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 bankruptcy.
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.