A "Tool" for the Real Estate Lawyer

So many of the 100 or so real estate transactions I'm involved with each year are admittedly hum-drum. Fairly routine and no particularly unique issues. So it's exciting when you learn something new in a transaction.

A transaction currently in our office involves a new condo purchase. The building was built a couple years ago but the developer did not complete a separate garage (didn't even start the garage). But the buyer wants to close fairly quickly here but the garage won't be completed until May 1.

What to do?

Normally when there's smallish stuff not done or some minor damage to a unit the thing to do is some repair escrow holding back enough money to fix the repair. That was my first thought here. However, we'd be talking about a substantial holdback likely $30k which the Seller balked at. Instead the Seller will purchase a "performance bond." I knew nothing about these until a couple of days ago. It's akin to an insurance policy where my client is named the obligee on the bond and if the developer fails in its performance of garage construction then the bond company will arrange performance with another developer.

Most Retail Space Ever in Chicago

An interesting commercial real estate article here.

There was a record 8.4 million square feet of new retail development built in metropolitan Chicago in 2007, according to a survey to be released early next year by Mid-America Real Estate Corp. of Oakbrook Terrace.

That space, which includes the construction of new retail developments and the expansion of existing ones, beat the previous record of 6.8 million square feet, set in 1994. Last year 6 million square feet was added.

Construction Starts: Midwest is Second Best!

Not too bad of news for Midwest builders:

WASHINGTON (Department of Commerce, Associated Press) – The U.S. Department of Commerce reported construction of single-family homes fell by 5.4 percent to an annual rate of 829,000 units, the lowest level since April 1991.Multifamily construction was up 4.4 percent to an annual rate of 332,000 units.

The government also reported building permit applications fell for a sixth straight month, dropping by 1.5 percent to a seasonally adjusted annual rate of 1.15 million units, the slowest pace for building permits since June 1993.

Overall homebuilding was 24.2 percent below a year ago.This latest housing report shows last month’s construction activity down from October’s activity by 16.3 percent in the Northeast, 6.9 percent in the West, and 1.5 percent in the Midwest. Only the South gained a 0.3 percent month-to-month increase.

The entire report is available online.

Chicago Water Certification Change

We got this little nugget from our title company regarding a change in City of Chicago water certification procedures:

Attached you will find a copy of the Substitute Ordinance from the City of Chicago passed on November 12, 2007 increasing the fee for water certifications to $50 and requiring same for condominium units as well.

Our interpretation of the new requirements for condominiums is that prior to turnover to the board of managers, the developer will be required to apply for a certificate of payment and pay the $50 fee within 30 days prior to the election of the first unit owner board of managers. Thereafter, a separate certificate of payment will be required for the transfer of each unit based on the meter reading, but where there is a single meter, the fee will remain $50.

These changes will apply to all City of Chicago closings on or after Monday, December 17, 2007.

I'll have to look into this further as we have some Chicago sales upcoming. The condo change appears significant. Previously a water certification was not necessary for the run-of-the-mill single unit condo transaction.

Curb Appeal matters, survey says

WASHINGTON (National Association of Realtors) – Who says it’s what’s on the inside that matters most? Not homebuyers, apparently.

The results of the 2007 Remodeling Cost vs. Value Report show that three of the four projects with the highest national percentage of costs recouped this year were exterior upgrades.
The most profitable project on the national level was upscale siding replacement, recouping 88 percent of costs on resale.


Wood deck additions and wood window replacements also returned more than 80 percent of costs, at 85 percent and 81 percent, respectively.


On a national average, the only interior project to return more than 80 percent of remodeling costs this year was a minor kitchen remodel, returning 83 percent of project costs at resale.
The report, produced by Hanley Wood LLC in cooperation with REALTOR Magazine, compares construction costs with resale values for 29 mid-range and upscale remodeling projects.

The least profitable projects? A back-up power generator, sunroom addition, and home office remodel.


More information on the survey is available at REMODELING Online.

Time on the market in Chicagoland...

Here's a little snippet from Mary's Sunday column:

Headrick-Wagner Consulting concluded the following for Chicago-area homes that sold between mid-November 2006 and mid-November of this year:

*Homes priced $100,000 to $300,000 took 111 days to sell;
*Homes priced $300,000 to $500,000 took 130 days;
*Homes priced $500,000 to $750,000 took 148 days;
*Homes priced $750,000 and more took 194 days.

Those, of course, are the ones that went under contract; active listings (that is, on the market but unsold) were averaging 153 days, 175 days, 200 days and 242 days, respectively, as of mid-November, the appraisers said.

Another reason to live in the north 'burbs and not Naperville...

Well our little ole' Chicago area made the NYTimes yesterday regarding John Calamos' new Naperville development. Interesting piece with a fair degree of specificity about development along I-88. I suppose some people will like it...as for me I'll take Ravinia, the Chicago Botanical Gardens and Lake Michigan access.

Survive the downturn

Law.com had a good piece about surviving the real estate slowdown...it's somewhat big firm focused but it contains some useful info. Here's a list of things to when there's no pending legal work:

*Use your newfound and unwanted free time to reconnect with clients that you have neglected during the busy times. When we are in our manic deal modes, we often wish we had the opportunity to spend more time on client relationships. Use this market shift as an opportunity to go through your Rolodex and identify clients and other business contacts with whom you should renew some friendship. Ask all of these clients what they are seeing in the marketplace, what they think is coming and what they view as their biggest challenges. Information is power.

*Educate yourself about the specific industry issues your clients and targets are facing. Read everything you can get your hands on about real estate industry issues, particularly those materials that your clients are also reading in specific asset classes, such as the retail, commercial office, multifamily, industrial and hospitality markets. Ask your clients what they are doing to stay informed and emulate their approach.

*Publish articles and speak at conferences about the issues of import to your clients and targets. Focus on how your clients can manage these issues and mitigate the associated risks. Identify areas where you can become a thought leader and then take the steps that are necessary to project yourself in that way to the marketplace.

*Refresh your skills at handling workout transactions. If this is your first real estate cycle, develop some workout expertise. Spend time with the bankruptcy lawyers at your firm and evaluate the possible scenarios and outcomes that your clients or targets might imminently be facing. Give thought to how to restructure deals that are heading south.

*Develop a new niche area of expertise that may be relevant down the road, as we live through and then come out of the downturn. For example, give thought to how legal issues associated with the "green" movement may affect the real estate industry. The world is changing at an incredibly rapid pace. New opportunities will inevitably arise, given the speed at which the global economy is shifting. Give thought to the new areas of opportunity that will likely emerge and how you might play a role in them from a legal perspective. It is critical for us to give thought to the horizon and to new areas of opportunity that may be coming down the pike, whether for your own practice or for others in your firm.

*Invest more time in your organization. Law firms are complicated businesses that take considerable brainpower and effort to successfully operate and nourish. There are numerous needs and possibilities for investing sweat equity into your organization to make it a better place. Identify something that has been troubling you or is in need of improvement at your firm and take the initiative to get involved in contributing to or even developing a solution for that challenge. It takes an entire village to build and sustain a successful law firm, and every contribution to that effort is meaningful.

*Do yoga and keep breathing. This sounds like a joke, but I speak the truth when I share with you that I have brought a yoga class into my firm's Washington office, and it has made a dramatic difference in reducing the stress level of those lawyers who have taken the risk to participate. Whether it is yoga, exercise or another wellness tactic that might resonate with you, engage in some activity that provides you with an outlet for the anxiety we all, inevitably, encounter in the face of a market shift that affects our practices, in particular one on a scale similar to the shift caused by the subprime meltdown.

Mortgage help from "W"

BUSH ANNOUNCES FIVE-YEAR FREEZE

WASHINGTON (Associated Press, Real Estate Center) – President Bush announced this week plans for a five-year freeze on interest rates for subprime mortgages.

"We should not bail out lenders, real estate speculators or those who made the reckless decision to buy a home they knew they could never afford," Bush said. "But there are some responsible homeowners who could avoid foreclosure with some assistance."

Bush said 1.2 million people could be eligible for help. But only a fraction will be subject to the rate freeze. Others, he said, would get assistance in refinancing with their lenders and moving into loans secured by the Federal Housing Administration.

Dr. James Gaines, research economist with the Real Estate Center at Texas A&M University, calls the plan a noble effort to find a way to keep homeowners in their homes but says the basic premise is shaky, and the details are sketchy.

“For the most part, the homeowners and borrowers likely to benefit from the interest rate freeze are the very same people who would have the best chance of renegotiating their loans with the lender in the first place — a borrower with a relatively sound credit rating and a history of making payments who simply needs a little help to keep from going into full default,” Gaines said.

Bush’s announcement followed news from the Mortgage Bankers Association that the percentage of mortgages that started the foreclosure process during the third quarter jumped to 0.78 percent, a record high. In addition, the delinquency rate for all mortgages climbed to 5.59 percent during the third quarter, the highest since 1986.

Gaines said Texas borrowers — even subprime borrowers — are in better shape than those in the seven states dominating the delinquency and foreclosure statistics, because home prices here continue to rise, making selling or refinancing a viable alternative.

Here's a fact sheet from The White House.

Tenants by the Entirety protection

An interesting case was recently reported that can serve as a reminder of the importance of using the Tenants by the Entirety (765 ILCS 1005/1c) as a method of ownership. The case is Maher v. Harris Trust and Savings Bank, No. 06-3656 out of the 7th Circuit. As you'll recall, parties must be married and use the property as their primary residence in order for Tenants by the Entireties to be appropriate.

Part of the case simply serves to exemplify the advantage of Tenancy by the Entireties...Husband had a judgment entered against him alone and then the judgment debtor attempted to collect against the marital residence and failed. That's the protection, a judgment against only one of the two spouses cannot be collected against the property owned as Tenants by the Entirety.

The other more unique aspect of this case was that the property owned by the spouses wasn't "typical" fee simple ownership in real estate but rather shares of stock in a co-op building. The judgment creditor argued that the stock was personal property and subject to turnover. The appellate court said that property maintained as a homestead may be held as Tenancy by the Entireties whether real or personal property.

Use Tenancy by the Entireties whenever possible. It has all the benefits of joint tenancy, plus the extra creditor protection. Review the deed carefully at closing. What I see a lot of is sort of the "form" deed given at closing provides for joint tenancy and if you're not reviewing everything thoroughly that's what you'll get. And in the case above what you would have gotten was a family out of their home.

Your mortgage payment: I'll charge it

There's a new Website, Cardit.com, that allows homeowners to pay their mortgage by credit card. For $19.99 per month and 2.49% of the monthly amount, mortgagors can put their monthly payment on a credit card.

It's hard to see why you'd ever want to use it, unless you're in a cash bind. The credit card will likely have a higher interest rate than the mortgage.

DuPage County Foreclosures

The Daily Herald had an interesting piece discussing the foreclosure process specific to DuPage.

The World's Rental Market

Here's CB Richard Ellis' semi-annual report on the worlds' most expensive rental markets and the cities with the fastest growing rent.

Do know the world's most expensive rent city? It's very gettable...#2 is a surprise though.

5 tenants for Block 37 named

An initial 5 tenants announced for block 37:

The inaugural tenants are Lettuce Entertain You Enterprises Inc., David Barton Gym, Rosa Mexicano restaurant, Muvico Entertainment LLC and Club Monaco.

Just cleaning out some old real estate files...

As the first snow flakes appear imminent and the real estate "season" slows down I was going through some of our recent closing files to send owner's title policies and recorded deeds out to clients this week. Two feelings: gratification & exhaustion.

Gratification. Honestly it felt good to see a number of checks come in related to good lawyering. They're all coming in due to real estate tax reproration agreements that we negotiated...i.e. the tax credit received at closing was lower than the actual taxes when the bills were issued.

Exhaustion. It's a lot of work to do proper post-closing work...you better not be under-charging for residential real estate work. There's possibly a good hour of work involved in each file post-closing: calling the title company to follow-up on the owner's policy, communicating with Seller's attorney about the tax reproration and sending out a letter to the client the deed and policy. Do great work and earn a great fee!

Cook County Real Estate Taxes and Christmas Shopping

I'm waiting to read an article that addresses the impact of Cook County real estate taxes being due in DECEMBER on holiday shopping. I think 12/3/07 is the latest due date in history...at least in my short memory. Isn't there a story here? Having to pay thousands of dollars to our county government some 20 days prior to Christmas IS impacting my holiday largess. Give me a call Mary.