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FHFA reaches settlement with City of Chicago over vacant property lawsuit

Settlement ends legal battle that began in 2011

chicago building

The Federal Housing Finance Agency reached a settlement with the City of Chicago over the city’s vacant property ordinances, ending a 2½ year legal battle.

The FHFA, as conservator of Fannie Mae and Freddie Mac, sued the city on December 12, 2011, after the city amended its vacant and abandoned building ordinances to require mortgagees to register, secure and maintain foreclosed properties.

The city’s ordinance requires that mortgage holders of vacant buildings register the buildings with the city, pay a $500 registration fee, and maintain the property, including securing the building, maintaining the lawn, clearing and removing snow from the building’s walkway, maintaining the building’s fence and gates and maintaining the exterior of the building.

The ordinance also states that a watchman must be posted at the vacant building between the hours of 4:00 p.m. and 8:00 a.m., unless the building had been secured by methods approved by the city’s commissioner of buildings.

Fines for violating the ordinance can be as much as $1,000 per day.

The FHFA claimed that provisions of the Housing and Economic Recovery Act of 2008 superseded the city’s ordinance and sued in federal court. According to the FHFA’s lawsuit, Fannie Mae and Freddie Mac owned more than 250,000 loans secured by properties in Chicago in 2011.

On August 23, 2013, the United States District Court for the Northern District of Illinois granted the FHFA’s motion for a summary judgment, agreeing that the city’s rules didn’t apply to Fannie and Freddie homes in foreclosure.

Since the judgment was handed down by U.S. District Court Judge Thomas Durkin, the FHFA and the city have been negotiating and reached a settlement on April 3. The earlier ruling remains in place.

Under the terms of the settlement, the city will not require Fannie and Freddie to comply with the city’s vacant and abandoned building ordinances and will not fine the FHFA for ordinance violations. Fannie and Freddie will voluntarily register its vacant properties with the city but will not be subject to the $500 registration fee. The government-sponsored enterprises also agreed to continue to enforce and require that their mortgage servicers comply with their guidelines for foreclosed properties.

By registering the buildings with the city, the GSEs or its mortgage servicers will receive notifications of public service requests and police activity at the property, including 911 calls. These notifications help the mortgagee adequately maintain these properties and immediately respond to reported problems. This is beneficial for the city because it can save the city the enormous costs of boarding and securing buildings. It also enables the mortgagee to be actively engaged in keeping properties secured and responding to community and police concerns.

“The City’s goal is to achieve a complete registry of vacant buildings in Chicago so that we can effectively address the negative impact of improperly maintained vacant buildings on neighborhoods,” Shannon Breymaier, spokesperson for the City of Chicago’s law department, said. “The agreement we’ve reached with FHFA accomplishes this objective and will thereby help us protect neighborhoods while preserving and enhancing property values.”

As part of the settlement, the FHFA waived its rights to seek monetary damages or seek recovery of any registration fees, fines or penalties previously paid to the city.

The GSEs and the city also agreed to work to further the city’s Micro Market Recovery Program, which is a neighborhood stabilization initiative that targets 13 geographic areas within the city that have higher foreclosure rates than the rest of the city.

The city committed to spend at least $475,000 in support of the MMRP in 2014, which is equal to FHFA’s good faith estimate of the amount Fannie and Freddie have paid in registration fees prior to the execution of the settlement.

The GSEs also agreed to work with the National Community Stabilization Trust to offer the city the opportunity to purchase foreclosed properties in MMRP areas before listing those properties for sale to the public. The GSEs may donate foreclosed properties in MMRP areas to the city or its nonprofit partners in order to facilitate rehabilitation and reuse of the properties.

Both the city and the FHFA agreed that the terms of this settlement will be valid for as long as the FHFA is the conservator for Fannie and Freddie.

“The (settlement agreement) between the City and FHFA provides for a number of cooperative efforts between Fannie Mae, Freddie Mac and the City of Chicago, centered on the City’s Micro Market Recovery Program,” FHFA General Counsel Alfred M. Pollard said. “The (settlement agreement) avoids costly litigation, focuses attention on an enhanced partnership of Fannie Mae, Freddie Mac and the City and should encourage other firms to join in this neighborhood-focused effort.”

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