Housing Policy

Chicago Crosses the Line In Trying to Maintain Property Values

Banks that comply with Chicago's new law may be liable for burglary, trespassing, or similar crimes.

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If you live in Detroit, Chicago, Las Vegas, or Phoenix, you've seen an abandoned home or six in your neighborhood. In countless other cities across the country, empty homes are a visual symbol of the nation's economic malaise. Many of them have weeds the height of their former occupants, paint chipping off the sideboards, and broken windows that have resulted in dangerous neighborhood conditions, blight, and decreased property values for residents living nearby.

What to do?

Las Vegas recently passed a law requiring banks to register properties with defaulted mortgages at fee of $200 each. Research by the American Financial Services Association has found over 460 city ordinances around the country trying to address the abandoned property issue, though few are as harsh as a Chicago ordinance first passed last summer. 

Chicago decided to hold both the homeowner and the financial institution that owns the mortgage equally liable for property upkeep and maintenance rules—even if a home is not yet in foreclosure. In Chicago it means that if a home were to be abandoned, the lender for the property would face fines as high as a $1,000 a day for not paying a $500 registration fee, mowing the lawn, fixing windows, and performing other specified regular maintenance. 

The problem is that banks are not legally allowed on properties unless they have completed a foreclosure. For a lender to comply with the Chicago ordinance it may find itself then held liable for burglary, trespassing, or similar crimes. 

After financial institutions cried foul on the law, Chicago changed a few terms in November that made costs more manageable for the megabanks, but they were still left high enough to threaten smaller financial institutions. The ordinance also continued to hold government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac liable for mortgages that they owned.

That's when the Federal Housing Finance Agency—Fannie and Freddie's regulator—decided to step in. 

In mid-December, FHFA filed suit against Chicago, asking a judge to exempt the GSEs from the Chicago law and have the city repay any fees already paid out. 

The argument against the Chicago ordinance, as well as similar laws, rests primarily on the fact that it creates identical obligations for property owners and mortgagees in regards to maintenance liability, but without granting equal property rights access. 

The logic of this is pretty straightforward. While not a regular problem, a few people have come home to find their locks changed and possessions thrown out, even if a bank had not yet completed all the foreclosure paper work. This essentially constitutes burglary as well as breaking and entering. So, if a home has not been foreclosed on, why should a bank be expected to send people into a supposedly abandoned home, clear it out, fix it up, and maintain it if the homeowner still has the legal right to return to the property? Perhaps in the time they've left the lot they've won the lottery and have the money to pay off the mortgage before a foreclosure. It simply is not reasonable to fine a bank for not committing a crime. 

Some have argued that this does not address the fact that some properties sit for years without getting foreclosed on anyway. While there is no practical way a bank can know when a property has been abandoned, and in most cases has no legal right to enter the property, banks still do have a vested interest in ensuring they get a home back in the best possible shape to then sell it and recover their investment.

Beyond this legal argument, the Chicago ordinance defies simple reason. The law is like holding an auto dealer responsible for unpaid parking tickets on a leased car. If a property owner abandons a home and starts to accumulate fines for a lack of upkeep, these debts should not pass to the lender any more than that property owner's credit card debt or unpaid income tax debt. Just because the charges are related to the home doesn't mean they come with the home. 

FHFA also points out that the Chicago law violates the federal Housing and Economic Recovery Act of 2008, which grants FHFA preemption authority over municipal laws. The GSE regulator further points out that by subjecting Fannie and Freddie to the fines, they are essentially transferring money from the U.S. taxpayer, through the GSE bailouts, to the city of Chicago. (The simplest solution to this problem would really be to end the bailout and shut down the GSEs, but that option isn't sitting too well with FHFA for the time being.)

Of course if a bank or the GSEs have foreclosed on a home, then the liability for maintenance on the abandoned property certainly shifts to the financial institution. But as these stand, they are bad laws that unjustly hold banks accountable for the failures of property owners. 

FHFA's lawsuit asks for the GSEs to be exempt. But if the court finds that the city laws conflict with other statutory limitations on financial institution access to properties it has not foreclosed on, then it should overturn the entire Chicago ordinance. And hopefully, similar municipal laws would then be repealed as well.

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  1. In Minneapolis they are being torn down, so what we see are empty lots. Two on just my block alone. Some blocks have seven or eight.

    1. I figured that was just because of the tornado.

    2. If I ever live next to a lot, I am going to use it and maintain it and attempt to do so for twenty years without being prevented from doing so. If I sell my property before twenty years, I would hope the new owners would continue to do so for the remainder of that amount of time.

    3. Demolition is expensive. Who is paying for it?

  2. But as these stand, they are bad laws that unjustly hold banks accountable for the failures of property owners making stupid loans.

    1. Invoking Mr. Randazzo’s analogy, should auto dealers be forced to cover parking fines incurred by the lessee of one of their cars if it can be shown the lessee wasn’t creditworthy enough to sign the lease?

      1. I’m not sure what you just wrote, but maybe by being held accountable for property upkeep after forclosure ei one of those little market forces that says, “You make shitty loans, you pay a fucking price.”

        1. After foreclosure, the banks are responsbile.

          This article is about holding the banks responsible BEFORE foreclosure.

          1. This article is about holding the banks responsible BEFORE foreclosure.

            Part of the problem is, banks are not foreclosing because when they do, they have to write down the loss. Otherwise, regardless of the mortgage, or the state of the property, they are exempt form mark-to-market, and can show it at par.

            The FASB and fed need to end the exemptions to FASB (157).

        2. I’m not sure what you just wrote

          Really? I thought my grammar, usage, and sentence structure were perfect . . .

          Point is, holding the banks accountable for the condition of the property they’re underwriting (if that’s what you call it) is like holding auto dealers accountable for how the cars they lease out are used. Sure, I suppose we could empower government go back after the fact and determine, using its own criteria, whether the loan should’ve been granted in the first place, then administering fines based on that. But I’m of the belief that the less government has to do with this sort of thing, the better off we all are.

      2. Maybe I’m just an idiot, but I thought under a lease, the lessor is still the owner of the property, and the lessee is paying money for the privilege of use. Whereas with a mortgage, the bank is only the owner of the loan principle (or, rather, the right to have it returned over time, with interest). The home is solely the property of the homeowner until foreclosure, though it is collateral for the loan.

        Until there is a foreclosure, the bank doesn’t own the home in any sense nor can it rationally be argued that they have any responsibility for it.

        A better analogy would to argue that if a family of rednecks violate city ordinances by buying a lot of pink flamingos and sticking them all over their lawn, and they bought the flamingos with a credit card, then MasterCard should be responsible for the fines.

    2. Rhey made stupid loans & they should take a bath on the loss of equity.

      This doesn’t mean that cities should go after them for the sins of their borrowers.

    3. The problem with holding banks accountable before the foreclosure is that it encourages them to keep tabs on delinquent homeowners about their lawn care. How would you like to miss one payment and have your bank knocking on your door about your dirty windows?

    4. “making stupid loans.”
      That the Feds mandated Banks do. So how is it that the law can now punish the same banks for doing what they were told.

  3. I hope Rather copyrighted that photo of her abode. What is that style, Gamboltorian?

    1. +460 city ordinances

      1. Politianist Stupidicus rears it ugly head again!

    2. There’s a house that looks strikingly similar to that one close to where I live. But it’s occupied, and in unincorporated county. So nobody much cares. Yay for being outside the city or something.

  4. These types of ordinances are, in part, a response to certain banks’ strategy of declining to foreclose on properties that are seriously defaulted, rather than accept a loss on the sale of the property – since they can avoid marking the property to market if they don’t have to actually sell it.

    Encourage banks to complete timely foreclosure proceedings on abandoned properties instead of stalling and they will have enough incentive not to let the properties rot – unless the banks are revealed to be insolvent by an honest accounting of the value of the property affected by defaulted loans.

    1. All too true. I have a friend who got in over his head. His literally insane wife would not stop spending. In order to get out from under all this, he divorced his wife, cancelled the credit cards and went to his mortgager and gave them the house. Now he’s getting everybody paid off.

      The snag? The mortgager won’t complete the foreclosure. At his little apartment he gets real estate tax bills from the county, bills from the HOA for annual dues, and complaints from the HOA about the condition of the property. I keep telling him he needs to tell the HOA and the county, “Take it. I won’t fight you. It hasn’t been mine since 2008.” He’s been dealing with this for almost 4 years.

      1. Do you live in Texas, LFD? Because if so, we may share some acquaintances. This sounds entirely too similar to somebody I know.

        1. Everyone knows one.

      2. There are only a few states where you can walk away… in most you are the owner until foreclosed. The answer is bankruptcy.

      3. There are only a few states where you can walk away… in most you are the owner until foreclosed. The answer is bankruptcy.

      4. Why the heck did he leave the house? You’re saying he’s renting an apartment while he still owns a house he isn’t making payments on? Why the heck isn’t he paying what he’s putting into rent into his mortgage instead and living in the house he still owns? At the worst he’d have paid down some of the interest with what is now going into rent and he’d be better off once they do finally foreclose.

        I don’t think his wife is the only crazy person in that family.

    2. I thought some elements in government was encouraging banks NOT to foreclose on properties quickly.

      1. Dodd-Frank regulations require banks to maintain specfic capital levels.

        Writing down the value of assets directly impacts capital adequacy ratios, since doing so reduces equity dollar for dollar.

        Raising additional equity at current stock prices would be highly dilutive to current shareholders, and would drive down the value of stock options held by management.

        So, banks have a very strong incentive to hold off on taking write downs, prefering instead to keep non-performing loans on their books marked at full face value.

        Which is why I won’t invest in banks.

        1. Dodd-Frank, a.k.a., Dumb-Dumber is tied with Sar Ox for stupidity. The govt. f*cks everything up. The economy would revive overnight if everyone in DC just went home and stayed there for a month or two.

    3. Encourage banks to complete timely foreclosure proceedings on abandoned properties instead of stalling and they will have enough incentive not to let the properties rot

      Um, we want to foreclose as fast as we can, guy. Local and federal laws make us jump through hoops of fire involving regulatory filings, multiple months of mandatory mediation, waiting for court dates to file motions, etc. before we can. It’s a freaking nightmare in NY, FL, OH, MA, or CT to get something done, and rapidly getting as bad in Cook County (Chicago) as well.

  5. This is Chicago we are talking about. Are any of us really surprised that this is happening? I would think not.

  6. something something something single land tax something something.

  7. “Real estate prices only go up….do you want to be priced out of this market? You’ll be lucky to get a 2-bedroom condo down by the airport at twice this price in a few years…this is a great time to buy a house…it’s is an investment, the largest and best you will ever make…”

    1. It was condos that saved me. I was shopping around for a house at about the time the market was at its peak (in Tampa!!!!), and I had a guy selling me that load of crap about a condo I was looking at, but the price was so outrageous that I decided my long-held view that the bubble was going to burst had to be right.

      1. I bought in fall of 2007, fortunately KY peaked in 2006 and while not at the bottom, wasnt far from it.

    2. The sad thing is that I’m hearing ads on the radio about how anyone can make money in real estate. It makes me think there’s a long way to fall left.

      1. I know what you mean. It’s like those car commercials:

        Do you have a job? Do you have $199 a month? Then you TOOOOO could be making money in real estate!!!!!!

  8. Some have argued

    Very Obama!

    1. Let me be clear…

  9. Who the hell would want to live in Chicago? New York has a horrible corrupt government and outrageous taxes but New York City is awesome. There is some payback for putting up with it. California is a socialist hell hole. But it is California. Large parts of it are paradise.

    What does Illinois offer? It has the same climate as Buffalo. And while it is a big city, it is nothing compared to New York and it is even more corrupt.

    1. Great butcher shops.

    2. Deep dish pizza?

      1. I don’t even like those. Look at it this way, if you won the lottery and money was no longer an issue, I might just say fuck it and buy an apartment on 5th avenue or a big house in Carmel by the Sea. But I would never move to Chicago no matter how rich I was.

        1. Chicago is just the most recent examplt of the failure if the argicultral city state. The continual degredation of the enviroment and of mankinds natural desire to commune with nature has lead to a corrupt and untenable city that is now eating itself. Soon the buildings will colllapse, nature will reclaim its position, and I will be able to man will be able to gambol about freely across the plain. I intend to move to Chicago forthwith

          *Yes a bad W.I spoof, too many big words that would never be used. But I couldn’t resist. Could anyone actually see White Indian actually living the wild? snicker

          1. A couple years ago Adam had a conversation on an airplane with a business guy who had this amazing metaphor for all the corporate mergers and other ways that power is now massing itself into greater and greater blocks: You’re on an iceberg in the ocean, and your iceberg is slowly melting, so you gather other icebergs around you, and they gather other icebergs around them, and maybe they freeze together, and you get some pretty big icebergs. But the edges, still, are slowly melting, and the ocean is getting warmer…

            Civilization Will Eat Itself: Part 1
            by Ran Prieur
            http://ranprieur.com/zines/cweip1.html

            1. I figured you’d eat it. Looks like you’ve eaten just about everything else.

              1. Well, pilgrim, only after you eat the peanuts out of my shit!

    3. Nothing compared to New York? First of all, it’s not like New York is a libertarian utopia. Chicago might be slightly worse, but a lot of the nanny state problems here are common to just about any large city. But beyond that, Chicago has one huge thing to offer over New York: livability. As a lawyer, I’m not expected to work two million hours a year like I would in New York. I understand it’s the same in many other fields. Plus, I can afford to buy an actual house in the city. For me it’s the ultimate combination of access to almost anything you can get in New York without the facelessness that comes from New York.

      Will people disagree? Sure. Chicago’s not for everybody. But it’s not like everybody in Chicago is a clueless fuckwad who doesn’t know what the rest of the world has to offer. I lived in D.C. for a while. I lived in Fort Collins, Colorado for a while (named the best city in the U.S. recently). All those places did was reinforce the fact that Chicago is where I want to live for the rest of my life.

      Oh, and if you think Chicago and Buffalo have the same climate, let me introduce you to a concept called “snow.”

      1. Fucking joke handle…

      2. Lived in NYC and know Chicago fairly well. Prefer the first over the second but still… very happy to have moved to New Mexico…

      3. Chicago gets a lot colder than Buffalo.

    4. I enjoyed Chicago well enough as a student, though I have no urge to live there now.

    5. What does Illinois offer?

      You don’t live there. Sounds like a selling point to me.

      1. Illinois would be a much better place to live if only Chicago had burnt to the ground and stayed burnt. That city is hell on Earth, the people are insufferable, and the machine ensures that the rest of Illinois suffers as well.

        Fuck Chicago, and their nasty pizza.

    6. Chicago is the heart of the Heartland.

      Or something like that.

      1. That would be Kansas City.

    7. What does it have to offer ?

      Far northern Illinois is *almost* Wisconsin.

      1. More seriously, the collar counties, which together have a bigger population than the city proper, are a completely different world. Unincorporated McHenry county, for example, isn’t particularly heavy on on ordinances to know and forms to fill out. OTOH, a few local municipalities did recently pass ordinances restricting ownership of backyard chickens.

        1. Just checked my numbers, actually the collar county populations add up to around the same as the population of the city proper, depending on which counties you included.

    8. Buffalo has a nice climate. Some of us aren’t partial to 105 degrees with 99% humidity in the summer.

      1. and you wonder why people think you’re a fucking idiot

      2. I live in South Carolina. If it drops below 70 degrees I put on a sweater, and I’m talking celsius!

        I’m a big fan of global warming.

  10. Deep dish pizza?

    1. Do you really want to start this fight again? OK, I’M IN! DEEP-DISH IS AN ABOMINATION AGAINST GOD AND MAD, AND YOU SHOULD ROT IN HELL FOR NEAR-ETERNITY FOR MENTIONING IT AS A POSSIBLE GOOD THING ABOUT CHICAGO! THE ONLY GOOD THING ABOUT CHICAGO IS THE MERC!!!

      THIN-CRUST FOREVER!

      1. Only dirty communists who should be bludgeoned to death by Italians with rolling pins don’t like thick crust.

        Are you a dirty communist, Almanian?

        1. Thick crust is meh and tolerable.

          DEEP DISH IS AN ABOMINATION!

          1. …but thick crust deep dish is the food of the gods?

            Ok, I feel ya, I suppose that’s a reasonable position.

      2. Fucking fascist.

        1. Fascism in defense of deep dish is no vice.

      3. I prefer crust that is on the thin side but a little bit thicker. About 66% of the time I like it crispy, but 33% of the time soft is fine. I find most toppings acceptable, but some are better in combination with each other than others.

      4. Yo, fuck deep dish and thin crust.

        Sicilian, bitchez!

        http://www.solitaryinsanity.co….._Pizza.jpg

  11. I’m disappointed this article didn’t offer any suggestions or recommendations of what cities could do. Surely there’s some sort of government inaction that could help here.

  12. Wow, no way man that is just totally rocking dude. Wow.

    http://www.Privacy-Pros.tk

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    1. She is creating a buzz on the Ukrainian music scene.

      That usually means that the mike cable is loose.

      1. How did you know?

        1. You knoq for a spammer, you’re pretty funny. I might even visit the site just for the witty comments that have made here.

          1. know not knoq….cant type today

            1. I know not knoq also, and I can type

              1. Don’t knoq it till you try it.

    2. Where are all of these women in real life?

      1. Those women are in the same place in real life as your mom.

        1. A hotel room with Marion Barry? Say it ain’t so!

  14. In the future, very rich people will pay tens of thousands of dollars for a facade that mimicks the aesthetics of that house.

    1. No, they’ll just buy it and use it as an auxiliary entrance to their subterranean luxury bunker in which they lived through the Troubles unscathed.

    2. Camouflaging yourself from the angry mobs has already started.

      1. “Using your vehicle as a luxury lounge is just usurping public space for your own private use,” said Michael Murphy, a spokesman for Transportation Alternatives, an advocacy group that encourages New Yorkers to travel around the city more responsibly. “Streets are shared space and belong to the community.”

        Fuck off, slaver.

        1. If you’re just driving it around, I don’t have a problem with it.

          If you’re occupying a parking space all day, then I blow the whistle.

    3. My dream house will include some plaster covered lathe walls so that I can purposefully smash a few spots.

      1. I suggest also hiring a graffiti artist to make the look complete. You coudl either go for an arrangement of random overlapping tags, Jackson Pollock Style, or hire someone who is good with stencils and make the holes look like bullet holes.

  15. ‘cried fowl on the law’

    Wow, really?

  16. Are there ANY major cities in the United States that aren’t fucked up?

    1. First you must define your terms. By what do you mean “Fucked Up” and make sure you are referencing bugs and not features…

      1. I mean fucked up by standards of economic rationality and freedom, whether the fuck-ups are intentional or not, so bugs/features is irrelevant. The only major cities I’ve heard consistently enough praised that it might not be bullshit are Charlotte and Manchester, NH. Y/N? Others?

  17. There is a pretty easy solution to this. In most communities, the town can issue orders/fines if you let your place to to hell (7 foot weeds in the front yard, etc). What needs to happen is that the minimum level of ‘acceptable maintenance’ be defined (grass cut once a month, broken windows within two). If the owner fails, he is fined. At a certain point, just like traffic tickets, a bench warrant can be issued. At that point, if the owner establishes that he cant pay/has defaulted, he is asked to sign a waiver which permits the lender to perform just those minimum things while the property remains in foreclosure and in return the fines are waived.

    Going forward though, how hard would it be to include in any mortgage note a clause whereby the borrow agrees to permit the lender on the property to do x/y/z as required by the town ordinances if they do not?

    1. How hard would it be to include in any contract you get in to make you responsible for someone else’s debts? Are you saying that the state/federal government should mandate such things in any contract between two consenting adults.

  18. This is probably a revenue generation thing rather than actually enforcing attractiveness standards.

    Chicago already blew through the lump sum they got by selling off their parking enforcement authority for 99 years, and now they don’t have that revenue stream for another 88 years.

    And now our dunce of a mayor in Pittsburgh is trying to convince us to do the same thing.

    1. Is Pittsburgh as screwed up as Philly?

      1. I don’t know how bad Philly is. Right now they’re trying to suck as much blood as they can from the only productive part of the city which unfortunately happens to be where I work.

        It was $1.50 an hour to park in the street last year, and supposedly they raised it again on New Years.

        1. Where do you work, Center CIty? I was working at Thomas Jefferson on 10th and Chestnut. Loved that area.

    2. Corzine wanted to sell off the toll rights on the Parkway and Turnpike for 50 years, or some shit. Possibly the one time I agreed with the unions, but for different reasons.

    3. “Las Vegas recently passed a law requiring banks to register properties with defaulted mortgages at fee of $200 each.”

      Ya think it may be about generating revenue? They look around and say “hmmm…what can we use as a means to clean some sucker out of some cash, oh look! Delinquent mortgages, lets tax them!”

  19. But as these stand, they are bad laws that unjustly hold banks accountable for the failures of property owners.

    But you don’t really own something until you’ve payed for it in full. A house is co-owned by the lender until the borrower pays the lender back. Great article, but I take issue with categorizing a borrower as an owner. This is the core nonsense behind government policies to increase home ownership. Taking out a loan does not make you an owner.

    1. I am 100% certain you don’t understand real estate law.

      1. True!

        And I am 100% certain that you are lawyer and you don’t understand what “own” means.

    2. 100% wrong. The bank lends you money, the house is just collateral. If you own a paid off $200,000 car you could go to a bank for a house loan and use the car for collateral instead of the house, that wouldn’t mean the bank owns your car until you’ve paid your loan. It just means that if you don’t pay your loan the bank can take the car in lieu of money, sell it and apply the sales price toward what you owe them.

  20. “?financial institutions cried fowl?”

    Good grief.

    1. I hate it when they cry on my shoulder.

      Oh wait, I don’t have shoulders.

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  22. With his vintage sideburns and old-school rock hair falling in his face, Jimmy is an irrelevant curio with no place in the modern world. Cut loose from the only life he knows, he returns to his childhood home in Forest Hills, Queens, where he tells his ancient mother (Lois Smith) that he’s actually the Cult’s manager and sometime songwriter, and that he has only dropped by for the day before shoving off on another international tour. After rather too much interaction with mom

  23. With his vintage sideburns and old-school rock hair falling in his face, Jimmy is an irrelevant curio with no place in the modern world. Cut loose from the only life he knows, he returns to his childhood home in Forest Hills, Queens, where he tells his ancient mother (Lois Smith) that he’s actually the Cult’s manager and sometime songwriter, and that he has only dropped by for the day before shoving off on another international tour. After rather too much interaction with mom

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