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Monday, August 26, 2013

Vacant Property Ordinance Not Enforceable Against FHFA

The City of Chicago, like many other municipalities, has enacted vacant property regulations requiring the owners or responsible parties to register vacant properties and buildings with the City and maintain their properties and buildings.  The purpose of the vacant property/building registry was to provide a municipality with information about the owner and/or responsible party for a vacant property, and to ensure that these properties were adequately maintained and secured.  
On Friday, a federal district court judge ruled that Chicago could not enforce its vacant building registry against the Federal Housing Finance Authority (FHFA), the overseer of Fannie Mae and Freddie Mac.  Federal Housing Finance Authority v. City of Chicago.  The City had enacted its vacant property ordinance in 2011.  That ordinance requires owners and lenders to register a building after it becomes vacant, pay a $500 registration fee to the City, and continue to maintain the property. A month after the ordinance was effective, the FHFA filed a lawsuit challenging the ordinance on a variety of grounds, including that the City was preempted from enforcing the municipal ordinance against the federal government and that the registration fees were a tax on federal governments.  Those were the two grounds upon which Judge Thomas Durkin relied in ruling against the City and in favor of the FHFA.  In his ruling, Judge Durkin also rejected the City's argument that the vacant property ordinance was a local "land use" regulation that was not subject to federal preemption.
This ruling could impact municipalities across the state (and country) that have enacted similar vacant building/property registration ordinances.  According to the Chicago Tribune, more than 1,000 municipalities have enacted ordinances requiring the registration and maintenance of vacant properties. 

For those municipalities with vacant property ordinances in place, there are a couple of key take-away points from this case: 

First, this case did not strike down the City's vacant property ordinance in its entirety.  Instead, the decision restricts a municipality's enforcement of this type of ordinance against Fannie Mae and Freddie Mac because of federal preemption limits.   Therefore, Chicago can continue to enforce its ordinance against owners of vacant property.

Second, Chicago's ordinance was amended in 2011 to specifically require mortgage holders to comply with the registration and other requirements.  Prior to that 2011 amendment, only owners were subject to the registration and maintenance obligations.  Many vacant property ordinances that were enacted by municipalities other than Chicago are restricted to owners or other title holders.  The decision does not affect the enforcement of vacant property regulations against property owners.

In light of this decision, municipalities that have vacant property ordinances in place may want to review the scope of those regulations because the FHFA may decide to challenge similar ordinances enacted by other municipalities.   
Post Authored by Julie Tappendorf, Ancel Glink


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