One often overlooked aspect of real estate transactions is the presence of chattel mortgages, particularly in scenarios where homeowners have taken advantage of financing options for home improvements such as HVAC systems or window replacements.
These financial arrangements can have significant implications during the sale of a property, and it is crucial for real estate brokers and buyers’ attorneys to be aware of these details.
What is a Chattel Mortgage?
A chattel mortgage is a type of loan where personal property, instead of real estate, serves as the collateral.
Examples often include financing for HVAC systems, window installations, or solar panels. Advertisements frequently highlight these improvements with offers such as “no interest until 2026,” appealing to many homeowners.
However, these loans create a lien against the personal property rather than the house itself, which can cause complications when selling the property.
The Impact on Property Sales
When a homeowner opts to sell their property, any existing chattel mortgages need to be resolved.
These loans create a lien on the personal property, and overlooking this lien can result in serious legal and financial complications. This office always asks about chattel mortgages in the Attorney Review letter for buyers, but others may not. Real estate brokers must ask about any such loans when listing a property.
This careful inquiry helps avoid unexpected issues later in the transaction.
The Role of Buyers’ Attorneys
Buyers’ attorneys play a critical role in identifying and resolving issues related to chattel mortgages.
During the attorney review period, it is essential for them to investigate whether any personal property included in the sale is subject to a chattel mortgage. This includes items like HVAC systems, windows, and solar panels.
Ensuring that these items are either paid off or that the lease and associated tax benefits are transferred to the new owner is crucial for a smooth closing.
Addressing Solar Panels and Tax Advantages
Recently, solar panels have become more popular due to their environmental benefits and potential tax incentives.
However, many installations are financed through leases or loans, which can complicate property sales. Real estate brokers should proactively verify whether solar panels are leased and if the lease includes transferable tax benefits.
Addressing these details in the sales contract can prevent delays and disputes at closing and may provide an additional incentive to buyers who are making an offer.
Best Practices for Real Estate Brokers
Inquire About Financing: When taking a listing, always ask the homeowner about any financed home improvements that might involve a chattel mortgage.
Collaborate with Attorneys: Work closely with buyers’ attorneys to verify the status of any chattel mortgages during the attorney review period.
Address Leases and Transfers: Make sure that any leases or loans, especially those related to solar panels, are either paid off or transferred to the new owner along with any associated tax benefits.
Clear Communication: Maintain open communication with all parties involved to resolve any issues related to chattel mortgages before closing.
By being proactive and thorough in addressing chattel mortgages, real estate brokers can make sure that property transactions proceed smoothly and without unexpected complications. This diligence not only protects their clients but also enhances their reputation as knowledgeable and reliable professionals in the real estate industry.
The Minchella & Associates Difference
With over 40 years of experience in Illinois real estate law, Erica Minchella has represented thousands of home sellers and buyers, landlords, and commercial and investment property owners. For more information, schedule a consultation today.
