Are Month-to-Month Leases Right For You?

By Mel Metts

There is a great deal of confusion over month-to-month tenancies. Yes, they should be in writing. No, you don’t have to sign a new one every month.

To minimize confusion, my leases are titled “Rental Agreement.” I have annual rental agreements and month-to-month rental agreements, depending on the circumstance.

A month-to-month tenancy has a start date but no end date. Instead, I insert language that says,

“In consideration of the mutual agreements and covenants herein stated, Landlord hereby rents to Tenant, and Tenant hereby rents from Landlord, for a private dwelling, the Apartment designated above, together with the fixtures and appliances belonging thereto, for an initial period of one (1) month, then month-to-month thereafter until terminated by either party by thirty (30) days advance written notice.”

When do I use month-to-month leases? When my market is geared toward low income residents, many who don’t even have checking accounts.

Why month-to-month? If my tenants have nothing to lose by defaulting on the lease, then I am the only party who is bound by the contract. They’re not bound by the lease; what am I going to do if they default; garnish their savings account? Their wages? No, I’m better off cutting my losses and re-renting the apartment as soon as possible.

When I use month-to-month leases, I normally do so for all the units at the property. If an applicant questions this, I tell them, “It’s my policy. All my leases are month-to-month.” End of discussion.

What keeps them from moving out?

Nothing keeps a tenant from moving out when she wants to. Especially if she is judgment proof (nothing to lose). I’ve lost tenants after just a few months. In most cases, though, they seem to stay longer if they don’t have to commit for a full year at a time.

My tenant Ella

Ella had an unusual story. When she applied for an apartment, she explained that she needed to get away from her husband “before I kill him.”

I didn’t ask her to go into detail, but she had decent credit and references, so I rented to her on my usual month-to-month terms.

During her stay with me, Ella was a great tenant. Always paid the rent on time, and kept a beautiful apartment.

After six months, though, Ella gave me notice that she would be moving in thirty days. She said things had been worked out with her husband, and she was going to give it another try.

When she moved out, Ella left everything in move-in condition, and I had no problem re-renting the apartment.

Several months passed before I read a newspaper article about a woman who had been arrested for shooting her husband. Sure enough, it was Ella.

Flexibility for me

With a month-to-month rental agreement, I can terminate a tenant with thirty days’ written notice. Or I can raise the rent just as quickly.

Once I had a tenant who refused to put his trash inside the dumpster. Too much trouble for Francisco to lift the lid and toss the bag inside. I warned him. He ignored me.

So the next time I found his garbage resting outside the dumpster (I put on rubber gloves and went through the bag), Francisco received a 30 Day Notice of rent increase. A $25 increase. Per month. The Notice explained why his rent was being increased.

That got Francisco’s attention. He called to complain to me. Guess what I did? I ignored him!

This wasn’t my only problem with Francisco. When I’d had my fill, I simply served him a 30 Day Notice to move. Good-bye Francisco. Problem solved! An annual lease would have made this impossible. My only option would be to evict for a lease violation. I cover lease violations in ny book. Here’s a hint: Most lease violation evictions are unsuccessful.

Helps you sell

Month-to-month leases are ideal when you decide to sell your rental property. Potential buyers have more options; they can raise rents, remove tenants, even move in themselves. Rental properties with annual leases locked in to below-market rents are difficult to sell for a decent price.

On rare occasions, a lender might have problems lending on a property with monthly tenants. This is mostly due to ignorance on the part of the lender. My advice: Find a smarter lender.

Section 8 requires annual lease

The Housing Choice Voucher program requires that the initial lease be for twelve full months. If the tenant moves in mid-month, the lease must extend to the end of the thirteenth month (12½ months duration).

Lease renewals may be written with a provision for
cancellation upon thirty-days’ notice.

Mel Metts is LCPIA Newsletter Editor. Mel is also author and publisher of the book, Do it Yourself Evictions; A layman’s guide to Forcible Entry and Detainer procedures in Illinois. For more information visit www.melmetts.com.

 

Advertise Your Properties Using Postlets

By Mel Metts

Postlets is a free service that allows you to create attractive for-rent or for-sale ads for CraigsList and other sites.

The beauty of postlets is the ability to upload multiple photos of your property and include them in your professional flyer.

>>Full Article

 

Let’s Talk Lintel

 

 A lintel is a horizontal structural member, such as a beam or stone, that spans an opening. This discussion is about lintels mounted over window openings.

Look at any brick wall; if there is brick above the window opening, a lintel is required to support the massive weight. The most common lintels you will encounter are t-shaped or angled as depicted here.

Steel lintels are vulnerable to corrosion. Cracking of brickwork because of the build-up of rust is very common and is a more serious consequence of corrosion than is the deterioration of the lintel itself. Once rusting begins in a lintel it cannot be stopped. The exposed surface may be repainted but there is no treatment for concealed areas. The advance of corrosion may continue until the expansion of steel corrosion products causes cracking of brickwork and ultimately, serious structural damage.

You may be able to maintain your old lintels with frequent painting to slow the corrosion process.

New hot-dip galvanized (zinc coating) lintels are available as replacements or for new construction. Replacing steel lintels is a major project and quite expensive. Experience is needed for a potentially dangerous job. Masonry is shored if needed when the original lintel is removed. New steel that is either zinc coated or rust proofed in some other manner is installed.

Mel Metts is LCPIA newsletter editor. A Realtor©, Mel works with Lake County investors.

My Tenant Carla

Carla’s Eviction Trial

by Mel Metts

 Carla was smart, articulate and convincing. That’s how she hoodwinked me into renting to her in the first place.

She appeared on the return day and requested a trial. She filed the required Appearance. I could tell I was in for a fight.

When she came for trial, Carla brought a witness. The judge swore everybody in and asked me to state my case.

“Your honor,” I began, “Carla’s lease is month-to-month. On May 30th, I served her with a 30 Day Notice to terminate her tenancy.”

“You did not, Mel,” Carla interrupted. “Don’t lie.”

“After receiving the Notice,” I continued, “Carla did not pay rent for June. So I served a Five Day Notice on June 3rd.”

Carla was silent.

“So I am asking for an Order for possession and unpaid rent.”

The judge turned to Carla.

“Your honor,” she began, “I do not owe rent because I moved out before the first of June. I have a witness who will verify this.”

The judge looked at the witness. “Can you confirm this?” he asked.

“Yes, I can. I helped her move. I was there,” he said.

Judge to me: “Do you have any questions for the defendant?”

“No questions, your honor, but I do have a rebuttal.

“I was concerned about the pile of trash that was accumulating next to the alley. The trash came from her apartment.

“I was so concerned that I took some pictures with my digital camera. As you can see, the pictures are date stamped June 9 of this year.

“I returned on June 17 and there was a lot more trash, as you can see from the additional pictures I took on that day.

“Let me add that the Summons was served to her – at the apartment – on June 13.

“And for your information, she just returned the key to me today in this courtroom.”

It was Carla’s turn. “No, I was completely out by May 31. The reason I was there on June 13 is that I came back to clean. I wanted to leave everything in good shape after I moved out.”

Carla was toast, and I knew it.

“It is clear from the evidence that you were not out by May 31 as you claim,” began the judge, “but in addition to that, you did not return the key until today. Under the law, you had possession until you returned the key.”

Carla sputtered, “I called Mel to come get the key, but he wouldn’t.”

On and on she went, while the judge patiently poked holes in every argument. And when Carla finally ran out of steam, it was all over.

“Judgment for the plaintiff in the amount of $946.00. Enforcement of possession is instanter.”

Yes! There is no substitute for preparation.

(Of course I never saw any of that $946.00. Carla filed for bankruptcy some time later, so my claim was wiped out.)

 Mel Metts is LCPIA Newsletter Editor. Mel is also author and publisher of the book, Do it Yourself Evictions; A layman’s guide to Forcible Entry and Detainer procedures in Illinois. For more information (and pictures of Carla’s trash) visit www.melmetts.com

Rental Floss

If you pay the heat for your tenants, you don’t want that heat going to waste. I’ve tried using the tamper-proof covers available at home-improvement stores, but my crafty tenants always figured out how to cheat the heat.

Enter Accustat, a tamper-resistant thermostat available with fixed-temp modules or an electronically programmable version.

Available from Johnstone Supply or other vendors, Accustat will thwart the most resourceful heat cheaters. The electronic version can be programmed for a full 7-day cycle.  johnstonesupply.com

New Laws For 2009

What are these items?

 

If you’re like me, you would say these are a sprinkler head and a smoke detector. You would be wrong.

In fact, these are non-operable fakes. Instead, they contain tiny surveillance cameras and they are now illegal in Illinois since they are non-functioning.

Fire and Life Safety Device Act Public Act 95-946. New criminal penalties will be in effect as of January 1, 2009, for persons who manufacture, install or sell any device or object that appears to be a smoke detector, sprinkler head, carbon monoxide alarm, heat detector or any other similar device used for life safety or fire protection but in fact is not capable of performing such function. Violators are guilty of a petty offense subject to a $100 fine for the first offense, $500 for a second offense and $1,000 for a third or subsequent offense. Each day that a device is installed in violation constitutes a separate offense. Local governmental inspectors and licensed fire sprinkler contractors are authorized to inspect devices to ensure compliance but no inspections can be conducted in any single family residence or living unit of a multi-family residence or mixed use building.

 

More Laws

High School Consumer Education Public Act 95-863. Beginning in 2009 consumer education courses taken by high school students will include instruction in the area of homeownership, including the basic process of obtaining a mortgage and the concepts of fixed and adjustable rate mortgages, subprime loans and predatory lending.

Notice of Annexation Public Act 95-931. When a municipality seeks to annex certain unincorporated territory, notice must be published in a newspaper no less than 10 days before the passage of an annexation ordinance. Beginning January 1, 2009, a municipality will ALSO be required, not less than 15 days before the passage of the annexation ordinance, to provide written notification of the planned annexation to the taxpayers within the territory. This notice must either be given to the taxpayer of record in person or sent by certified mail. Once notice of the proposed annexation is given, other municipalities are prohibited from annexing the proposed territory for 60 days from the date the notice is mailed or delivered to the taxpayers.

Foreclosure Actions Public Act 95-961 will require a homeowner notice to be attached to the summons in all residential foreclosure actions. The notice will provide the homeowner basic information about the foreclosure process and their rights. The new law outlines a procedure for the homeowner to request a payoff demand statement from the lender and provides for damages if this notice is not provided in a timely manner. A homeowner may also recover attorney’s fees if they prevail in the foreclosure action.

Lawn Sprinkler Systems Public Act 95-421. All landscape irrigation systems installed after January 1, 2009, will be required to have furnished and installed technology that will prevent or stop operation of the sprinkler system during rainfall. The technology is required to be adjustable either by the user or the irrigation contractor. Systems operated on golf courses or agricultural lands are NOT covered by the new law.

Effective January 1, 2009, a new provision added to the Real Estate License Act [225 ILCS 454/20-20 (h) (8) (B)] significantly shortens the time frame within which certain instances escrow moneys must be deemed abandoned and transferred to the Office of the State Treasurer and handled as unclaimed property pursuant to the Uniform Disposition of Unclaimed Property Act. Currently earnest monies held in escrow for a period of five years after a transaction fails to close are to be treated as unclaimed property and turned over to the State Treasurer. This new provision requires that earnest moneys held in escrow be deemed “abandoned” in the absence of disbursement, if the transaction fails to close, in the absence of the filing of a claim in a court of competent jurisdiction and if six months have elapsed from the receipt by the broker of a written demand for the escrow moneys by either principal to the transaction or either principal’s duly authorized agent.

(Under the current law a licensee must maintain all escrow moneys in a special account, separate and apart from personal and other business accounts, all escrow moneys belonging to others until the transactions are consummated or terminated, except to the extent that the moneys (or any part thereof) are disbursed in accordance with (1) the written direction of the principals, or their duly authorized agents, to the transaction (2) directions providing for the release, payment or distribution of escrow moneys contained in any written contract signed by the principals to the transaction, or their duly authorized agents OR (3) pursuant to an order of a court of competent jurisdiction.)

From Illinois Realtor

Clauses to Add to Every Lease

by Mel Metts

What kind of lease do you use? No preprinted lease is perfect, and I’ve made a number of my own modifications over the years. Here are some that you should consider.

Charge a single late fee instead of a daily late fee. Why? Judges are now limiting awards to a single late charge. If you’ve been charging $5 per day and the tenant is 30 days late, the judge may award you $5 instead of the $150 you expected.

Convert your late fee into additional rent instead of calling it a late fee. Why? By converting the late charge into additional rent, you can sue and collect in court. Do not list late fees separately on the Five Day Notice or the Complaint and Summons. Instead, include the additional rent in the total Amount Claimed. How to word your lease – ADDITIONAL RENT: Rental amount shall increase by $xx.xx if not paid by the [first] day of each month.

Require that all late rental payments shall be paid by cash, money order or other certified funds. Why? (1) Prevents the tenant from buying time by paying with an NSF check. (2) Gives you peace of mind if a tenant makes payment after receiving a Landlord’s Five Days’ Notice. (3) If paid in certified funds, tenant cannot provide a backdated check and claim it was delivered earlier than it was.

Limit legal expense reimbursements. Why? This places a realistic cap on a claim for legal fees, so you are not writing a blank check if you end up in a legal action – and lose. How to word your lease – LEGAL EXPENSES: The losing party shall pay all costs, expenses and attorney fees, not to exceed [$1,000] incurred or expended by the other party due to the losing party’s breach of the covenants and agreements of this Agreement.

Stop accepting personal checks for rent payments after receiving two NSF rent checks. How to word your lease – In the event that two of tenant’s checks are dishonored during any twelve month period, then tenant shall be required to make all future payments via money order or cashier’s check.

Your lease should ensure that you have access to the rental unit upon reasonable notice. Why? Illinois law does not address this, so you have no Statutory right to enter without a lease clause. Note that some municipalities address right-of-entry in their landlord-tenant ordinances. How to word your lease – Tenant shall allow Landlord and his agents free access to the apartment at all reasonable times, to exhibit, repair or inspect the same, and shall allow Landlord and his agents to display “For Rent” notices on the premises.

Clarify damages the tenant is obligated to repair, including broken windows. How to word your lease – Tenant shall make all necessary repairs to the premises whenever damage to the same has occurred or repairs are required, and shall replace all broken glass and fixtures. Tenant is responsible for any damage to appliances and fixtures, including refrigerator damage by sharp objects during defrost, and toilet stoppage caused by flushing other than toilet tissue.

Evict if tenant’s utilities are disconnected. Why? To prevent resulting damages from tenants’ use of candles, space heaters, electric hotplates, etc. as well as frozen pipes. How to word your lease – Tenant shall at all times maintain the temperature at a minimum of 45 degrees and shall be responsible for all damages resulting from the failure to do so. Tenants whose utilities are not connected within three days of lease inception, or are disconnected at any time for non-payment, are in violation of this lease, and are subject to eviction.

Use a Crime-free Lease Addendum. Why?It empowers you to evict if a tenant or guest is arrested for criminal activity on your property. Some communities, including the Village of Round Lake Beach, now require the use of an approved addendum. You can download either form from www.melmetts.com/free_forms.htm

Mel Metts is LCPIA Newsletter Editor. Mel is also author and publisher of the book, Do it Yourself Evictions; A layman’s guide to Forcible Entry and Detainer procedures in Illinois. For more information visit www.melmetts.com

Rental Floss

Under Illinois Law, in certain circumstances a tenant has the right to repair his dwelling and deduct the cost from the rent payment. If the landlord fails to make certain repairs within 14 days after being notified by the tenant in writing or more promptly as conditions require in the case of an emergency, the tenant may have the repair made in a workmanlike manner and in compliance with the appropriate law, administrative rule, or local ordinance or regulation.

After submitting to the landlord a paid bill from an appropriate tradesman or supplier unrelated to the tenant, the tenant may deduct from his or her rent the amount of the bill, not to exceed the limit of $500 or ½ the monthly rent and not to exceed the reasonable price then customarily charged for the repair.

Read the law at http://tinyurl.com/mvxpv.

Real Estate Market Recovery

I don’t have to tell you that home foreclosures drive down neighborhood values.

As I search the Multiple Listing Service today, there are approximately 1,500 Lake County residential listings of distressed or foreclosed properties, accounting for 23% of the market.

And those 1,500 properties have frozen the entire market, which sits in suspension waiting for something to happen. At the current rate of sales, Lake County has 18 months’ of inventory on the market.

Foreclosures that do sell are priced around 30% below their peak 2005-2006 value. If I wanted to sell my home today, I would be competing with all the foreclosures in my area and would probably get around 80% of its peak value.

If you haven’t been hiding under a rock you know something about the $700 billion Economic Recovery Act of 2008. The Act was originally touted as a measure to invest in troubled assets — namely toxic mortgage-backed securities — and whole mortgage loans, as well as to inject capital into troubled financial institutions by way of purchases of equity (or shares) in these institutions. The Treasury Department recently announced a shift away from investments in mortgage backed securities and Wall Street reacted by taking another big tumble.

But you can’t reduce the inventory of foreclosed homes until you stem the flood of new foreclosures coming on the market every month. There is a lot of talk — but little action.

Even if the lending markets weren’t frozen, many homeowners can’t refinance, because they owe more than their homes are now worth. Can they renegotiate the terms of their existing mortgage? Maybe. But this process will take forever because workouts will have to be negotiated one transaction at a time. Is there anything else that can be done?

IMPOSE USURY LAWS
I propose that the federal government temporarily impose usury laws on all mortgage lenders whose businesses cross state lines. The usury rate could be tied to the prime rate (say prime + 2%), and applied to all existing and new residential mortgages for owner-occupants.

The immediate effect would be to reduce interest rates for homeowners with the most egregious mortgages, thus lowering monthly payments and allowing some borrowers to keep their homes. The remaining borrowers who are under water can continue to seek workouts from their lenders.

Meanwhile, how to dispose of eighteen months’ of inventory of foreclosed homes?

BUNDLE REOs INTO LARGE PACKAGES
My proposal is that the federal government buy these foreclosed homes from creditors for pennies on the dollar, thus relieving lenders of bad debt from their books. The government can then bundle these homes into billion-dollar packages to be purchased by large investors — who then create smaller bundles to sell to smaller investors — and so on.

These bundled homes should carry deed restrictions that prohibit them from returning to the retail market until they are rehabbed and ready for occupancy. Once rehabbed by investors, these properties would trickle back to the market as retail-priced homes.

Meanwhile, clearing these forclosures from the lenders’ balance sheets will free up some money to lend. But what if nobody qualifies for mortgages because of the recently tightened lending practices?

SUSPEND CREDIT SCORING
My final proposal is to temporarily do away with credit scores.

Credit scores were created during a period of high volume lending, when the qualification process needed to be streamlined to handle the load.

But credit scores were not designed for today’s economic environment. Lenders need to go back to basics — look at the underlying borrower rather than a simple score. They’d find that plenty of solid citizens have good jobs and impressive savings that belie a marginal FICO score.

If you agree that drastic steps described above are needed to eliminate the foreclosure glut, you might also believe that the powers-that-be will eventually come to the same conclusion. If the government steps in to buy the foreclosed homes, there may not be any left for small investors. Today’s “bargains” will be gone.

THE URGENCY OF NOW
Have you been waiting for prices to hit bottom before you jump into the foreclosure market? Keep your ear to the ground, because once talk begins of a federal buyout, prices will climb. Don’t miss the boat.

Mel Metts is a real estate agent, licensed in Illinois since 1997, with Graff Realty, Inc. Investment real estate services.

If you are considering the purchase or sale of income property, give Mel a call at 847-949-6045.

LCPIA Legislator Forum a Success!

 

 LCPIA’s Julie Eckard, Sen. Michael Bond, Rep. Ed Sullivan Jr., Sen-Elect Dan Duffy, LCPIA meeting organizer Hilde Waldschmidt, Sen. Susan Garrett, LCPIA’s Mel Metts, Rep. Kathleen Ryg, Sen. Terry Link.

By my count, approximately 70 LCPIA (Lake County Property Investors Association) members and guests braved the winter storm to attend.

After a rocky start due to weather, our first-ever Legislator Forum was a blast! Of fourteen Illinois legislators who represent Lake County, six were able to attend and participate.

LCPIA committee members presented eight issues that we favor or oppose, and would like help from our legislators.

Those issues are:

1. Homestead exemptions/Property taxes
2. Tenant Source of Income
3. Transfer taxes & Occupancy inspections
4. Rental property inspections; Landlord licensing/inspection ordinances; Fees
5. Nuisance Ordinance Issues
6. Emergency Housing Costs
7. Carbon Monoxide Detectors
8. Scrap Metal

Our planning committee worked tirelessly over the past months to make this meeting a success. Program coordinator Hilde Waldschmidt organized the planning sessions, kept in contact with all the legislators, and arranged a feast for attendees; Terry Boone researched the CO topic as well as renting the stage and sound system and coordinating setup and teardown. Julie Eckard researched the Homestead Exemption, Rental Property Inspection, Nuisance Ordinance and Emergency Housing Cost topics; Ed Shumaker prepared his presentation on the founding of our Association; and Yours Truly researched Source of Income, Transfer Taxes and Scrap Metal.

Our elected guests expressed interest in working with us on a number of issues; thanked us for bringing items to their attention for the first time; and agreed to join us for a second Legislator Forum on December 8, 2009.

The work of our committee continues as we must follow through in the coming months, working to draft proposed legislation and recruit allies to help generate support.