CBA Record May-June 2020

Covid-19 Causes Real Concerns for Residential Real Property Lawyers BY NICHOLAS TYSZKA

client in person or you can attend a closing remotely (but no matter what, you should still be reviewing seller docu- ments and explaining loan documents)

Consequences for Borrowers & Tenants

a rise in foreclosures? How will that impact home values? Buyers have more limited opportunities to view real estate in person. This is especially true for occupied homes. Instead, many agents have taken to “virtual open houses.” Buyers want to physically see a property before making an offer, but at least virtual showings are helping buyers pre-select a handful of homes to narrow their search. Impacts on Lending The pandemic has slowed down the loan approval process as well, even in the simplest of tasks. As personnel in Human Resource departments work remotely or are closed entirely, new obstacles arise in getting final approvals (e.g., obtaining employment veri- fications). While the “stay at home” order is in force, Governor Pritzker has authorized remote notarization. Although it is called “remote online notarization”, it is more accurately described as remote notarization. The rules can be found on the Secretary of State’s website. To limit personal contact, some title companies are facilitating closings by letting buyers stay in their car while signing loan documents. Others are allowing buyers to sign some documents in advance, leaving only the most essential “wet ink” forms for the day of closing. Presence; Use of Meeting Platforms Initially, some title companies claimed that only the persons signing should attend a real estate closing. The expectations seem to be: • Sellers’ attorneys: prepare closing docu- ments in advance and get them to the title company; do not attend • Sellers: pre-sign and stay away • Real estate brokers: stay away; your check will be mailed • Loan officers: stay away • Buyers: if you are paying cash, stay away; if you are financing the purchase, be prepared to sign at least some of the documents in person • Buyers’ attorneys: you can join your Remote Notarization and Remote Closings

Very few areas of law have been affected more by the Covid-19 pandemic than real estate. Governor Pritzker’s pandemic order is clear that professional services – including the practice of law – are deemed to be an “essen- tial service.” The order also deems essential the financial service industries (including banks and title companies) and real estate services. Therefore, real estate closings are to continue during the pandemic. So, attorneys handling these transactions must keep their practices active. Unlike commercial contracts that typi- cally contain a force majeure clause, the residential forms in use in the Chicagoland area do not. The lesson: a party wanting to get out of a real estate sale contract will need to rely on a contractual term as the basis for termination, not a blanket “I’ve changed my mind (or can no longer afford the house) because of how Covid-19 has affected my finances or my desire to buy.” Mortgage rates are extremely volatile. While the federal funds rate is low – extremely low – many lenders are not following suit in what they offer to homebuyers. In fact, some lenders have raised their credit and income minimums, which will result in making financing more difficult (especially on larger, jumbo loans). As sellers have become increasingly nervous about physical interaction with prospective buyers, owner-occupied listings have been cancelled at alarming rates in the multiple listing service (MLS). In a ‘normal’ Spring market, we would expect more listings, not less. This will change once the economy begins to re-open. Smart lawyers should position themselves now so they will be ready to manage increased files once the “stay at home” order is lifted. While home valuations do not yet appear to be down, it is hard to imagine that this will not happen in the coming months. As people lose their jobs – either temporarily or permanently – fewer qualified buyers will remain in the residential market. Will we see Fluctuating Lending Terms; Decreasing Supply Valuations; Limited Access to Properties

Clients may ask about whether they need to pay their mortgage or rent. If a borrower or tenant has suffered as a result of the pan- demic (e.g., due to unemployment or lost wages), there could be a program that allows for deferred payments. The federal CARES Act allows forbearance of rent and mortgage payments for some leases and loans, but not forgiveness . Maintaining Your Practice Your practice will be affected should you or a family member become ill with Covid-19. Now is a good time to consider what you would do in the case of an emergency. I have heard several attorneys lament that they were so busy helping clients apply for small business loans that they did not complete their applications themselves before funds were depleted. While it is important to work diligently for your clients, do not let that interfere with keeping your own house in order. Our Profession’s Reaction While we continue to work in uncharted ter- ritory, real estate lawyers and title companies have quickly responded to the challenges posed by the pandemic. We have adapted and are mindful that the purchase and sale of real estate remains a crucial part of our American economy. At a time when there are active threats against the practice of real estate law – particularly to those who work in the residential arena and issue title insur- ance as a part of their practice – how we react may very well determine whether we remain essential to residential real estate transactions.

Nicholas Tyszka is a past chair of the Real Property Law Commit- tee at the Chicago Bar Association. The CBA Real Estate Committee sponsored “The COVID-19 Pandemic: Impact on

Real Estate Transactions on April 10, 2020. 1.5 IL MCLE Credit. Access the seminar at www.chicagobar.org/cle.

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