Emily Badger is a former staff writer at CityLab. Her work has previously appeared in Pacific Standard, GOOD, The Christian Science Monitor, and The New York Times. She lives in the Washington, D.C. area.
Who should be responsible for abandoned homes? Fannie Mae and Freddie Mac say "not us"
Vacant homes have become an intractable problem in cities across the country precisely because no one seems to be responsible for them. The occupants have long since high-tailed. Banks don’t legally take ownership of properties until all that messy foreclosure paperwork is processed. And neighbors and city agencies are often left paying the highest price. A new report [PDF] from the Government Accountability Office notes that Detroit has spent $20 million since May of 2009 to demolish 4,000 vacant properties. And Chicago says it spent $15 million last year alone dealing with vacant buildings – most of that to demolish or board them up.
The solution seems to be to find some way of creating accountability for these properties so that cash-strapped cities aren’t stuck figuring out how to prevent them from deteriorating into eyesores, crime dens or worse. Chicago has tried some of the most innovative strategies, as our own Amy Biegelsen reported last month:
In July, the council passed an ordinance expanding the definition of ‘property owner’ to include ‘a mortgagee or its assignee or agent,’ thereby making mortgage lenders responsible for vacant properties. The measure also requires owners of more than five properties – including lenders – to post signs in front of vacancies with the owners' contact information, maintain the exterior of the building and post security guards at night.
The Chicago ordinance – which was revised last month – even has some sharp teeth: Mortgage lenders must pay a $500 fee to register vacant properties with the city’s Department of Buildings, and fines for violating all the upkeep requirements run as high as $1,000 a day.
Other cities have been eying the tactic. But it turns out the federal government has been, too. This week the Federal Housing Finance Agency sued Chicago over the ordinance, underscoring the immense mess inherent in trying to assign responsibility for thousands of abandoned buildings nobody wants to care for.
The FHFA filed suit [PDF] Monday in a federal court in Chicago arguing that Fannie Mae and Freddie Mac should be immune from the ordinance’s requirements because the city has no right to regulate them, or to force them to pay fines. FHFA also wants a refund of any money its mortgage servicers have had to pay the city so far to comply with the law.
In a press release [PDF] announcing the suit, FHFA said the ordinance would impose of Fannie Mae and Freddie Mac “the responsibilities, but not the benefits, of ownership of vacant property on which they hold mortgages.” In the search for someone to take responsibility for these buildings in legal limbo, they have basically said "not us."
The lawsuit objects to the idea that the mortgage giants in Washington would have to “step into the shoes of the building owner” in Chicago to figure out which buildings have truly been abandoned, and what the city requires to maintain them (including “its burdensome lawncare practices”). Together, Fannie Mae and Freddie Mac back more than 250,000 mortgages in Chicago, although only a fraction of these would be affected by the vacant building ordinance. FHFA, however, is threatening that the law may discourage the lenders from purchasing mortgages in the city, “thereby altering the Chicago mortgage market with ramification for the stability of the broader nationwide secondary mortgage market.”
The Chicago Tribune puts the options this way:
If the agency's efforts prevail, the move could further weaken city efforts to help neighborhoods deal with the blight brought on by foreclosures. But if the FHFA loses the suit and is forced to abide by the ordinance, it may increase the cost of new and refinanced mortgages for Chicago homeowners to cover expenses associated with the ordinance.
It’s hard to see this working out for Chicago, but it’s also hard to imagine what the city could do instead.
Photo credit: John Gress