Real Estate Law Although the firm of Ancel, Glink, Diamond, Bush, DiCianni & Krafthefer is primarily known for its involvement with governmental entities, risk pool defense litigation and land use issues, the firm has cultivated a practice in real estate, both residential and commercial. A number of attorneys, both in our Chicago and Waukegan offices, spend a significant amount of their time in the practice of real estate. The firm has handled the purchase of golf courses, commercial leases, residential closings and commercial closings. The firm is also a member of Chicago Land Agency Services, Inc., which is a subsidiary of Chicago Title and is capable of writing its own title insurance policies.
An experienced and well-trained paralegal performs the administrative process for property exemptions, certificates of error and recordings. Approximately twenty-five percent of our real estate work is done in the conveyance of real estate to and from not-for-profit organizations or governmental entities with the remaining seventy-five percent being residential and commercial closings. A real estate closing can be a stressful process for a buyer or a seller. The Firm has developed an expertise and organizational process that minimizes the time, effort and costs of real estate transactions.
Ancel, Glink advises anyone who is involved in any type of real estate transaction, real estate lease or a land use application, to consult an attorney. The process, unfortunately, has become needlessly complicated, but can be unraveled by the experts of Ancel, Glink, Diamond, Bush, DiCianni & Krafthefer. For more information about this area of our practice contact Stewart Diamond.
Frequently Asked Questions About Real Estate Transactions
1. When closing a real estate transaction, which documents need to be delivered and executed? Why?
ANSWER: Real estate is one of the largest investments that many people make in their lives. Therefore, when assisting a client with acquiring or selling real estate it is important to be thorough when preparing for closing to make sure that no loose ends get overlooked. It is helpful to keep a checklist of all of the items that need to be addressed at closing. While each transaction is unique in some aspects most closings have certain common documents that either are tendered to the title company or exchanged between the buyer and seller. Below is a list of these documents and an explanation of what purpose they serve. Please keep in mind that this list is non-exhaustive and does not include loan documents that a bank may require when a buyer takes out a mortgage.
(A) Deed - This document actually delivers title to the real estate from the seller to the buyer. Deeds may be either a quit claim deed, which conveys the property "as is", or a warranty deed, which provides certain warranties concerning ownership, possession and use of the property. Special forms of warranty deeds, frequently used with governmental transactions, are special warranty deeds and trust deeds.
(B) Survey - This is a plat of the property prepared by an Illinois certified surveyor. The survey accurately depicts the boundary lines of the property, any easements and may show if there are any improvements on the property encroaching either onto the subject property or neighboring property.
(C) Title Insurance - This provides a conditional guarantee that the buyer is the legal title holder to the property and explains if there are outstanding liens against the property that can be foreclosed. Also, it will note if the property lies within any special taxing districts or is subject to regulations which may affect the cost of owning or using the property. Title insurance is usually paid for by the seller for the benefit of the buyer.
(D) Affidavit of Title & ALTA Statement - Title insurance can only provide a guarantee of title to within 10-21 days prior to closing. These documents supplement the title insurance to further guarantee the property is free from any outstanding or potential liens, there are no unrecorded easements, and no leases exist on the property. The Affidavit of Title is signed by the seller to verify that the seller has not performed any act that would impair his/her title or impose a lien on the property. The ALTA Statement is signed by both the buyer and seller.
(E) Real Estate Transfer Tax Declaration - State/County/Local - Most conveyances of property are taxed by the state and county government. The Real Estate Transfer Tax Declaration summarizes the amount of tax owed to the county and state and serves as a worksheet to determine the total transfer tax liability. Certain municipalities also assess a local tax on the transfer of property. A local government may also require the seller to pay a final water bill and/or submit to a building inspection before it will issue a transfer tax stamp evidencing compliance with its rules. Real estate transfer taxes may only be assessed by home rule municipalities, which must gain referendum approval to establish or increase the amount of such a tax. Property conveyed to or from a governmental entity is exempt from any real estate transfer tax.
(F) FIRPTA Affidavit & HUD 1 (RESPA) - These documents relate to the federal tax consequences of the real estate transaction. The FIRPTA, or Foreign Investment in Real Property Transfer Act, requires that all seller's sign an affidavit attesting to whether they are a domestic or foreign entity. If there is a loan the HUD 1 (RESPA) is a document that summarizes all of the financial details of a real estate transaction, including disbursements to third-parties, so that the federal government can monitor the tax liabilities arising from the conveyance for the buyer and the seller.
2. How many ways are there for an individual to own property?
ANSWER: There are three traditional ways in which a person can own title to property. The first, tenancy in common, simply means that the owner has exclusive right to use and possess the property. Property owned in this fashion may be bequeathed or devised similarly to other property. If there is more than one owner, each person many own a share of the property either as a tenant in common or as a joint tenant, the second manner of ownership. Joint tenancy with rights of survivorship requires that all co-owners acquire their shared interests at the same time and through the same document. This form of ownership provides certain rights to each co-owner. Each is entitled to exclusive use and possession of the property in a manner that will not depreciate its value. More importantly, should any of the joint owners decease, the other owners automatically acquire that owner's interest. For example, if there are three joint tenants who each own 33% of a parcel, when one dies the remaining owners will automatically own 50% of the land without the property passing through probate or the deceased's estate. The last traditional form of ownership is called tenancy by the entirety. This type of ownership is very similar to joint tenancy but only married people are eligible to own solely their homestead property in this manner with their spouses. The advantage to owning property by the entirety is that creditors cannot foreclose on the property to satisfy the debts of only one spouse without the consent of the non-debtor spouse. A perfected creditor's lien upon the property can, however, be foreclosed in the case or divorce or the death of either spouse.
3. What is a title commitment and how does it relate to title insurance?
ANSWER: Title Insurance provides a conditional guarantee that the buyer is the exclusive, legal title holder to the property. Before a title company will offer title insurance, though, it will first issue a title commitment. A title commitment is a preliminary report by the title company that shows the type of title insurance it will commit to offer based on information it researches and gathers from a variety of sources. The commitment describes: (1) the current title owner; (2) the legal description of the subject property; (3) the amount of real estate taxes due and owing on the property; and (4) any other conditions or limitations on the owner's exclusive right to own and possess the property (i.e. easements, special taxing districts, rights-of-way, plats of annexation, homeowner's association declaration and by-laws, covenants, impact fees, local transfer taxes, encroachments, liens, etc.). The items that are described in (3) and (4) make up the conditions and limitations of the title commitment and, eventually, the title insurance. A title company will provide a title commitment as a preview of what the title insurance policy will look like once it is issued after closing. After the title company issues this preliminary report both the buyer and seller have an opportunity to submit documents or other evidence to the title company to prove that the exceptions, or conditions, should be waived. Therefore, after each party submits all of its evidence and after closing, the title company will issue a title insurance policy based on the title commitment it issued earlier.
4. What are the basic elements of a real estate contract?
ANSWER: The real estate contract is the document that "gets the ball rolling" in the process of purchasing or selling property. Sadly, sometimes buyers will sign a real estate contract and then bring it to an attorney to review. This is the wrong order, since certain promises made in such a contract may permanently bind both the buyer and seller. As such, it must set the ground rules and lay out each party's expectations concerning the condition of the property, when the conveyance will take place and the purchase price. The essential elements of a basic real estate contract include:
Buyers and Sellers. Obviously, the most important information on the contract identifies who is selling the property and who is buying it. While it is not essential that the parties are named precisely how they will be identified on the deed, it is important to at least name the parties to the contract.
The Property. The real estate contract would not exist if it were not for the piece of property that is being conveyed. Again, while it is not essential to describe the property with the same accuracy required for the deed, at least the common address and Permanent Index Number (P.I.N.) should be listed for identification purposes.
Purchase Price. The last required element of the contract is the amount to be paid for the property. This is the gross amount for which the buyer is offering to purchase the property and the seller is willing to sell. From this amount will be taken the set offs, credits and pro rations provided for elsewhere in the contract, if at all.
Personal Property. Technically, the property being purchased in the real estate contract is the land and the building. In addition to that, many sellers are willing to include many items that are installed as fixtures in their home, including major appliances, ceiling fans, window treatments, humidifiers, etc. Therefore, the contract should include information describing which items of personal property the seller and purchaser negotiate will be included in the conveyance for the purchase price listed in the contract.
Closing & Possession. This provision should describe when and where closing will take place. Normally, closing, or the consummation of the transaction contemplated in the contract, takes place at the office of the title company that is issuing the title insurance. Sometimes title companies will also send a "closer" to the office of an attorney or real estate agent if it is more convenient. This date is very important because it is also normally the date on which the purchaser can take possession of the property and begin to exercise control and use and is responsible for insuring the property against casualty loss and third person injuries.
Prorations. Because many of the taxes and other expenses associated with owning property are paid in arrears, it is necessary to provide a means for the seller to pay for its fair share of the taxes and costs accrued while it had possession of the property. Because this amount is determined on a pro rata basis, these calculations are known as "prorations." As an example, real estate taxes are paid one year in arrears in Illinois. Therefore, if a contract closes on June 30, 2001, the seller will be responsible for all of the property taxes for 2000 and for half of the taxes due for 2001. However, because the parties will not learn the amount of taxes due for 2001 until 2002, the seller gives the purchaser a credit, or set off, so that the purchaser can pay the taxes when they become due. It is usual and customary to estimate the next year's taxes as 105% of the previous year's amount. Accordingly, there should be a provision in the contract setting the rules for calculating the prorations and describing which expenses will be calculated on this basis.
Contingencies. There are three major contingencies in a real estate contract: financing, inspection and attorney approval. Most purchasers buy property with the aid of a loan on which they give a mortgage to the lending institution. Therefore, many contracts will give the buyer a deadline by which to prove to the seller that he/she has qualified for a loan and can bring sufficient money to closing to purchase the property. Most buyers also want an opportunity to inspect the property before they commit to purchase it. Accordingly, the contract will provide for a number of days, normally 5-7, during which the purchaser must arrange for an inspection to determine if there are any defects in the property which the seller needs to correct before the purchaser promises to close the deal. Finally, since most real estate contracts are prepared originally without the aid of an attorney, there is a short period during which each party allows their attorney to review the contract and recommend changes. This period is normally similar in length to the inspection deadline.
5. What is the difference between an easement and a license?
ANSWER: An easement and license each convey a different degree of permission to use a parcel of property. An easement consists of an actual interest in, either all or a portion of, another's land with the right to use or control the land, or an area above or below it, for a specific limited purpose. An easement can be exclusive or non-exclusive, depending on the nature of the use intended for the property. Normally, an easement is recorded with the Recorder of Deeds so that the interest is identified by and enforceable against the current and future owners of the land on which the easement exists. Therefore, an easement will be valid, for its stated purpose, regardless of whether the original grantor sells his property or the grantee sells her property. On the other hand, a license, or access agreement, is only a revocable permission to enter onto another's land for a specific purpose that without such permission would be illegal. A license is personal in nature and therefore is more analogous to a contract since no interest in land is conveyed. Typically, a license is shorter in duration than an easement and does not need to be recorded unless there is an intent to make it binding on future owners of the property. Examples of easements are for rights-of-way or utility trenches. Licenses frequently are granted for permission to perform environmental testing on one's property or to conduct some other short-term activity and they have a built in term or duration.
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