“Keep Chicago Renting” ordinance comes before Chicago City Council today

kcroIn the wake of the report issued by Lawyer’s Committee for Better Housing indicating that crime has increased in vacant lots and buildings, the Housing Committee of the Chicago City Council plans to conduct a hearing and possibly vote on the “Keep Chicago Renting” ordinance today (Mayday).  Originally introduced in July of last year, the ordinance has been kicking around for about a year in various forms.  In its current form, the City proposes that banks or other entities that take title to foreclosed real estate at a foreclosure auction must pay (yes, you read that right) tenants who are forced to vacate the premises or offer them leases with rent restrictions.

It certainly appears that the ordinance has momentum.  Lots of aldermen support it.  The mayor supports it.  A coalition of tenant’s rights and community organizations support it.  Of course, banks oppose it.

Should landlords care?  Well, on one hand, landlords benefit from the neighborhood stability promoted by the ordinance.  When tenants continue to occupy a post-foreclosure property, that property is usually kept up better (or maybe it is more true to say “degrades less quickly”) than a vacant building.

What about the argument that there is less crime?  Maybe it holds water.  The Lawyer’s Committee for Better Housing report I referenced above indicates that crime is way up in vacant lots and buildings.  Do tenants live in vacant lots?  Ummm… No.  I’d be interested to see the statistics on crime broken out into crime on vacant lots versus crime in vacant buildings.  I’m not saying I know the answer.  I’m just saying it is curious that one of the major proponents of the ordinance is providing statistics about crime that have a “wow” factor (wow! crime is up 47%) that are really not on point.  In addition, the crime that is cited by LCBH is just a teeny tiny fraction of all crime in the city.  As my high school English teacher used to say, “double nothing is still nothing”.

What is the downside for landlords?  First, I’m pretty certain that the foreclosure banks will find a way, overt or covert, to pass on any fees to the eventual buyers of the foreclosed properties.  In addition, it is just one more set of restrictions in the area of landlord-tenant law in Chicago.  It is one more piece of legislation that flies in the face of foreclosure law.  Back before the real estate “bubble” burst, a loan foreclosure would foreclose all lesser interests in the land – including leases.  The federal Protecting Tenants at Foreclosure Act and amendments to Illinois foreclosure law have changed that.  Is that so bad?  Maybe not.  It just means more legwork for the landlords, more regulation, and more procedure.  Its not easy to be a landlord, in Chicago or anywhere in Illinois.

So, I am in favor of this ordinance.

What?  Yep.

I’m not a fan of requiring tenants to be paid to relocate.  That makes no sense to me.  Protecting their tenancies for a period of time until the bank has a buyer?  That kind of makes sense to me.

In reality, we all know how the foreclosure system works when it comes to landlords and tenants.  Are there tenants hurt by the system?  Sure.  That said, there are plenty of tenants who believe that when their landlord goes into foreclosure, they have the green light to stop paying rent (they don’t).  They think that a foreclosure notice invalidates their obligations to the landlord.  Of course, they don’t move out!  They just live for free.  That does sound nice.  After the foreclosure, when a new owner comes around, many tenants are cagey about their lease terms.  Some obfuscate and claim that the new owner doesn’t own the building.  Many claim that they paid security deposits that they did not pay.  Some concoct fake leases at low rates for ridiculous lease terms and present them to the new landlord with a straight face.  To put it mildly, being a post-foreclosure landlord is a bit like being a pioneer.  And lots of pioneers blaze trails and end up with arrows in their backs.

Investors in Chicago rental housing will “inherit” properties with tenants who have leases or at lease whose lease terms are known.  We can stop playing security deposit roulette (After all, how many foreclosure buyers are able to get security deposits out of the REO seller banks they buy from?  Not many!).  We might even get a rent roll at the closing.  What a concept.  Civilization comes to the wild west.

About Richard Magnone

Co-founding member of Reda | Ciprian | Magnone, LLC, attorney at law and Illinois licensed lawyer since 1996.
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