On June 5, 2013, the Chicago City Council enacted the "Keep Chicago Renting" ordinance. The ordinance is designed to prevent vacancies in foreclosed rental properties.
When a rental property is foreclosed upon, the new owner is often the bank. More often than not, the new owner does not want to inherit the current tenants. Unlike the sale of a home, which generally includes a transfer of all existing leases to the new owner, a sheriff's sale can technically extinguish any leases attached to a property.
The Keep Chicago Renting ordinance seeks to prevent this by attaching a hefty cash penalty to a landlord's efforts to evict existing tenants. The ordinance requires "foreclosing owners" (read as: banks) to offer existing tenants rent-controlled leases until the property is sold. If the bank opts to evict tenants, then it must pay them $10,600 in relocation assistance. That assistance must be paid for each unit.
Clearly, the goal is to provide a strong financial disincentive for banks to evict tenants. Given the narrow scope of the ordinance (non-bank purchasers at a foreclosure auction are exempt), it doesn't seem like the ordinance will have an impact on the cost of rental properties in Chicago. On the other hand, this ordinance may help keep buildings from becoming abandoned and turning into yet another bit of urban blight.
The ordinance also requires the foreclosing bank to provide a written notice to the tenants that explains their rights. The ordinance provides a sample disclosure; it is written in plain language and explains the rights of the tenant. You can find a copy of the ordinance here. While the notice won't prevent tenants from abandoning a unit prior to the foreclosure case being completed, it will hopefully keep tenants in the building after they receive the notice.
The ordinance also prohibits banks from evicting tenants who were behind on rent prior to the completion of the foreclosure case. While this means that some tenants will "get away" with not paying their rent to the foreclosed landlord, it also starts them off on a new foot with the bank.
It remains to be seen whether the banking industry will challenge this ordinance in the courts. You can rest assured that if it does, I'll be writing about it here.