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Attorneys practicing in and around the Chicagoland area. Experienced in the practice areas of Real Estate Law, Mortgage Foreclosure Defense Litigation, Business Law, & Estate Law.

Attorneys At Law - Attorneys practicing in and around the Chicagoland area. Experienced in the practice areas of Real Estate Law, Mortgage Foreclosure Defense Litigation, Business Law, & Estate Law.

Relaxing the rules on condo rentals


By Pamela Dittmer McKuen, Special to the Tribune

One of the early issues tackled by the new Kedvale Gardens Condominium Association in 2004 was renters. The board decided that up to six units, or 15 percent, of the 41 units could be rented at any given time. The policy worked well until a couple of years ago.

“Then the economy blew up,” said Kerry Smith, president of the association in Chicago’s Old Irving Park neighborhood. “People were begging and pleading for us to let them rent. They couldn’t afford to keep their units, and they couldn’t sell either.”

The board responded by granting four one-year hardship exemptions, raising the number of rentals to 10.

A few years ago, renters were largely unwelcome in community associations. Among the arguments: Owners take better care of the property, frequent move-ins tear up hallways, and rental restrictions protect property values. Some associations were so averse to renters that they amended their declarations to ban them.

But times have changed. Financially stressed owners increasingly are asking for exceptions to no-renter policies. Boards often are granting them, just as Kedvale did.

Joanna Dziok, who owns Integral Residential LLC in Chicago and who manages Kedvale, said most of her client associations have “reluctantly” allowed more renters in recent years.

“Boards felt they needed to do something,” Dziok said. “They were getting pressured from both sides, from owners who need to rent and from others who said, ‘I didn’t sign up to live in a rental building.'”

“We decided it was in our best interest to temporarily raise the cap,” said Smith. “No one wants a vacant unit.”

“This is a reversal of trends, driven solely by economic factors,” said attorney David Allswang, of Holland & Knight in Chicago. “Today, when sales are (made) less often, to put it mildly, the option of renting is much more prevalent than the option of selling.”

For some owners, the only other option is foreclosure, which will depress the value of everyone else’s unit, he said.

Foreclosures also strain an association’s budget. It can take six months to a year for lenders to sort out ownership and loan issues; meanwhile, assessments most likely go unpaid, said developer Garry Benson, chief executive of Garrison Partners in Chicago.

“Associations are sensitive about getting a transient reputation if they allow renters, but they often make exceptions because of the opportunity to recoup their overdue assessments,” he said. “It’s all about cash flow.”

That sentiment is echoed by Gene Fisher, executive director of Diversey Harbor Lakeview Association, which represents 30 North Side associations.

“There is little question that the number of condo rentals has increased,” he said. “It’s a concern, but I have a sense that most buildings in this neighborhood have put their concerns about rentals on the back burner as long as assessments keep getting paid.”

Boards are adapting their rental policies to economic conditions in various ways, ranging from rigid to permissive and from simple to elaborate.

Dziok said that some of her buildings lifted all restrictions for a year or two. Others raised prerecession rental caps, generally between 7 percent and 15 percent, to as high as 25 percent. Still others added a second cap for hardships on top of the regular cap. Percentages intentionally are set below Federal Housing Administration owner-occupancy requirements, currently 50 percent, so that buyers can seek government-backed mortgages.

Units that are rented to immediate family members usually don’t count toward the rental pool, she added.

Hardship exemptions are tricky for boards to deal with, said association attorney Allan Goldberg, of Arnstein & Lehr in Chicago.

“Hardship is, pardon the pun, hard to define and can be quite subjectively applied, since the human dynamic can enter into a board’s consideration,” he said. “Each board has its own penchant for factors determining hardship.”

Many boards take the view that the economy itself is not reason to determine a hardship, but they may be sympathetic to owners who have trouble selling their units or who are facing foreclosure, he added.

When considering hardship requests, boards must avoid appearances of favoritism or discrimination. Hard feelings can erupt and potentially lead to legal action when one request is denied and another is granted. The Illinois Condominium Property Act prohibits boards from creating two classes of membership.

Brian White, executive director of Lakeside Community Development Corp., urges associations to offer hardship exemptions, especially when doing so might keep owners from losing their homes.

Hardship exemptions can include reasonable conditions, perhaps requiring owners to undergo credit counseling or landlord training, or limiting the length of the rental to 12 months, he said.

“During that time, the unit owner should be making steps to resolve whatever barrier led to the hardship request,” he said.

Some associations have determined how often units may be rented, set up waiting lists and protocols for moving up and down the waiting list, and made rules for sublets, said Goldberg.

Dziok separates hardships into two categories: medical and financial. Medical hardships, such as when an owner must temporarily move in with an ailing parent, are easier to prove. Financial hardships are a little tougher.

“To not get into a legal pickle, my boards have left open to interpretation what is needed to prove the hardship,” she said. “They’ll take whatever documentation the owner wants to provide, but they won’t require specific bank or tax records. If the owner provides nothing, that doesn’t work in their favor.”

Allswang’s preference is for boards to create a relaxed rental policy for all owners rather than hardship exceptions for a few.

“Administratively, it’s easier,” he said. “With a hardship provision, you need to deal with owners case by case, which can get very personal and very emotional. People aren’t so keen on providing all the information why they have a hardship.”

He offered an example of a relaxed policy: “You might say, ‘The window is now open for two years for all owners, and after that, we’ll re-evaluate. The market might be different then.'”

Before implementing a new rental policy, boards must check their governing documents to see if they have the authority to make changes. A declaration that prohibits all leasing must be amended by a supermajority of owners. A declaration that prohibits leasing but contains a hardship provision gives the board more leeway to allow exceptions. Rules and regulations that address leasing can be changed by a board vote.

Back at Kedvale, a couple of the hardship rentals recently sold. The board is hoping for speedy resolution for the other two cases, so they can get back to their original six rentals.

“The economy has been a real issue for us,” said Smith. “We had to give people a chance to recover.”

Link: http://articles.chicagotribune.com/2010-11-19/classified/ct-mre-1114-hardship-rentals-20101119_1_rental-restrictions-condo-rentals-renters

Scam artists pretend to be federal mortgage relief programs

WASHINGTON — You’ve probably seen the pitches on TV and the Internet or found them stuffed in your mail: official-looking communications complete with logos and letterheads that look vaguely like those used by the Treasury, IRS and other federal agencies.

The promoters have names that resemble federal foreclosure-intervention programs such as Making Home Affordable or Home Affordable Modification. Some even flash photos of President Obama or the great seal of the United States.

They are instead criminal enterprises posing as do-gooders who promise to get you out of the mortgage jam you’re in, whether you’re severely delinquent or deeply underwater. They claim they can persuade your lender to cut your monthly payments, forgive all penalties, slash your interest rate and even get your loan balance reduced. If your lender won’t cooperate, they say they’ll perform “forensic audits” on your mortgage and convince a court to cancel your entire loan transaction because of technical mistakes in the paperwork.

Bogus firms always insist on getting your money upfront often thousands of dollars and then do little or nothing. But now the Federal Trade Commission is cutting off the main fuel supply for mortgage modification scammers: Under new rules outlined Nov. 19, the agency plans to ban virtually all upfront payments, institute mandatory disclosure rules, and clamp new federal restrictions on lawyers who participate in mortgage modification schemes.

Under these rules, companies offering mortgage relief will have to contact your lender or servicer and present you a written proposal describing the key changes to your mortgage terms that the note holder is willing to make before any money can be collected in advance.

Modification companies also will be required to make clear they have no connection with any government agencies or program, and that you’re free to reject any offer from the lender, with no requirement to pay a fee. The rule also prohibits modification firms from using one of their most commonplace and destructive ploys: They can no longer instruct clients to stop communicating with their lender or servicer. Many scammers not only urge unwary consumers to let them handle all negotiations but also direct them to stop sending in payments or worse, to send all payments to the modification company. Typically that has the effect of rendering any ultimate modification with the lender or servicer even less likely.

The FTC estimates bogus modification companies have stolen millions from unwary homeowners in the past two years; ironically, there’s been a huge increase in the number of abusive schemes in the wake of the federal government’s efforts to create legitimate foreclosure relief programs. The FTC has brought more than 30 cases against these operations, but until now the agency has had no way to control the pervasive advance-fee requirements that are so costly to some homeowners.

Now, when that portion of the new rule takes effect Jan. 31, the FTC will be able to proceed against any firm that collects upfront fees without obtaining the required written proposals at no charge from lenders. It will be a litmus test: If a firm seeks to charge you anything or collects money upfront, it will be in violation of federal law and subject to harsh civil penalties.

The only exception will be for lawyers, who typically require retainers before they begin negotiating on a client’s behalf. They will be permitted to collect retainer fees for modification efforts but only if they deposit the money into “client trust accounts” under state bar regulations. Lawyers who charge advance fees also must be licensed by state authorities and be in compliance with state laws and regulations governing professional conduct.

Joel Winston, the FTC’s associate director of financial practices and a lawyer himself, said in an interview that “a disappointingly high percentage of fraudsters (in FTC loan modification cases) have been lawyers they’re just fraudsters with law degrees.” Nonetheless, Winston said, the agency recognizes that “legitimate practitioners” can play a valuable role in negotiating modifications for homeowners, and the FTC doesn’t want to cut this off by banning upfront retainer payments outright.

Some states, such as California, have aggressively moved against lawyers running loan-mod scams, he said, but once the new FTC rule takes effect nationwide every state will get “federal teeth” behind their own efforts to crack down on law firms who abuse homeowners in mortgage trouble.

“You won’t be able to fly under the radar anymore hoping that state disciplinary boards won’t spot you,” Winston said. “Now (fraudster lawyers) are going to have the federal government to contend with and we will be looking for them.”

Write to Ken Harney at P.O. Box 15281, Chevy Chase, MD 20815, or via e-mail at kenharney@earthlink.net.

© 2010, Washington Post Writers Group

Keller Williams Glen Ellyn Lunch & Learn

Lora Matthews Fausett, P.C. will meet with Keller Williams of Glen Ellyn to discus current real estate matters, including: foreclosures, short sales, and other general real estate issues.

Where: 45 S. Park Blvd. Suite 300
Glen Ellyn, IL 60137
KW Training Room

When: Friday, January 11 2013 @ 12-1pm