By David L. Rudolph, Esq. & Benjamin M. Altshul, Esq.
In recent years, Chicago has gotten a reputation as an extremely tenant friendly city. Now, in Chicago and all of Illinois, even more tenant-friendly laws have recently been enacted that cut off the owner's right, be it a bank or private owner, to evict or forcibly remove tenants at foreclosed properties, except in very limited circumstances. If you are thinking about purchasing a property through foreclosure, whether you intend to rent the property as an investment or actually live in the property, these new laws must be considered before making your decision.
CHICAGO ORDINANCE CHAPTER 5-14 – EFFECTIVE SEPTEMBER 24, 2013
PROTECTING TENANTS IN FORECLOSED RENTAL PROPERTIES
This Chicago Ordinance drastically changes the rights of parties after a foreclosure. If there are any tenants at the foreclosed property, the judicial purchaser can deal with them in two ways. The first option is to offer to renew their lease at the end of its term, under the same terms and conditions and with annual rent no greater than 102% of the previous 12 month period. The second option is to offer each qualified tenant a $10,600.00 relocation fee. The judicial purchaser furthermore has the responsibility to self-report information about the foreclosed property to the commissioner of buildings and must further make a good faith effort to discover the identities of the tenants and post a notice on the property explaining the tenant’s rights within 21 days of the conveyance. The notice must be in English, Spanish, Polish and Chinese.
It’s also important to note that the $10,600.00 relocation fee is a set price, and it doesn’t matter if the tenant lives in a four-bedroom condo in River North or a studio apartment in Logan Square. Additionally, it is a common practice for a judicial purchaser to offer a tenant living in a foreclosed property a “Cash-for-Keys” deal, giving the tenant some money to vacate the property by a certain date. According to the requirements of the ordinance, unless each tenant is offered $10,600.00, this practice is now illegal in Chicago. Tenants should be aware that they can probably get a better deal from the ordinance as opposed to a “Cash-for-Keys” offer. Of course, the ordinance only applies to qualified tenants who have a legitimate or “bona fide” lease. Thus, if the person claiming to be a tenant is the former owner of the property, his or her spouse, child or parent, or is paying considerably less than fair market rent, none of these provisions apply.
Judicial sale purchasers need to be aware of the enormous costs they could face for not complying with the ordinance. The ordinance provides for daily fines for every day there is a violation of the ordinance and allows for tenants to recover civil damages, including attorneys’ fees.
ILLINOIS LAW – EFFECTIVE NOVEMBER 19, 2013
735 ILCS 5/9-207.5 AND 735 ILCS 5/15-1506 THRU 1508
Even if the property acquired through a foreclosure sale is located outside of Chicago, the parties must still be aware of the implications of this new Illinois statute. Previously, upon the approval of the judicial sale, the court would enter an order for possession naming, among other defendants, the tenant (if a party in the foreclosure suit), which gave the judicial purchaser the superior right to occupy the property over the tenant. Now, the court will still enter an order for possession, but under no circumstances will it name the tenant in the order, whether named in the foreclosure suit personally or as an Unknown Occupants. Furthermore, the judicial purchaser takes their interest in the foreclosed property subject to the rights of the tenant under the lease.
If the judicial purchaser does not plan on occupying the property, it must wait for the lease term to expire and then may terminate upon 90 days written notice. Of course, if the tenant fails to pay rent, the judicial purchaser can file for eviction just like they would any other tenant
With the passage of this state law, tenants that may be nervous about a pending foreclosure, now can have greater confidence that they can occupy the property for the full term, if not longer. While this sounds like the tenant can remain on the property until the term of their lease expires, this assumption is false. Judicial purchasers who intend to occupy the foreclosed property as their primary residence can terminate the lease upon 90 days written notice. So, in the rare event that the judicial sale purchaser wants to occupy the foreclosed property, the law gives the tenant at least three months until the new owner can file for eviction and then they still may have up to two months before the sheriff forces the tenant to leave the property.
 Both the Illinois law and Chicago ordinance primarily apply to residential properties. Thus, purchasers of foreclosed commercial properties should not be concerned.