REAL ESTATE LAW PRACTICE “KEYPOINTS”

(November, 2001)

 

By Steven B. Bashaw

Steven B.  Bashaw, P.C.

Suite 1012

1301West 22nd Street

Oak Brook, Illinois  60523

Tel.: (630) 472-9990

Fax.: (630) 472-9993

e-mail:  sbashaw@bashawlaw.com

(Copyright 2001 - All Rights Reserved)

 

Editor’s Note:

The Illinois State Bar Association Real Estate Section Council will present its Annual Real Estate Law Update as part of the 2001 Law Ed Series on November 2, 2001, in Chicago at the Palmer House Hilton, and November 9, 2001, in Bloomington, Illinois at the Radisson Hotel. In addition to segments on "Bankruptcy and Real Estate Law", "A Primer on the Graham-Leach-Bliley Act", "Malpractice and Real Estate Closings", "Estate Plying and Elder Law Issues", and "The UCC and Real Estate", the program will offer updates in Eminent Domain, Construction and Mechanic’s Lien Law, and Legislative and Real Estate Case Law Updates. The Case Law Update will be presented by Steve Bashaw with assistance from Joe Fortunato based on a collection of cases culled from the last year’s decisions presented here. The case materials are brought together, grouped by topic headings in alphabetical order, and presented in a manner intended to illustrate trends in the development of real estate law in Illinois over the last year. The materials will be available from the ISBA as part of the program and, thereafter, in electronic form at http://www.bashawlaw.com.

In addition to encouragement from the Illinois Institute of Continuing Legal Education and the Illinois State Bar Association’s Real Estate Section Council, it should be noted that Chicago Title Insurance Company helps underwrite the monthly production of these real estate law "Keypoints". Chicago Title is committed to the role of attorneys in real estate transactions and their continuing education in this area. Its staff attorneys are pleased to offer their view points on various developments in the law as set forth below from the perspective of a title company serving the public and the attorneys who represent their clients in real estate transactions.)

 

1. RESTRICTIVE COVENANTS; ENFORCEMENT, ACQUIESCENCE AND WAIVER:

The case of VandeLogt v. Brach, (1st Dist., October 15, 2001, http://www.state.il.us/court/Opinions/AppellateCourt/2001/1stDistrict/December/HTML/1003369.htm, may, as suggested by my friend Dick Bales of Chicago Title Insurance Company in the note that follows, change the landscape title insurance relating to restrictive covenants.

VandeLogt brought suit against Michael and Susan Brach to enjoin them from constructing a two-story, three car garage on their property adjacent to his home. The restrictive covenants, conditions and restrictions in Sunny Mead Acres, a subdivision consisting of 48 one acre lots established in April, 1948, state that "No building shall be erected or permitted on any part of the premises except one single family dwelling and private garage of not more than two-car capacity appurtenant thereto on any Lot." In his complaint seeking to halt the construction of the garage and enforce the restrictive covenant, VandeLogt alleged that he would be damaged in that the over-sized structure will limit his view of the surrounding nature. In response, the Brachs alleged affirmatively that approximately 40% of the homes in the subdivision had garages larger than two cars, and argued that VandeLogt had "acquiesced in the violation of the restrictive covenant by failing to enforce the same as to other violators, and has thereby waived his right to enforce the restriction against Defendants." While Plaintiff admitted that there were garages in the subdivision larger than two cars, the actual number was alleged to constitute 18.5% of the garages, and none of the other, over-sized garages were visible from Plaintiff’s residence or located on the same block.

Justice Cousin’s opinion begins by noting that a "waiver" is an intentional relinquishment of a known right, and that acquiescence in prior violations of a restrictive covenant can constitute a waiver of the right to enforce the restriction. Restrictive covenants are to be strictly construed, will not be enforced if unreasonable, and will not be enforced when property owners have acquiesced in prior violations. Nonetheless the First District affirmed the trial court’s determination that Vandelogt’s failure to enforce the covenant against other offending owners did not constitute a waiver considering the proximity and location of the other violating properties relative to the plaintiff. Additionally, there was no evidence of changed neighborhood conditions sufficient to establish that the purpose of the restriction could no longer be accomplished and therefore should no longer be enforced. The trial court’s grant of the permanent injunction and direction make modifications to their garage to bring it into compliance with the restrictive covenants was affirmed.

 

2. RESTRICTIVE COVENANTS FROM THE TITLE COMPANY’S POINT OF VIEW FOLLOWING VANDELOGT:

FROM THE TITLE INSURANCE PERSPECTIVE

The First District just handed down VANDELOGT v. BRACH, No. 1-00-3369. This case concerning the enforcement of covenants, conditions, and restrictions will likely change Illinois title insurance underwriting in Illinois.

In 1998, after obtaining a building permit, defendants began building a detached garage on their property in Sunny Mead Acres in Inverness. A 1948 restrictive covenant provided that "no building shall be erected or permitted on any part of the premises except one single family dwelling and private garage of not more than two-car capacity appurtenant thereto on any lot." When the plaintiff realized that defendants were building a three car garage, plaintiff's attorney wrote the defendants, objecting to the violation of the covenant. At trial the plaintiff argued that the oversized structure would limit his view of the adjoining natural surroundings. The defendants asserted three defenses: unclean hands, waiver, and acquiescence. The court noted that seven out of thirty-eight garages, or 18.5%, in Sunny Mead exceeded the two car capacity.

The trial court stated that plaintiff's forbearance from filing a cause of action against any other property owner in Sunny Mead did not constitute waiver or acquiescence. The trial court considered the proximities and locations of the other properties that violated the covenant and observed that "nobody could expect someone to start suing every neighbor in the whole area on property that was so far away from them." The trial court granted plaintiff's motion for a permanent injunction and ordered the defendant to make the necessary modifications to the garage so that it would be in compliance with the covenant. This was the case, even though the plaintiff's attorney did not contact the defendants until the garage was two-thirds complete! (Interestingly, the defendants apparently did not raise laches as a defense.) The defendants appealed and the appellate court affirmed the holding of the trial court, holding that the plaintiff did not abandon its right to enforce the covenant nor did plaintiff acquiesce in the other violations of the covenant.

Title companies are sometimes asked to give insurance over prospective covenant, condition, and restriction (CC&R) violations. For example, a declaration may restrict the use of the land to residential purposes only. The proposed insured may want to construct a small office building on the land and ask that the title company issue an endorsement insuring over this violation, a violation that will not arise until after the title policy is issued. In the past title companies have relied on the "changed neighborhood" theory in issuing this endorsement. That is, title companies have traditionally taken the view that previous violations of the CC&R changed the neighborhood, rendering the CC&R unenforceable. But as Dan Rather said on the eve of the presidential election (actually, he didn't say this, but judging from what else he said that night, he might as well have said it): Because of this case, not only is the "changed neighborhood" theory dead in Illinois, but the coffin is in the ground and the guy at the cemetery is shoveling in the dirt.

It is quite likely that in the future title companies will adopt a "proximity to other violations" approach before considering the issuance of any insurance over a prospective CC&R violation. Title companies are likely to consider the following factors:

1. If there are other previous violations of the covenant, how close are they to the land being insured? It seems clear from this decision that unless the violations are in close proximity to the land being insured, the title company may be unwilling to issue the requested coverage.

2. What is the risk that a neighbor will attack the violation? (Minutes of zoning hearings might indicate how the neighbors feel about of the proposed new use.)

3. Is there a neighbor who has a special interest in preserving the status quo and also has the financial wherewithal to go to court to preserve it? That was the situation in an earlier and similar First District case, SAVE THE PRAIRIE SOCIETY v. GREEN DEVELOPMENT GROUP, No. 1-00-3758. Note that in this case the court observed that "acquiescence in violations of building restrictions is not material where they occur on other streets than the one directly involved. Thus, even when owners throughout most of a subdivision have violated their restrictive covenants, a property owner may have the right to enforce a restrictive covenant against the owner of a nearby property." This statement seems to indicate that even a prospective violation that is in close proximity to an existing violation might still be enjoined unless the two are not only near each other but are also on the same street. If this is so, surely the bar is raised even higher for the issuance of this coverage.

4. Can the title company take any comfort from the wording of the covenant? Consider, for example, a 1930 "residential only" declaration that came across my desk yesterday. It included the wording that the covenant was "subject, however, to zoning and building ordinances and plans, if any, of any municipality having jurisdiction now or hereafter." If the property were now zoned commercial, would this wording legitimize a prospective commercial use?

5. Title companies will probably consider charging hefty premiums in order to issue this endorsement. The Vandelogt and Save the Prairie cases make it clear that in Illinois this coverage is now pure risk title insurance.

Dick Bales

 

3. MECHANIC’S LIEN: PREVAILING PARTY’S ATTORNEYS FEES AND EXPERT WITNESS EXPENSES:

The decision in J.B. Escker & Sons, Inc. v. CLE-PA’s Partnership, (5th Dist. October 17, 2001) http://www.state.il.us/court/Opinions/AppellateCourt/2001/5thDistrict/October/Html/5990811.htm considers the impact and result of a contractual fee-shifting provision relating to attorney’s fees and expert witness expenses. Esker filed a mechanic’s lien complaint against CLE-PA’s to recover $33.403.00 for concrete and paving construction at a store in Greenville, Illinois. The owner/defendant filed and answer, affirmative defenses and counterclaim alleging that the work was performed in an unworkmanlike manner and defective, resulting in costs to the owner to remediate of $26,145.00. During a six day trial, Defendant presented testimony of an expert structural engineer, Dr. Corley, and the trial court concluded with an award to the Owner on the Counterclaim of $26,145, and to Plaintiff on the complaint of $938 for curb repair provided as an extra at the owners’ request. The Court’s findings included a determination that while the contractor provided faulty concrete work, the owner requested the work continue despite its knowledge of the performance problems and therefore contributed to and failed to mitigate its damages. The Court was also critical of Dr. Corley’s testimony. Based on the contract provisions that "the prevailing party shall be entitled to recover reasonable attorney’s fees, costs, charges, and expenses expended or incurred" the Judgment ordered that the parties bear their own costs, awarded the owner attorney’s fees of $13,532 based on an itemized affidavit setting forth a total of $22,532, and denied the request for $22,662.07 for Dr. Corley’s expert witness fees.

On appeal Justice Goldenhirsh’s decision first determines that a "prevailing party" is "one that is successful on a significant issue and achieves some benefit in bringing suit." While a trial court may determine that there is no "prevailing party", no such determination was made here, and based upon the award of some attorney’s fees and costs to the owner, the trial court identified the defendant as the prevailing party. The Court also rejected the Plaintiff’s argument that because Defendant was not totally successful, (i.e., the trial court found that the owner failed to mitigate their damages), this was not a sufficient basis for the trial court to reduce the attorney’s fees requested and proven: "In this case, there was no justification for reduction in the award of attorney fees, based on the results obtained by defendant’s counsel…The relief obtained by defendant was substantial, and there was no reason for reducing the aware of attorney fees based on the result obtained." The plain language used in the fee-shifting paragraph "to recover reasonable attorney’s fees, costs, charges and expenses expended or incurred" was unambiguous, and despite the trial court’s statement that "I don’t think an expert—a $20,000.00 expert witness fee was contemplated between the parties when the contract was entered into.", the Fifth District holds that the terms "charges" and expenses" can "not be disregarded as surplusage, as it is presumed that language is not employed idly.". Noting that the word "expenses" in condemnation cases and under Supreme Court Rule 219 has been held to include expert witness fees, and the Third Restatement of Law Governing Lawyers defines expenses as including "ordinary and expert-witness fees", it was clearly foreseeable that expert witnesses would be a litigation expense. On the issue of payment of the expert witness fees, the decision states that "The test for whether the fees of an expert witness are to be paid in not based on the merit of the courtroom testimony, but on the value of his services in the course of conducting litigation", and the trial court’s criticism of the witnesses’ testimony is not a basis for denying reimbursement of the expense to the prevailing party.

 

4. ZONING; AMERICANS WITH DISABILITIES ACT HARDSHIP VARIANCE:

George and Astrid Dadian lived in their Wilmette home for over forty years and were in their 70’s when they decided to reconstruct their house and hired an architect to design a one-story residence with rooms and halls wide enough to accommodate a wheelchair due to Mrs. Dadian’s problems walking, osteoporosis and asthma. The design also included an attached, front access garage with a 30-foot driveway as an alternative to the an 80-foot rear entry garage to accommodate Ms. Dadian’s difficulty twisting and turning to drive down a long driveway. The Village ordinances allowed a permit for a front driveway when 50% of the homes on the block already had front or side driveways. The Dadian’s block contained 16 homes and only six of them had front drives. Accordingly, the Dadian’s petitioned the Village to grant a variance as requested under the hardship exception of the ordinance. The Village denied the request citing concerns that Mrs. Dadian’s problems would create a safety hazard to children on the block. The Dadians filed suit for discrimination under the Americans with Disabilities Act, 42 U.S.C. 12131, in federal court and obtained a jury verdict in their favor at trial. The Village appealed.

Focusing on the procedural difficulty of overturning the jury verdict, the 7th Circuit panel in a decision written by Judge Williams affirmed, Dadian v. Village of Willmette, (7th Cir., October 18, 2001), and gives ample insight into the use of the ADA as a basis for requesting zoning variances as an accommodation for homeowners based on age or disability.

A person is disabled under the ADA if they have a mental or physical impairment that substantially limits a major life activity. Mrs. Dadian’s osteoporosis is a degenerative disease which substantially limits here ability to walk and therefore qualifies. A public entity is required to make reasonable accommodations to a person with a disability by altering rules, policies , practices or availability of services when necessary under the ADA, and whether a requested accommodation is reasonable is "highly fact-specific, and determined on a case-by-case basis by balancing the cost to the defendant and the benefit to the plaintiff.", and a "showing that the desired accommodation will affirmatively enhance a disabled plaintiff’s quality of life by ameliorating the effects of the disability." In this case, the jury determined that the "cost" to the Village of granting the front driveway permit was out-weighed by the needs of Mrs. Dadian, and that the request was not at odds with the purpose behind the ordinance or cause a fundamental or unreasonable impact I the neighborhood. The Court also noted that the Fair Housing Amendment Act of 1988, 42 U.S.C. 3601, places the burden of proof on the public entity to prove that a direct threat exists to the health or public safety as a defense to a disability discrimination action.

The affirmation of the jury verdict in the trial court was a primary focus of the decision, but the case is well worth reading as a primer for attorneys representing an aging clientele in need of zoning variances to make accommodations in their residences due to disabilities.

 

5 GUARANTY; APPLICATION OF PROCEEDS:

In Emrick v. First National Bank of Jonesboro and Scott Wilkins, (5th Dist., September 18, 2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/5thDistrict/September/Html/5000434.htm, Mildred Emrick filed suit against the First National Bank of Jonesboro for breach of guaranty based upon the Bank’s application of the proceeds of the sale of collateral. In 1992, Emrick Trucking, which was owned and operated by Mildred’s son, Jeff Emrick, borrowed $421,000 from the Bank to consolidate debts. The Bank took a security interest in several trucks and other equipment in the event of a default, but also required Mildred to personally guaranty the loan upon to $150,000. To that end, she signed a guaranty, to which only she and the Bank were parties, secured by a mortgage upon her home. In 1994, Emrick Trucking borrowed an additional $30,000 from the Bank for operating expenses by an unsecured loan and to which Mildred was neither a party nor a guarantor. Thereafter, Emrick Trucking defaulted on both loans. The trucks, trailers and equipment pledged as collateral were sold by Jeff Emrick and the proceeds of $343,000 were tendered to the Bank and applied to reduce the debt. In the process of reducing the loan, the Bank applied the first $30,000 to the unsecured note, leaving a balance of $108,000 remaining from the total debt of $451,000. The Bank then instituted foreclosure proceedings against Mildred’s home to collect the deficiency. Mildred paid the balance and the foreclosure case was dismissed, but she then brought this action against the Bank, alleging that by paying the unsecured, $30,000 loan first, the Bank increased her risk and thereby released her guaranty. The Bank countered by arguing that the language of the first loan security agreement gave it the right to apply the proceeds form the sale of the collateral to "all other additional indebtedness or liabilities" of Emrick Trucking, and that the payment of the $108,000 by Mildred constituted an accord and satisfaction.

The trial court granted the Bank’s motion for summary judgment, and the Fifth District reversed, finding that because Mildred was not a party to the first loan security agreement containing the all-inclusive language, (she only signed the guaranty), and therefore the Bank could not increase the amount for which she was responsible by application of the proceeds to the second loan before it reduced the balance of the first loan. Noting that the agreement allowing the application of proceeds as the Bank saw fit is perfectly appropriate between the parties to the agreement under the UCC, (810 ILCS 5/9-204(2)(c) ), the Court nonetheless rejected the argument that Mildred could be bound by a "dragnet" clause in an agreement to which she was not a party. While there was language in the guaranty that Mildred signed indicating that "Indebtedness may be created and continued in any amount, whether or not in excess of such principal amount, without affecting or impairing the liability of …[Mildred] hereunder", the Court found in Mildred’s favor based on the rule requiring strict construction of a guaranty language where the impact is to vary or extend liability of the guarantor. Noting that the UCC provides that a guarantor to a secured party becomes subrogated to the Bank’s rights and duties relative to the collateral pledged, (810 ILCS 5/9504(5) ), the decision also holds that Mildred became subrogated to the Bank’s rights in the trucking company’s collateral and therefore it could not impair her rights by application of the proceeds. Finally, finding that there was no "meeting of the minds relative to having the intent to compromise", the Court rejected the Bank’s argument relating to an accord and satisfaction.

 

6. REAL ESTATE TAX SALES; REDEMPTION UNDER PROTECT AND FAILURE OF NOTICE BY THE TAX BUYER:

At first blush, In the Matter of the Application of the County Collector, Petition of Mary H. Hancock v. Darco, Inc., (4th Dist., September, 2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/4thDistrict/September/Html/4000589.htm appears to be inordinately confusing, but is actually a matter of the property owner choosing the safe remedy of redemption under protest rather than defending against the issuance of the tax deed, and then looking for the wrong remedy at the end of the case as explained in the decision.

Mary Hancock purchased two properties owned by Darco, Inc. at a tax sale. Darco redeemed the properties under protest and then petitioned the Court to deny Hancock’s petition for tax deeds and refund its redemption monies upon a determination in its favor on the protest issues.

The basis for Darco’s redemption under protest was Hancock’s failure to serve timely "Take Notice" within five months of the sale pursuant to 35 ILC 200/22-5, and three months prior to the expiration of the redemption period pursuant 35 ILCS 200/22-10, as well as publish a notice of filing petition for tax deed three months prior to the expiration of the redemption period pursuant to 35 ILCS 200/22-30. The trial court’s finding relating to the sales were based on the statutory provision that if the court sustains a protest in whole or part, it may declare the sale to be a sale in error, (35 ILC 200/21-380), and it directed the county clerk to "make the appropriate refunds". Three days later, both Hancock and Darco filed written arguments with the Court in support a petition by each of them for a refund in total of the sums held by the county clerk. The trial court denied Darco’s motion for a full refund based on the fact that this would result in the taxes being unpaid, or force Hancock to pay Darco’s taxes if Hancock did not receive a refund of the amounts she paid at the sale.

Noting that 35 ILCS 200/21-380 does provide that "Upon a finding sustaining the protest in whole or in part, the court may declare the sale to be a sale in error…and shall direct the county clerk to return all or part of the redemption money or deposit to the party redeeming.", the Fourth District nonetheless noted that Darco could have defended against Hancock’s petitions for tax deeds without redeeming under protest because the defective notices precluded the issuance of the tax deeds. While this may seem to be a risky course, (and apparently was thought so by Darco), there is a distinct difference in the procedure and result where one redeems under protest rather than defending against the tax deed: "Once there has been a redemption under protest, however, the character of the petition for tax deed changes, with the tax purchaser attempting to obtain the statutory penalty interest and the delinquent taxpayer attempting to ward off the purchaser and recover some of the funds it has deposited with the county clerk." Here Darco redeemed under protest and thereby entered into the realm of determining whether the penalty and interest are due. The tax sales were valid, and Darco’s redemptions were valid; it was Hancock’s notices that failed to meet the statutory requirements for the issuance of a tax deed, and "Hancock should not receive any less after Darco’s redemption than she would receive if she were to obtain a refund pursuant to section 22-50 absent a redemption."; i.e., the provision that allows the tax purchaser to file a petition to recover the amount bid, without penalty interest or costs, if the purchaser has made a bona fide attempt to comply with the statutory requirements for a tax deed but fails.

While this is an interesting case that explains the difference between a redemption under protest and a challenge to a tax deed petition, it would seems that the prudent course was that taken by Darco to redeem under protest and then sort it out later. The inappropriateness of attempting to recover the entire tax payment, however, was foolish and not lost upon either the trial or appellate court.

 

7. REAL ESTATE TAXES; EXEMPTION AND LEASEHOLDS INTERESTS:

In a case that should make prospective lessees of public property take notice that what looks too good to be true probably is, the Second District affirmed the trial court’s determination that a lease of open space land was taxable and not exempt. In Dundee Township v. Department of Revenue, (2nd Dist., October 15, 2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/2ndDistrict/October/Html/2000835.htm, Dundee Township acquired a parcel of 70.34 acres of farm land pursuant to the open space preservation provisions of the Township Code, (60 ILCS 1/115-5). It renewed the lease to individual commercial farmers for an annual rent of $3,000, but then sought a property tax exemption for the entire parcel pursuant to section 115-115 of the Township Code, which provides for a real estate tax exemption of "all property acquired by any township for open space purposes pursuant to an open space program". The Department of Revenue took the position that the a leasehold assessment should be levied on the land, but the Township, relying on a strict reading of the exemption provision filed a complaint for administrative review before Judge Grometer in Kane County. The trial court, applying the rule that the limited review of the administrative proceeding by the trial court is to determine if the finds are against the manifest weight of the evidence, affirmed the Department’s decision and dismissed the complaint. On appeal the Second District’s decision by Justice McLaren affirmed noting that all property is presumed to be subject to taxation, and statutes granting exemptions are to be construed strictly in favor of taxation. The party claiming the exemption has the burden of proof that the exemption applies, and if leased by a taxing district to lessees for use other than public purposes, exempt property may nonetheless be taxed by assessment upon the lessee, and the lessee will be liable for those taxes. (35 ILCS 200/9-195). While Section 115-115 of the Township Code does provide for an exemption, that section must be read in conjunction with Section 9-195 of the Tax Code. The Township Code specifically provides that opens space property is exempt and that it may be leased for specific uses such as golf courses, swimming pools and campgrounds, but there is no mention of commercial farming. Here the lease of the open space property for a purpose other than that designated as an exempt use does not allow it to qualify for a tax exemption. The exemption of the property from taxation it was acquired for open space is not destroyed because of the farm lease, because the exemption applies to the fee interest in the property, and only the leasehold is taxable. Citing the City of Lawrenceville v. Maxwell for the proposition that when property is used for two purposes, one of which is exempt and one of which is not, a tax will be assessed against the nonexempt use, the decision states that the general statutory scheme of taxation allows the taxation of leasehold interests in real estate even though that same real estate may have a tax-exempt fee interest.

 

8. REAL ESTATE TAXES; EXEMPTION AND CHARITABLE USE:

It seems the Appellate Courts are besieged with cases relating to real estate tax exemptions, and Lena Community Trust Fund, Inc. v. Department of Revenue, (2nd Dist., June 13, 2001), http://www.state.il.us/court/Opinions/AppellateCourt/2001/2ndDistrict/June/Html/2000487.htm, is an opinion from a few months ago which was not reported here when it was first issued, but seems particularly well suited to be included in this month’s discuss following the Dundee Township decision.

The Lena Community Trust Fund, Inc. was incorporated as a non-for-profit entity in 1991 to collect and distribute money for charitable purposes, assist local charitable organizations, and manage a community center used for public purposes in the rural area around Lena, Illinois, population 3,000. The Trust was exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code. In March, 1993, the Trust received a gift of 2.69 acres, and in 1995 built and began operating a community center consisting of a lower level meeting hall and smaller meeting rooms and an upper level main hall and kitchen. The space was used by various State, County, and church groups, hosted the high school prom and fire department dance, and was used as well for business meetings and private families for anniversaries and weddings. The Trust charged various fees for use of the space ranging from $5 per day for the small meeting rooms on the lower level to $350.00 for the upper hall and kitchen facilities. The Trust policy was to waive the use fees for individuals and organizations unable to pay, but none made such a request. In its first year of operation, 81% of the Trust revenues were derived from donations and 19% came from the community center rental fees.

The Trust applied for a charitable exemption for real estate taxes in 1995 but was denied. The Administrative Law Judge found that the Trust did not qualify because it charged fees for the use of the community center, the uses of the center were primarily for business meetings and private social events, and it failed to establish that its facilities were used exclusively for charitable purposes. The trial court reversed the Department’s decision, and the Second District affirmed the trial court.

The tests for a charitable organization are: (1) that the organization not have capital, capital stock, or shareholders, (2) that it earn no profits but derive its funding mainly from public and private charity and hold it in trust, and (3) that it dispense charity to all who need and apply and does not place obstacles in the way of those would avail themselves of the charitable benefits. Section 15—65 of the Property Tax Code also requires that a charitable organization’s exempt property must be used exclusively for charitable purposes. Noting, (as did the Court in Dundee Township), that the property claiming a tax exemption must prove clearly and convincingly it is entitled to it, and that all facts are to be construed in favor of taxation, Justice Geiger held that the Trust was a charity and that the community center was used exclusively for charitable purposes.

The charging of "not insignificant fees" for the use of the community center did not constitute an "obstacle in the way of those who would avail themselves" because "the dispositive issue is not the existence of a fee, but, rather, whether the institution makes a profit and/or the fees comprise a significant amount of the institution’s operating expenses." The Trust was operating at a loss and only 19% of its funding was attributable to the use fees in 1995. No request to use the center was denied, and the Trust had policy to waive the fees for those who were unable to afford them. The Department’s argument that the center was not used exclusively for charitable or beneficent purposes as required by the Tax Code was rejected based upon the Illinois Administrative Code provision that "a charitable purpose may refer to almost anything which promotes the well being of society", (86 Ill.Adm. Code Section 130.2005(i)(2) ). The community center was available for any community group, the business purpose uses were incidental to its primary use as a community resource, and there was no evidence that the Trust gave priority to business use over civic and community groups, but simply appeared to be attempting to maximize the center’s use "to improve the quality of life of its community members." Hence it qualified for tax exempt status.

 

9. HOME INSPECTORS LICENSE ACT:

Home inspection provisions have become common place in residential real estate contracts, and there has long been a call to regulate home inspectors from among the public and Realtors alike. In order to evaluate the competency of persons engaged in the home inspection business and regulate and license those persons for the protection of the public, HB 1805 was enrolled as Public Act 920239 on August 2, 2001 and becomes effective January 1, 2003.

The law places inspectors of residential real estate under the review of the Office of Banks and Real Estate and creates the Home Inspector Advisory Board to govern inspectors, who are defined as those who examine and evaluate any two or more components of residential real estate to facilitate the sale, lease or conveyance thereof, including: (1) heating, ventilating and air conditioning, (2) plumbing, (3) electrical, (4) structural, (5) foundation, (6) roof, (7) masonry, or (8) "any other residential real property component as established by rule". A home inspector is defined as one who performs these services "for compensation either direct or indirect".

The licensing provisions take effect on January 1, 2003, and make it unlawful for any person to use the title "home inspector" without a license after that date. In addition to having a high school diploma or equivalent, an applicant must be 21 years of age, complete a course of study to be established by rule, and take an examination authorized by the OBRE. Persons who have actively practiced as a home inspector in Illinois for at least two years, are residents of the state and have conducted a minimum of 200 home inspections can take the exam without the completing the classroom education prerequisite. There is also a continuing education requirement for license renewal every two years to be established by rule, and all licensees are required to keep copies of all written contracts to provide services for a period of not less than five years. Most of the grounds for disciplinary action are the standard and customary "making false statements" or engaging in "dishonest, fraud or misrepresentations", but home inspectors are also specifically to refrain from "(11) Accepting an inspection assignment when the employment itself is contingent upon the home inspector reporting a predetermined analysis or opinion,", "(15) Engaging in misleading or untruthful advertising,", "(18)Advising a client as to whether the client should or should not engage in (the) transaction…", "(19) Performing a home inspection in a manner that damages or alters the residential real property…" or "(20" Performing a home inspection when the home inspector is providing or may also provide other services in connection with the residential real property or transaction, or has an interest in the residential real property, without providing prior written notice of the potential or actual conflict and obtaining the prior consent of the client."

The new act is comprehensive and consists of twenty-five sections covering everything from licensing to discipline, investigation, notice and hearing procedures, provisions for discipline based upon non-payment of educational loans and child support, and a "sunset" provision effective January 1, 2012. The act in its entirety can be found and reviewed at: http://www.legis.state.il.us/legislation/legisnet92/status/920HB1805.html.

 

10. REAL ESTATE TAXES AND CONVEYANCES IN COOK COUNTY: TAX SUBDIVISIONS AND P.I. NUMBERS:

On August 21, 2001, PA 92-450 (HB 2392) amended the Conveyances Act by adding a new section 765 ILCS 5/35d. This section requires a grantor of residential property in Cook County to give the grantee an individual permanent index number or numbers that "specifically represents" the property conveyed. If the individual permanent index number does not specifically represent the legal description of the property conveyed, (i.e., is the underlying index number of a larger, not-yet-subdivided parcel), then grantor is required to give the grantee one of the following: (1) Proof that an application for division of the property has been filed; (2) A recorded plat of subdivision that causes a permanent index number to be issued; or (3) A recorded condominium declaration that causes a permanent index number to be issued. If the grantor fails to provide this information, he or she will continue to be personally liable to the grantee for property taxes and attorney fees until such time as the specific permanent index number is issued. It should be noted, however, that the grantor's failure to provide this information does not invalidate the deed. This new section became effective on August. 21, 2001, and can be found at http://www.legis.state.il.us/legislation/legisnet92/status/920HB2392.html. Regular readers may recall that a number of months ago, this publication set forth the statutory provisions for "Specific Designation" as a method of payment of a portion of real estate taxes by new owners in a subdivision which had not yet received their specific permanent tax identification numbers; usually as a result of inaction or delay by the developer. This is a little known, less used, and cumbersome process fraught with logistical difficulties. Hopefully, the addition of Section 35d and the passage of time will result in homeowners of new residential developments not having to use the Specific Designation process to avoid the sale of their homes for nonpayment of taxes in the development transition.