Chicago Continues to Aggressively Regulate Foreclosed Properties with New Requirements on Tenant Leases

In early June, the City of Chicago passed the "Keep Chicago Renting" ordinance (SO2012-5127), which requires that the owner of foreclosed properties offer existing tenants renewal of their lease or pay expenses to the tenant for relocation. (The ordinance amends Chicago Municipal Code §2-25-050.) 

"Keep Chicago Renting" Ordinance

The directive applies to any owner of a foreclosed property, defining an "owner" as someone who acquires title by a foreclosure sale or deed in lieu/consent foreclosure.

Relocation or Renewal

The ordinance requires that the owner post and deliver notices in four languages (English, Spanish, Polish and Chinese) no later than 21 days after becoming the owner, offering tenants either of the following:

• 12-month renewal or extension of the tenant's existing lease (with a rent increase of no greater than 2 percent above the current rent)
• a relocation payment of $10,600 (per unit), paid by certified funds or cashier's check within seven days after the tenant vacates.

The offer to extend or renew for 12-month periods (at a rate that is not greater than 2 percent above the current rent) continues until the property is sold to a bona fide third-party purchaser.

Registration

The new ordinance also requires that owners register each property with the City Commissioner within 10 days after they become the owner, providing detailed information about the property and tenants (including the names and address of each tenant and a registered agent for the owner). A registration fee of $250 is assessed for each property. Information supplied in the registration can be used by the city against the owner in subsequent proceedings.   

Scope of Ordinance and Prohibitions

The ordinance applies to all dwelling units that are rented, not just rental buildings, but it does exclude the borrower, the borrower's family members, and others with below-market leases from its reach. It also prohibits a non-complying owner from collecting any rent until the owner complies.  

Enforcement and Fines

The ordinance provides for fines between $500 and $1,000, and each unit and each day that a violation occurs are considered separate and distinct offenses. In addition to fines, the ordinance provides a private right of action to tenants, allowing them to recover damages equal to two times the relocation payment and attorneys' fees. Finally, the ordinance provides officers and directors are jointly and severally liable for the fines, costs, fees and penalties imposed upon the corporation.

Effective Date

The ordinance is effective 90 days from passage — on September 3, 2013 — so lenders should be prepared to comply or challenge its validity.

Chicago's Recent Regulation of Foreclosures

While there are some limited exceptions in the Keep Chicago Renting ordinance, the obligations are significant and present another hurdle for lenders foreclosing in the Chicago area. In 2011, the City of Chicago adopted ordinances requiring lenders act as caretakers of vacant property, prior to actually taking possession. (Chicago Municipal Code §§13-12-126 & 127.) Cook County enacted a similar ordinance, covering all unincorporated areas surrounding Chicago, at the end of 2011. (County Code §§102-19.)