Chicago's City Council recently toned down the language of its abandoned
building ordinance. As originally drafted, the ordinance would have considered
mortgage lenders and servicers the owner of a property in
foreclosure, even if a judicial sale had not yet been held and confirmed.
After the banking industry vowed to file a lawsuit to invalidate the ordinance,
the City Council revisited the language and change the ordinance. It now
requires that lenders and servicers board up abandoned buildings, cut
the grass, and keept the property clear of refuse. The ordinance no longer
tries to transform a lien-holder into a title-holder.
However, this does not mean that the changes make the ordinance bulletproof.
Although Chicago does have home rule powers, its home rule authority may
not extend as far as the ordinance hopes to extend it. A true solution
may have to come from Springfield, in particular via a change to the existing
provisions of the Illinois Mortgage Foreclosure Law (IMFL).
As it stands right now, there is no way to compel a bank to complete the
foreclosure process in Illinois. This means that homes can end up in a
state of limbo -- abandoned by the record owner, and unwanted by the foreclosing
lender. However, changes to the IMFL could make lenders take responsibility
for properties, regardless of the a property's foreclosure status.
The IMFL already provides for situations where the mortgagee (the lender)
is put into possession of the property before the case is complete. This
is generally done with commercial properties, and to a lesser extent,
with multi-unit rental properties. It is very rare to see a lender move
for an order of mortgagee in possession on a single-family residence.
The IMFL also provides for remedies that allow borrowers to return the
property to the bank. The
deed in lieu of foreclosure and the consent foreclosure are powerful remedies for Illinois homeowners,
but only when the bank is willing to accept them.
It would seem that there is a middle ground here. If a homeowner seeks
to abandon the property, allow for him to file a motion to put the mortgagee
in possession of the property. This way, the lender is on the hook for
property maintenance, property taxes, insurance, etc., and the homeowner
is free to move on. This remedy would have to allow banks to pursue
deficiency judgments after the fact -- forcing the bank to waive a deficiency would run into
the same legal problems that foreclosure defense attorneys face when a
bank won't agree to a deed in lieu or a consent foreclosure -- you
cannot force the lender to give up its right to a deficiency, the lender
must agree to it.
Such a remedy would allow homeowners to exit their properties well before
the foreclosure is final, but afford them limited peace of mind as regards
their remaining responsibilites to the vacated property. It would also
give the lender an opportunity to rent out the property to a tenant, thus
turning a potential eyesore into a revenue stream.
What other changes to the IMFL do you see as a viable method for solving
the abandoned property problem? Let us know in the comments.