Chicago: Law's Revamp Would Help Foreclosed-On Renters Recover Deposits

Security deposits haven't been that secure for many Chicago tenants lately, especially after foreclosures forced occupants from more than 8,500 rental units in 2009.

That ended up costing renters as much as $7.3 million in lost deposits.

Current city law requires landlords to return security deposits to displaced tenants after their buildings are foreclosed on, but it comes as no surprise that this is about as appealing to lessors as familial ties are to Michael and Dina Lohan.

But thanks to an ordinance proposed by Mayor Richard Daley and approved by a City Council committee Tuesday, renters in Chicago could soon have an easier time getting back their security deposits, even after their buildings are foreclosed on.

Key to it is a clear definition of what a "successor landlord" actually is. And it's not nearly as complex as it sounds.
The current version of the city's Residential Landlords and Tenants Ordinance holds the "successor landlord" of a sold, leased or transferred property liable for any tenant's security deposit. That includes pre-determined interest, or rent prepaid by the tenant. But the ordinance fails to clearly define what the term "successor landlord' means.

Mayor Daley's proposed amendment to the ordinance shines some light into the grayness and defines a successor landlord as "any person who follows a landlord in ownership or control of a dwelling unit or the building of which it is part, and shall include a lienholder who takes ownership or control either by contract, operation of law or a court order."

In the case of foreclosed apartment buildings, the most important term there is "lienholder." That usually turns out to be a bank.

So instead of forcing tenants to hunt down their financially-strapped former landlords in order to get their deposits back, the proposed ordinance would hold the new owners of foreclosed apartment buildings responsible for the repayments.

Before the City Council committee approved the proposal, Alderman and Building Committee Chairman Bernie Stone brought some drama by suggesting an amendment that would have given landlords 14 days to resolve security deposit violations. Then if a landlord returned deposits even a day late, they could be forced to pay the tenant twice the amount of the original deposit.

An amendment sponsored by the Chicagoland Apartment Association would have required tenants to send landlords a handwritten letter requesting their security deposits, or else landlords would be able to keep them interest- and penalty-free.

Alderman and Vice President of the Committee on Housing and Real Estate Helen Shiller voiced her opposition, saying that if she was a landlord, she "would just wait until that tenant contacted me to return their money – most of them, they won't know they have the right, they won't do it or they might be intimidated."

In the end, Stone's idea failed to get enough votes to be included in the proposal. It now goes to the full City Council for a vote, with some aldermen pushing for better oversight of the depositing of security deposits in interest-bearing accounts, as required by the Residential Landlords and Tenants Ordinance.

While the help offered in this proposal may come too late for many tenants in Chicago who have already been squeezed out of their apartments and security deposits thanks to foreclosures, there may be plenty of renters who could benefit in the near future.

According to a study released earlier this month by DePaul University's Institute for Housing Studies, 42 percent of Cook County's two- to six-unit rental buildings are underwater, which means more is owed on those buildings than they're worth. Meanwhile, 74,000 apartments in Chicago are earning rental revenues at or below operating costs.

This sounds like a perfect recipe for more foreclosure woes for Chicago tenants, but if Mayor Daley's proposal is eventually voted through, the "security" in security deposits might take on a whole new meaning for the city's renters.

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