On January 1, 2012, the City of Chicago started to require water certifications for quit claim deeds, most likely to combat quit claim transfers being used to avoid paying water bills. Some of our clients have properties still owned by land trusts, which we encourage them to deed out upon a refinance. Last month we asked the title company to submit an application for a water certification three weeks prior to closing, but did not receive the certfication in time to close. We’d previously closed many large commercial deals with this title company and lender, so the title company issued the lender’s title policy based on delivery of the quit claim deed, even though it was not yet recorded. This office personally guaranteed the prompt payment of any water bills to the title company and we closed without the certification. Without our strong relationship with the lender and title company, we would not have been able to close the transaction on time. Submit your requests for water certifications as early as possible.

Earlier this week, we had a client lock a non-recourse HUD loan at 3.15% for a 30 year term. We had another client ask us today for advice on refinancing a two year old loan and paying a ONE MILLION DOLLAR prepayment penalty. We did the math and this client stood to lower his payments by $25,000 per month and recoup his additional costs in 45 months. With rates at historic lows and the possibility of wrapping the prepayment penalty into the principal of the new loan, paying such a high prepayment penalty makes financial sense.

We are seeing a pattern of receiving title policies that do not match the title markups received at closings. Errors on these policies from national title companies are being seen in such basic locations as the insured’s name, so be careful to check your title policies against the markups received at closings. It’s already difficult enough to collect on a claim from a title company and wouldn’t want to try to collect on a policy with an incorrect name for the insured.

Entering into a swap used to be an option for a Borrower to exchange their variable floating interest rate for a fixed rate, but we are seeing Lenders requiring Borrowers to perform the swap or else close with a higher floating rate. The Lender’s rationale for this requirement appears to be that without the swap, the floating rate loan is a riskier proposition than a fixed loan, which naturally leads to a higher rate. A traditional real estate borrower entering into a loan today would be hard pressed to find a reason to prepay a loan closed in this low interest rate environment; however, many of our clients prepay their three to five year bridge loan with non-recourse HUD loans. Our Borrowers should be aware that in addition to any prepayment penalties, there may also be a fee to break a swap contract early.

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Brina has only been with us for a few months, but has proven that she can handle and is better suited for paralegal work than general office manager and admin duties. So, effective immediately, Brina has been promoted to paralegal. Congratulations Brina. You’re a great asset to this firm and we appreciate all you are doing for us! Brina’s email has not changed from brina@sherlaw.net, but her new direct dial is 847-324-7983.

HUD’s latest update states that it has been using contractors to assist with the large number of projects currently in the queue with the goal of eliminating the queue altogether for 223(f) and 223(a)(7) nursing home transactions by the middle of 2012. In anticipation of a shorter and then non-existent queue, HUD is requiring that all applications upon submission must be ready for underwriting (e.g. current financials, APPS submissions and completed exhibits). HUD reserves the right to reject applications that are deemed incomplete or have “placeholder” documents.

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A client recently inquired if there is a requirement that an Illinois mortgage include a maturity date or was it just a case of good legal practice. Section 765 ILCS 5/11 states that “Mortgages of the lands may be substantially in the following form . . . showing when due”. I would argue that the use of the word “may” and not “shall” in the statute leaves room for interpretation. Illinois Court’s have held that the lack of particularity will not invalidate a mortgage if the intention of the parties is apparent and the note secured by the mortgage is capable of identification from other parts of the mortgage instrument. The Court in Metropolitan Life Ins. Co. v. Kobbeman, 260 Ill. App. 508, 511 (2nd Dist. 1931), stated that as long as the promissory note is clearly identified, the mortgage would be found valid “where there is a misrecital as to the amount of the note secured . . . where there is a mistake in reciting the date of the note, or its maturity, or in specifying the time and manner of its payment; but such error is merely clerical, and the note is nevertheless clearly identified.” However, since the purpose of recording a mortgage is notice to third parties, the Illinois Court in Flexter v. Woomer, 46 Ill. App. 2d 456, 459 (5th Dist. 1964) found that a mortgage which did not state the maturity date or amount of the note was not constructive notice to a transferee of the real property. The short answer here is that although a mortgage that properly describes the underlying promissory note is still valid without a maturity date therein, the priority of the mortgage may suffer. Personally, this isn’t a mortgage on which I would be comfortable giving an unqualified opinion as to priority.

Confession of judgment provisions which can be found in a loan agreement, mortgage or guaranty have the effect of appointing the lender as the borrower’s or guarantor’s attorney-at-law to appear in court without service of process and to confess a judgment for the unpaid amount of a loan against the borrower, mortgagor or guarantor, as applicable.   Illinois law provides a procedure for confession of judgment without service of process and allows its use generally in commercial transactions.  735 ILCS 2-1301(c).

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This is a great urban myth:

A New Orleans lawyer sought an FHA loan for a client. He was told the loan would be granted if he could prove satisfactory title to a parcel of property being offered as collateral. The title to the property dated back to 1803, which took the Lawyer three months to track down.

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We hired Brina McConnell as our new legal assistant. She may be sending you notices we receive on your behalf or answer your call if one of us in on the other line.