Targeting Lenders to "Fix" a Vacant Housing Problem--the law of unintended consequences

No one disputes that many city and towns, including many in Ohio, have a problem with vacant homes and buildings in their communities. In some locations, the problem is overwhelming and the cost to the local government can be staggering.

In the City of Chicago, an ordinance took affect in September that requires a mortgagee or its assignee or agent to maintain vacant buildings, including posting signs with contact information and maintaining the exterior of the building. The ordinance also requires the lender to perform certain maintenance on the property, inside and out, even if the lender does not have legal possession. (click here for copy of the ordinance) 

Some lenders take a long term view of property it controls and maintain them to ensure the potential resale value of each property is the best it can be. Other lenders are a bit more short term in their thinking.  Furthermore, the foreclosure process is not a quick process and it can take a considerable amount of time. In Cook County, Illinois, the foreclosure process averages around 2 years. During this time, the lender or mortgage service does not have legal control of the property, which allows it to deteriorate while it stands empty. 

There is a fine line between legislating 'responsibility' on the part of lenders and adding so many more open-ended costs and associated risks to an already risky situation that it creates adverse unintended consequences; particularly if the foreclosure process continues to drag out over a ridiculous period of time.

Lenders can be caught in the vise of ever increasing financial burdens and not even be able to meet those obligations without improperly entering properties before they have a legal right to do so.  That's enough to make lenders think twice before writing additional mortgages in the city, and lenders in fact threatened to challenge the ordinance. 

The good news is the city and lenders finally sat down at the table  together to discuss a resolution to their respective concerns.   The result is a new compromise ordinance that is pending to replace the one that took effect in September.  They are also working together on a state legislative solution that would standardize requirements across the state of Illinois and require municipalities in the state to create a fast track for expediting the foreclosure process. This will help get houses and buildings out of ownership limbo more quickly.

It will be interesting to see if the results of the new ordinance once implemented along with any state legislation that passes have the intended consequences or not. 


George E. Bourguignon, Jr. Attorney at Law said...

These are common issues that are arising in cities throughout the country. It appears to me that the foreclosure crisis will continue.

George E. Bourguignon, Jr. Attorney at Law said...

There are ordinances in Boston, Worcester, and expected in Springfield, the three largest cities in Massachusetts. You may want to compare these with the one you are discussing.

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