All posts by tsammons

Cook County adds new zoning check to home sales

The administrative tangle of selling a home keeps getting thicker every day.

For years, the city of Chicago required a zoning certification if you sell a home (condos are exempt) within its borders. The purpose of it is to warn the buyer of “illegal” apartments in multi-family housing. There are many illegal garden and converted attic apartments in the city and the zoning certification alerts the buyer to the correct number of units.

Now, starting March 21, 2015, homeowners in unincorporated Cook County will have to order a zoning use certificate before they sell their homes. The county is aiming to warn buyers of improper uses of land. At least 10 business days before closing (two weeks for those who are counting) the seller will have to pay $100 and submit a survey, a legal description and a statement that all work was done with building permits. The Cook County Building Commission then will  (or will not) issue a certification that the property is being used according to the zoning. Theoretically, a buyer might refuse to close if the county refused to certify that the property use was within the zoning.

A couple of problems with this:

1. It is very hard to determine whether properties are located in unincorporated Cook County in a village or a town. The new zoning requirement will be missed by many who will think the property is in a village or town, not unincorporated Cook county.

2. The fee of $100 is high and waiting two weeks for a decision is crazy.

3. Submitting the statement that no work was done without permits is kind of excessive, because a lot of work is done without permits. And a lot of work is done without permits by a prior owner, so how does the seller supposed to handle that?  There is no inspection of the property and most likely the county will look at the survey for additions made without a permit or outbuildings added without a permit.

4. The certification is good for 6 months and really should be ordered before a home goes on the market to avoid jam ups and closing delays.

So plan ahead if you are selling a house in unincorporated Cook county this spring.

(Thanks to Matt Hernacki for pointing out this new rule.)




What assets do NOT go into a living trust?

I spend a lot of time helping client “fund” their living trusts. My policy to to have a separate funding meeting at which we complete all of the funding forms. That means filling out many, many change of beneficiary forms. Filling these out is numbing and not real fun, but it’s necessary for the trust to work right (avoid probate).
I often brag that if I drafted a trust for a client, there has never been a probate afterward. What a claim to fame. Truth be told, there are always some assets in a person’s own name at death, but in Illinois we are lucky to be able to transfer $100,000 or less of assets to a trust after a death without opening a probate. This is done by small estate affidavit. It’s a quick, easy way to mop up assets left in a deceased’s own name and only costs about $100 to prepare. Thank Ja for the small estate affidavit .
There are some items that do not go in to a living trust:
1. IRAs. Retirement accounts are not retitled to a trust. The trust is sometimes (rarely) the beneficiary of the IRA, but the IRA is never retitled to the trust.
2. Cars. Cars do not cause a probate and can be transferred using a small estate affidavit easily. Not necessary to put a car in the trust. In fact, it’s a waste of money to do so. Same goes for mobile home titles and motorcycles.
3. Stock Options. Some lucky clients have these, but most companies will not let you retitle the account to a trust. Some have a beneficiary form, but very few.
4. Internet bank accounts. I have found that several internet banks will not let clients put their accounts in a living trust. This is crazy, but the only cure it to close to account and open it at a brick and mortar bank.
5. Cemetery Plots. These little devils are not deeded like regular real estate. The titles are just the contract with the company owning the cemetery. No need to try to put it in the trust.
6. International real estate. Many clients own real estate in the UK or India. Real estate in another country cannot go in the living trust.

2014 real estate tax exemption forms are here

Forms showed up today on the Cook County Assessor’s website for the following exemptions for the 2014 tax year

1. Homeowner’s exemption: This is only needed if you bought a new house in late 2013 or 2014. You (or the former owner had to live there on 1/1/14 to qualify for this. File it once and you are done. Saves about $300 to $700 on the tax bill.

2. Senior exemption: Requires an annual application for those 65 year of age and older and saves about $400 on the tax bill

3. Senior freeze: Requires an annual application and an income of less than $55,000 and freezes the owner’s assessment level.

Be sure to file your senior and senior freeze applications now.


Mortgage Debt Forgiveness Act extended thru 2014

Both the House and the Senate finally agreed to pass an extension  of the Mortgage Debt Forgiveness Act.

It expired at the end of 2013.

But now that it is revived, those homeowners whose primary residences were foreclosed or short sold during 2014 will NOT have to pay income tax on the difference between the mortgage balance that was unpaid and the market value of the property.


Update to Real Estate Disclosure Form

On January 1, 2015, the Illinois Residential Real Property Disclosure form will be changed.

The words ” windows and doors” will be added to question 6.

So, sellers will have to disclose any known defects to windows and doors. These changes are the result of a case where the court held that leaking windows and doors were not included in the definition of walls, and thus the seller had no obligation to disclose defective conditions involving windows and doors.

Mold & Radon: Scourges of real estate sellers

If I was looking to start a new business, I would get into the mold and radon game. Those guys are busier than sin and they have a captive market: Home sellers in the middle of a contract.

It used to be that about 5-10% of home buyers did radon tests. But home inspectors must have gotten discounted memberships to the National Society to Eradicate Radon in Our Lifetime. Now, about 70% of buyers do radon tests. Well more than half of the radon tests flunk. The seller has to install a radon mitigation system for about $1200.00. That consists of capping the sump pump pit and using a small fan to push all of the radon gas through a pvc tube outside. Radon has a standard of 4.0 pcl or less. Anything higher than that has to be mitigated (brought down to under 4.0).

Those same inspectors are crawling into the attics of homes and finding boatloads of mold on the plywood sheathing. The mold appears because bathroom fans were vented into attics and over many years, mold grew. If mold is found, then the seller has to have a mold remediator get rid of the mold. That costs between $1200.00 and $3000.00. The mold remediation business has grown tremendously in the past few years. I wrote this post in 2004 saying that mold problems were increasing, so this is not an overnight occurrence, but  since then they have exploded.

Mold is found by the home inspector by simply looking at the plywood in the attic of a house and if there is mold there is a dark staining on it. There are two approaches to mold remediation once it is found:

1. An Industrial Hygenist (who is paid about $400-$500) tests the mold then draws up a remediation plan for a mold remediator (other than the hygenist) to work on.

2. A mold consultant comes in and does NOT test the mold, but just removes it all.

Most sellers taking the route described in number 2. Many times the mold will not be harmful or will be in a small area. Since the parties are in the middle of a real estate contract (and there are people who could get sued) everyone takes a scorched earth, remove every spec of mold approach.

I see little to no testing done.  My opinion is that air quality testing is a waste of money. I was surprised that the Illinois Department of Public Health has NO STANDARDS for mold testing and does not recommend testing the mold or the air at all. So why is everyone freaking out and removing all this mold? I’m not sure, but buyers want the mold gone, so that’s what happens. The unlucky seller whose buyer gets a flunking radon test and a flunking mold test will be out of pocket $2500.00 or more before he knows what hit him.

Here are some mold remediators that I have seen on files:

Mold Solutions

Indoor Air Repair

Mold 911

Alliance Restoration 

Appraisals coming in short this spring

appraisalLast week, I had 6 properties appraise for less than the contract sales price. It ‘s not real fun when this happens. No news is good news when it comes to appraisals, but when I get an email with an appraisal attached I know things are about to come unglued.

Seller’s instant reaction = “I am getting scr**** by the buyer’s lender and I am NOT cutting the sales price.” The seller’s  second stress induced reaction is “I’m going to “fight the appraisal” (good luck with that, tiger).

Buyer’s instant reaction = “I can’t believe I overpaid for the casa of my dreams and I hope the seller doesn’t cancel the contract.”

Fortunately, the amount by which these properties under appraised was between $5000.00 and $14,000.00 and the parities were all sensible. All of them were resolved without tanking. Half of them “met in the middle” and for the other half, the seller reduced the price to the appraised price.

Usually when a property appraises low, I estimate that about 75% of the time the end result is that the seller cuts the price to the appraised price. If the appraisal is for an FHA loan, the seller will be stuck with that appraisal for 1 year even if the contract cancels (and a new FHA buyer comes in).

I find that it is nearly impossible to “contest” the appraisal. Appraisers rarely change the result of an appraisal. There is supposed to be no way to communicate directly with the appraiser. I find that when the parties try to contest the appraisal that 2 to 3 weeks are wasted while the loan processing comes to standstill and closing is delayed.

The spring market has been very fast moving with multiple offers on many homes within a day or two the listing hitting the internet. I’ve seen a lot of contracts at or over list price. Sellers are getting more for than they expected in some cases and there are not the comparable sales to support the appraisals.

If you are a buyer be sure to add an appraisal contingency to the contract. The mortgage contingency will act like an appraisal contingency unless you are putting a ton of money (50%) down and then it won’t work and you need a separate appraisal contingency. If you are a seller, just be aware that selling for list price is cool, but it may be cut after the appraiser trots through.

Explosive or easy: How to make a Living Trust your IRA beneficiary

IRAIf you talk to enough people about making a living trust the beneficiary of an IRA, you will get a lot of strange looks.  They’ll say: “Oh…. you should NEVER do that.” It is possible to make a living trust the beneficiary of an IRA. It’s really not an exotic, edgy move. But you do have to be careful.

First, if a client’s kids are adults and the client’s kids are reasonably mentally and financially competent, then 98% of the time we just make them direct beneficiaries of the IRA.  But there are times you might want a living trust as beneficiary, for instance:

1. If you have minor kids (under 18)
2. If a beneficiary of the trust is on social security disability or is disabled.
3. The beneficiary is a financial maniac or spendthrift.

To name a trust as beneficiary of an IRA, the trust must meet the IRS trust rules. If not, the trust will have to withdraw all of the funds from the IRA within 5 years from the date of the IRA owner’s death. Since the whole point of an IRA is to defer income tax, it’s important to meet the trust rules, so that the IRA withdrawals can be spread over the life expectancy of the beneficiary. Good news: Almost all trusts that have no charitable beneficiaries meet the IRS trust rules. I am not going to bore you with these. Read more here if you are an absolute masochist and want to know more about the trust rules.

The wrong way to name a trust as IRA beneficiary

It does matter how one words the beneficiary form if you a going to make a trust the beneficiary. The lazy, easy way is just to name “Suzie Glutz Living Trust dated January 1, 2014” as 100% beneficiary. Then, on her death, the IRA will go to the trustee of the trust and the trustee can take distributions  from the IRA over the lifetime of the oldest beneficiary. The trustee, in turn pays out the IRA distributions from the trust to the beneficiaries or the trustee holds the distributions in the trust. The IRA has to be held as one big chunk, not as separate accounts for each beneficiary.

There are problems with this. The poor trustee will have to leave the trust open for years and will have to file trust tax returns for years. Beneficiaries don’t really like their funds commingled with other beneficiaries. They want their money now, damn it, and they don’t like it tied up with some trustee for years and worse yet, commingled with the other beneficiaries.

Let’s say you did a lazy, generic trust beneficiary designation like “Suzie Glutz Trustee of Suzie Glutz Living trust dated January 1, 2014” and the beneficiaries are rock, solid adults who don’t want the IRA held in trust. Some IRA custodians will let you distribute the IRA from the trust to the individuals even if there was a  lazy IRA beneficiary designation. This satisfies the beneficiaries because they have their own account. I have done this with Schwab, Vanguard, Fidelity and Edward Jones. However, some IRA custodians will balk at this and then you are stuck leaving the trust open for years or just tanking the IRA withdrawing all the funds from it and paying taxes on it.

The right way to name a trust as IRA beneficiary

The foolproof way to set up the IRA beneficiary designation is to specifically describe each share in the beneficiary designation form.  So instead of just writing “Suzie Glutz Living Trust” 100% on the the form, you would say this (assuming Suzie had two kids who were equal beneficiaries of the trust):

1. Separate share of Jane Glutz under Suzie Glutz Living Trust, 50%
2. Separate share of Pete Glutz under Suzie Glutz Living Trust 50%

If you fill out the beneficiary form this way, each child can have a separate share paid out over each child’s life expectancy. There is no danger of time-bombing the IRA and causing fast withdrawals over 5 years. Also, it will be much easier to convince the IRA custodian to distribute it out of the trust to the individual beneficiary if the trustee thinks that would be better.

Internet lenders: Take a pass

I love buying stuff online. Here’s some of the things I’ve bought on the internet recently: a living room couch, a rowing machine and a 10 speed road bike (fully assembled). I trust online buying and hardly ever have any problems.

The one thing I would NOT get online is a mortgage.

About 25% of the buyers that I see use an  internet lender. I specifically recommend against selecting a lender online when I describe the closing process to new buyers.

The advantage of getting a loan online is that the rate is usually pretty low.

There are many reasons not to get a mortgage online. First, almost every time the approval and closing process turns into a semi-nightmare.  With online lenders, there is no single responsible party who can answer questions and resolve issues. The online lenders use a team approach, but usually no one knows what is going on. Our Illinois closing process is kind of quirky compared to other states and funds need to be at closing when it starts, not 10 hours after closing. Online lenders often don’t wire the funds to closing under after the loan is ‘”funded” at closing rather than sending the funds before closing.

If you are near a computer, go ahead and google “best mortgage rate.” Near the top will be Quicken loans, and Lendingtree. Lendingtree takes you through a series of screens that ask you questions about the loan you are seeking and then suggests some lenders for you. Click here to read some reviews of Lendingtree. They are absolutely scathing. Same here for Quicken loans. Brutal reviews. There are many accusations of pulling credit reports without authorization and endless complaints about lack of communication. Many complain of constant spamming the minute they enter data on the site.

Go ahead and scan through them and I doubt that you will have a warm fuzzy feeling about internet lenders.

My recommendation is to pick a good, local lender referred by someone you trust. The online mortgage market is not ready for prime time. Do you really want to be a beta tester?

Help! I lost my living trust

lostI have a client who keeps his living trust  in his freezer. Oh, don’t worry, he says, “It’s in a plastic bag.” He knows where it is, but I don’t think his kids will ever find it because he’s super secretive.

Another client kept his trust in a large safe at home. Someone broke in and stole the entire safe-and his trust went bye-bye. I don’t think the thief was after his trust.

In the last few years, I’ve had  dozens of client lose their living trusts and other estate planning documents. It happens a lot. The trust is kept in a big binder that says “Estate Planning Portfolio” so it’s not super easy to lose. If a client loses a trust, we set up a time to have the client come in to sign a restatement of the trust, a new will and new power of attorneys. The restatement “becomes” the trust so having the original trust is not necessary once the restatement is signed.

You can get by with copies of a trust, a trust restatement, power of attorneys and living wills, but you ALWAYS need to keep track of your original pour-over will (or any will for that matter). Only original wills can be filed after a death, not copies. Any property left outside your trust can end going to different heirs than those named under your trust if you have no original will.

For about the last 8 years, I’ve kept a scanned copies of the trust, will, power of attorneys and living will and that helps a lot when a client loses their originals.

The best place to store a trust is to keep the originals at home and tell your successor trustee where it is kept. Also keep a copy online somewhere. Yahoo, google and dropbox are all good for this.

I don’t recommend keeping a trust in a safe deposit box. The boxes are too hard to get into after a death and are a complete hassle most of the time. It’s okay to put a trust or will in a safe deposit box if you have a child or your successor trustee  as signers on the box and they can get entry to it. Otherwise, it’s a waste.