City advances bill to get a handle on foreclosure blight

City advances bill to get a handle on foreclosure blight

Chicago aldermen have given an initial thumbs up to an ordinance intended to force banks and other financial institutions to better maintain their vacant properties, many of which were foreclosed.

Members of the Joint Committee on Housing and Real Estate and Zoning, Landmarks and Building Standards sent the legislation for consideration before the full council in a unanimous voice vote after hearing several hours of testimony from supporters and opponents of the bill yesterday. The council meets next on July 28.

The bill, which chief sponsor 3rd Ward Alderman Pat Dowell has worked on in some form for around 18 months, includes language that expands the definition of a property owner in the city code to include "any person who alone, jointly or severally with others is a mortgagee who holds a mortgage on the property, or is an assignee or agent of the mortgagee."

The legislation requires this expanded class of owners to follow vacant building rules already on the books, like registering their empty property with the city. And owners of vacant properties would be specifically charged with keeping grass and weeds on properties less than 10 inches in height and conduct other tree and shrub maintenance, a provision that already exists in city code. The ordinance originally included various fees and other penalties, Dowell told The Chicago Reporter after the meeting, but they were dropped for a "simplified" ordinance that focuses on property upkeep.

Current city code already demands that property owners register vacant buildings with the city within 30 days. A fee of $250 is required at registration, as is liability insurance. Property owners are supposed to secure and board up vacant buildings. Many lenders, however, don't take these steps, costing the city at least $2.2 million in fees and leading to neighborhood blight. At least half of bank-owned properties remain off the vacant building registry, the Reporter found in an investigation published last May.

Banks, however, have said they are not responsible for the registration and fees--they say the servicer of the mortgage loan is. Others previously told the Reporter they immediately register their vacants once they take over the title upon completion of the foreclosure process. The new bill would ratchet up banks' requirements under the law by effectively establishing mortgage holders as owners of vacant property, said Jeffrey Levine, an attorney with the Chicago Department of Law.

Dowell said during the hearing that the bill was borne out of her frustration dealing with the deteriorated, empty homes that have mushroomed in her ward in the wake of the housing bust and foreclosure crisis. Vacant, foreclosed homes are magnets for squatters and attract garbage, Dowell said. There are too many that are left dilapidated, she went on, allowing blight to overtake neighborhoods.

"This has a tremendous impact on city resources," Dowell said, "and a tremendous impact on our neighborhoods."

The ownership provisions do not specifically single out finance groups and lending institutions but is generally aimed at this cohort. Many Chicago neighborhoods have struggled with empty properties that quickly deteriorate after a lender is left with a property after a foreclosure.

Other vacant, deteriorating homes seem to be in an even more complex state of limbo. In January, the housing research and advocacy group the Woodstock Institute identified nearly 1,900 "red flag" properties that had entered foreclosure proceedings but the foreclosure was not complete. These homes are concentrated on the city's South and West sides and are particularly likely to destabilize a block, Woodstock said in its report. They cost taxpayers an estimated $36 million in responding to crime at vacant properties, demolition costs, administration fees and public resources.

Angela Caputo, a reporter at the Reporter, was asked to testify about the publication's recent investigations in the banks' practices in city neighborhoods.

Caputo, whose full testimony is included below, told committee members about the spate of subprime lending carried out in Chicago's black and Latino neighborhoods and the inability for even wealthier African-American borrowers to refinance their mortgages to stay in their homes. Caputo described the Reporter's last investigation, discussed above, about problems with the current vacant building registry.

The vacant building ordinance faces opposition from powerful actors in the finance and real estate worlds.

Representatives from major lenders, like Bank of America and JPMorgan Chase, as well as business organizations, such as the state and city chambers of commerce, testified against the measure in council chambers Wednesday.

"This is an ordinance we think goes a little too far," said Tom Wolf from the state chamber. "It's medicine we're not sure will cure the disease."

Pat Holden, with Bank of America, asked the council to help her bank establish a new fast-track foreclosure process within Cook County Circuit Court in lieu of the vacant building bill; such a fast-track program, she said, would reduce the typical foreclosure process from 18 months to 9 months.

The faster process would allow banks to more quickly gain control--in the form of "mortgagee in possession" status, similar to a receivership--of foreclosed buildings without worries of trespass violations, Holden said. Bank of America is aggressive, Holden argued, in board-up operations of its vacant properties, but it can and has been sued for trespass.

"In my opinion, this is too little too late," said Dowell, in response. "But I appreciate you coming up with an alternative that we should continue to discuss."

Mayor Rahm Emanuel's administration has endorsed the vacant building bill. James Harney, a commissioner who works in the Department of Buildings' Troubled Building Unit, said yesterday, "All too frequently the City of Chicago has faced apathetic attitudes of financial institutions and real estate speculators, who fail to act as good corporate citizens by maintaining buildings during the foreclosure process."

Also testifying in favor of the bill were speakers from community organizations like Action Now and the Southwest Organizing Project, the Woodstock Institute and Business and Professional People in the Public Interest, and Cook County Commissioner Bridget Gainer.

Should the legislation pass when the full council takes it up, legal challenges are not out of the question.

Levine, from the city's law department, described the bill as a "very legally aggressive measure."

"In this instance, there are substantive arguments that could be made that this goes beyond what the city may do," he said.

Other alderman worried about the city's ability to enforce the new requirements.

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Here is the full testimony on July 20 from the Reporter's Angela Caputo:

"My name is Angela Caputo, and I am a reporter with The Chicago Reporter, a magazine investigating urban issues for the past four decades.

"Back in 2007, we broke a story about the wide spread subprime lending taking place in communities of color in Chicago. We analyzed millions of records from the federal Home Mortgage Disclosure Act and found that the Chicago metro area led the nation in issuing these high-cost loans for three consecutive years. African-American and Latino communities carried the greatest burden. In 2008, we reported that well-qualified homeowners in those same communities struggled disproportionately to refinance those loans. In 2010, I reported that applicants making $100,000 a year from black communities in Chicago were less likely to get refinancing approval than those making $40,000 a year in white communities.

"Our research informed Illinois Attorney General Lisa Madigan’s decision to file a lawsuit that led to a national $8.7 billion settlement from Countrywide, which at the time was the nation’s largest mortgage lender.

"While that settlement brought some lender accountability, communities hit first by subprime lending and then massive foreclosures continue to struggle. The latest challenge is what to do with the glut of vacant, foreclosed properties that banks have either reclaimed or walked away from.

"Our latest investigation found that major lenders’ aren’t even taking the basic step of registering their vacant properties with the city, which is required under the city’s vacant buildings ordinance which was adopted in 2008.

"We found that:

  • "At least half – or 5,900 bank-owned single-family homes in Chicago were never registered since the vacant buildings ordinance was adopted. Include condominiums, apartment buildings and town homes and that number grows substantially.
  • "That’s cost the city millions in lost revenue from registration fees skirted by lenders. Meanwhile, taxpayers are footing the bill to secure their properties.

"We also found that some of those same banks routinely do business with the City of Chicago. Our investigation pointed out that banks are held to a different standard than other businesses and residents that don’t register for permits are blocked from city contracts.

"I’ve handed out copies of the article I’ve referenced. Thank you."

© Community Renewal Society 2011

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