Huffpost Chicago

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

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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:

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