Investors Purchasing Foreclosure & REO Properties in Illinois: What You Need to Know
Important changes were made to Illinois real estate law as part of Public Act 096-1083, which became effective on July 16, 2010. This law sought to address the problem of assessment officials in Illinois ignoring sales transactions for property assessment purposes on the grounds that they were “non arms-length transactions” and therefore not reflective of a property’s true fair cash value.
This problem applied to an exponentially increasing number of properties following the collapse of the real estate market during the Great Recession, and this legislation was designed to fix the problem.
However, one aspect of this law is being ignored by public assessors in Illinois. If you’re an investor of foreclosure or real estate owned (REO) properties, here’s what you can do about it.
What Property Transactions Did This Legislation Affect?
Property transactions affected by this law are defined as “Compulsory Sales” in the Illinois Property Tax Code. They include:
- Properties in foreclosure or pre-foreclosure sold for less than the value of the mortgage on the property (also known as “short sales”)
- Properties acquired by a prior owners’ mortgagee or designee and then re-sold to third parties (also known as “REO” sales)
Compulsory Sales, Ignored Despite the Law
The legislation mandated that assessment officials include Compulsory Sales in their review and correction of assessments. However, we have seen such evidence widely ignored or discounted in practice. This baffles many investors because they know that many of these Compulsory Sales are truly reflective of the active market that exists for these properties among investors purchasing them with the intention of rehabbing them and either selling them or renting them.
In fact, many of these properties are made available on online auction sites, listed on the MLS, or advertised for sale on the internet. Thus, these sales do often represent a property’s fair cash value.
How Do You Obtain a Fair Valuation Result in These Cases?
Kensington Research has developed an approach to analyzing these over-inflated property values on Compulsory Sales so that investors do not pay more than they should.
Additionally, there may be other opportunities for further reductions depending on the specifics of the property and factors such as vacancy during the rehab or leasing periods. Contact us today to learn more.