Recently Chicago home buyers got hit with a 40% increase in Transfer Stamp Tax. After April 1, instead of paying $7.50 per $1000 when you close on a property, it will now cost you $10.50 per $1000 of the purchase price. This new tax rate is to go into effect April 1, 2008.
The news of this tax increase spurred some buyers to hurry up, get an offer in and close by this magic date. Seems logical that if one were to close before April 1, one would avoid the additional $3 per $1000, right? Not so fast, I just learned.
I am currently working with a client where we hurried to find a home to purchase, got an offer accepted and set a closing date for March 31. I just learned from our closing attorney that it turns out it isn't as important when you close, but rather when you actually buy and file the Transfer Stamps. This is a task that your Title Company completes in the transaction.
Most Title Companies do not go down to city hall after each closing, but rather wait until they have a bulk of closing to go process. So if you close on March 31st, but the Stamps don't get purchased for a few days later, you can be eligible for the the higher tax rate. The end of the month is always a busy time for Title companies, and tihs month stands to be even busier, so the odds that they down to city hall by the end of office hours on that Monday is pretty slim.
What can you do to try to avoid this situation?
1) Push your closing up as early as you possibly can, in order to give the Title Company adequate time to get the Stamps processed.
2) Hire a good Real Estate lawyer. We are currently in the process of writing into the contract that the Seller will be responsible for any closing costs that occur after March 31st. So on March 31, the closing statements will reflect a tax of $7.50/$1000. But if the papers don't get files in time and the applicable tax rate is actually $10.50/$1000, we want the Seller to be responsible for this incremental amount. Haven't heard yet if the Seller is going to agree to this. For this particular contract it represents an increase of about $750. Given current market conditions, I don't think the Seller wants to blow the whole deal over this amount. But, you can see here how the $450 spent on a good Real Estate attorney could easily be re-cooped.
It would be tight to get a new contract in and close by March 31st, for all you home buyers still sitting on the fence, but it could be done. But also wanted to get this information out for any one with any outstanding contracts out there, in hopes of saving you a few dollars.
Like what you're reading? Then subscribe to my blog and be notified when I post something new.
Connect with me on:
Sarah,
You can bet your neighbor's paycheck that any title company doing business in Chicago who collected $7.50/$1,000.00 is going to get those stamps before the tax goes up.
** UPDATE ** Just read that on Monday they passed that the Seller is now going to be responsible for the additional $3!
From a seller's standpoint, thanks for that advanced warning.... How many people can the city screw while trying to figure this mess out! My buyer would have loved another month, but we were trying to beat the April 1 deadline, now that is out the window.
That's why clients pay title companies title insurance.
Good news: The CTT increase is a mute point for buyers now. It's moved onto the sellers as I've been arguing for months now it should. It was unanimously approved yesterday by City Council. Thanks to Patrick O'Connell for getting this done in spite of all the big time lobbyists efforts to move this tax onto the buyers and away from their builder clients.
A final twist is the Chicago Transfer Tax now contains a limited new exception where the tranferee is over 65
The seller will still be required to pay the tax at closing, but can apply for a refund if the transferee is over 65, the purchase price is less than $250,000 and the transferee will occupy the proeprty as a principal residence for at least one year.
Thanks Edward, I didn't know about that clause. I still can't believe the city did this to homeowners.