The Federal Housing Finance Agency (FHFA) - the regulator that oversees
Fannie Mae and Freddie Mac - has filed a lawsuit against the city of Chicago
regarding a city ordinance which makes creditors responsible for the upkeep
of vacant homes, even before they take possession through foreclosure.
Chicago Vacant Property Ordinance
Chicago, which currently has more than 18,000 vacant homes and is plagued
by a foreclosure epidemic, originally passed the ordinance in July. Unfortunately,
the backlog of
foreclosure proceedings related to these vacant homes has clogged up the Illinois
court system - which only lengthens the process and makes the vacant home
problem that much worse.
The ordinance itself requires mortgage owners to pay a $500 registration
fee for vacant properties and instructs them to make monthly inspections
to ascertain if the properties are in fact vacant. These same lenders
must provide basic upkeep on the properties, such as mowing the lawn -
with daily fines up to $1,000 if they fail to comply with the ordinance.
Lenders obviously disfavor this ordinance because it makes them responsible
for property upkeep before the lenders have a chance to take possession
through foreclosure. The FHFA also argues that this ordinance in unfair
because it passes all the costs of ownership onto Fannie Mae and Freddie
Mac even though they have no rights to sell or lease the properties. Moreover,
the FHFA argues that the ordinance impermissibly regulates Fannie Mae
and Freddie Mac, which is under the jurisdiction of the FHFA.
In November, the city of Chicago did revise the definition of what is considered
a property owner under the ordinance, which now doesn't include creditors
- but the changes weren't enough in the eyes of the FHFA, and they
subsequently filed suit.
Ways to avoid foreclosure
For Chicago homeowners facing foreclosure, they probably care very little
about who has to mow their lawn after their home is ripped away from them.
However, homeowners going through foreclosure do have other options - namely
By filing for
Chapter 7 or
Chapter 13 bankruptcy, homeowners are able to immediately stop foreclosure actions in progress.
This gives homeowners the time they need to determine what option is best
for them. In some instances, homeowners may be able to utilize loan modification
strategies or even be given time to get current on their payments. Also,
even if homeowners elect to fight the foreclosure in court and lose, they
can still rebuild their credit while the case is progressing - which may
make them eligible for FHA financing on another house that fits better
into their budget.