The federal regulator overseeing Fannie Mae and Freddie Mac sued the city of Chicago on Monday over an ordinance that makes mortgage creditors liable for the upkeep of vacant properties.
Lenders are liable for daily fines of as much as $1,000 if they don’t mow lawns and provide basic maintenance on vacant buildings under an ordinance signed into law by Mayor Rahm Emanuel. Lenders especially opposed the requirement they maintain properties they hadn’t yet taken back through foreclosure.
After lenders threatened to sue, the city revised the ordinance in November by dropping a provision that had defined creditors as property owners. But those changes didn’t satisfy the Federal Housing Finance Agency, which sued Monday.
Chicago has one of the biggest foreclosure backlogs in the U.S., delays thanks in part to state requirements that lenders take back homes through the courtsBanks and courts have been overwhelmed by the volume of cases. that have exacerbated the problem of neglected vacant buildings.
The agency said the ordinance was unfair because it imposed all of the costs of ownership without any of the benefits, such as the right to sell or lease the property. The lawsuit also said the ordinance overstepped federal law by subjecting Fannie and Freddie to regulation that is the jurisdiction of the FHFA.
The ordinance requires mortgage owners to pay a $500 fee to register vacant properties and to conduct monthly inspections of properties to determine if they are vacant. In a statement, the FHFA said that registration fee “represents a tax” on Fannie and Freddie.
“We are looking into the details of the lawsuit, but this type of action demonstrates the need for swift action” by the state “to hold lenders responsible for securing vacant properties,” said a spokesman for Mr. Emanuel. “During the passage of the compromise ordinance, we negotiated with national and local lenders, who then stood alongside the mayor to announce the agreement to secure vacant properties in Chicago.”
The lawsuit could help head off copycat ordinances. Las Vegas last week passed a similar measure that would require banks to pay a $200 registration fee for properties with defaulted mortgages. Bank officials could face fines or jail time for homes in disrepair.
Consumer advocates and community groups have criticized banks for delaying foreclosures or, in extreme cases, abandoning them in order to avoid picking up the tab for shabby homes once owners or tenants vacate them.
Researchers at the nonprofit Woodstock Institute estimated that nearly 1,900 vacant properties in Chicago are stuck in the foreclosure process at a cost of $36 million in upkeep costs borne by the city. “By in many cases ignoring these properties you’re doing a disservice to the community and a disservice to the investor,” said Tom Feltner, vice president of the Woodstock Institute.
Fannie and Freddie were taken over by the government three years ago, and today they answer to their regulator, the FHFA, which is charged with conserving the firms’ assets. The rescues of both companies have cost taxpayers $151 billion and counting. Monday’s lawsuit was filed in U.S. District Court for the Northern District of Illinois.
The author of this article is: Nick Timiraos
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