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In the City of Chicago, the Chicago Housing Authority runs various types of low income subsidized housing. In the past these were often referred to as the "projects" which was a description of several concentrated areas of public housing in Chicago. The three largest "projects" were the Robert Taylor Homes, Cabrini O'Green and many lesser known housing developments. All of these housing projects were failures. A law enacted in the early 1970's is largely responsible for these failures. For the most part, all tenants had to pay 40% of whatever their income was. Therefore, there was no way to have super cheap housing and save money over a period of time. Without saving, no working class person could use these units and only the very impoverished used these units as "safety net". Although these units provided a way to stay off of the street, they were unsafe "prisons" that simply encouraged and literally trapped people in poverty. There was no interaction with working class, middle class or upper class persons and all job opportunities fled as far away as possible from these housing projects.
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In the 1980's Mayor Daley enacted a long term plan to close down all of the concentrated low income housing in Chicago. Part of the program was to create the so-called "scattered" site housing which was essentially 1-12 unit size housing projects. Most the land was acquired by people who didn't pay taxes and/or were foreclosed upon. Vacant lots in up and coming neighborhoods provided the best opportunities for good housing with these scattered site housing programs. As welfare reform was passed in the middle 1990's the need for this program began to fade and opposition to these scattered site housing developments intensified causing a shutdown of the program. Bickerdike Housing, Lutheran Social Services and other agencies typically manage these sites today. Today, there is no further building of these types of housing.
With the advent of Welfare Reform and the Creation of "Section 8" Housing came the idea of landlord vouchers. Poor people would be allowed to rent "fancy" market rate units in regular neighborhoods all over the place with not racial or economic boundaries. The reality of this situation was quite different. Section 8 Landlords had to be qualified and typically only desperate landlords in mediocre to bad neighborhoods oftentimes also far away from good jobs.
CHAC Houses are essentially a Section 8 voucher used to purchase a home and then have the mortgage payment paid by Section 8 for up to 15 years. Before you think this is an easy gift for the buyer.....think again. Typically, the buyer has been in public housing for over 20 years and has a lot of getting used to working and not being essentially a ward of the state. It takes a long time to make the transition and usually these buyers have really put forth some good effort to get into the right mindset. Also, the Section 8 Subsidy only cover principal and interest and does not cover taxes, insurance and mortgage insurance. Bottom line, oftentimes, the buyer is paying up to 1/3 of their housing costs right away. .....AND they can never return to public housing - ever! They sign this agreement when they accept the CHAC home.
So what are the issues for the seller's and buyer's attorney? BEWARE! First of all, as all real estate attorneys known in Illinois, nearly 3/4 of their compensation comes from providing the title insurance policy. This odd and not particularly good situation arises from the introduction of title insurance in the 1930's. Traditionally attorney's made 1% of the purchase price as their compensation. Title Insurance Premiums were designed to replace this with only nominal legal fees to the seller. In a CHAC closing, the seller's attorney is NOT ALLOWED TO PROVIDE THE TITLE insurance. This is done via a forced rider that the seller signs during attorney review. Bottom line, if the seller is desperate to sell the property, then they will essentially need to pay their attorney for the missing premiums which average about $1500. In a good market, the seller will simply refuse to sign the rider and cancel the transaction.
Hopefully, you are starting to see the bad precedent. Bottom line, the title insurance costs ultimately are paid for by the low income buyer and in an amount that is more than they would have been if the seller's attorney was allowed to provide the title insurance. Also, better properties will typically cancel faster because they can choose standard buyer's who don't have "weird" financing and restrictive riders to sign.
Obviously the intent of the creators of CHAC was to provide a low cost title insurance policy to the buyer. However, this ultimately results in a higher price and unavailability of many homes where the seller's reject the CHAC riders in attorney review. This may be viewed as discrimination and it is, but it's not prohibited discrimination, just unfortunate.
Buyer's attorney also need to be aware that the first sign that your buyer is a CHAC buyer, you need to withdraw. CHAC requires volunteer attorneys. This is also misguided. Good, reasonably priced attorneys who are qualified provide good experience to buyers in how to hire attorneys which they will need in their new non-welfare lifestyle. Free attorneys sets a terrible precedent for these new homeowners where they think that just because they are low income they will have attorneys wanting to offer pro bono (free) services which is not reality.
In my opinion, the CHAC program is great except that title should be pulled by the seller's attorney using existing rate cards and buyer's attorneys should be hired using reasonable rates. Moving people into the opportunity to own a home is great. The process of getting to home ownership should help train the new homeowner in the way the transaction would ordinarily be conducted outside of CHAC home ownership.
Lastly, I have recently seen where CHAC buyer's became "stuck" with the idea that they needed a certain kind of home for a certain kind of price regardless of where it is located and regardless of the effect on their commute. The bottom line is this - it is my opinion that CHAC counselors should always encourage potential buyers to buy within 10 miles of their employment with a viable public transportation option and near an area that has job growth. A beautiful home that is not near your home is called a "vacation home". A beautiful home in a depressed economic area is called a museum. A small but practical home near tremendous job opportunities, vibrant communities and good schools is called a HOME.
For more information about the CHAC program, please contact the CHA at THECHA.ORG
For more information about quality real estate attorneys who represent residential real estate sellers and buyers, please contact David Nelson at NLO NELSON LAW OFFICE INFORMATION
,
In the 1980's Mayor Daley enacted a long term plan to close down all of the concentrated low income housing in Chicago. Part of the program was to create the so-called "scattered" site housing which was essentially 1-12 unit size housing projects. Most the land was acquired by people who didn't pay taxes and/or were foreclosed upon. Vacant lots in up and coming neighborhoods provided the best opportunities for good housing with these scattered site housing programs. As welfare reform was passed in the middle 1990's the need for this program began to fade and opposition to these scattered site housing developments intensified causing a shutdown of the program. Bickerdike Housing, Lutheran Social Services and other agencies typically manage these sites today. Today, there is no further building of these types of housing.
With the advent of Welfare Reform and the Creation of "Section 8" Housing came the idea of landlord vouchers. Poor people would be allowed to rent "fancy" market rate units in regular neighborhoods all over the place with not racial or economic boundaries. The reality of this situation was quite different. Section 8 Landlords had to be qualified and typically only desperate landlords in mediocre to bad neighborhoods oftentimes also far away from good jobs.
CHAC Houses are essentially a Section 8 voucher used to purchase a home and then have the mortgage payment paid by Section 8 for up to 15 years. Before you think this is an easy gift for the buyer.....think again. Typically, the buyer has been in public housing for over 20 years and has a lot of getting used to working and not being essentially a ward of the state. It takes a long time to make the transition and usually these buyers have really put forth some good effort to get into the right mindset. Also, the Section 8 Subsidy only cover principal and interest and does not cover taxes, insurance and mortgage insurance. Bottom line, oftentimes, the buyer is paying up to 1/3 of their housing costs right away. .....AND they can never return to public housing - ever! They sign this agreement when they accept the CHAC home.
So what are the issues for the seller's and buyer's attorney? BEWARE! First of all, as all real estate attorneys known in Illinois, nearly 3/4 of their compensation comes from providing the title insurance policy. This odd and not particularly good situation arises from the introduction of title insurance in the 1930's. Traditionally attorney's made 1% of the purchase price as their compensation. Title Insurance Premiums were designed to replace this with only nominal legal fees to the seller. In a CHAC closing, the seller's attorney is NOT ALLOWED TO PROVIDE THE TITLE insurance. This is done via a forced rider that the seller signs during attorney review. Bottom line, if the seller is desperate to sell the property, then they will essentially need to pay their attorney for the missing premiums which average about $1500. In a good market, the seller will simply refuse to sign the rider and cancel the transaction.
Hopefully, you are starting to see the bad precedent. Bottom line, the title insurance costs ultimately are paid for by the low income buyer and in an amount that is more than they would have been if the seller's attorney was allowed to provide the title insurance. Also, better properties will typically cancel faster because they can choose standard buyer's who don't have "weird" financing and restrictive riders to sign.
Obviously the intent of the creators of CHAC was to provide a low cost title insurance policy to the buyer. However, this ultimately results in a higher price and unavailability of many homes where the seller's reject the CHAC riders in attorney review. This may be viewed as discrimination and it is, but it's not prohibited discrimination, just unfortunate.
Buyer's attorney also need to be aware that the first sign that your buyer is a CHAC buyer, you need to withdraw. CHAC requires volunteer attorneys. This is also misguided. Good, reasonably priced attorneys who are qualified provide good experience to buyers in how to hire attorneys which they will need in their new non-welfare lifestyle. Free attorneys sets a terrible precedent for these new homeowners where they think that just because they are low income they will have attorneys wanting to offer pro bono (free) services which is not reality.
In my opinion, the CHAC program is great except that title should be pulled by the seller's attorney using existing rate cards and buyer's attorneys should be hired using reasonable rates. Moving people into the opportunity to own a home is great. The process of getting to home ownership should help train the new homeowner in the way the transaction would ordinarily be conducted outside of CHAC home ownership.
Lastly, I have recently seen where CHAC buyer's became "stuck" with the idea that they needed a certain kind of home for a certain kind of price regardless of where it is located and regardless of the effect on their commute. The bottom line is this - it is my opinion that CHAC counselors should always encourage potential buyers to buy within 10 miles of their employment with a viable public transportation option and near an area that has job growth. A beautiful home that is not near your home is called a "vacation home". A beautiful home in a depressed economic area is called a museum. A small but practical home near tremendous job opportunities, vibrant communities and good schools is called a HOME.
For more information about the CHAC program, please contact the CHA at THECHA.ORG
For more information about quality real estate attorneys who represent residential real estate sellers and buyers, please contact David Nelson at NLO NELSON LAW OFFICE INFORMATION
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