January 29, 2016
by Lee S. Perres,
Kimberly A. Stapleton,
and Benjamin Burstein
Pierce & Associates, P.C.
USFN Member (Illinois)
The city of Chicago adopted ordinances to address the negative impact of improperly maintained vacant buildings in its neighborhoods. These ordinances affect mortgagees and servicers. The ordinances are the Vacant Building Ordinance, the Red X Program and Chicago’s Protecting Tenants in Foreclosed Rental Property Ordinance (“Keep Chicago Renting Ordinance”). The ordinances provide for significant penalties for failure to comply, and the need for servicers to familiarize themselves and comply with these ordinances is critical.
Vacant Building Ordinance (Municipal Code of Chicago Sections 13-12-126 to 13-12-128) — The mortgagee of any residential building that becomes vacant and is not registered by the owner must register the vacant building within 30 days after the building becomes vacant and unregistered, or 60 days after the mortgage is in default (whichever is later). The mortgagee must also secure the building and perform certain maintenance.
The mortgagee can register the building on the Department of Buildings website (http://ipiweb.cityofchicago.org/vbr/) and pay a registration fee of $500. The registration must be renewed every six months as long as the building remains vacant, and the mortgagee must notify the Department of Buildings within 20 days of any change in the registration information by filing an amended registration statement.
The mortgagee must maintain the property, including but not limited to maintaining and securing the exterior of the building, and maintaining the structural integrity of stairs leading to the main entrance. See Section 13-12-126 for the complete list of requirements. Beginning 45 days after the mortgage is in default, the mortgagee is required to inspect the property monthly to determine if the building is vacant. The penalty for failure to comply may result in a fine (minimum is $500; maximum is $1,000) for each offense. Every day in which a violation exists is a separate and distinct offense.
There are several affirmative defenses available to a mortgagee in a code violation case, including that the building is occupied — either lawfully or unlawfully (i.e., squatters) — as well as that violations were cured within 30 days of receiving notice of violations. See Section 13-12-126 for the complete list of affirmative defenses.
Red X Program (Municipal Code of Chicago Section 13-12-148) — Vacant buildings pose many hazards to first responders. To protect the city’s personnel from potential dangers in unsafe buildings, Chicago passed the Red X ordinance. If a structure is deemed unsafe, the fire commissioner is authorized to place a clear and visible Red X warning placard on the vacant edifice. This is to alert anyone approaching the building of the existence of structural or interior peril.
Entry to a “Red X” building is strictly prohibited for any person, including owners and mortgagees in possession, unless the person notifies the Chicago Fire Commissioner in advance of his or her intent to enter the building. Red X buildings should only be entered to assess or repair damages; the structures are not to be entered for showings to sell the building. The penalty for a violation of the ordinance is a minimum fine of $500 (and maximum fine of $1,000) for each offense. Every day that a violation continues constitutes a separate and distinct offense.
Keep Chicago Renting Ordinance (Municipal Code of Chicago Sections 5-14-010 to 5-14-100) — In an effort to preserve, protect, maintain, and improve rental property and prevent occupied buildings from becoming vacant after foreclosure, the city adopted the Keep Chicago Renting Ordinance. The ordinance applies to owners of foreclosed rental properties (redefined to be the purchaser at the foreclosure sale once the sale has been confirmed) and requires that,
“no later than 21 days after a person becomes the owner of a foreclosed rental property, the owner shall make a good faith effort to ascertain the identities and addresses of all tenants of the rental units in the foreclosed rental property and notify, in writing, all known tenants of such rental units that, under certain circumstances, the tenant may be eligible for relocation assistance.” See Section 5-14-040(a)(1).
The notice to tenants required under Section 5-14-040 must provide specific details and must offer a qualified tenant:
“relocation assistance in the amount of $10,600 unless the owner offers the tenant the option to renew or extend the tenant’s current written or oral lease with annual rent that: (1) for the first twelve months, does not exceed 102% of the tenant’s current annual rent; and (2) for any 12-month period thereafter, does not exceed 102% of the immediate prior 12-month period’s annual rent.” See Section 5-14-040(a)(1) for the specific language that must be contained in the notice to tenants to avoid liability.
Section 5-14-040(b) provides that a Tenant Information Disclosure Form (Form) must be provided with the notice required under Section 5-14-040. Within 21 days of receipt of the Form, the tenant shall complete and return the Form to the owner. However, the failure of the tenant to return the Form does not relieve the owner of either providing a new lease or replacement rental unit, or providing the relocation assistance fee.
Within 21 days “after the date upon which the tenant returns or should have returned” the Form, the owner shall provide notice to the qualified tenant that the owner is paying the required relocation fee, or offering to extend or renew the qualified tenant’s rental agreement, or providing a rental agreement for a replacement rental unit if the unit has been unlawfully converted or is an unlawful hazardous unit, whichever is applicable. See Section 5-14-050(a)(3).
If a qualified tenant “fails to accept the owner’s offer to extend or renew the tenant’s rental agreement, or to accept a rental agreement for a replacement unit, whichever is applicable, within 21 days of receipt of the offer [unless more time is provided by the commissioner of business affairs and consumer protection] the owner shall not be liable to such tenant for the extension or renewal of the tenant’s rental agreement; provided that a qualified tenant’s refusal to accept the owner’s offer for a replacement rental unit or to extend or renew the tenant’s current rental agreement for an unlawful hazardous unit does not affect the tenant’s right to receive a relocation fee.” See Keep Chicago Renting Rules for additional requirements: http://www.cityofchicago.org/city/en/depts/bacp/supp_info/rules_and_regulations.html.
If the Form is provided to the tenant, and no response is provided within 21 days, the owner must still make an offer to pay the one-time relocation fee, offer to extend or renew the lease, or provide a replacement rental unit within 21 days (and wait 21 days for a response). As such, within approximately 42 days (not accounting for time delays with mailing) of the tenant receiving the Form, the owner will know if a new lease will need to be offered, if a one-time payment must be provided, or if a forcible detainer and entry (eviction) can occur. The owner can always evict for cause, such as failing to pay rent or violating the terms of the rental agreement.
No later than 10 days after becoming the owner of a foreclosed rental property, the owner must register the foreclosed rental property with the commissioner. See Section 5-14-060(a) for the registration requirements. At the time of filing the registration, the owner must pay a registration fee of $250 for each foreclosed rental property registered. The city must be notified if the property is sold or transferred to a bona fide third-party purchaser within 10 days of the sale or transfer.
A violation of the ordinance carries a fine of $500 minimum (and $1,000 maximum) for each offense. Every day that a violation exists is a separate and distinct offense. Additionally, the city has begun prosecuting violations of the ordinance, specifically failures to comply with the requirement to register foreclosed rental properties. Furthermore, a tenant may bring a private cause of action for failure to comply with the notice requirements or with the requirement to offer relocation assistance, and may recover damages and attorneys’ fees.
See the Municipal Code of Chicago for full ordinances: http://library.amlegal.com/nxt/gateway.dll/Illinois/chicago_il/municipalcodeofchicago?f=templates$fn=default.htm$3.0$vid=amlegal:chicago_il.
Copyright © 2016 USFN. All rights reserved.
Winter 2016 USFN Report