Residential Real Estate Law
Real estate law involves rights in the ownership and possession of land and buildings attached to land. Real estate law often is referred to as the law of real property to distinguish it from the law of personal property, which includes all other property.
Below you will find some general explanation of real estate concepts and terms, the home-buying process, and landlord/tenant law.
Real Estate Ownership
Typically, ownership of real estate includes the following rights:
- To sell
- To use the property as security for loans (encumber)
- To improve the land or buildings on the land
- To use and possess the property
Property can be owned by one or more persons. The two common ways in which parties co-own a piece of property are joint tenancy and tenancy in common.
Although joint tenancy is a popular way for a husband and wife to own property, there is no requirement that joint tenants be married or that there only be two joint tenants. Owners in joint tenancy have a right to sell, encumber, and possess the entire property. When one joint tenant dies, the remaining joint tenants automatically take the deceased joint tenant’s share of the property by right of survivorship. The surviving joint tenants are required to file a death certificate and an affidavit with the county recorder. Joint tenancy allows the surviving joint tenants to avoid probate, transfer and death taxes.
Tenants in Common
Tenants in common, like joint tenants, share the right to possess, sell, and encumber the property. Unlike joint tenants, however, tenants in common do not have a right of survivorship. Upon the death of one tenant in common, his or her ownership interest passes to his or her heirs as part of the estate.
Advantages and Disadvantages of Co-Ownership
Although there are advantages to co-owning property, there are drawbacks as well. If co-owners cannot agree on use, sale, or possession of a piece of property, they may have to go to court to resolve the matter in a partition action. In a partition action a joint tenant or tenant in common asks the court to split the property in a fair and just manner. Real property may be difficult to divide and partial interests may be difficult to sell, so a court will usually order that the property be sold and proceeds from the sale distributed to the co-owners in relation to their interests.
Residential Real Estate
The most common consumer real estate transaction involves the sale of a home. Unlike years past, today a home buyer has a variety of options in deciding the type of dwelling to buy. Single family houses are still the most common selections for home buyers. Single family homes provide the maximum amount of privacy and freedom to their owners, but they may also be the most expensive option and require the most upkeep.
Condominiums and townhouses may be an option for some purchasers. Both give their owners many of the advantages of home ownership, such as tax deductibility of mortgage interest, without some of the responsibilities some people consider to be disadvantages, such as lawn care and exterior upkeep. Residents usually pay association fees to cover maintenance.
A homestead is not a particular type of dwelling; instead, it is a tax classification that can dramatically lower what a homeowner pays in real estate taxes. People who live in the property they own are taxed at a much lower rate than if they rent out that property to others. If a person buys property that currently is rental property, he or she must fill out an application to change the property’s tax status; otherwise, the person could end up paying non-homestead taxes for the first year of ownership.
Title to real estate is the ownership of the property. Title may refer to the actual ownership or to the documentary evidence of that ownership. Title is what gives the owner the right to the property. In order to sell a piece of property, all title matters must be cleared. Usually, this is accomplished through a title search. A title search is a diligent search of all records relating to the property to determine whether the owner is authorized to sell the property and whether there are any claims against it. If any defects in title are discovered during the title search, the seller usually has time to cure the defect.
Often people have title insurance to protect them against any hidden defects in the title. There are two types of title insurance. One type protects the lender’s interest in the property and the other protects the home owner’s interest.
A deed is a written instrument that transfers the title of property from one person to another. There are many different types of deeds. Generally, in Illinois, title is transferred by a general warranty deed. A general warranty deed provides the greatest protection to the purchaser because the seller pledges or warrants that he or she legally owns the property and that there are no outstanding liens, mortgages, or other encumbrances against it. A warranty deed is also a guarantee of title, which means that the seller may be held liable for damages if the buyer discovers that the title is defective. A warranty deed is no substitute for title insurance, however, because a warranty from a seller who later dies or goes bankrupt may have little value.
Another type of deed used is a quitclaim deed. A quitclaim deed relinquishes whatever interest, if any, the seller may have in the property to the buyer. A quitclaim deed gives the buyer the least protection of any deed. If the seller is the sole owner of the property, the quitclaim deed is enough to transfer title, but the buyer takes a risk by accepting a quitclaim deed because it offers the buyer no guarantee that the title is valid. Quitclaim deeds customarily are used during the property settlement phase of a marriage dissolution.
In Illinois, real estate owners and parties with real estate interests are required to file with the county all documents affecting their interest in property in order to give public notice of the interest. Since 1992, Illinois titles are transferred under the abstract system. Abstract records go back hundreds of years and an abstract of title is a record of all the entries for that property.
Buying or Selling a Home
Because Illinois has many programs to help people buy a home, home ownership is a possibility for people at all income levels. Buying a home may be both rewarding and stressful. Every home purchase involves a number of complex legal issues, unfamiliar terminology, and lots of paperwork. Knowing how the process works may reduce much of the headache.
Real Estate Agents
One of the first decisions for someone interested in buying or selling a home is whether to use the services of a real estate agent. Real estate agents are hired to help buyers and sellers meet to complete the sale of a house. Home buyers and sellers may choose to work with an agent exclusively or non-exclusively.
A person who decides to work with an agent will sign several contracts to clarify the relationship between the consumer and the agent. These contracts may include provisions regarding dual agency. This term refers to the arrangement in which an agent represents both the buyer and the seller of the house. It may be difficult for one agent to represent both a buyer and a seller fairly. When the agent finds a buyer for a house that the agency has listed, the agent’s dual loyalties become apparent. The seller wants the highest price possible while the buyer wants to pay the lowest price. The contracts state what the agent may share with the other party and which information must remain confidential.
In Illinois, the Residential Real Property Disclosure Act requires that when a seller signs the standard purchase agreement, he or she must attach a disclosure document. This document must disclose to the buyer any material defects, which are known hazards or problems with the structure or the heating, plumbing, mechanical, or electrical system. Just because problems are listed on this statement does not mean that the seller must repair the problems, but the buyer may request either repair or a price break because of the problem. In some communities, the seller also is required to complete an inspection report. In that case, an inspector checks the house for defects and these defects are listed in the report.
Whenever a builder sells a home in Illinois, the home comes with an implied warranty of habitability. This means that the builder guarantees that there are no major problems with the home, even problems that may not be apparent right away. The buyer has a reasonable amount of time to discover any major problems covered under the warranty. For example, if it rains every day for a month and the roof does not leak, everyone may assume the roof is sound. If the roof begins leaking during a rainy period a year later, it is probably too late to claim the house was sold with a defective roof. The buyer had a reasonable amount of time to discover the defect. The leaky roof would not be covered under the implied warranty of habitability.
Illinois law also provides that any residential unit sold by installment contract is voidable unless there is attached to the contract information about dwelling code compliance. The seller may attach either a certificate of compliance, or may include an express written warranty that the home has not been the subject of any dwelling code violations in the past ten years. If there have been violations, the seller must attach a copy of every notice of violation.
Home buyers should be aware of state laws dealing with removal of lead-based paint from a home. The Lead Poisoning Prevention Act requires owners to remove, replace, or secure and permanently cover walls covered in lead-based paint. Owners must take care of lead problems after receiving notice from the Department of Public Health. Failure to comply with the Act may subject the owner to criminal misdemeanor charges.
Nobody in the process of buying a house wants to think about the possibility of falling behind in house payments to the extent that the bank or mortgage company will foreclose on the loan and claim possession of the house. Nevertheless, it is wise for a consumer to understand why a lender forecloses on a piece of property, so the consumer can minimize the possibility of losing a house.
Up to a point, a lender will typically work with a homeowner who falls behind in making payments because the lender does not want to go through the hassle and expense of foreclosing on a property. Homeowners should communicate with their lenders if there are financial difficulties present that make paying the mortgage difficult. It can take months for a lender to begin a foreclosure, and more months before it is completed, so usually there is time to get the money needed to assure a lender that there will not be a default. After a lender begins the foreclosure process, there is a period of time called a redemption period during which a homeowner can stop the foreclosure by making all delinquent mortgage payments plus the lender’s court costs and attorney fees.
In Illinois, a lender may accept the deed to the property instead of foreclosing. The property owner loses the property, but if he or she truly has no other way to avoid foreclosure, offering the deed as a way to satisfy the debt can prevent his or her credit rating from being severely damaged by a foreclosure. However, because lenders generally want cash and not real estate, there is no guarantee that a lender will accept a deed offered in lieu of foreclosure.
A notice of foreclosure must state the name of the person whose property is subject to foreclosure, the court, the case number, the name of the person who holds the title to the property, a legal description of the property, and the mortgage identification information. It must be signed by the foreclosing party or the party’s attorney.
An encumbrance is a legal interest in property held by someone other than the owner of the property. An encumbrance is not an ownership interest in real property, but it creates some kind of obligation for the owner. An encumbrance attaches to the property, not the property owner, so the property may be bought and sold even though there is an encumbrance attached.
An easement is the right to use another person’s land for a particular purpose. There are many forms of easements. Public utility companies frequently have utility easements that permit them to run gas, water, or electrical lines through the property of others. The owner of property near a lake might buy from the owner of lake shore property an easement to cross his or her property to access the lake. A person who owns property that is land-locked may receive an easement from an adjacent land owner to have access in and out of the property. This is called a right of way.
Deed restrictions may also be known as covenants, conditions, or restrictions. Deed restrictions, which usually are included in the seller’s deed to the buyer, generally are imposed to maintain certain standards. Restrictions may limit the color one may paint a house, the kind of trees one may plant, or the size of home one may build on the property.
A lien is a charge against property that provides security for a debt or obligation of the property owner. The lien holder does not own the property. Some liens are voluntary, such as when the owner of property takes out a mortgage. Other liens may be imposed. For example, a lien may be imposed on property for nonpayment of taxes. One of the most common liens is the mechanics lien. A mechanics lien arises when someone furnishes labor or materials to improve a piece of property. A worker or supplier who is not paid may file a notice of lien with the county recorder and the property owner and collect the amount owed from a subsequent sale of the property.
An assessment is a value placed on real property by a local taxing authority for the purpose of levying taxes. Real estate taxes are calculated by multiplying the assessed value of a piece of property by the tax rate. Most properties are reassessed periodically, and a property’s assessed value may not be the same as its actual market value. A special assessment is a tax levied on a piece of property to pay for improvements that benefit the particular property, such as streets, sidewalks, and street lighting. Special assessments are liens on the property until they are paid.
Landlord — Tenant
Under Illinois law, whenever the owner (landlord) of a house, apartment, room, or any other living space agrees to let someone else (tenant) use the space for a fee, the two parties enter into a legally binding rental contract. General contract principles are discussed in the Contract Law Chapter. Rental contracts are a special class of contracts that are governed by many unique rules. This section discusses the laws applicable to rental contracts.
The terms of any rental agreement are stated in the lease. A lease can be an oral agreement or a written document. There are two general types of leases: the periodic lease and the lease for a definite term. A periodic lease continues for a specific time period and is automatically renewed at the end of the period for an indefinite time without a specific end date. For example, parties may agree on a month-to-month lease without specifying how many months the renter will stay. The lease continues until one party terminates it. Most periodic leases will state the rules for notice: how much time each party has to give notice of termination, and the form the notice must take. If the periodic lease does not specify when or how notice is to be given, the parties must follow state law. Illinois law requires that a party to a year-to-year lease give 60 days’ notice, a party to a week-to-week lease give one week notice, and a party to any other periodic lease give 30 days’ notice. All notices must be written.
A term lease is a rental agreement specifying a definite time period. For example, a lease for one year is a term lease. Term leases are almost always written. If the parties to the lease do not state when and what kind of notice is required, the lease automatically ends on the last day of the time period.
A landlord has the right to insist that a renter pays a security deposit before moving in. The security deposit — also called a penalty deposit — is used to pay for any damage beyond ordinary wear and tear that the tenant might do to the rental property, or to satisfy any debts between the tenant and landlord. The deposit cannot be used by the renter to pay rent. There is no limit to how much the landlord may require for a security deposit. The landlord may increase the security deposit at any time during a periodic lease if the tenant is given proper notice, which generally is one rental period plus one day. If the lease is a term lease, no changes may be made to the deposit until the lease comes up for renewal or the parties agree otherwise.
At the end of the tenancy, the landlord must return the deposit to the renter. If the landlord rents to 25 or more tenants, the landlord must pay five percent interest on the security deposit. The landlord is allowed to keep some or all of the deposit if there have been damages or if the tenant does not give timely written notice of termination. If the tenant has paid a penalty deposit, the landlord may keep only the amount necessary to repair damages. The landlord may keep the entire amount of a security deposit, even if the actual damages are not that high. Within 30 days of the termination of the lease, if the landlord plans to keep the deposit, he or she must provide the former tenant with an itemized statement of the damages the tenant caused. In any case, the landlord has 45 days to return the deposit to the tenant.
Owners of rental property are required to keep the property in reasonable repair. This requirement cannot be waived by the parties, but the tenant may agree to make repairs or perform maintenance if the arrangement is in writing and the tenant receives compensation in return. For example, a renter might agree to make routine plumbing repairs in return for a reduction in rent or payment from the owner. If the parties have not agreed the tenant will do repairs, repairs remain the responsibility of the landlord. If something needs repair, the tenant by law must notify the landlord and give the landlord a reasonable opportunity to make the repairs or have them made. If the owner refuses to make repairs, the renter has several options.
Call an Inspector
The renter may call local fire, health, housing, or energy inspectors to investigate whether there is a code violation in the unit. If the tenant believes there is a lead-based paint problem, he or she should call the Department of Public Health. If an inspector finds a code violation, the inspector has authority to summon the owner to appear in court. Often, an inspector’s report of a code violation is enough to convince a landlord to correct problems. Calling an inspector is a necessary first step to several of the other options described in the following sections. The law provides protection for a renter if the owner attempts to evict the renter in retaliation for calling an inspector. Under the Lead Poisoning Prevention Act, a landlord is prevented from retaliating against a renter with an elevated blood lead level.
If there is a serious problem in a unit, the renter may withhold rent. Under extreme circumstances, the tenant may withhold rent and claim constructive eviction. This means that the rental unit has become uninhabitable because of the problem; in effect, the landlord has evicted the tenant by failing to make the unit livable. Before withholding rent, the renter should notify the owner, in writing, of the needed repairs and give the owner an opportunity to make repairs. If the landlord does not make repairs, the tenant should notify local inspectors, as described above, and get a written copy of the inspector’s report. If repairs still are not made, the tenant should notify the landlord, in writing, that all or part of the rent will be withheld until repairs are made.
If the tenant is claiming constructive eviction, he or she must prepare to leave the rental property within a reasonable time after withholding rent. The tenant cannot stay in the apartment or house without paying rent and claim it is not livable. Illinois recognizes the failure to remedy certain problems as a breach of the warranty of habitability. The tenant would have the right to claim constructive eviction under any of the following circumstances:
- No heat
- No water or no hot water
- Electricity, gas, or any other utility shut off
- Leaking or damaged pipes or other plumbing fixtures
- Landlord changed or plugged locks
- Lead-based paint hazard
- Fire damage
Withholding rent is a drastic step that should only be taken if the tenant has a strong case against the landlord.
Criminal or Civil Action
Under Illinois law, a landlord may be charged with criminal housing management for extreme failure to comply with the implied warranty of habitability. Criminal housing management is recklessly or intentionally permitting the physical condition of residential real property to be or remain in a condition that endangers a person’s health or safety. A person who feels his or her landlord should be charged with criminal housing management may contact the attorney general’s office and request the landlord be prosecuted for this crime.
A tenant who has suffered damages by a landlord’s gross failure to remedy problems may bring a lawsuit or civil action against the landlord for damages. Usually, damages are limited to the actual amount of money the renter has lost by the landlord’s negligence or breach of contract, such as the cost of replacing personal property damaged by chronically leaking pipes. Sometimes, however, renters can recover lost wages, medical costs, or even payment for emotional damages. A tenant who believes he or she has a case against a landlord should contact an attorney for guidance.
Under no circumstances may a landlord forcibly remove a tenant from rental property. In order to get a tenant out of a rental unit, the landlord must bring a lawsuit against the tenant. Legitimate grounds for bringing a suit include nonpayment of rent, breach of a lease, or refusal to leave a unit after the tenancy expires. The Illinois Retaliatory Eviction Act prohibits a landlord from evicting a tenant for complaining to any governmental authority, such as a housing inspector.
The landlord first must give the renter written notice of the eviction, which must state the reason he or she plans to start eviction proceedings. The tenant has five days to pay all rent owing, if nonpayment of rent is the reason for eviction. If the reason for eviction is a violation of the lease, the landlord is required to give the tenant ten days’ notice. The landlord then must file a complaint in court against the tenant. At the hearing, each side has an opportunity to present its side of the story, through witnesses, with the assistance of counsel, and by presenting evidence. The tenant has a right to a trial by jury. The judge will deliver an opinion. The judge may order the tenant to move immediately, but usually gives the tenant two weeks to vacate. If the judge decides the tenant has no legal reason for refusing to leave the property, the judge may order the sheriff to force the tenant out. If the sheriff has to perform the eviction, the tenant’s property may be stored on-site or in a warehouse.
Tenants enjoy a number of rights, even if those rights are not specified in the rental contract. The tenant has a right to quiet enjoyment of the premises, which means that the landlord may not interfere illegally or unreasonably in the tenant’s life, just because the landlord owns the property. Renters have the right to use the rented premises in any way, as long as it is legal.
Generally, a landlord may enter a tenant’s unit only with the tenant’s consent, except in an emergency. After a tenant has given notice of termination, a landlord has the right to enter the unit to show it to prospective renters. A landlord also may enter for a “reasonable business purpose,” such as maintenance, only after giving the tenant reasonable notice. If a landlord fails to get permission or give notice, the landlord is trespassing and may be sued. The tenant whose privacy rights have been violated may recover damages.
Tenants have a right of access to the property they rent. It is illegal for a landlord to lock a tenant out of his or her unit without a court order. A tenant who is unlawfully locked out may petition the court to get back in. The court has authority to order law enforcement officers to help the tenant regain access. If the court finds that the landlord knew or should have known that the lockout was illegal, it may order the landlord to pay damages.
Subleasing is having someone else take over a tenant’s rights and obligations under a lease before the original lease expires. The tenant has a right to sublet a unit if the lease does not prohibit doing so. If the new tenant does not pay rent, damages the unit, leaves before the lease expires, or breaches another condition of the lease, the landlord may hold the original tenant responsible. The original tenant then may sue the new tenant for those costs.
Generally landlords who rent property are responsible for paying the utility bills. A landlord and a tenant may agree in the lease that the tenant will obtain his or her own account with the utility companies, as long as the tenant is responsible only for utilities in his or her unit. It is unlawful for landlords to request or require that tenants pay utility bills for common areas or other units. If a landlord fails to pay a utility bill which he or she is responsible, a tenant may pay the bill and deduct the payment from his or her rent.
Landlords who are responsible for paying for the provision of utilities are forbidden under Illinois law from shutting off utilities, except in emergencies or for repairs. A tenant whose electricity, water, or heat are terminated because the landlord has failed to pay the bills has several options. The tenant may stop paying rent, as noted above. The tenant may recover 100 percent of the rent paid for any period during which he or she did not have utility service, and each tenant in the landlord’s building may recover up to $300 in damages. Utility companies must abide by certain guidelines prior to shutting off service. In the case of rented property, utility companies must give tenants ten days’ notice prior to terminating service, and the exact date service will be terminated must be provided.
Cold Weather Utility Rule
Illinois has a state policy that no residence should be denied essential utility service during the winter due to a failure or inability of the consumer to pay the utility bill. This law dictates that people working for utility companies and residents will work together in a fair manner and that they will act in good faith to resolve any problems with paying for or providing utility service in the winter.
Discrimination in Housing
Federal and Illinois laws prohibit home sellers and landlords from discriminating on the basis of age, ancestry, citizenship, color, creed, disability, marital status, national origin, race, religion, reliance on public assistance, sex, or unfavorable military discharge. The law prohibits discrimination against families with children under the age of 18. Some areas have local laws that provide additional protection from discrimination. For example, Chicago has a city ordinance forbidding discrimination on the basis of sexual orientation.
Following are some examples of prohibited actions by landlords, owners, or real estate agents:
- Failing to rent to people of a particular race
- Using restrictive covenants to prohibit people of a particular ethnic origin from living in a development
- Charging a blind tenant extra for keeping a guide dog (unless the dog actually causes damage to the property)
- Failing to design housing that is accessible to people with disabilities.
Depending on the nature of the violation, federal or state agencies are responsible for enforcing non-discrimination laws. The Illinois Human Rights Act, for instance, is enforced by the Illinois Department of Human Rights.