Tag Archives: security deposits

What Happens If Your Landlord Dies?

In previous articles I’ve addressed what a landlord should do if a tenant dies in the middle of a lease. However, I’ve not discussed the topic from the other side. So what happens to a tenant if the landlord dies?

Regardless of how you feel about your landlord’s death, you probably have some questions about what’s going to happen to your lease.

I’m not an attorney, and I certainly cannot cover every possible scenario. However, I can address some of the basic questions that may arise. As always, the discussions here pertain to apartments in the Chicago area.

Question 1: Do I have to move out?

No. Your lease is part of the property, just like the refrigerator, the garage and the roof. If the owner sells the building, he/she sells your lease along with it. If the owner dies, your lease continues. You do not have to move out automatically. Your landlord’s heirs cannot suddenly kick you out because they want to move in.

Question 2: Where do I send my rent?

You should continue to send your rent to the address listed on your lease. Once the landlord’s estate is settled, the probate attorney and/or the new owners who have inherited the property will send you written notice of any changes.

If your rent check comes back as undeliverable, hang onto it unopened in the envelope as proof that you tried.

Question 3: Who’s the new owner?

This is probably the most complicated question. It may take some time for the new owner to be determined, depending on how the property title was held. In other cases, the new owner could be able to step in within a matter of days. In the interim, the executor of the estate will become your main point of contact. This could be someone named in the landlord’s will or a court-appointed probate attorney. Either way, until you are notified in writing of a change in ownership, make sure all dealings regarding your apartment are handled in writing to the landlord’s address as listed on your lease.

If They’re Incorporated

If your landlord was incorporated – either as a corporation or LLC – with other partners, then you have nothing to worry about. The company will survive the death of the landlord. However, if the landlord was the only partner in the company, the entire company’s assets (including your lease) will pass on to the landlord’s heirs.

If They Have Heirs and a Legal Will

Provided the will is legal, the property goes to whoever is specified in the will. For all you know, it might even be you! (Maybe you should be nice to your landlord after all…)

If the landlord had a legal will and designated heirs, the property and your lease will pass on to the heirs specified in the will. These heirs will become your new landlords automatically, although it may take them some time to figure out who will be handling your specific concerns.

If They Have Heirs and No Will

It’s highly unlikely that your landlord will die without a will (“intestate”) but if so, the ownership will be determined through Cook County probate court. Illinois has a very specific order of preference for distributing property among remaining family. Children and living spouses are the first option, followed by parents and siblings, grandparents, great-grandparents, and if all else fails, the property goes to the next closest surviving relative. However, the property may well be distributed evenly among many relatives, so your property could wind up the subject of dispute between squabbling relatives. The most important thing in this case is to remain in close contact with the probate attorney appointed to handle the estate, as any official changes in ownership will come to you from them.

If They Have No Heirs and No Will

Again, this scenario is highly unlikely, but in the case that your landlord had no will and no surviving family, your building will become property of Cook County. (In legal terms, the property “escheats” to the county.)

If The Landlord Owes Outstanding Debts

What if your landlord died while still owing money to somebody? Regardless of what the will says, the landlord’s creditors have to be paid first. This may mean that your apartment will transferred in order to settle a debt. Three common situations where this could occur would be if the landlord had a mortgage on the property, if they had not yet paid contractors for major renovation work at the building, or if they had unpaid back taxes. Either way, the creditor gets your building and you along with it.

Question 4: Can I use this as a reason to break my lease?

Not really. The new owners who inherit the estate probably wouldn’t fault you for wanting to head out early, but since your lease is still valid and your apartment is still intact, you’ll have to follow the same lease break routine that you’d have followed if your landlord was still alive. Please be gentle with the relatives of your landlord when you go to discuss leaving – it is always a delicate and difficult situation.

Question 5: What if the owner lived on site?

All of the above is pretty much consistent if the landlord lived in the same building with you or not. However, if the landlord died in the building (I know, ew!) then you may have grounds for breaking your lease. A death on the property requires special clean up and care. Your property may be sealed for investigation by the coroner. If you can’t get into the property or it’s a health hazard, and the problem continues for over 72 hours, you do have a right to break your lease. The only problem is that you have to provide written notice to your landlord asking them to correct the problem, and figuring out who your new landlord is within 72 hours can be difficult.

Regardless, the most important things in this situation are to find safe substitute housing immediately – a hotel if you have to – and to cooperate with the authorities and the heirs in order to find out when you can safely return. This sort of extreme scenario would merit a call to an attorney to ensure that your needs remain prominent in the minds of those dealing directly with the death.

Question 6: What if my lease expires before the estate is settled?

Complicated estates can take months or even years to parcel out between heirs.

If you’re on a one year lease, it may well be that your lease expires before everything is resolved. Your lease expiration date, like all other aspects of your lease, remains valid even if the owner dies. In Chicago, a landlord has to provide you with at least 30 days written notice if they don’t intend to renew your lease. Unless your landlord did so before death, you have the right to stay in your apartment on a month-to-month lease.

If you choose to move out at the end of your lease, your course of action should be to send a letter stating as much to the same address where you send your rent, at least a month before the last day of the lease.

Question 7: How do I get my security deposit back?

This is probably the most complicated of all of the questions. The first step should be to provide your forwarding address to the executor of the estate when you move out, along with a reminder that they must return a list of itemized deductions within 30 days, and the balance of your deposit, with interest, within 45 days.

If the estate does not return your deposit before the deadline, you do have a right to sue them to get the money back.

Overall the most important things to remember in this kind of situation are:

  • Make sure your voice is heard. It is very easy in the process of settling an estate for the heirs to forget about the deceased’s renters. As soon as an executor is appointed, you must remain a firm presence in the process so that your needs are not forgotten.
  • Be kind and patient. The person who inherits your building may not have any experience as a Chicago landlord. Our landlord-tenant laws are some of the most complex in the country. It takes a while to learn how we do things around here. You’ll have to take some time to read up on the rules yourself, and you may have to gently coach your new landlord on how to do things the right way. Remember that they just lost a family member – please don’t take their inexperience as a reason to take advantage of them.
  • Seek help if you need it. These sorts of complicated situations are why professionals exist. You may deal with grief yourself over the loss, even if the landlord was not a good friend. If the estate spends a long time in probate you may need to consult with an attorney. Like it or not, the death of your landlord means that changes are headed your way, and not all of them will be predictable.


Pig Latin: Confusing Chicago Regional Real Estate Terms

We Real Estate folk talk pretty funny sometimes. Here's some terms that are often confused, even by supposed "professionals." Today I'm going to be discussing how they should be used within the Chicago regional real estate market. I'll also give some warnings as to how the terms are misused by certain real estate practitioners who don't know their stuff.

Deposit vs Fee. A deposit is basically collateral. It's held for a specified time period and returned to you if you behave yourself. A fee, on the other hand, is never refunded. I have unfortunately seen terms such as "non-refundable deposit" get tossed around, which is just outright incorrect.

Deposit vs. Down Payment. For first time renters, it's easy to get these two terms confused. For rentals you put down a security deposit. For new home purchases you put in a down payment. I've heard many prospective renters ask me how much of a down payment is required by the landlord. While it's pretty easy for me to translate in my head, those renters immediately give away their lack of experience in the market.

Eaves, Fascia, Soffits, Gutters and Downspouts. The eaves are the part of a roof that stick out from the side of the building. The roof will have a certain amount of thickness to it, meaning that it doesn't meet up with the wall in a perfect point. The fascia spans the gap between the roof and the wall like a bandage. If your roof protrudes substantially from the side of your house, you will have a soffit underneath the overhang. This is another "bandage" to cover the gap underneath the roof. A gutter is a semicircular tube that runs along the point of an eave furthest from the building where the roof and the fascia meet. Water collects in the gutters and runs through them to a central drainage point. Connected to that drainage point is a downspout, a vertical tube that runs down the side of the building.

From renovationexperts.com. You're welcome.

Scavenger. When you're looking at a real estate listing in Chicago, "Scavenger" is the term used to refer to trash collection. As a general rule of thumb you will not have to pay for trash pickup if you're renting in Chicago. If you're a homeowner in a building with fewer than seven units the city will provide pickup, covered by taxpayer funds. If you're owning in a larger building your trash collection will be outsourced to a third-party hauler. The cost will be included in your assessments. Some new Chicagoans will interpret "scavenger" to mean pest control. Don't confuse the two terms.

School District vs. School Attendance Boundary. The entirety of the Chicago public school system is referred to in state terms as "District #299." You heard right. Every public school student in Chicago is in the same district. However, some of the schools have geographic attendance boundaries. If you live within those boundaries, your children will be expected to attend the designated neighborhood school. However, in many cases you can opt to send your child to a different nearby school, a magnet, or a charter.

Ceci n'est pas un ranch.

It's a penthouse! It's a garden unit! It's all of the above!

Penthouse. In television lingo a "penthouse" refers to a single unit protruding from the roof of a skyscraper. They're usually large and luxurious, and possibly the only unit on that particular level. Chicago uses the term more generically. A penthouse in Chicago real estate refers to any top floor property in a multi-unit building.

Rehab vs. Renovation. There was a time when "rehabbing" a property meant a whole-hog, full-on repurposing of a failing structure. Rooms were moved around, entire sections of wall were replaced. Renovation, on the other hand, took a property in decent but dated condition and freshened it up with new finishes and modern amenities. The two terms are now used interchangeably. If you see that a property was "recently rehabbed" it could mean something as basic as replacing the carpet in a couple of rooms.

We'll call it the Amy Wine House.(Too soon?)

Dining Room. I've discussed my issues with counting rooms before, so I won't dwell on this. It will suffice to say that with "combo" dining rooms a viable option in real estate listings, all a "dining room" signifies is that a real estate agent thinks you'll be able to fit a 6 person table in some corner of another room.

Deck vs. Porch. In Chicago, those wooden (sometimes metal) structures attached to the back of buildings as fire escapes are called porches. If it's attached and stacked in multiple levels up the back of a building, it's a porch. If it's freestanding and uncovered, it's a deck.

Any Questions?

Township. When you're looking at a Chicago real estate listing you'll see mention of a "township." Many home seekers get confused and think that this refers to the neighborhood of the property. Chicago only has eight townships. They're relics from the old days before Chicago was quite so large, and basically delineate the different towns that Chicago swallowed as it grew. There are eight townships: Rogers Park, Jefferson, Lake View, North, West, Lake, South and Hyde Park.
These days township boundaries are only used by Cook County for dividing up property tax appeal deadlines. So, if you're looking in Edgewater don't be surprised to see that your property is listed in Rogers Park Township.

Do you have any terms that confuse you from the Chicago housing market? Let me know and I'll try to cover them in another installment of Pig Latin.

The problems with Rent to Own

Please, pick one or the other.

Oh, rent-to-own. You sound so attractive, but you're so misconstrued. I get many calls from renters, often those with weak credit or low-paying jobs, who have seen the term "rent-to-own" tossed around. Seeing that I'm a Realtor who works in rentals, they figure I must do a ton of these. They are usually surprised when I immediately launch into a full-on campaign to talk them out of the idea. It's just a terrible arrangement for both the landlord and the tenant unless you are so bad at saving money that you simply cannot put together a down payment in any other way.

Fluctuations Hurt Everyone.

First of all, prices change over time. This means that an agreement like this where the purchase price is set at the beginning of a 3-5 year lease is going to wind up screwing somebody over. If sale prices go up, the landlord gets hurt by being locked into the old low price. If prices go down, the tenant gets cheated out of some cash and may not be able to close the deal if the property doesn't meet or exceed the value of their new mortgage once the time comes to hand over the title.

Give a Yard, Get an Inch

Secondly there's the typical structure of a rent to own agreement. The chart below, while simplified, illustrates the difference between the common perception of "rent to own" on a $1000 apartment, and the reality of the situation.

Based on $1000 rent rate.

Not quite what you had in mind, was it?

There's a lot of restrictions on a rent-to-own. You have to take into consideration the landlord, the mortgage lender, and your own needs. If someone has a property on the market it means they want to get rid of it. They don't want to hang around for 3 to 5 years waiting for you to buy it. They want it gone now. By pulling it off the market for you for 3-5 years even in an appreciating market they may lose out on a buyer who does want to buy it from them now. They will want to charge you for keeping the property out of the sales market. This is called the "option amount" and it gets tacked on to the regular fair market rent. So you're now paying $1200 for that apartment. $1000 in rent and $200 for the option.

Meanwhile, once your rent-to-own time period comes to an end and you're looking for a loan to complete the purchase, a lender will look at the market rents for that building. Only the amount in excess of the fair market rent will be considered as eligible to go towards the down payment. If you're lucky, they might assess the fair market rent at $800, meaning that you've got $400 left that the bank will let you allocate.

Of course, your landlord may also have a say in the down payment allocation matter, too. After all, they'll have to hold on to the amount earmarked for down payment until the actual sale occurs several years down the road. They can't use it for today's expenses. Many will let you contribute only 20-25% of your monthly rent payment towards a down payment. The rest needs to go towards operating costs.

Get A Yard, Feel the Pinch

There's also the issue of maintenance. Many landlords get sold on the idea of a rent-to-own deal because they think a prospective buyer will take better care of their property than your run of the mill tenant. Some landlords take this even further and fob a lot more of the maintenance over to their renters. Suddenly items like landscaping, snow shoveling and basic repairs are dropped in your lap. I've seen some landlords work out something very similar to a deductible, which their tenant must contribute towards repairs before the landlord kicks in to assist with the cost.

Rent-to-own agreements are generally outside of the province of the Chicago Landlord Tenant Ordinance. You're pretty much on your own, relying on whatever is included in your lease & rent-to-own contract. Needless to say, you want to get attorneys involved very early on in this process.

Collateral Damage

A security deposit equivalent to about one month's rent is expected in apartment rentals. While some larger landlords are moving away from the deposit, you'll still have to put up some sort of collateral against damage to the unit before you move in. In most cases of normal rentals, the deposit is the maximum you would forfeit upon moving out, unless you leave behind an enormous rent balance or massive damage better served by an insurance claim.

In the case of a rent-to-own, the option amount is generally not refundable. It is definitely held in escrow so that the landlord doesn't spend it before the title transfer occurs, but if you don't exercise your option to purchase at the end of the lease period the landlord will keep it. This means that if you choose to walk away from a rent-to-own without buying, your forfeited collateral could be far worse. Check out the difference in the chart below.

Based on $1000 deposit, $200 option add on, 3 year lease prior to purchase.

There are different tiers of rent-to-own agreements that may have far more stringent penalties. In a Lease Option agreement, the option is at risk as shown in the chart above. In a Lease Purchase agreement, the landlord might also be able to force you by lawsuit to buy the property when the rental period is over. So, unless you're absolutely serious that you want to live in this home for at least 8 years (3-5 as a renter plus 3-5 as an owner) you should only enter this kind of agreement with extreme caution and the advice of an attorney and agent who have done it successfully before.

Cultural Predation

The rental-purchase market for goods other than housing is pretty darned pervasive among certain subsets of the population. The FTC did a survey in the late 1990s and reported that the majority of customers using rent-to-own as a purchasing option were young, poor, and black. Most do not have more than a high school education.[1]James M. Lacko, Signe-Mary McKernan, and Manoj Hastak, Survey of Rent-to-Own Customers, January 2000, FTC.gov

Those who are culturally accepting of rental-purchase as a viable route to ownership of furniture, electronics, etc. will be far more likely to enter into these financially unsound agreements when it comes to housing as well. I don't know about you guys, but anytime I see a purchasing structure targeting the poor and inexperienced members of the population I get really suspicious. A dishonest property owner stands to gain a lot more in retained collateral from a buyer who is very eager to purchase but unlikely to be able to close the deal.

The FTC had to nose in on the affairs of rent-to-own businesses even when it was on the smaller scale of renting furniture. That's with large, obvious companies that rely on large numbers of consumers paying small amounts. A home seller, on the other hand, can fly under the FTC's radar and needs the approval of only one person - you - in order to make quite a bit more than you'd spend on a couch. Caution is needed.

Something Closer

When most people picture a rent-to-own scenario, if it's anything like the "Imaginary" section of the bar chart I drew above, they're may be thinking of seller financing. In the case of seller financing, the title changes hands up front, but instead of going to an outside bank to obtain a loan, the seller allows the buyer to pay off the purchase in installments with interest. Here's a table that explains the differences.

Rent to OwnSeller Financing
Title transfer occurs at end of lease period. Title transfer occurs up front, at least in part.
Buyer must obtain an outside loan. Seller is the originator of the loan.
Property must appraise at or above the amount of the loan. No appraisal required.
Purchase or loss of option money required at end of rental period. After 3-7 years, balloon payment of loan balance required.
Only the amount in excess of fair market rent goes towards the purchase price. Entire payment, less interest, goes towards purchase price.
Standard down payment allowances apply, as you're applying for a regular loan. Seller will very likely require 20% down payment up front.
You can build up your credit to become loan-worthy while living in the unit, if the landlord is amenable. You'll probably need excellent credit right off the bat to convince the seller that you'll honor the debt.

Obviously neither is a magic bullet for a buyer with weak credit and no savings. One commits you to a very long term arrangement at a pricey premium. The other requires you to be ready to buy up front, but allows you to wiggle around low appraisal amounts and conforming loan maximums.

Preferred Method: Self Control

There will always be homes on the market. In fact, if you're planning on renting-to-own, chances are good that the same property you want to rent-to-own now may well come back on the market in 5-7 years anyhow. Who's to say that it will still suit your needs? Come to think of it, considering that only a small subset of owners are willing to do lease-purchase or lease-option agreements anyhow, who's to say that any of their properties will suit your needs in the first place?

If you aren't ready to buy now, paying a costly premium to rent-to-own will not help matters. You need to be both financially and mentally ready to take on the responsibilities of homeownership. Better to set up a mandatory monthly transfer to an outside savings account to build up your down payment, find a cheaper apartment and focus on rebuilding your credit score on your own. You'll be far more confident in yourself and in a stronger negotiating position after 3-5 years if you are able to demonstrate the necessary self-control to do it this way. You'll have learned the money-saving skills necessary to keep your home for a good, long time.


1 James M. Lacko, Signe-Mary McKernan, and Manoj Hastak, Survey of Rent-to-Own Customers, January 2000, FTC.gov

When your apartment is a crime scene

I don't recommend reading this article while eating. We're getting a little gross today.

Crimes and situations requiring the presence of the police unfortunately happen quite often in apartment buildings. As the density of people living together increases, so do the odds that one of them is doing something illegal. As we discussed on Monday, sometimes all the background checking in the world can't clue you in to a tenant's mental illness, deranged behavior or upcoming nervous breakdown.

We've spoken before about how landlords can prepare for worst case scenarios but we haven't discussed what really happens when the first responders have to step in and take over. Unfortunately I've had to deal with many situations of this nature - I've dealt with stalkers, domestic violence, parking lot hit & runs, drug busts, marijuana gardens, suicides, gas leaks, hoarders, fires, break-ins and death from natural causes. (This would be one of the reasons I left property management in favor of brokerage.) If your apartment becomes a crime scene, here's what to expect, what to do, and what to avoid.


Weekend Links

I figure you guys could use a weekly break from my yammering so I'll be doing links on the weekends. Don't know if this will continue forever but it's worth a shot.

  • The Future is now: The Illinois legislature has approved an amendment to the Illinois Security Deposit Return Act that allows deposit receipts and statements of damages to be sent via email instead of registered post. Friend of the blog Rich Magnone gives some good analysis of the new amendment.
  • Saying nice things: I should also mention that Rich is an excellent Chicago Eviction attorney and legal advisor for landlords. His site, ChicagoEviction.com, contains a ton of good info for landlords from the legal POV. He's thorough and practical and has excellent taste.
  • Gambling with Apartments: It's always interesting to see what big corporate thinks of our living situation. See how the REITs who invest in large-scale apartment complexes are assessing Chicago's rapidly rising rents and falling vacancy levels. REIS Reports has one take on the booming downtown luxury rental market, and Crain's Chicago Real Estate Daily has another great take on the matter.
  • Oldie but goodie: over on Get Rich Slowly, a blogger talks about how ruining his credit score was the best thing he could have done for learning how to live within his means.
  • A bit of good news: Another agent in my office (Baird & Warner City North) was one of the experts consulted for a front page Chicago Tribune article on Friday. Chicago home prices break 49 month losing streak.
  • The ultimate move-in checklist: The Chicago Housing Authority performs some of the most stringent housing inspections in the area on behalf of its Housing Choice Voucher Holders, also known as recipients of "Section 8" housing assistance. They make a version of their inspection checklist available for the public. See if your apartment would pass a CHA inspection. (PDF)
  • Eviction of the week: a tenant renting out his apartment for short stays using the popular AirBnB short term rental service has found himself served with an eviction suit. Maybe he can use some of the $20k he earned from his illicit side business to buy his own place instead. Find out his side of the story at Fast Company.