Fannie Mae And Freddie Mac Fight Chicago's Vacant Building Ordinance With Federal Lawsuit

This summer, residents and community organizers called on Chicago's City Council to do something about the vacant, foreclosed properties that were becoming magnets for gangs, drugs and violent crime in their neighborhoods.

Though the city has laws requiring owners of vacant properties to maintain the area, houses in foreclosure are another story. As the Huffington Post reported in August, many families walk away from the home as the foreclosure churns through the legal system -- which could take up to 490 days. Banks argue that they shouldn't be responsible for maintaining the vacant property during that time, and now a federal housing agency is suing Chicago for forcing them to do so.

"We’ve seen cases where the bank will go through foreclosure, someone will leave the home, the building is vacant, everything gets stripped and then they deed the home back to the owner, so at no time is the bank at all responsible," Braden Listmann, housing policy director at Action Now told the Huffington Post. "Being able to secure these vacant properties is very important for the neighborhoods."

To help solve the problem, the City Council passed a Vacant Buildings Ordinance, making banks responsible for the vacant homes before the foreclosure is complete, taking property maintenance out of legal limbo. Banks and lenders would be saddled with steep fines for failing to maintain the property -- saving the city millions. According to the Chicago Mayor's Office, the city spent more than $15 million to deal with vacant buildings in 2010.

The ordinance was enthusiastically supported by Mayor Rahm Emanuel, though some suspected that a lawsuit would be coming eventually.

"Let the banks sue over it," Alderman Bob Fioretti told HuffPost. "We do have the authority to hold them responsible."

On Monday, the Federal Housing Finance Agency did just that. The lawsuit (scroll down to read it) claims that the city can't impose fines or regulations on the federal government and that the ordinance interferes with FHFA's oversight of mortgage giants Fannie Mae and Freddie Mac. As the Wall Street Journal points out, rescuing Fannie and Freddie has cost taxpayers $151 billion so far.

"In substance, U.S. taxpayers are funding [Fannie and Freddie's] losses, which will be exacerbated if [Fannie and Freddie] are required to submit to the Ordinance’s registration fee and other numerous burdensome obligations," the lawsuit reads.

The suit also claims that the mortgage agencies should not have to mow lawns, shovel snow or board up windows on properties that are still going through the foreclosure process.

"We question the constitutionality of holding a secured lender or a servicer as liable for maintaining that property," Linda Koch, president and CEO of the Illinois Bankers Association, told HuffPost in August, adding that banks can't be considered legal owners of the property until a foreclosure is complete. "You can’t just make a secured lender an owner because there’s a word changed in the law."

Despite the lawsuit, Cook County commissioners this week passed a similar ordinance, making lenders responsible for vacant properties going through foreclosure county-wide. One commissioner called the federal lawsuit against Chicago "shameful" and "a disgrace," the Chicago Tribune reports.

On Tuesday, Mayor Emanuel told WBEZ that the feds don't have a case.

"We did exactly what we were supposed to do, rightfully, for our neighborhood, our community, and our residents of our city," Emanuel said.

Photo via Flickr by Zol87

Read the lawsuit here:

Federal Housing Lawsuit

Comments

[l monroe]

10:05 PM on 12/30/2011

The federal and states have to abide by fire codes so why not city cleaning ordinances.

[Karl Larson]

07:14 AM on 12/17/2011

http://www.youtube.com/watch?v=_MGT_cSi7Rs&feature=player_detailpage

http://archives.hud.gov/news/2000/pr00-317.html

[Karl Larson]

07:13 AM on 12/17/2011

How many of these are owned by Valerie Jarret?

[Erbe]

03:46 AM on 12/16/2011

Got to love these guys . . . they made bad loans . . . they won't work to remodify the bad loans because via the government policy it's to their financial advantage to foreclose . . . and now they want to dump their bad behavior on the foreclosed owner or the community. Meanwhile, Rahm who helped make the bad government policy is trying to pretend he's been for the community all along!

Really? I think EVERYONE should just quit paying mortgages . . . they can't employee enough people to evict us ALL! #occupy this bs

[l monroe]

10:06 PM on 12/30/2011

maximize upside, minimize downside.

[tissa]

05:44 PM on 12/15/2011

The problem is Banks have money and lawyers and will get out of this. Hence the reason we all hate banks.

[l monroe]

10:08 PM on 12/30/2011

Its not the money, its the attitude of contempt

[ARP2]

05:40 PM on 12/15/2011

I have to agree. I don't think the bank can be responsible for a house that it technically does not own. However, they could make it difficult for banks by not allowing banks to deed the property back to the owner. Once you foreclose, its yours and you have to maintain it.

[d1957]

06:12 PM on 12/15/2011

You're saying two opposite things, that the bank doesn't own a foreclosed home, and that when you (the bank) foreclose it's yours. As far as I'm concerned, when the bank evicts a family and changes the door locks then they have taken over the responsibility for the property and it's maintenance.

[haramcad]

10:28 AM on 12/17/2011

Actually I dont think ARP is saying two opposite things. There is a big diference between a home going through foreclosure and one that is in REO (i.e already gone through foreclosure). The GSEs are not disputing that they do need to maintain properties that have been foreclosed and are in their inventory. In fact, the GAO recently reported that they spent nearly a billion dollars maintaining these thomes. Properties still in foreclosure or in default on the other hand are another matter. The GSEs dont own these properties at this point. You cant legally hold them responsible for these properties and not give them ownership rights. The city is trying to have their cake and eat it too. That being said the GSEs and most banks do try to maintain vacant and abandoned properties. It wouldnt make sense for them not to. Otherwise the homes would be unmarketbale once they roll into inventory and would further compound their losses. The issue is that the city's bill is unreasonable and onerous and at the end of the day, in my opinion, unconstitutional. You just cant hold one man responsible for another man's property in this country.

[penndl]

03:18 PM on 12/15/2011

That's a brick house. So well built it could stand another 100 years. It would be so easy to restore it and make it a single family two story home again. Problem is location and the knuckle headed fools in the area.

[l monroe]

10:40 PM on 12/30/2011

yep, chase them out!!!!

[hanspij]

02:50 PM on 12/15/2011

Is the homeowner not responcible for its property?

[l monroe]

10:42 PM on 12/30/2011

when does a property owner not a property owner? forclosure

[bdzdean]

02:06 PM on 12/15/2011

Its simple. If one owns a property, one is responsible for the care and upkeep of said owned property.

The banks don't seem to mind foreclosing on someones home. Therefore, once the home is fully foreclosed on and becomes vacant. The home legally becomes the foreclosing banks property, along with the property tax's, insurance and the normal exterior upkeep required by county codes that all owners of a ANY property are expected to, and usually do.

[ARP2]

05:36 PM on 12/15/2011

If you read the article, the banks are playing games by foreclosing and then deeding the property back to them, so that the owner is still responsible, even though they assume they no longer "own" the property.

There is also an issue where the banks will simply delay the foreclosure process so they don't have to take responsibility for the property. Meanwhile, the home falls into disrepair since the owners have assumed that it will be taken over.

The reality is that both the owner and the bank bear some responsibility for those homes.

[gregory57]

02:02 PM on 12/15/2011

Time for a few gold old-fashioned "riots". The owners (banks) will pay to have those properties burned to the ground to make way for the next boom.

[RighteousNotRightWing]

01:14 PM on 12/15/2011

The City of Chicago is the worst municipality in Illinois I know of where you can own a property. Their building department is overly aggressive with inspections. They do make stuff up (e.g. claim the grass is not cut, when in fact there is no grass anywhere on the property - just gravel and wood chips) and file lawsuits without any prior notice. They recently raised the daily fine for ANY code violation from $1,000 / day to $1,200 / day.

The overreaching residential landlord tenant ordinance (updated in 2010) is a draconian ordinance that punishes landlords who try to collect the rent and is stuffed with giveaways to irresponsible tenants.

If you are a real estate investor in Chicago, especially the South and West sides - don't just walk away from your property, RUN !

[tissa]

05:44 PM on 12/15/2011

The suburbs are definitely a better place to invest. Apartment buildings etc...

[l monroe]

11:11 PM on 12/30/2011

interesting, but not conclusive. I've seen where they get the number wrong on the property and charged the next door neighbor. I been pulled over for owning a LS Monti Carlo, there were three in the town and I told the police where to look. My suggestion is Require pictures.

[AllenAllen]

01:11 PM on 12/15/2011

I'm no Libertarian but what is the Administrative Branch of the Federal Government is seemingly at war with the common citizen. They (DEA, IRS, DOJ, HHS--all under the president) send their goons to bust or threaten medical marijuana outlets. Now they fight on the side of the banks. Sad. :-(

[l monroe]

11:13 PM on 12/30/2011

Who do you think the man is? It's greenbacks talking not skin.

[stealcity]

01:01 PM on 12/15/2011

Take tax money and give it to the banks. Cut out all this middle man stuff. It just adds to the cost of getting screwed by the banks.

[imfbsbn]

12:21 PM on 12/15/2011

So if a bank is trying to repo a car are they responsible if it's involved in an accident?

[Oginikwe]

11:13 PM on 12/16/2011

If you get run over by a house, let us know.

[l monroe]

11:26 PM on 12/30/2011

If the car has been impounded, yes. Read the article, they deed back the property to the previous owners so they are not held responsible and past due taxes are taken out with the closing costs. They force the property to be in probate longer than it has to be to shrink the available supply of houses. They are trying to limit the down side liability while gambling its value will go up. The city is taxing empty houses that they have to watch for the banks. Make them all pay for the fraudulence they have perpetrated. What is 1000 to 1500 compared to 3 trillion?

[PoodleMom206]

12:01 PM on 12/15/2011

As a property owner, I am responsible for the condition of my property. Since the banks were so gung ho to get into the property ownership business (as witnessed by their knowingly making bad loans and now doing little to help troubled home owners), well, they can just step up to the plate and take care of the properties. If you have such properties in your neighborhood, call your city code department. These derelict properties only drag our beleaguered values down more, further aiding the banks in their takeover of properties.

[tashawn22]

01:49 PM on 12/15/2011

The issue here is that the banks don't yet own the property. It's just a piece of collateral securing their loan. If the banks wants to collect on their loan, they don't even technically need to foreclose, they can just sue the borrower. However, they do have the right to foreclose and that process isn't completed until it goes to sheriff's sale and the bank is the high bidder. THEN, they should be responsible for maintaining it's condition.

In many cases, there are multiple creditors. Say there is a 1st lien mortgage holder, a HELOC mortgage holder, a tax buyer, and a condo association who all have liens on the property. Which one of them do you force to mow the lawn when they don't have possession or access?

[lofttypeofaview]

03:46 PM on 12/15/2011

There is only one deed to a house, whoever has it is the one responsible.