Why an Out of State Investor Should Hire an Attorney When Buying Investment Property in Chicago/Illinois
The purchase or sale of real estate, whether it is a single family house, a multi-family apartment building, vacant land or a commercial building, is an intricate process that begins with the signing of a contract and ends when the keys and the title to the property are transferred to the purchaser.
Although Illinois law does not require that a real estate attorney be involved to assist with the steps that occur between the time contracting and closing, hiring a local real estate attorney to assist you with the purchase or sale of real estate in Chicago/Illinois is almost always a wise decision and is money well-spent. Considering the fact that the other party to the transaction will almost ALWAYS have a local real attorney representing them, I want to highlight a few of the reasons why you should ALWAYS follow suit and hire a local real estate attorney in Chicago/Illinois when you are involved in a real estate transaction.
I have created this list based on my own personal experiences and observations based on the thousands of real estate transactions I have been involved in. These situations frequently arise when an out-of-state investor client is involved in a real estate transaction without the assistance of a local real estate attorney. Although it may be common outside of Illinois not to hire a real estate attorney to assist you with a real estate transaction, in Illinois, more than 98% OF THE TIME, BOTH PARTIES are represented by their own, separate, local real estate attorneys.
What the law says: You are not required, as a buyer, to pay for a real estate attorney when you are buying a property.
What benefit does hiring an attorney provide:
Someone Represents You Legally: As an Illinois licensed Realtor myself, I know Realtors are ethically bound to look out for their client’s best interests. However, the reality is that often times the Realtor is not privy to each and every one of the various conversations that occur between the time the contract is signed (executed) and the closing occurs. Many times, there are other parties involved such as the seller’s attorney or an ibuyer platform that acts solely as a transaction coordinator. The reality is that none of these transaction participants represent the unrepresented party, and as such, these transaction participants are not obligated to look out for the unrepresented party’s best interests.
Accurate Information Is Being Shared: Having a local real estate attorney in your corner, who understands the intricacies of the local real estate market and who is and has been consistently involved in local real estate investor/investment transactions, will increase the likelihood that when false/misleading/inaccurate information is provided, that this misinformation it is caught, called out and corrected in advance of closing. In addition, having a local real estate attorney involved on your side will increase the likelihood that all of the pertinent, material and available information is provided to you so that you can perform a complete due diligence review. The important information you need as a real estate investor includes, but may not be limited to, the following:
Correct tenant lease and application information
Update on subsidized housing inspections and status
Verification of any local administrative or building codes
Correction of any inspection issues
All contract matters are being documented by your attorney in case they need to be referenced post-closing
Real estate attorneys decrease the likelihood of post-closing litigation: Local real estate attorneys typically charge small (and reasonable) flat fees, to represent you from the time you go under contract until the time of closing. Litigation attorneys tend to be much more expensive, charging several HUNDRED dollars per hour and requesting a several THOUSAND dollar up front retainer fee to begin working on the matter. Hiring a local real estate attorney will significantly reduce the likelihood of post-closing disputes. Disputes can arise from ambiguities or mistakes in the purchase and sale contract, issues with the condition or state of “title” or problems with the condition of the property after legal ownership has passed to the purchaser. A local real estate attorney will REVIEW the contract to make sure that the paragraphs and the terms therein are clear, understandable, customary and otherwise problem free, that any issues with title to the property are discovered and addressed prior to closing, that any agreements regarding repairs to the property are properly memorialized in writing, and that all legally required pre-closing disclosures are properly made. Expensive post-closing litigation is far less likely if both sides hire local real estate attorneys from the time that the contract is signed until the time the closing occurs. Since post-closing litigation is expensive, time consuming and unpredictable (in terms of the likelihood that a favorable result can be obtained) many times the purchaser just ends up having to accept/assume the fact that mistakes were made and the resulting unforeseen financial responsibility and move on.
Real estate attorneys will save you incredible amounts of time:In a real estate transaction, both the seller and the purchaser have several obligations that must be met before closing. In addition to disclosures, communications must be made initially and continuously. Ongoing communication between the parties is the recipe for a “smooth closing” and is required to satisfy local municipal requirements or to satisfy the multitude of requests made by the lenders, homeowners’ associations, title companies and the county tax assessor who are associated with the property and the transaction as a whole. This is a time-intensive process for even experienced local real estate attorneys who deal with these steps on a regular, if not daily, basis. Even if you can complete these tasks flawlessly and timely without the assistance of an attorney, it will be extremely time consuming for you. More likely, without the assistance of a local real estate attorney, mistakes that are ordinarily preventable will occur and those mistakes often cause the closing to be postponed for several months or the deal to fall through entirely.
Real estate attorneys make sure that title passes cleanly from the seller to the buyer: One of the key roles that local real estate attorneys play in a real estate transaction is they act as a title agent. The title agent works with the title company to ensure that the seller actually has the right to pass full legal ownership (“title”) of the property to the purchaser. If there are any impediments to this right, a title agent will identify them and work with the parties and the title company to resolve these issues before the transaction is set for closing. In addition to the contract, disclosures, and the due diligence materials provided by the Seller, the purchaser's attorney typically reviews the plat of survey depicting the property and the deed that is given to the purchaser at closing to ensure that the purchaser actually receives full legal ownership to property that the purchaser has contracted to purchase. This is highly technical work on both sides, and it is extremely important in order to protect the interests of both parties. Keep in mind, because attorneys only represent one party in a real estate transaction, you cannot assume that everything is as it should be/good/OK simply because another party to a real estate transaction has hired a local real estate attorney to assist them.
I have had the opportunity to assist, post-closing, many out of state investors who have been burned in a real estate transaction. Often times, once a local real estate attorney and/or I have been hired to get involved in a real estate transaction, we immediately identify issues that would have resulted in an out-of-state investor client being burned had we not been in the investor's corner. Hiring a local property manager and a local real estate attorney IMMEDIATELY after you go under contract OR SOONER are in my professional opinion the two most significant steps an out-of-state investor can take to avoid losing tens of thousands of dollars from a bad real estate transaction/investment.
In your adventure to buy hundreds of thousands or even millions of dollars in investment/rental properties in the near future, you can reduce your risk dramatically, if not completely, by investing the costs into hiring a local real estate attorney to represent immediately after you are a party to a real estate contract.
If you are looking to purchase in the Chicagoland area, I would be happy to provide you with a few warm introductions to local attorneys. You won't regret it!
P.S.- You may have noticed my use of the term local real estate attorney… This was 100% intentional. I say local, meaning an attorney within 50 miles or less of the property, as local customs are different in Chicago and the neighboring suburbs than they are in downstate Illinois (ie. Springfield or Peoria.) I say real estate attorney, meaning an attorney that focuses or concentrates on real estate transactions as opposed to a jack of all trades or general practice attorney. Most attorney's select one or two areas of practice and hone their skills in those particular fields, developing an expertise and a reputation amongst their colleagues within that particular area. I strongly suggest that you don't hire your friend's mother's divorce attorney or your college roommate's criminal attorney who helped them get out of that criminal predicament 10 years ago. You wouldn't hire a painter to put a new roof on your house nor would you hire a roofer to paint your house. Hire an attorney based on the same common sense principles. Hire a LOCAL, REAL ESTATE ATTORNEY.