The following article, originally published February 11, 2008, with a different title, has been updated.
A new issue has been raised regarding the June 2005 simultaneous real estate transactions accomplished by Sen. Barack Obama (D-Ill.) and indicted political fixer Antoin "Tony" Rezko's wife, Rita Rezko.
The Chicago Tribune provided an overview of the real estate transaction on November 1, 2006. Based on information provided here and elsewhere, the following scenario was posed to a licensed realtor:
In 2005 a property came on the market listed at about $2.6 million. It consisted of two legal lots maintained as a single unit and described as an estate although totally only perhaps 15,000 sf. Two buyers on the same day purchased the lots separately. Buyer #1, a couple, bought the house and one lot for $1.6 million, $300,000 under asking price. Buyer #2, an individual, bought the other lot at the full price of $625,000 even though it had no physical access from the street. Subsequently, Buyer #2 sold 1/6th of that lot to Buyer #1, reducing its size from 7500sf to 6150sf and since it was a corner lot reducing the potential building footprint to about 2800sf.
Buyer #1 paid a little over $100,000 for that 1/6th of the lot, over the appraised value but in line with the recent actual purchase price. After the purchase, Buyer #2 made no effort to establish access or to show use, instead they allowed Buyer #1 to maintain the landscaping with access gained from a gate from Buyer #1's lot.
As a matter of law "open" and "notorious" use of property without objection from the owner of record (Buyer #2) can end up with ownership of that property transferring to the property user (Buyer #1) by the doctrine of adverse possession, unless there is an explicit lease agreement Buyer #1 will over a period of time gain
title to what was in origin and still in appearance being a fenced in the side
yard. Buyer #2 financed the purchase with the aid of a $500,000 mortgage and after the sale of the 1/6th of the lot were left without any real cash investment in the property.
On December 28, 2006, Rita Rezko (Buyer #2) sold the unimproved "garden lot she owned next to Obama's home, transferring it to" "former Rezko business attorney Michael J. Sreenan," "a company that plans to develop housing there." However, no other changes have been made to the property or access to it.
In November 2006, as reported by the Chicago Tribune:
Obama said he and his family have never used the Rezko yard--even for a brief picnic or Frisbee game. But Obama said he pays his landscaper to mow Rezko's 7,500-square-foot yard.
A person can't enter the Rezko lot from the street--but Obama's groundskeeper gets in through the gate that opens from Obama's lot. ... Service mows both lawns.
CONCLUSIONS:
1. First, let's look at one scenario: If put before a real estate broker or a mortgage broker, telling him/her that the two buyers had a multi-year personal and professional relationship, one possible conclusion would be mortgage fraud, with Buyer #2 colluding to secure Buyer #1 a $2.6 million dollar mini-estate for a total of $1.71 million ($1.6 purchase, $125k for the 1/6th).
The transaction began with a single use property under one party control and concludes with a property still with a single use under one party physical control. Everything about this shouts "sham transaction" by the Buyer #2 on behalf of Buyer #1, which equates to an eventual $500,000 gift from the former to the latter once adverse possession kicks in, which is seven years in Illinois.
On December 28, 2006, Sreenan assumed the position of Buyer #2, Rita Rezko. The relationship between the owners of the two adjoining properties changed, with the Obamas now not only controlling access to the lot but also controlling the access for a third buyer, someone who was not part of the original transaction. Additionally, there have been no reports that access from the street to the lot formerly owned by Rita Rezko has been accomplished.
However, a licensed realtor's response was as follows:
Adverse possession isn't "automatic" and adverse possession currently doesn't apply here. What is happening is called "license". The Obamas clearly have an oral or written license to use and maintain the lot B (Rita Rezko's lot). License can be indefinite. Adverse possession can only be obtained when the owner of lot A (Obama) uses lot B openly and notoriously AGAINST the wishes of the owner of lot B. That's clearly not happening here. This relationship has already been documented by the Chicago Tribune, so the clock won't start on the adverse possession claim until the owner of lot B decides to rescind the "license". If the owner of lot B sells the lot, this may be a legal argument if the new owners ignore the open and notorious use of their land. The owners of lot B may also seek an easement by prescription for access to their lot which would have to be court ordered. If not...no one really cares. The license and potential for an easement by prescription will have an adverse affect on value and marketability so long as the license is disclosed to any new buyer of lot B.
The definition of a conforming lot for development is also at question. The land-locked empty lot B being further divided isn't illegal unless the remainder of lot B after 1/6 of it was sold is not considered a conforming lot and didn't receive a variance from the city government. Without a variance, this transaction has an adverse effect on present and future value and marketability.
Market value is determined by the seller. Selling for less than market value isn't illegal unless it's sold for less than what is considered by Chicago government as "valuable consideration". Usually anything more than $100 is valuable consideration. The $500,000 mortgage as collateral is valuable consideration. It's a second mortgage.
So long as all the parties are paying the appropriate taxes on their respective lots...the government won't care. Depending on Chicago law regarding development of the lot as stated by Sreenan, unless Chicago has a law on the books that addresses a certain time period that has to be satisfied for development...nobody will care.
It's a shady deal...but not illegal. What is unclear is EXACTLY what type of interest was bought and sold. What types of deed are owned.
2. Although it is difficult to comprehend why Ritz Rezko's lender would grant her the $500,000 mortgage loan for a property that did not possess its own access, the answer can most likely be attributed to the source of Rita Rezko's loan.
3. Regarding the State Board of Licensing, it was posited that the real estate license of any agent who willingly participated in this transaction would be liable to loss and possibly subject to pay a big fine.
Also see RezkoWatch articles
1 comments:
I’ve got a fourth scenario: Any one candidate for the Presidential nomination of his party, accepting gifts in the form of real estate, in the $500,000 to $625,000 range, from the Rezko’s, will be publicly humiliated and defeated for said nomination. This can be attributed to the Democratic Party.
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