May 2, 2016
by John Blatt
Anselmo Lindberg Oliver LLC
USFN Member (Illinois)
While it has been more than a year since the expiration of the federal Protecting Tenants at Foreclosure Act of 2009 (PTFA), the sunset of the PTFA has had little effect on post-foreclosure eviction timelines in states that have passed their own version of the act. Illinois serves as an example of this as it passed its own version of the PTFA in 2013. While Illinois timelines remain largely unchanged, a local ordinance in the City of Chicago has dramatically increased the time and cost of post-foreclosure evictions.
Illinois post-foreclosure evictions proceed according to the Forcible Entry and Detainer Act (FED), which used to allow owners to proceed against any occupants with a mere 7-day demand notice. The PTFA increased the notice requirement to bona fide tenants in all states to 90 days, unsurprisingly impacting case timelines. Prior to the PTFA’s expiration, Illinois amended the FED to impose the same 90-day demand notice requirement.
Bona fide leases are defined by the Illinois Mortgage Foreclosure Law as follows: (1) the tenant is not the mortgagor or a member of their immediate family; (2) the lease was the result of an arm's-length transaction; (3) the lease requires the payment of rent that is not substantially less than fair market value, unless the rent is reduced or subsidized by a federal, state, or local subsidy; and (4) the lease was either (a) entered into before the filing of the foreclosure lis pendens, or (b) entered into after the lis pendens, but the term of the lease is for one year or less.
While similar to the PTFA, bona fide leases in Illinois directly relate to the filing of the foreclosure lis pendens. This addition was likely included to address the growing amount of tenants presenting 4-year leases that were entered into on the eve of the foreclosure sale.
Determining the existence of bona fide tenants is complicated by the fact that mortgagor-landlords in foreclosure often do not keep accurate records of leases and payments made by their tenants. This imperfect information places evicting plaintiffs at a distinct disadvantage because they cannot assess who has a bona fide lease before the notice must be served. Serving an occupant with a 7-day demand is attractive, but risky, as the presentation of a bona fide lease renders the eviction void. Judges across Illinois often find leases bona fide under the most tenuous of circumstances. If a bona fide tenant does appear, the 7-day demand is no longer sufficient and the eviction must be dismissed, which increases the costs and time of an otherwise straightforward case. Because of the risks inherent in serving occupants with the 7-day demand, most owners conservatively continue to serve all occupants with a 90-day demand.
Chicago — The most onerous undertaking imposed on post-foreclosure purchasers in Illinois falls within the confines of the City of Chicago. On September 23, 2013 the City of Chicago enacted the Keep Chicago Renting Ordinance (KCRO), which mandates that post-foreclosure purchasers allow bona fide tenants to remain in the unit provided that they stay in good standing (i.e., they pay rent). The KCRO excludes not-for-profit owners that have been operating as such for at least the last five years and their primary purpose is to provide financing for the purchase or rehabilitation of affordable housing. Very few owners fall into this narrow exclusion. Thus, the City of Chicago forces most post-foreclosure purchasers to become landlords.
Under the KCRO, an owner must offer a bona fide tenant a renewal or extension of their current lease for twelve months, and the monthly rent must not exceed 102 percent of the prior year’s lease. The statute mandates lease extensions in perpetuity until the building is sold to a third-party purchaser, the tenant chooses to move, or the owner refuses to offer further lease extensions. Failing to offer a bona fide tenant a lease extension subjects the owner to a mandatory cash-for-keys arrangement whereby the owner must pay $10,600 in relocation assistance per rental unit.
The provisions of the KCRO cannot be taken lightly; the statute provides bona fide tenants a private right of action for violations. The penalty for ignoring the KCRO is a statutory fine of $21,200 (including attorneys’ fees and costs). Tenants in foreclosed rental properties are aware that the going rate for vacating the property is $10,600, which has dramatically increased the cost of cash-for-keys settlements.
Nevertheless, the KCRO is not without weakness and a constitutional challenge may unwind the statute in its entirety. The Illinois Constitution prohibits local governments from enacting ordinances that conflict with statutes passed by the Illinois Legislature. In 1997 the Illinois Legislature passed the Rent Control Preemption Act (RCPA), which prohibits local governments from controlling the amount of rent charged for leasing private property. The KCRO stands in direct conflict with the RCPA by forcing owners to offer leases, but limiting rent to 102 percent of the prior year. The KCRO’s rent control provision is not severable and, therefore, a successful challenge will render the entire statute unconstitutional. Unfortunately, striking down the KCRO will require a ruling at the appellate level, which takes time. Until then, post-foreclosure owners must adhere to the strict terms of the KCRO or suffer potentially costly consequences.
In summation, while Illinois post-foreclosure evictions have not varied significantly since the sunset of the PTFA, the KCRO is wreaking havoc in the City of Chicago. The KCRO is vulnerable to a constitutional challenge, but until the appellate court issues a favorable ruling, owners must be vigilant in their adherence to the statute’s guidelines.
Author’s Note: For a more in-depth analysis of the KCRO, see Post-Foreclosure Evictions: Illinois by Jill Rein in the USFN Report (Spring 2014 Ed.) posted in the online Article Library at www.usfn.org.
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Spring 2016 USFN Report