Chicago's vacant property ordinance likely to face constitutional challenge
A new Chicago ordinance that makes mortgagees responsible for upkeep on abandoned properties is likely to face a constitutional challenge on the grounds it violates lenders' 14th Amendment right to equal protection, legal experts said.
The ordinance, which passed to the applause of Chicago Mayor Rahm Emanuel, would force lenders to pay for maintenance on vacant properties, even leaving them potentially responsible for the upkeep before they officially take over title and become the real owner, according to Moody's Investors Service, which analyzed the ordinance and its impact last week.
"Imagine for a moment that you were told to take care of your neighbors' lawn — and that if it is not mowed — you are responsible." Richard Gottlieb, chair of Dykema's Financial Industry Group, said.
Gottlieb said the ordinance requirements are similar to the above scenario, suggesting it's overly broad because the ordinance isn't narrowly tailored enough to meet a legitimate government interest without violating the rights of lenders who may be listed as mortgagee on the property, but not the official owners of title.
"It's over broad in its application and a violation of equal protection," Gottlieb said of the ordinance.
He added trade groups sent numerous letters warning the Chicago City Council about the ordinance's overreach.
"There was no, real opportunity to at least put this on pause," he said. "A number of trade associations wrote formal objections to the proposed ordinance." The ordinance attempts to make lenders responsible by changing code to include a mortgagee as a property owner.
If the property went into REO, they (the financial institution) have every obligation in the world to fix the code violations," Gottlieb said.
"This is just a gotcha moment for the city, they are going to punish lenders in circumstances where the code violation is 100% out of their control."
Gottlieb calls it a proverbial shot across the bow and believes it will be overturned in court.
He further warned that it puts mortgagees in a catch-22 since they cannot legally walk on a property without full possession. Under these circumstances, he says the law is crafted in a manner in which a financial firm may be forced to fix something on a property, yet, at the same time, the firm could be facing trespass violations for stepping onto property it does not officially own.
Mayor Emanuel applauded the code's passage, saying it would prevent the city from having to spend millions of dollars in taxpayer money to handle maintenance and other issues tied to distressed property.
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