Sunday, November 9, 2008

New Chicago RLTO Section 095 - Notice to Tenants of Foreclosure

According to the National Multi-Housing Council, as many as 40% of foreclosures are of condo units and houses that are occupied by renters, not their owners. We have been seeing this firsthand in the practice at DepositLaw, as many renters come to us with excellent cases on paper, but no solvent party to recover the damages against. The tenant isn't going to recover damages equal to two-times their security deposit. They're not even going to recover their security deposit. Their landlord is broke, and the tenant is last in a long line to get whatever assets the landlord does have.

But can't the tenant recover their security deposit from the bank, or the new owner who buys the rental unit at a judicial sale? No. Section 080(e) of the Chicago Residential Landlord and Tenant Ordinance, and section 1.1 of the Illinois Security Deposit Return Act both contain an exception for a "lienholder" who is a successor landlord. While a "successor" landlord is usually liable to the tenant for their security deposit given to a prior landlord, a lienholder is not.

So to throw tenants a bone, Chicago's city council enacted section 095 in October, 2008. This section requires a landlord who is served with a foreclosure summons to notify their tenants within seven days, or the tenant is entitled to $200 (good luck collecting that) and can break their lease on short written notice. The lease termination provision is actually useful.

Also, if the landlord is already in foreclosure, they are now required to notify prospective tenants of this before the tenant signs a new lease. Hopefully this requirement (if actually followed) will prevent some tenants from giving up a huge security deposit to a black hole landlord. But most foreclosed-on landlords are not going to give the required notice, and will probably continue sucking up security deposits from unwitting tenants. When the tenants call us, and we check to see if the landlord is in foreclosure, it's usually too late.

Tenants, protect yourself. In Cook County, you can look at the clerk of court's case information page, search your landlord's name under "Defendant" and under "Chancery". If a foreclosure is filed against them, it ought to show up there. Good luck.

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