In response to the effect of the mortgage foreclosure crisis on renters, the City of Chicago enacted the Protecting Tenants in Foreclosed Rental Property Ordinance, commonly known as the Keep Chicago Renting Ordinance (KCRO). This amendment to the Chicago Municipal Code went into effect on September 24, 2013. The full text of the ordinance is available online at the link Keep Chicago Renting Ordinance. The KCRO is designed to address challenges facing renters and the communities where foreclosures take place. The first goal is to increase protection for renters in Chicago and stabilize rental housing by keeping foreclosed renters in their homes. It requires banks to either allow renters in good standing and who pay their rent to stay in their homes; or requires that they pay tenants relocation funds of $10,600 to leave the building to enable an easier transition from their housing. The fee also standardizes the “cash for keys” process.
Written Notice Served on Tenants
Notice of change in ownership must be provided within 21 days after a person becomes an owner or within 7 days of determining the tenant’s identity. Notice must be delivered to known tenant or household member 13 years or older or mailed. In addition, notice must be posted on the primary entrance of each foreclosed property. Chicago Municipal Code, § 5-14-040(a),(b)
Notice Required to Collect Rent
Until the owner serves notice under § 5-14-040, the owner cannot collect rent or terminate a tenant’s lease for failure to pay rent. Chicago Municipal Code, § 5-14-040(c).
Tenants Entitled to Protections under the Ordinance
The Ordinance protects “Qualified” tenants who have a bona fide (valid) lease or rental agreement. The definition of a bona fide lease or rental agreement includes all agreements, whether written or oral, as long as:
• The tenant is not the mortgagor, or the child, spouse, or parent of the mortgagor;
• The lease or tenancy was the product of an arm’s-length transaction; and
• The rent required under the lease or tenancy is not substantially less than fair market or is subsidized by the government.
Chicago Municipal Code, § 5-14-020
In other words, leases entered into with children, parents, or the spouse of the former owner; leases where both parties did not negotiate in their own best interest; and leases with substantially less than fair market rent are not considered bona fide, and tenants without bona fide leases are not qualified tenants under the Ordinance.
Property Owners Subject to the Ordinance
The Ordinance applies to: (1) any person who acquires ownership of a property pursuant to a judicial sale of a foreclosed rental property, after the sale has been confirmed by the court and any special right of redemption has expired; or (2) mortgagees that acquire ownership of a property through foreclosure or a deed in lieu of foreclosure. Chicago Municipal Code, § 5-14-020.
Property Owners Not Subject to the Ordinance
The Ordinance does not apply to: (1) an owner of a foreclosed rental property who was the owner prior to the effective date of the Ordinance; (2) a person appointed as a receiver and issued or assigned, a Receiver’s Certificate; or (3) a bona fide not-for-profit in existence continuously for a period of five years immediately prior to becoming the owner of the rental unit and whose purpose is to provide financing for the purchase or rehabilitation of affordable housing. Chicago Municipal Code, § 5-14-030.
Owners Required to Renew or Extend Leases or Pay Substantial Relocation Assistance
The Ordinance requires the owner of a foreclosed rental property to either: (1) offer the Qualified Tenant a renewal or extension of their lease with a rent increase of no more than 2%; or (2) pay the tenants a relocation fee of $10,600 within seven days of the Qualified Tenant vacating the unit. Chicago Municipal Code, § 5-14-050(a). If the owner elects to offer a lease, the owner must continue to offer renewals or extensions (with rent increases of no more than 2% per year) until the owner sells the property to a “bona fide third-party purchaser.” Chicago Municipal Code, § 5-14-050(g).
If an owner fails to comply with § 5-14-050 (Tenant relocation assistance), the qualified tenant shall be awarded damages in an amount equal to two times the relocation assistance fee. Chicago Municipal Code, § 5-14-050(f).
Please see the documents below for more information.