For example, if you are buying property in an Illinois county other than Cook, the real estate taxes on the property you plan to purchase may be $2,000 per year.  To calculate the taxes to be prorated, multiply the yearly taxes by 105%.  Then, divide that number by the number of days in the year.  The sellers should be responsible for the amount of unpaid real estate taxes for the number of days that they lived in the property prior to the sale date.

The equation is as follows:

$2,000 in real estate taxes per year;

x 105% = $2,100;

$2,100 / 365 = $5.75 per day in taxes.

 

Assume that the closing transaction occurs on March 31, 2021.  Remember that the property taxes due in 2021 are actually paying the taxes from the year 2020.  As a result, the seller should provide the buyer a credit for the entire 2020 taxes when the seller lived in the property.  The seller also needs to provide the buyer with a credit for the portion of the 2021 year that the seller continued to occupy the property.

For the year 2020 taxes, the seller would owe the buyer a credit of $2,100 ($2,000 x 105%).  In addition, the seller owes the buyer a credit for the time the seller lived in the property in 2021 – January, February, and March.

The daily property tax amount is multiplied by the number of days in January, February, and March: $5.75 x 90 = $517.50.  The total credit that the seller must provide to the buyer would be the $2,100 in unpaid taxes for the year 2020, plus the $517.50 for taxes in the year 2021 when the seller occupied the property, or $2,617.50.

As a result, when the buyer pays the year 2021 property taxes in 2022, the buyer is only paying for the portion of 2021 that the buyer lived in the property.

The following is another example.  Seller and buyer agree to a closing transaction on July 31, 2021.  Seller already received the bill for the 1st installment of the 2020 taxes and made a timely payment in June 2021.  This payment covered the taxes through June 2020.  But seller still lived in the property from July 2020 to December 2020, and until July 31, 2021.

As a result, and at a 105% presumed increase, the equation would look as follows:

$2,000 in real estate taxes per year;

$1,000 was already paid by the seller for the first installment of the year 2020;

$2,000 – $1,000 = $1,000 x 105% = $1,050;

$1,050 / 365 = $2.88 per day in taxes;

$2.88 per day * 214 days that the seller lived in the property for the year 2020 (sub-total $615.62);

plus $2.88 per day * 182 days that the seller lived in the property for the year 2021 (sub-total $1,046.50);

with a total of $1,662.60 owed as a credit to the buyer at the closing.

If you are buying or selling a home, local attorney Andrew Szocka provides thorough and speedy real-estate assistance in the Chicagoland area.  To schedule a free initial consultation, visit Andrew Szocka, P.C. online or call the office at (815) 455-8430.

 

REO CLOSINGS: WHAT ARE THEY AND HOW DO THEY DIFER FROM A TYPICAL REAL ESTATE TRANSACTION?

REO CLOSINGS: WHAT ARE THEY AND HOW DO THEY DIFER FROM A TYPICAL REAL ESTATE TRANSACTION?

If you plan to purchase real estate via an REO Closing, you should know what to expect and the differences between an REO Closing and a “regular” buy-sell property transaction.

“REO” stands for “real estate owned.”  This term describes a class of real property that is typically owned by a bank or government funded agency.  Fannie Mae and Freddie Mac are two of the most well-known government funded entities (referred to as “GFEs”) and they act as an investor on many loans provided in the United States.  As the investor behind a loan and under Illinois law, GFEs also own the mortgages that secure their investment loans.

Next, it is important to understand the difference between a “lender,” “investor,” and companies that are referred to as mortgage “servicers.”  The lender is the bank that gives the original loan, but then typically sells that loan to a GFE or other investor.  As a result, most loans are owned by GFEs or large banks that operate as investors.  The servicer is a company that is paid to temporarily hold the mortgage that secures the loan.

When an individual does not pay back a loan used to purchase or re-finance a home, the mortgage that secures the loan can be foreclosed.  The foreclosure action is brought by the servicer.  A completed foreclosure results in a foreclosure sale where the property is sold, usually back to the investor.

The investor then proceeds to sell the home to an independent third party.  This process is a REO Closing, and as a home buyer you may be that independent third party.  There are some important differences between and REO Closing and what one may consider a “regular” transaction to buy or sell a house.

First, a typical Illinois closing uses the most recent version of the Illinois Multi-Board Residential Real Estate Contract (the “Illinois Contract”).  This contract is designed to be generally fair to both the property’s buyer and seller.

At an REO Closing, you will likely be required to sign the investor’s contract.  An investor contract is generally more favorable to the investor than the individual or entity purchasing the property.  Although each investor’s contract is different, most have terms that protect the investor in three key areas: 1) the return of earnest money, 2) the level of title insurance provided, and 3) the condition of the purchased property.

 

First, with a “regular” closing pursuant to the Illinois Contract, the party that breached the contract is required to refund, or faces forfeiture, of the earnest money.  An investor contract may not provide a buyer with an opportunity to obtain an earnest money refund if the REO Closing is not successfully completed.

Second, be aware of the level of title insurance that the investor/seller is providing.  A typical Illinois Contract requires the seller to purchase an owner’s policy of title insurance for the buyer.  But as with all insurance, some policies are better than others.

Many investor’s contracts require the investor/seller to purchase only “basic” title insurance for the buyer.  This differs from an Illinois Contract which requires the seller to provide an “extended” title insurance policy.

The main difference between a basic and extended title insurance policy is that an extended policy insures over liens, easements, and encroachments that are not part of the public record.  A basic policy does not.  The cost to purchase a basic policy is cheaper than an extended policy, which is why the investor/seller may include this provision in an REO Closing contract.

Finally, it is likely that the investor’s contract will make no warranties or guarantees as to the condition of the property.  The investor has not lived in the property prior to its sale.  As a result, the investor is unlikely to provide any warranties as to the property’s condition.

If you are thinking about entering into an REO Closing contract, local attorney Andrew Szocka provides thorough and speedy real-estate assistance in the Chicagoland area.  To schedule a free initial consultation, visit Andrew Szocka, P.C. online or call the office at (815) 455-8430.

 

PERSONAL PROPERTY: YOUR OPTIONS IF IT’S STOLEN.

PERSONAL PROPERTY: YOUR OPTIONS IF IT’S STOLEN.

Everyone owns personal property.  Money, cars, electronics, furniture, animals, etc.  Nearly everything except your house and the land that it’s built upon qualifies as personal property.

Occasionally this personal property is stolen or withheld by another individual.  In this case, you should always advise the police.  But you also have options beyond charging the individual with a crime.  Civil remedies exist that can help you recover your property, and obtain damages for your lost property.

The first cause of action at your disposal is called “replevin.”  A replevin lawsuit merely asks the court to enter an order returning your personal property.  Replevin is a statutory remedy, meaning that it’s codified by the Illinois legislature.

Specifically, section 735 ILCS 5/19-101, et seq. of the Illinois Code of Civil Procedure states when a replevin action is appropriate, the proper venue to maintain the action, and how to draft a replevin complaint.

Another remedy available to a victim of stolen personal property is a cause of action for “conversion.”  As opposed to replevin, conversion can result in the return of your personal property, plus any damages that you suffered while the property was gone, and/or if the property can no longer be returned.  The amount of damages are often established by the value of the personal property.

However, personal property with no market value does not necessarily limit your damages to $0.  Illinois courts base the amount of damages to which a plaintiff is entitled on the value of the personal property to the plaintiff.

For example, if your pet dog is stolen and then dies, your damages are not limited simply because the dog may have been old and did not retain substantial market value.  Your damages can be measured by the dog’s actual value to you.  The court would likely consider veterinary bills and other expenses applied to the dog over its life in order to determine the dog’s personal worth.

Finally, some personal property is exchanged pursuant to a contract.  The personal property may be loaned to an individual, but required to be returned after a specific period of time.  If your personal property is not returned, you likely have a cause of action for breach of contract.

A well written contract will provide for damages in your favor, along with attorneys’ fees and court costs that you incur while attempting to recollect your personal property.

If you believe someone has stolen and is unlawfully withholding your personal property, local attorney Andrew Szocka provides thorough and speedy assistance in the Chicagoland area.  To schedule a free initial consultation, visit Andrew Szocka, P.C. online or call the office at (815) 455-8430.

 

SLANDER OF TITLE: POTENTIAL CONSEQUENCES OF RECORDING A FALSE DOCUMENT.

SLANDER OF TITLE: POTENTIAL CONSEQUENCES OF RECORDING A FALSE DOCUMENT.

Illinois recognizes a cause of action if a document is falsely recorded against your real estate property’s title.  This cause of action is referred to as “slander of title.”  Depending on the intent of the individual or entity that slandered your property’s title, it can result in a significant award of monetary damages in your favor.

In order to win a slander of title lawsuit, you must first correctly plead the required elements.  Generally, slander of title involves the recording of a document in the county where your property is located that subsequently damages the property’s title.  However, the recording of a document is not necessary required.  Written or even oral words can rise to the level of slander of title.  Jody D. v. Bank of America, N.A., 2018 IL App (3d) 170558-U.

Elements for slander of title are 1) oral or written words that falsely disparage the property’s title; 2) damages suffered by the individual that owns the property, and 3) a degree of malice.  Jody D., 2018 IL App (3d) 170558-U; Nelson v. Bayview Loan Servicing, LLC, 2014 IL App (5th) 120419-U.

Any document that is inappropriately recorded, or any words or writings that disparage the property’s title and damage the property owner could form the basis for a slander of title claim.  The issues that arise in Illinois case law related to slander of title tend to focus more on damages suffered by the property owner and the degree of malice that motivated the other party.

First, damages must actually exist.  In Nelson, plaintiff brought an action against a loan company for failure to release a mortgage after the underlying loan was paid off.  Id. at ¶ 77.  The plaintiff failed to show how he was monetarily damaged by the unreleased mortgage.  Id.  As a result, judgment was granted in favor of the loan company.

An example of damages may have been that the plaintiff was not given a loan, or was not given a loan at a lower interest rate, due to the presence of the unreleased mortgage.

The failure to show any malice on the part of the individual or entity that purportedly slandered your title can also ruin a cause of action.  In Roy Zenere Trucking & Excavating, Inc. v. Build Tech, Inc., 2016 IL App (3d) 140946, a group of contractors recorded mechanics’ liens against a property owner’s title.  Id. at ¶ 49.  But the property owner failed to establish any fraudulent intent on the part of the contractors.  The court stated that “To prove malice, a plaintiff must show that the defendant knew that the disparaging statements were made with reckless disregard of their truth or falsity.  The law in Illinois is that if a party has reasonable grounds to believe that he had legal or equitable title or even a claim, then assertion of this claim does not amount to slander of title.”  Id.  As a result, judgment was entered in favor of the contractors.  Id.

Yet when malice exists, it can result in a monetary award to the property owner, including punitive damages.  See Chicago Title and Trust Co. v. Levine, 333 Ill.App.3d 420, 422 (3rd Dist. 2002).  In Levine, an individual recorded a lien against property despite an existing court order not to further encumber the property.  Id. at 424.  The property owner also showed that the lienholder knew of the existing court order.  Id.  The court awarded the property owner $3,929.60 in attorneys’ fees and $30,000.00 in punitive damages.  Id. at 422.

It is clear from the Illinois case law that a slander of title cause of action is difficult to bring and maintain.  However, in the presence of actual damages and malice, a property owner can prevail.

For additional reading on slander of title see:

 

Gambino v. Boulevard Mortg. Corp., 398 Ill.App.3d 21 (1st Dist. 2009);

Contract Development Corp. v. Beck, 255 Ill.App.3d 660 (2nd Dist. 1994);

Home Investments Fund v. Robertson, 10 Ill.App.3d 840 (2nd Dist. 1973).

 

Andrew Szocka, P.C. can be contacted online or by phone at (815) 455-8430.