Modification of Chicago’s Rental Ordinance Surprises Lenders Foreclosing Mortgages

A modification to the rule states that a lender undergoing a foreclosure process must now present Chicago tenants with a new 12-month lease or pay them a hefty relocation fee of $10,600, leaving the decision to the tenant.

This update to the Keep Chicago Renting Ordinance, KCRO for its acronym in English, has gone quite unnoticed but has undoubtedly represented a significant change from the original 2013 ordinance, which allowed landlords to choose between a lease renewal or paying the relocation fee. Now, with the new rule, tenants have the power to choose.

This correction in the ordinance strongly encourages tenants to reject lease renewals and instead accept the $10,600 payment. Once a tenant vacates the property, the landlord must pay the relocation fee within a strict period of no more than seven days. Failing to meet this deadline can result in severe penalties, and landlords may have to pay double the relocation fee per tenant, plus legal fees and costs.

On the other hand, the language used in the new ordinance is vague and overly broad, causing confusion about its application, leading many involved in the real estate industry to be concerned that the KCRO’s goal of preventing vacancies in foreclosed rental properties is having counterproductive results. By forcing lenders to pay $10,600 in relocation fees, it encourages tenants to terminate their leases and leave the unit vacant.

Additionally, another challenging aspect of this correction to the KCRO is that it imposes a significant financial and administrative burden on lenders already dealing with the difficult foreclosure process. The contradictory incentives and unclear language of the ordinance may help undermine the goal of maintaining stability in foreclosed rental properties.

A clear conclusion that can be drawn is that many in the real estate industry feel that the current structure of the ordinance is detrimental to the interests of lenders and very counterproductive to the city’s goals of attracting investors.

Available Foreclosures:

Chicago: 1200 homes available.

By Elias DaSilva | October 14, 2024.