Category: Real Estate Contract Disputes

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.

 

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.

 

EJECTMENT: THE STATUTE AND CASE LAW BEHIND THE CAUSE OF ACTION

EJECTMENT: THE STATUTE AND CASE LAW BEHIND THE CAUSE OF ACTION

An ejectment action can be a useful tool to help a client recover real estate when another party is wrongfully in possession.  Ejectment is based in statutory law.  See 735 ILCS 5/6-101, et seq.

A complaint for ejectment must contain certain allegations.  735 ILCS 5/6-109.  Plaintiff must plead that 1) he had possession of the premises after obtaining legal title, 2) defendant subsequently took possession of the premises, 3) at present, defendant continues to unlawfully hold possession from the plaintiff, and any damages suffered by plaintiff as a result of the ejectment, which could even be a nominal sum.  Id.

The complaint must also describe the property with sufficient certainty.  735 ILCS 5/6-110.  This may be as simple as the property’s common address.  However, it is probably safer to include the property’s legal description and parcel identification number.  At least one older Illinois case held that a legal description was sufficient to identify the property.  See Parr v. Horn, 38 Ill. 226 (1865).

Other Illinois case law on ejectment has stated that a “a plaintiff in ejectment must recover on the strength of his own title rather than the weakness of his adversary’s title.”  Bulatovic v. Dobritchanin, 252 Ill.App.3d 122, 128-29 (1st Dist. 1993).  In other words, plaintiff’s interest must be “higher and better” than that of defendant.  Whitham v. Ellsworth, 259 Ill. 243, 246 (1913).

The best way for plaintiff to prove an interest in the property may be with a recorded conveyance.  Bulatovic, 252 Ill.App.3d at 128.  Bulatovic states that the plaintiff “must show proof of title under a deed sufficient to entitle him to possession.”  Id.  However, the ejectment statute provides for an action brought by an heir or legatee.  735 ILCS 5/6-102.  So, it is at least necessary for the plaintiff to show a link between himself and the holder of the property’s legal title.  Department of Conservation ex rel. People v. Fairless, 273 Ill.App.3d 705, 711 (5th Dist. 1995).

As far as proof of defendant’s possession, it is not necessary for the plaintiff to prove this element for ejectment unless the defendant files a verified answer that specifically denies possession.  735 ICLS 5/6-118.

Note that ejectment can apply to defendant’s unauthorized possession of an entire parcel of property, or only a portion of the parcel.  See Tatham v. Fields, 2013 IL App (5th) 130179-U.

In Tatham, plaintiff permitted defendant to put a temporary boat lift on plaintiff’s property, but specifically prohibited defendant from installing the lift as a permanent structure.  Id. at ¶ 10.  Despite this instruction, defendant upgraded the boat lift to become permanent.  Id. at ¶ 11.  Plaintiff demanded that defendant remove the structure from his property.  Id. at ¶ 13.  Defendant refused and plaintiff filed an ejectment action to remove defendant’s possession from that portion of plaintiff’s property.  Id. at 4.  The court granted plaintiff’s ejectment request.  Id. at ¶ 33.

Although grounded in statutory law, there are a number of Illinois cases related to ejectment that further interpret the ejectment statute and provide guidance for an attorney looking to successfully plead and prove an ejectment action.

For additional reading on ejectment actions see:

Cree Development Corp. v. Mid-America Advertising Co., 294 Ill.App.3d 324 (5th Dist. 1997);

Parks v. Parks, 2019 IL App (3d) 170845;

Dagit v. Childerson, 391 Ill. 611 (1945).

 

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

 

EJECTMENT LAWSUITS: OR, “GET OFF MY PROPERTY.”

EJECTMENT LAWSUITS: OR, “GET OFF MY PROPERTY.”

In Illinois, it is not unusual for two or more parties to fight over who is the rightful owner of real estate, and as the owner has the right to possession of that real estate.  When this happens, one party may file a lawsuit for “ejectment.”

An ejectment action asks a court to determine the property’s rightful owner.  If the party possessing the land is determined to not be the rightful owner, the court will “eject” that party from the property so that the rightful owner can take possession.

The party bringing the ejectment litigation is called the “Plaintiff.”  The Plaintiff must demonstrate to the court that he obtained title to the property and subsequently took possession of that property.  Then, that the other party, called the “Defendant” took possession of the land.  Finally, the Defendant continues to unfairly possess the property by occupying it.

The best way for a Plaintiff to show a court that he obtained lawful title to property is to produce a deed that conveys the property to the Plaintiff.  However, there may be other ways for the Plaintiff to establish that his right to possession of the property is “better” than that of the Defendant.  It is a good idea to consult an attorney if you believe you have right to possession of land that another party is occupying.

Keep in mind that the other party’s improper possession may not be total possession of your property, but only a portion of that property.  For example, if your neighbor were to build something on your property without your permission, an action for ejectment may be appropriate.  Your neighbor is possessing your whole property, but he is unlawfully possessing a portion of it.

Having a good attorney can help further understand if an ejectment lawsuit may be appropriate in a certain situation.

Local attorney Andrew Szocka is experienced in many real estate matters, including ejectment actions.  In addition, Andrew provides thorough and speedy estate planning, probate, and business organization help in the Chicagoland area.  To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

 

CONDOMINIUM LIENS: WHAT EVERY CONDOMINIUM OWNER SHOULD KNOW

CONDOMINIUM LIENS: WHAT EVERY CONDOMINIUM OWNER SHOULD KNOW

If you are a member of a condominium association, or thinking about purchasing a condominium, it is important that you understand condominium assessments and liens.  Condominium associations typically have monthly assessments, which is a monthly payment that each member makes to the association.  Monthly assessments are used by the association to maintain common areas, which are areas in the association where all members share an ownership interest.  This could be a lobby, pool, or garden.

A condominium may also assess a special assessment.  This special assessment is usually a way for an association to pay for a large repair or improvement project, the cost of which the monthly assessments would not cover.

Associations provide themselves the power to collect monthly and special assessments when they are formed.  Condominium formation includes the drafting of a Declaration of Covenants, Conditions, and Restrictions (“Declaration”).  If you own a condominium, you should familiarize yourself with your association’s Declaration.  If you are planning to purchase a condominium unit, you will receive a copy of the association’s Declaration prior to the actual closing.

The Declaration will almost always allow the association to set monthly and special assessments that each member of the association must pay.  In addition, the Declaration will nearly certainly state that any individual that owns property included in the association is an association member, and responsible for payment of the monthly and special assessment.  Finally, the Declaration will provide processes that the association can use to collect unpaid monthly and special assessments from its members.

Although the Declaration provides for an association’s collection means, association collection of unpaid assessments is also supported by Illinois law.  The Illinois Condominium Property Act (765 ILCS 605/9(g)) states that any unpaid monthly or special assessments that are unpaid by a unit owner, shall be a lien on that unit owner’s property.  The amount of the lien includes interest, late charges, and attorney fees that the association spends in an effort to collect the unpaid assessments.

The association’s lien on your property is superior (prior in right) to any other liens recorded against your property, except 1) your first mortgage and 2) any unpaid local, state, or federal taxes.  If you have a second mortgage on the property, the association’s lien can obtain priority over that mortgage if it meets certain requirements within the Illinois Condominium Property Act.

If you have a condominium lien on your property, you will want to resolve it by paying the unpaid assessments.  Otherwise, you will not be able to sell your condominium, or the association may foreclose its lien and be entitled to even more interest, late charges, and attorney fees for which you will be responsible.

Planning on buying or selling a condominium?  Or concerned about a condominium lien on your property?  Local attorney Andrew Szocka provides thorough and speedy real estate and estate planning help in the Chicagoland area.  To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.