Protecting Tenants in Foreclosed Rental Property Ordinace

On June 5, 2013, in an attempt to reduce the displacement of tenants in property taken in foreclosure, maintain property values and avoid the perception of a neighborhood as being unworthy of investment, the Chicago City Council overwhelmingly passed SO2012-5127, the Protecting Tenants in Foreclosed Rental Property Ordinance Section 15-4 of the Municipal Code of Chicago (Ordinance).

The Ordinance will become effective in mid to late September, 90 days after passage and publication. The Department of Business Affairs and Consumer Protection, through its Commissioner, is charged with its administration and enforcement, however the Commissioner referred in the text of the Ordinance is the Commissioner of the Department of Buildings (Commissioner).

The Ordinance applies to successful bidders at a foreclosure sale and mortgagees who acquire title through a deed in lieu of foreclosure or consent foreclosure and is related to any building which contains one or more dwelling units, including single family homes and condominium units, which are used as rental property. Purchasers who are going to use the property as their principal residence are exempt. If the property was sold at a judicial sale, under the Ordinance the successful bidder or holder of the certificate of sale will become the owner when the sale has been confirmed by the court and any special right of redemption has expired.

The Ordinance provides a host of new obligations for the purchaser and new rights for existing tenants with bona fide leases. These include a mandatory requirement that the new owner offer Qualified Tenants relocation assistance or a renewal or extension of their existing lease at a statutorily mandated rate. Enforcement of the Ordinance is provided for through a new registration requirement for foreclosed rental properties.

The definition of Qualified Tenant under the Ordinance is similar to the definition in the Federal Protecting Tenants in Foreclosure Act. A qualified tenant is: (1) a tenant in a foreclosed rental property on the day that the purchaser becomes the owner of that property (2) has a bona fide rental agreement to occupy the rental unit as the tenant’s principal residence.

Within 21 days of taking ownership of the property, the owner is required to make a good faith effort to ascertain the identities and addresses of all tenants in the foreclosed rental units. Within the 21 day period, the owner must serve all known tenants with a notice explaining their rights under the Ordinance, and post a copy of the notice on the primary entrance of each foreclosed rental property. If the owner becomes aware of any additional tenants after the initial 21 day period, that tenant shall be given notice within 7 days of the owner ascertaining the tenant’s identity. The specific text for the notice is set forth in the Ordinance in English but must be provided in English, Spanish, Polish and Chinese. The notice informs the tenant that he or she may be eligible for relocation assistance or the option to extend or renew his or her lease. It will set forth the rental rate for the renewal or extension, and will provide contact information for the owner and property management agent. The owner is not entitled to collect rent from the tenant, until notice has been served.

As explained in the Notice to Tenants and the Relocation Assistance sections of the Ordinance, the owner has a choice. The Ordinance requires that the owner shall pay a Qualified Tenant a one-time payment of $600.00 in relocation assistance per rental unit unless the owner offers the tenant the option to renew or extend his or her current written or oral lease with an annual rental rate that for the first twelve months does not exceed 102% of the tenants’ current annual rental rate; and for any twelve month period thereafter, does not exceed 102% of the immediate prior year’s annual rental rate.

If the owner elects to pay the relocation fee, the fee shall be paid no more than 7 days after the tenant vacates the unit. This payment is in addition to any security deposit or other compensation the tenant may be entitled to. The owner is not be liable to pay the relocation fee to any qualified tenant who either does not enter into a compliant rental agreement after being offered one, or against whom the owner has obtained a judgment of possession.

The City will be able to identify the properties which are subject to this ordinance through a self-reporting requirement for owners. Within 10 days of acquiring ownership of the property, the owner must register it with the Commissioner and pay a $250.00 registration fee. The registration will include: contact information for the owner; the address of the property; the number of rental units and their occupancy status; the name of the occupant; contact information for the owner’s real estate or property preservation agent as well as a designee within Cook County Illinois to act as authorized agent for receiving notices of code violations and service in any court or administrative proceeding in connection with the enforcement of the Ordinance.

The owner must provide an affidavit supporting the occupancy information. The affidavit must be signed by the owner and filed with the registration and list by unit, all qualified tenants, and any other information reasonably required by the commissioner. The owner is under a continuing obligation to update the information in the registry. Updates are to be provided within 10 days of any changes including sale of the property to a bona fide third-party.
The penalties and liability for failure to comply with the Ordinance include both a private right of action for the tenant and an enforcement mechanism for the City. A tenant will be entitled to damages in an amount equal to two times the relocation assistance fee plus reasonable attorneys’ fees for violations of the notice relocation assistance requirements. The municipality has the right to enforce any section of the Ordinance including the registration requirements either through an enforcement action by the Commissioner in the department of administrative hearings or through a court action filed by the corporation counsel. A party found guilty of a violation of the Ordinance shall be fined not less than $500 and no more than $1,000.00 per day for each day of violation.

A copy of the Ordinance as passed by Council is provided.