Vacant Property Registration Ordinances: Understanding the Issues

Since the foreclosure crisis in 2008 – 2009, many communities in the U.S. have enacted “vacant property registration” ordinances (VPR ordinances) as a tool to help them deal with problem properties that are vacant. There are over 80 such ordinance issued or proposed in the state of Ohio alone.

VPR ordinances can take different approaches—some are triggered upon a property becoming ‘vacant’, others upon a foreclosure action being initiated, or use a combination of the preceding two approaches. The problem occurs with the implementation of these ordinances due to vague language and muddled objectives; i.e., the devil is in the details.

Many communities have a serious problem with vacant homes and buildings with owners that do not care (or do not have the resources) to properly maintain the property. Understandably, local communities want to address this problem, and VPR ordinances are often the result.  Because VPR ordinances don’t just apply to the bad actors, but pull in everyone else as well, it is important to look at the language in a draft VPR ordinance to evaluate how it might be unevenly enforced and what might be the unintentional results. Too many of these ordinances inadvertently punish the many for the crimes of a few.

Below are some of the potential issues in VPR ordinances:

How is “owner” defined? — Many VPR ordinances broadly define the “owner” of a property to include mortgagees and loan servicers, and agents of the foregoing, as well as anyone else who directly or indirectly controls the property.  There is often no clear guidance as to what constitutes “directly or indirectly in control of a property”.  With such vague language, any property manager or realtor or other vendor providing similar services could be pulled into the ordinance’s reach if an enterprising public employee chose to interpret it that way. Also, the vast majority of mortgages are owned by the federal government (e.g., FHA, HUD, VA, USDA-RD) or through one of its quasi-governmental entities (e.g., Fannie Mae or Freddie Mac). How does a local community expect to enforce its ordinance against the federal government? The likely result will be uneven enforcement that impacts the local lenders the hardest.

How does the ordinance define “vacant”? — Again, VPR ordinances can define how a structure is determined to be “vacant” in rather broad terms.  An over broad definition of “vacant” can pull in structures that are not in disrepair and therefore not a problem for the community. Definitions of “vacant” in many VPR ordinances include exclusionary terms such as “lawfully occupied” without ever defining what that means. Its use may be intended to appropriately exclude well-tended vacation homes and similar homes. However, vague and over broad language puts significant discretion into the hands of the local government to interpret it however is convenient, and results in arbitrary and unequal applications of the ordinance.

Inspections — Many VPR ordinances require property inspections as part of the registry process. Tightly drafted ordinances will make it clear as to what is being inspected and the precise standards against which the property will be measured. Unfortunately, many ordinances fall short, so property owners and other “owners” are left in the dark as to what will be expected of them. Also, many VPR ordinances fail to clarify what type of inspection will be conducted. Is the inspection only of the exterior grounds or can a municipal employee demand to inspect inside the structure? This latter demand triggers constitutional concerns as the 4th amendment to the Constitution which protects citizens from unreasonable searches.

Cash Bonds — VPR ordinances often include requirements for a cash bond to be paid by the mortgagee prior to pursuing a foreclosure. Smaller local mortgage lenders cannot afford this and are more likely to simply stop making mortgage loans in that community. This reduces options for the residents living there.  Larger lenders might comply with the demand but will simply pass the higher risks and costs of VPR ordinances on to the borrower in the form of higher interest rates and closing costs. This again reduces affordable options for the residents of that community and increases the attractiveness of homes in other communities who have no such requirement. Further, if no problems arise on a particular property, how does the mortgagee obtain a return of the cash bond it provided?  Does the VPR ordinance provide a mechanism for segregating the cash bonds from its operating funds and a return of unused funds to the mortgagee when the property is no longer vacant?

Penalties — VPR ordinances typically charge fines for violations and some even include criminal charges. The issue with many such ordinances is the lack of any provision for waivers or reduced fees when the community has suffered no harm. Based on the language in many VPR ordinances, it is possible for an owner to be subject to criminal charges for a mere paperwork violation. VPR ordinances that provide for both civil penalties and misdemeanor charges often do not provide clear direction as to when a violation can escalate to the more serious criminal penalties.

Enforcement — Given the vague and over broad drafting of many VPR ordinances, owners will likely need to appeal decisions and time frames for filing appeals are often short. Further, the forum to hearing the appeal may or may not appropriate. As communities typically envision vacant dilapidated structures owned by slum lords as the target of the legislation, the appeal board will often be one that deals with that type of structure. With the over broad reach of many VPR ordinances, the appeal forum may be ill suited for its purpose.   Also, VPR ordinances frequently include language to limit the process for further appealing the decisions. While it is good to have clear language as to when administrative orders become final, that should not prevent a final administrative order from then being appealed through the court system. Vague or unduly limiting language on the appeal process can create due process concerns.

Whether these VPR ordinances actually work is open to question. Most communities do not have clear metrics in place to determine this, and they may unintentionally harm their residents in the process.   

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