Death and Taxes Blog

In Illinois, you can avoid a probate proceeding so long as the assets you owned in your own name at your death (that is, assets OTHER THAN joint assets, assets with a beneficiary, or assets in trust) have a value of less than $100,000.

But what if you are over that amount, yet your only asset is Illinois real estate? Is there a way to transfer your house to your heirs or legatees without a probate? The answer is (surprisingly) "yes." You can do this by a process called "bond in lieu of probate," by which the heirs or legatees can transfer title to a buyer (maybe one of them, maybe a third party) via a valid deed. Basically, the process requires you to have:

1. Agreement by the heirs (and legatees, if any) to use this process; and

2. A title company that will agree to handle the transaction itself.

What are the concerns with transferring title to a decedent's real estate without a probate? The big one is creditors. Probate exists to transfer the decedent's property to his or her heirs (or, if there was a Will, to the legatees under the Will). But it also exists to allow creditors to be paid money they are owed by the decedent or his or her estate. If there's no probate, how are the claims paid? This is where the title company comes in to the picture. Here's Chicago-area attorney Cary A. Lind's take on the situation:

The title company is concerned about creditors claiming against the purchaser or other insured party because claims were not paid. In order to protect itself, the title company takes two different routes. First, it requires a personal undertaking from all distributees, whereby the distributees agree jointly and severally to indemnify the title company against all claims, fees, expenses, etc., from any claims which may be asserted against it. That is well and good, but what if a legatee skips town, blows the money, and is uncollectible? The title company's second requirement is a bond to insure its risk, thus the phrase "bond in lieu of Probate." The bond for Chicago Title Insurance Company is two percent of the value of the decedent's interest in the real estate during the first twelve months after death and one percent during the second twelve months. After two years, all claims are barred, so no bond is necessary.

I don't know if those rates are still applicable (Mr. Lind's article is from 2002), but let's assume they are, and we're talking about the transfer of a $500,000 house. In that case, the bond will be $10,000 (if the transaction is done in the first year after death). That's pretty expensive, I think, especially since the heirs are still required to sign a personal undertaking. I typically handle probate estates for far less than $10,000, and you get the probate "seal of approval" (disallowing claims once the claims period in probate has passed) thrown in for free.

Does this mean a "bond in lieu of probate" is always a bad idea? Not at all. I recently closed a transaction where dad died in 2005, leaving no Will and two heirs (son and daughter, who get along well). Son and daughter worked together in handling the property over the five years after dad's death, but then the two of them agreed that son would purchase daughter's interest. No bond was needed because the time for filing claims had passed, and the transaction was completed for much less than than the cost of a probate. (It happened pretty quickly to boot.)

I recently received the e-mail from a reader, in response to some of my earlier posts about probate investors. I'm going to print it in its entirety, and then respond to a few points:

Having read several of your posts, I find many of your comments to be insightful and interesting. Although I agree with 90 to 95 percent of your comments, I disagree with a few of them in “Probate Investors Go Nutso!” and “Ads for Cremation Society of Illinois, J.G. Banks”. And I'd like to take a moment to present my rebuttal with an investor's slant.

First, I disagree with your supposition (in the prior post) that everyone “who attend seminars (like this one) and then try to launch careers buying real estate in probate for pennies on the dollar, flipping the real estate, and becoming rich.” You imply the idea of investing in real estate in probate would only appeal to someone who is already neither wealthy nor involved in real estate. I also find your comment to be somewhat biased and disingenuous: you imply the investor's motive to profit from investing in probate estates is ignoble; yet, you also profit from investing (your time and other resources) in probate estates--but your motive is noble. Real-estate flipping is a bona fide business. Most entrepreneurs start businesses to earn profits—not to go broke. Many—possibly most--attorneys, who practice law, don't practice for free; rather, they operate their businesses for profit—as do many consultants (myself included), physicians, auto mechanics, restauranteurs, etc. Businesses, that don't turn profits, don't remain in business for much longer. Thus, there's nothing inherently wrong with one trying earn a profit.

Second, technically, anyone who purchases anything in the US will make that purchase for pennies on the dollar—even if the purchase is at full price. From your statement, it appears you disapprove of the investors trying to purchase property at a discount (or wholesale prices). Investors aren't the only ones who purchase products and services from their suppliers at wholesale prices, add value, and resale the end products at retail prices (for a profit). Buy low, and sell high . . . and . . . profit on the buy, and realize it on the sale . . . these are two important mantras in business. Most manufacturers, physicians, educators, farmers, car-dealer owners, etc purchase at least a portion of their supplies at wholesale prices; and they sell their products/services at retail prices too. So, why single out the investor for trying to do the same? Note, it's usually the investor—not the others (realtors, contractors, attorneys, etc)—who puts his/her/their cash/credit on the line to acquire the property. The others--including the attorney(s)--usually get their money upfront and assume little or no risk; whereas, the investor usually assumes most—if not all—of the risk and gets paid on the back-end. Here, yet another mantra in business, called the risk/reward relationship, is at work: that investor assumes more risk upfront hoping to receive a greater reward on the back-end. Thus, there's nothing inherently wrong with one trying to earn a profit by buying low and selling high.

Third, most investors will gladly offer to pay a higher price for properties in better condition, because they have to spend less upfront to make it marketable. Since the market basically determines the sales price (a resistance) of a residential property, the only way for an investor to ensure that a rehab won't go over-budget is to offer a lower purchase price. (I'll elaborate later on how skilled investors determines their purchase price.) Continuing, you might wonder what kind of value does a real-estate investor add to a property. An investor adds value by doing the following: 1) buy properties that most retail buyers won't; 2) hire/manage several teams to rehabilitate, market, and sell a property (retail); 3) pay taxes (for properties that might otherwise remain abandoned); 4) work with the urban planners in various communities to help revitalize various neighborhoods by eliminating eyesores—which helps to preserve/improve property values—therein; etc. So, you see investors are a valuable member of the real-estate food-chain; they function primarily as facilitators, and they deserve to be paid for their contributions too. Thus, there's nothing inherently wrong with one trying to earn a profit while making positive contributions to various communities.

Of course, some might argue that the rehabs or new development could possibly gentrify a neighborhood—but that's another topic for another time.

Fourth, I disagree with your supposition (in the latter post) that investors will “purchase real property owned by probate estates at deep discounts, and then flip this property for a hefty profit.” You also mentioned later, that you rejected several offers from investors citing, “their offers (none exceeding $100,000 for a house valued at about $160,000) were simply unacceptable.” Although that discount typically includes a profit, that discount isn't the profit—rather it's the margin (sells price – cost). Those investors offered to purchase that property roughly at 62.5% (or less) of its market value (aka After Repair Value [ARV]). Based on your numbers, I suspect those investors expected to spend at least $50K-$55K on that property. Had you accepted the offer at $100K, that investor most likely would have received a profit of $5K-$10K (of that 37.5% [$60K] margin). The rest of that margin (aka the costs) would go towards fees: legal, document recording, banking, tax, environment tests, pest control, security, theft, weather-related expenses (flooding, down power lines, burst pipes, etc), appraisal, inspection, ALTA survey, marketing/sales, staging, title, insurance, cost of money (points, interest, draws, deposits, etc), utilities, licenses/permits, use changes, on-site property and project management, clean-up, trash removal (ie dumpster), accounting, and repairs (materials and labor). The ones foolish enough to purchase properties without a sufficient margin, will get burned in the end. I'm sure that anyone who's watched several episodes of “Flip This House”, will have seen several amateur (and a few pro) flippers come up short for that very reason. Thus, there's nothing inherently wrong with one trying to preserve one's profit by setting a reasonable operating margin.

Fifth, you state, “probate estates are not typically administered over a 10-year or 20-year period; instead, we're usually talking about 1 year or possibly 2 years of administration.” Although I agree executors typically don't administer them for 10 or 20 years, I also know the national average runs closer to 9-18 months if there are no will contests, and 2+ years otherwise—the duration is affected by the size and complexity of the estate, the number of will contests, taxes, etc. (I've verified this independently with several attorneys, circuit-court staff, bank mangers, and financial planners.) Typically, legal fees, taxes, mortgage payments, etc continue to accrue--and possibly compound or escalate--over that time (assuming the life insurance and other POD funds won't resolve the outstanding liabilities in the probate estate)—especially if the estate is large and complex. Additionally, your comment (later in that paragraph) about the notion of "the time value of money," presents an overly simplistic example, and fails to account for the fact that the probate judge (in many jurisdictions) usually has to approve the sale of any real property in the probate estate. What if that $160K property needed $50K of repairs (due to several problems caused by a faulty foundation [cause by flooding]), was refinanced 8 months ago for $160K at 7% 30-year fixed mortgage (monthly payments would be $1064.48), had 6 heirs squabbling over it for their “fair share” of that property (but who didn't want or couldn't afford to pay for any of the repairs)? I seriously doubt you'd sell that house in that condition to a well-informed, retail buyer for $160K. Besides, most conventional lenders—even during the real-estate boom—would not fund this deal at $160K. There are 2 reasons why a property won't sell: 1) the property is ugly, or 2) its price is ugly. That property in that condition is already upside-down (worth less than its mortgage), and would most likely become a short-sell candidate. Yet, even if that property were completely paid off instead, then the executor would still end up selling it for less than $160K due to the other issues. The point is, as long as that property remains a part of the estate, it will continue to decrease the value of the estate every month (due to its holding costs). Thus, there's nothing inherently wrong with one (an attorney, a funeral-home director, an investor, etc) trying to earn a profit and help someone else out of this kind of predicament.

Yet, I do feel it's wrong for one to prey upon the ignorance of others. It would be highly unethical—and criminal in some cases—to “tweak” the results of an appraisal. Besides, it's not like the seller couldn't also order an appraisal to validate the other results. An as-is appraisal will determine the value of the property in its current shape, and a subject-to appraisal will determine its value after XYZ repairs have been made. The point is that there are lots of checks and balances already in place to help prevent a potential buyer and seller from exploiting one another—at least in the residential market. Things are somewhat different for commercial real-estate, because both the buyers and sellers are considered to be more sophisticated. Nevertheless, most commercial buyers and sellers are capable of conducting a thorough due diligence on a property to ensure that neither party is trying to exploit the other party.

Anyway, investors aren't the enemy. Ignorance and knee-jerk reactions are the enemies. Actually, the consultant in me loved the way you summarized the steps “to find probate estates that may own real estate”; however, I'd reduce those three into a single step: collaborate/partner with with one or more probate attorneys--of course, they'll need to resolve any conflicts of interest beforehand. Provided the executor and probate attorney like/trust working with that investor, they all could agree to collaborate together on other projects in the future. For example, that investor (leveraging his/her/their network) could offer to help the executor to set up a Starker (or 1031) Exchange—which will enable the executor to legally defer payment on capital gains tax on his/her portion of the proceeds from sale of the property in probate—using the proceeds to purchase something like a cash-flowing, multi-unit, commercial property, and of course include the probate attorney in on the deal. Besides the tax savings, the executor and probate attorney will receive more tax savings (tax deductions due to depreciation [39 years for commercial properties]), higher ROI (more than they'd get saving that cash in the bank, or investing that cash in stocks/bonds/etc)--basically “Mo' money, mo' money, mo' money!” This creates a win-win situation for everybody, and that's only the tip of the iceberg.

A few points in response:

1. I don't think it's ignoble to make money in a probate situation -- that's obviously the line of work that I'm in, and for which I get paid. I don't begrudge anyone the right to earn a living. What I object to are sharp practices, where someone is trying to mislead an unsophisticated person into doing something stupid. And yes, this is partially the unsophisticated person's fault. (Sounds familiar, doesn't it? Person X is wrong for taking on a loan he can't afford, and lender Y is wrong for selling that loan to person X just to make a profit.) But, in the estate context, we're also talking about convincing someone to do something contrary to law (to violate a fiduciary duty). I can't get behind that (and, to be fair, neither can the writer).

2. Investors are free to try to buy real estate at wholesale prices. The problem is that, in many cases, they aren't in a wholesale market -- they're in a retail market. Someone making a 100K offer for a house with a fair market value of 160K is insulting the seller, and wasting the seller's time and his own.

Of course, there can be a disagreement between seller and potential buyer regarding fair market value -- real estate valuation is not an exact science. To take the example I mentioned in my J.G. Banks post: I was offered 100K for the house (which I thought was worth 170K), and the house eventually sold (3 months later) for 170K.

3. The reader is correct in saying that I shouldn't generalize about real estate investors. I will say that my interactions with them have been uniformly unsatisfying. That's not because the investors are greedy (EVERYONE is greedy), but because the ones I've met have shown themselves to be less than competent. They could've probably talked me down to 160K on the above property, done 30K or so of (mostly cosmetic) work, and flipped the property for maybe 225K. Instead, I get the ham-handed letter of interest ("so sorry for your loss..."), and then a laughably low-ball offer. I understand the risks that an investor is taking, but as a seller, those risks aren't my problem. I hope that, in the future, I will regular investors as well as all other potential buyers. But I will always insist on fair market value.

4. I disagree with this line: "the probate judge (in many jurisdictions) usually has to approve the sale of any real property in the probate estate." In Illinois, at least, I'd say that 95% or more estates are run in independent administration. That means a judge will OK anything and everything as long as the estate beneficiaries sign off on it.

I've complained loudly in the past about Oak Park's unconstitutional ban on "for sale" signs. The issue has arisen once again -- here are links to the present controversy:

It's time to rethink For Sale signs, by Ed Messina (3/18/08)

Rethink 'For Sale' signs? Think again, by Dan Lauber (3/25/08)

Galewood integrated without engineering, by Ed Messina (4/1/08)

No, it's not time to go back to For Sale Signs, by Kurt Hedlund (4/8/08)

Galewood used OP techniques to integrate, by Kurt Hedlund (4/8/08)

The most frightening thing to me about the above exchange is the editor's note at the end of Mr. Messina's 4/1/08 piece. It says, "Contrary to conventional wisdom, there is no formal For Sale sign ban in the village. It's a longstanding, voluntary agreement among local Realtors at the request of the village."

I can only assume that this was an April Fool's Day joke. When I check the Oak Park village code (via the village's website), and click through to the Village Code page (here), I see section 13-2-3. That section reads as follows (the emphasis is mine):

13-2-3: REAL ESTATE FOR RENT AND FOR SALE SIGNS PROHIBITED:

The President and Board of Trustees find as follows:

A. That a prohibition of "For Sale" and "Sold" signs has been recommended by the Commission on Community Relations on the basis that said signs tend to encourage unfair housing practices and tend to defeat the purposes of the Village's Human Rights Program.

B. That a prohibition of "For Rent" signs has been recommended by the Commission on Community Relations for the following reasons:

1. "For Rent" signs presently are used more frequently in areas that have a greater percentage of occupancy of minority residents. "For Rent" signs are seldom used in connection with buildings that have no minority occupants. The use of these signs therefore tends to "signal" that minorities may be more welcome in some areas of the Village than others and this tends to segregate areas contrary to the policy of the Village to maintain an integrated community.

2. A proliferation of "For Rent" signs encourages panic peddling and block busting.

3. "For Rent" signs may give an appearance of community instability when concentrated in a limited geographic area.

4. A proliferation of "For Rent" signs may infer that an area is less desirable than other areas.

5. A system of apartment management that refers tenants to the source of rentals will encourage greater professionalism in apartment management.

It shall, therefore, be unlawful for any person to construct, place, maintain or install a "For Sale", "Sold" or "For Rent" sign on any property developed for residential use in the Village. The term "For Sale" sign shall include signs carrying the following or similar words: "Open House" or "Open for Inspection" and shall include any other devices placed on the property to indicate that the property is for sale.

In the case of new construction of residential property or conversion of an existing structure to condominium use where a condominium declaration is recorded, a "For Sale" sign shall be permitted on the property until the property or condominium units are sold, but not to exceed one and a half (1 1/2) years after issuance of a certificate of occupancy for a new building or from the date the "For Sale" sign is posted in the case of a conversion. (1981 Code)

Does that look to you like an informal, voluntary agreement between the village and local realtors?

My letter to the editor was published on April 8 -- here it is (yay! I'm officially a crank!) The Features/Viewpoints editor for The Wednesday Journal, Ken Trainor, tried to respond to my concern about the constitutionality of Oak Park's ban with this editorial, published at the same time. My two problems with Mr. Trainor's editorial are:

1. He admits that, "in 2003, we were told by staff at village hall that there was no official For Sale sign ban. it was simply a voluntary ban observed by local Realtors all these years. Well, they weren't being entirely upfront about that. Turns out the ban is still on the books, only it's not enforced." And yet, in 2008, the viewpoints page of The Wednesday Journal includes an editor's note stating that ""Contrary to conventional wisdom, there is no formal For Sale sign ban in the village. It's a longstanding, voluntary agreement among local Realtors at the request of the village." I don't know which is worse -- that the Village would lie to The Wednesday Journal about the nature of the ban in 2003, or that The Wednesday Journal would perpetuate that lie by repeating it in 2008.

2. Mr. Trainor tries to make the argument that "Oak Park might very well be able to withstand a court challenge" on the ban. I'm not a big fan of the John Yoo school of legal thought, where a clear law that you don't like can be read to say whatever you want it to say. The Supreme Court stated, in 1977, that bans on "For Sale" signs of the type employed in Oak Park are unconstitutional. The reasoning for that ban given by Justice Marshall is pretty clear (the opinion is available here). That Mr. Trainor thinks the ban will be overturned by showing "the documented resegregation of the West Side of Chicago" only shows US that Mr. Trainor either hasn't read or doesn't understand the case. And all the thousands of words put down in The Wednesday Journal about why Oak Park needs the ban, has to have the ban, will be destroyed if the ban is lifted, are just wasted.

Note that I am not commenting on whether Oak Park should be able to do what the Village, Mr. Trainor, and others seem to want it to do -- protect Oak Park from the (in their opinion) danger of low-income black people swarming into the community and destroying it once the "For Sale" sign ban is lifted. Rather, I'm stating that, if Mr. Trainor and the Village want to maintain what they see as an "appropriate" level of diversity in Oak Park, they're going to have to figure out a different way to do it.

I've written before about unique real estate -- for instance, here and here. I spent Easter in my hometown (Marshall, Michigan), and found that one very unique piece of real estate is on the market for only the second time in about 100 years. It's called the Cronin House, and it's offered (here) for $1.25 million.

The house inspires a lot of interest, especially in people who like historic homes and/or children's literature. Why children's literature, you may ask? Because the house was the inspiration for a pretty well-known book entitled The House with a Clock in Its Walls John Bellairs (who was born in Marshall).

Marshall -- like much of Michigan -- is in a major real estate recession. But, for a house like the Cronin House, does that really matter? It will be interesting to see.

People buying real estate sometimes ask, "why do I need title insurance?" There are a few reasons for it, but I think the best reason is that you don't wind up in a "Bugs Bunny - Brooklyn Bridge" scenario.

Do you remember that cartoon? (It's called "Bowery Bugs," and can be seen here.) It's the one where Bugs torments Steve Brody -- the cartoon ends with someone "buying" the Brooklyn Bridge from Bugs. Which, of course, Bugs doesn't own in the first place.

I'm reminded of "Bowery Bugs" by this article. Evidently Paul and Jill Willey, of Portage, Indiana tried to sell their house. But in this case, "their house" was just a house they were renting. The funny thing is that they succeeded. They listed the house on Craigslist, and sold it. Then sold it again!

When my wife and I bought our current home, we were told that it was built in 1906.  That made me curious about (1) whether this was indeed true and (2) the previous owners of our house.  So, I made a trip to the Cook County Recorder's office yesterday to see what I could discover. 

The Recorder's office is located in Room 120 of the City Hall - County Building at 118 North Clark Street (here's a map). 

If you are planning on doing this type of research, you should bring along a deed for the property you are researching, including the PIN (Permanent Index Number) and the legal description.

You'll need to go through Room 120 and down the stairs to the basement.  There you can ask an employee to help you find the book where records for your property are located.  Books are arranged by information included in the legal description.  My home is located in "Section 18, Township 39 north, Range 13 east," so I was pointed to one of the books labeled 18-39-13.  There I found two pages containing a list of all of the recorded documents for my home since it was built in 1906 (ending in 1985 -- all documents after this date are available online here).  Some of these documents (especially those related to mortgages) aren't really important to me, but I am interested in the deeds by which previous owners bought and sold the property. 

There is a document number next to each document, which you can copy down and take to the microfilm library down the hall.  (For some older documents an employee will need to help you by converting the old numbers to microfilm numbers.)  You can then get the microfilm and a viewer, and print out the documents you want.

Happy hunting!

In Part 1 of my two-part article on "Oak Park's Kelo Problem," I noted that "[t]he village of Oak Park owns a LOT of real estate, and its portfolio continues to grow."  How much real estate are we talking about?  The Wednesday Journal recently published a list of Village-owned properties:

1125-1133 Lake St. (the Colt Building)

1145 Westgate (office building)

1113 Lake St. (Los Cazadores restaurant)

1121-1123 Lake St. (retail building)

1112-1118 Westgate (office/retail building)

2-10 Chicago Ave. (mixed-use building)

2 North Boulevard (parking lot)

708 Lake St. (Tasty Dog restaurant)

130 N. Marion St. (former Sawyer Business College)

301 S. Oak Park Ave. (empty lot)

710-24 Madison St. (empty lots (3))

250-60 Madison St. (former Shepherd Volvo)

239-45 Madison St.

301-07 Madison St.

826-28 S. Oak Park Ave. (empty building)

The same issue lists tax revenues from twenty new construction projects undertaken in Oak Park since 2000.  The tax revenues from these projects? $4,131,914.  I wonder how much tax revenue the fifteen village-owned properties would generate if they were privately owned?

This weekend's Chicago Tribune reported (here - registration may be required) on some exciting new changes to the Zillow website.  You can now:

1. List your home for sale, either by owner or with the assistance of a realtor.  If you are selling by owner, you can also consult the site's Real Estate Wiki; or

2. If you're not sure you want to sell but want to test the waters, set a "Make Me Move" price for your home (i.e. the price at which you would be willing to sell).

Buyers can also now perform searches of homes that are for sale or for which the owners have established a "Make Me Move" price.

Previous changes to the site allow owners to "claim" their home and create a more accurate estimate of its value by adding more accurate information about amenities and repairs.

Fun stuff, to be sure.  But the question is, will sellers and buyers really come to Zillow to transact business? 

I've written previously (here and here) about the possibility that former homes of the famous and infamous could garner increased interest (and price tags) when their owners go to sell.  But if the home was the site of an actual murder, there's always the chance that the value will decrease because of the "creep out" factor.  Defamer handles this issue in its own irreverent way, here.

I've been trying to figure out what bothers me about this Bob Bruss column, in which he suggests (to a person trying to sell his house in a buyer's market) "increasing the sales commission to 7 percent with 4 percent going to the buyer's agent who produces an acceptable buyer."

There's always a conflict of interest involved with real estate brokers, especially with respect to buyer's agents.  A buyer's agent gets paid if (and only if) his or her client buys, and the amount of the agent's commission is dependent upon the price of the real estate purchased.  What if the buyer's agent pressures the buyer into purchasing a house the buyer doesn't really want (or a particularly high-priced house), simply because of the commission the agent will receive?

A similar problem exists if you increase the commission going to the buyer's agent.  (Mr. Bruss even suggests more direct -- or, if you prefer, more vulgar -- ways of appealing to buyer's agents. These include "offering buyer's agents incentives such as the home seller's car, a Hawaiian vacation, and various other special incentives to get a property sold.")

Mr. Bruss wouldn't consider offering these types of incentives unless he felt that buyer's agents can successfully persuade their clients to purchase house A instead of house B.  But what if house A and house B are identical in all respects other than the commission to be received by the buyer's agent?  Or, what if house B is actually a much nicer house than house A, but offers a lower commission?

By increasing the buyer's agent's commission, what you are really doing is hoping that some buyer's agent will behave unethically in steering his or her clients your way.  Isn't this just a bribe by another name? Is the real estate market so slow that it's really come to that? 

I'm a member of a transactional law e-mail group that is a part of ISBA (the Illinois State Bar Association).   Every few months or so, there is a round-robin discussion of attorney's fees among the group's residential real estate attorneys.  The general point tends to be that real estate attorneys feel like it's difficult to make a living doing this type of work because of the constant price pressure, which stems from two things:

-the presence of real estate attorneys who offer to handle closings at rock-bottom prices (like $200).  Presumably these attorneys are using non-attorneys to do most of their work (preparing documents, clearing title, etc.); and

-the influence of realtors, who may tell their clients that they shouldn't pay more than a minimal amount for a real estate attorney.

Illinois attorney TJ Thurston offers his take on the issue here.  I mostly agree with Mr. Thurston's assessment, with two exceptions:

1. Mr. Thurston states the following:

I have nothing against paralegals and secretaries performing the clerical and non-legal tasks in a transaction (such as calling the county assessor to determine if there are outstanding taxes due on the property). I DO have a problem with attorneys that allow paralegals or secretaries to perform the unauthorized practice of law (UPL), which is both illegal and an ethical violation.

The problem is that attorneys alone are in charge of deciding what constitutes UPL, and attorneys have abused this power in the past.  Does a given type of work appear lucrative and challenging?  It's deemed "legal work."  Is a given type of work mind-numbingly boring?  Sounds like something a secretary can do.

There's legal ethics (as defined by the Illinois Rules of Professional Conduct) and there's real world ethics.  Having a non-attorney perform legal work may be a problem from a legal ethics perspective, but from a real world ethics perspective, the more important issues are (a) does the person I hire know how to do this job, (b) am I aware of this person's qualifications, and (c) is this person charging a fair price for this work.  There are plenty of non-lawyers who have the competence to handle the legal work involved in real estate transactions, and there are plenty of lawyers who are not competent to perform this work.

2. Mr. Thurston also suggests that there is an insurance element to hiring (and compensating well) a real estate attorney:

Sure, you may be saving some money [if you hire a low-cost attorney], but you are running the risk of serious mistakes; mistakes that might cost you thousands of dollars. If the transaction goes bad, what are you going to do?

That may be the case, but where are the figures to back it up?  How often does a real estate deal go bad?  Is the rate 1 in 2? 1 in 50? 1 in 100? 1 in 1,000?  My sense is that real estate attorney's fees are where they are because the market/public has assessed the risk of a deal gone bad, and found that it isn't significant.

On a personal note, my experience has been this: I liked doing real estate transactions, and thought I did a good job (I did all of my own work, and was constantly available to my clients by phone and e-mail).  My experience is that most realtors are overpaid and most attorneys are underpaid.  The market doesn't agree with my experience, and votes with its collective wallet.  I therefore found it difficult to make money as a real estate attorney, and as a result have pretty much stopped practicing in this area of law.

I recently did a two-part post on Oak Park's Kelo problem (post #1 and post #2).  Part of the problem involves the "vision thing" that all Oak Parkers are seemingly born with -- or acquire when they move here.  Everyone seems to have an opinion about what businesses should and shouldn't be here.  For example, in this week's Wednesday Journal, we have...

1. Dennis Murphy's vision of Oak Park, online here.  (Mr. Murphy owns the popular Poor Phil's restaurant -- try the oysters.)

2. Features Editor Ken Trainor's vision of Oak Park, as set forth in his article (here) entitled "Why doesn't Oak Park actively recruit interesting retail?"  Mr. Trainor's article makes little sense to me.  He begins by complaining about empty storefronts, which I understand -- there are so many in Oak Park that an artistically-inclined friend of mine wants to make a poster (similar to those "Doors of Ireland" ones) showing "Vacant Storefronts of Oak Park."  But Mr. Trainor then goes on to say:

Just around the corner, through the Metra overpass, Bill Sullivan has opened a real estate/legal office, filling one of the more prominent storefronts on the Marion Street mall. Bill's a terrific guy and community pillar. His business is an excellent addition to the downtown Oak Park mix, but should it be taking up a prominent ground-floor storefront? Seems to me that should be reserved for retail.

This is Oak Park's problem in a nutshell.  Mr. Sullivan -- an acquaintance who used to have his office next to mine -- takes a chance on downtown Oak Park, purchasing and moving into a prominent storefront.  The thanks he gets? Being told that he shouldn't be there.  Welcome to Oak Park, Bill.

Interestingly enough, The Wednesday Journal's offices are on an underdeveloped street in Oak Park, one that could be turned into a promising retail area.  Maybe if enough of us tell the Journal we don't want them there, they'll leave and a Restoration Hardware will move in!  What's that? You don't want a Restoration Hardware?  Well, I do, so there.

In the past, I've blogged about Oak Park's ban on "for sale" signs (here). 

I've recently spoken with two Oak Park realtors about the ban.  Both of them informed me that the realtor community in Oak Park works very hard to made sure that the ban is kept in effect.  One local realtor told me last week that, when she started working in Oak Park, she had a client (seller) who wished to display a "for sale" sign.  She was told by another realtor that she shouldn't allow such a display, because it would give her a bad reputation in the community, and other realtors might not want to work with her.  As a result, the realtor convinced her client not to display a "for sale" sign.

I find the above very troubling.  One of the reasons why the ban is still in effect, even though clearly unconstitutional, is because the individuals most active in selling Oak Park real estate have a vested interested in retaining it.  A "for sale" sign is one cheap method of advertising real estate for sale that doesn't require the services of a realtor.  If you eliminate the ability to display a "for sale" sign, you are making it more difficult to be a FSBO ("For Sale By Owner") seller.  That means more business for the realtors, and no incentive to push for a ban, even though it seems like "for sale" signs = more potential buyers becoming aware that a given property is for sale = a net plus for sellers of Oak Park real estate.

Last week I talked about Oak Park's Kelo problem.  You may say to yourself, "I understand that Oak Park likes to restrict the ability of owners of real estate to use their property, but so what?"  To my mind, there are two negative consequences to Oak Park residents:

1. Businesses have started to leave Oak Park for other localities that are more business-friendly.  If you're looking for proof of this fact, look no further than Madison Street.  If you drive through Oak Park on this street (going West from Austin to Harlem) you'll see a pretty blighted area.  But if you continue West on Madison into Forest Park, things change -- you'll see a vibrant area full of funky shops, nice restaurants, etc.  Businesses have lots of choices in where to locate -- why put up with the hassles of Oak Park when you can go to a nearby village that actually wants to help you succeed?

2. Real estate taxes in Oak Park have skyrocketed, making it hard for some residents to continue living here.  I spoke last week about the real estate owned by the village (and therefore not on the tax rolls).  This fact -- along with rampant government spending -- has created a totally expected result: skyrocketing real estate taxes.  My real estate taxes went up "only" 10%, but other residents report increases of 40% or 50%.  Or even more -- here are the property tax numbers for an Oak Park property my client sold on Thursday:

2005, 1st installment: $563.91
2005, 2nd installment: $1,976.26

In Cook County, the 1st installment always equals 1/2 of the previous year's taxes, so we know that the 2004 taxes for this property were $1,127.82.  That makes for an increase of more than 225%(!) from 2004 to 2005.  Yikes!

Oak Park has always prided itself on its (ethnic) diversity, but the net effect of its restrictions on property will quite obviously lead to a reduction in the village's (economic) diversity.  And, as this editorial makes it clear, Oak Parkers have no one but themselves to blame for this predicament.

Oak Park, Illinois, where I live, has had what I call a "Kelo" problem for quite some time.  And now its residents are finally being forced to come to grips with it.

What's a "Kelo" problem?  The name comes from the (in)famous U.S. Supreme Court opinion in Kelo v. City of New London (125 S. Ct. 2655 (2005)).  Kelo involved an attempt by the city of New London, Connecticut to condemn ("take") privately owned real estate so that the property could be redeveloped.  The Supreme Court ruled -- to the dismay of lots of people -- that New London's actions did not violate the Fifth Amendment to the Constitution, which states in relevant part that private property shall not "be taken for public use, without just compensation."  The question in Kelo was whether the planned development of the property -- to create things like a resort hotel, conference center, office space, and residences -- really was for public (as opposed to private) use.

The Supreme Court's decision in Kelo -- that the development was for public use -- strikes me as wrongheaded on a number of levels, but I'm more interested in (and troubled by) Kelo as an example of the overexaggerated role of government in the development of real estate.  The idea behind New London's actions in the Kelo case is that government should be actively controlling and planning the usage of the property within its boundaries.  This is certainly a belief shared by the village of Oak Park -- and many of residents.  Consider the following:

1. Oak Park's village code attempts to ban "for sale" signs from appearing on private property.  I say "attempts" because, as I discussed here, this provision is clearly unconstitutional.  That being said, the provision is still on the books and (more importantly) still adhered to by Oak Park residents and realtors -- there are no "for sale" signs on private property in Oak Park.

2. Oak Park recently banned smoking in all restaurants.

3. The village of Oak Park often seeks to control which businesses come in to Oak Park.  The most recent example involved Oak Park telling Lane Bryant that it is a "niche" business, one that doesn't fit the "kind and quality" of shops desired for the building it wanted to occupy.  This story was picked up nationally and proved quite embarrassing, as some folks saw it as evidence that Oak Park hates fat people (see this blog, for instance). 

4. The village of Oak Park owns a LOT of real estate, and its portfolio continues to grow.  The village has just purchased the Colt Building at 1125-33 Lake Street, and may also purchase the building at 1145 Westgate.  The price tag?  Just under $5 million for the Colt Building alone.  The reason given by the village for the purchases?  According to its press release (pdf here), the purchases "could mean more flexibility in determining how downtown will look in the future."

5. The village appears to use its zoning powers as a sword rather as a shield.  Consider this language from the village's website on planned developments:

A Planned Development (PD) is a special process for approval of larger developments within the Village. An applicant for a PD typically is seeking relief from some aspect of the Zoning Ordinance such as height or set back requirements. The applicant must demonstrate that the Village will receive compensating benefits in return for zoning relief.

(Emphasis in the original) 

If you do a search for "real estate" or "[name of city] real estate" on Google, you now get as one of your top results something that says "Refine your search for [name of city] real estate." By clicking on the link, you can search local real estate -- for sale or rent -- and see results on Google maps.

For instance, if your Google search is "Chicago real estate," you can get to this results page, which can be personalized.  (For instance, you can search only homes for sale within five miles of your zipcode.)   

This tool looks like it's still in its infancy -- the list of real estate seems far from exhaustive -- but it's worth remembering as another on-line option.

It seems like every few months I post about some site that appears to be the future of real estate (this was my last one).  Here's my new favorite: zillow.com.  I read about the site in Walt Mossberg's column (here - written with Katherine Boehret) in today's Wall Street Journal, and then visited it myself.  I think it's tremendous, and would recommend it to anyone with an interest in real estate (including all homeowners).  The site doesn't cover every geographic location, and it's been overwhelmed by visitors today, but I see a lot of potential.

[added 2/15/06: Yesterday I was actually able to use zillow.com in my practice.  I was meeting with estate planning clients who had lived in the same house for about 40 years.  They had no idea what their house might be worth, and it's important for me to at least have a sense of the value of all client assets for planning purposes.  In less than a minute, zillow was able to give me and my clients a general idea of the value of their house.  They were pretty amazed!]

I'm a huge Jane Austen fan (must be the English major in me), and took in the latest version of Pride and Prejudice (with Keira Knightley and, for some reason, an ampersand in the title) over the weekend. 

Perhaps I love the story for its mix of real estate and estate planning?  One of its main elements involves an "entail," which prevents Mr. Bennet from bequeathing his home to one of his five daughters.  Upon Mr. Bennet's death, the property will instead pass to a distant relative, Mr. Collins (who of course shows up and attempts to woo Elizabeth Bennet).  Luckily, Elizabeth and her sister Jane are able to find true love with men whose money can save their sisters and mother from destitution.

This page has a great introduction to the entail (and inheritance) issues in Pride and Prejudice.

I've talked about mortgage fraud on a couple of occasions (here and here).  This issue is finally getting some mainstream media attention, in the form of a series of articles in the Chicago Tribune.   The articles and related information are consolidated in this superb presentation (Flash and registration required but worth it, I think). 

I spoke about mortgage fraud previously, here, and gave some examples of how it can work.  However, one type of mortgage fraud (or attempted mortgage fraud) that I have started to encounter quite often involves ordinary buyers who may not even know that they're doing something wrong.  Let me give an example:

Mr. and Mrs. Smith want to buy their first home.  They both have jobs, but no money for a down payment or closing costs.  They find a home they like, with a purchase price of $260,000, and go to a mortgage broker for a loan.  The mortgage broker (or their realtor) suggests that Mr. and Mrs. Smith (a) get a 100% loan for the home and (b) ask the seller of the home, Mrs. Jones, for a $10,000 credit at closing.

The problem really isn't with the above arrangement per se; rather, it's with the above arrangement if such arrangement isn't disclosed on the settlement statement for the transaction.  That settlement statement should accurately reflect the substance of the transaction, but too often parties (including closing agents, realtors, and attorneys, all of whom should know better) are willing to fudge the details in order to get a deal done.  For instance, if the lender won't allow the $10,000 credit on the settlement statement, then the closing agent may issue two proceeds checks to the seller (one for $10,000, one for the rest of the seller's proceeds), and the seller will sign the $10,000 check over to the buyer.  Regardless of the intent of the parties, that's mortgage fraud.