I’ve read that there are as many as 15,000 vacant buildings in the city of Chicago. This wouldn’t be so bad if someone took responsibility for maintaining them and the associated property. However, all too often the owners abandon the buildings which steadily deteriorate, create a really nasty looking neighborhood, and become crime scenes. Having an abandoned building in the neighborhood also significantly depresses neighboring home values as you might imagine.
The map below shows where the vacant buildings are concentrated in Chicago. As expected they mostly fall in the western and southern neighborhoods.
So what can the city do about this problem? The problem sure seems intractable when you consider the dynamics that often lead to building abandonment. A typical scenario is that the owner becomes delinquent on their mortgage and eventually gets a foreclosure notice at which point they abandon the building. This is where the story gets a bit fuzzy for me because from the time you get your first foreclosure notice you can easily live for free in “your” home for another year or two or more. So why abandon it? Maybe they don’t know any better? Or maybe they have no intention of maintaining a building they are about to lose so they let it become uninhabitable? But the point is that the owner is not going to maintain the property either because they have no money or because they have disappeared.
So politicians do the only thing they know how to do, which is pass laws. In this case we are talking about the Vacant Property Ordinance. That link only goes to a summary of some of the key points, the gist of which is that the owner of the building must maintain the building according to some minimum standards, which involves spending money. And if they don’t comply they can incur fines of up to $1000/ day. Hint: if there is a troublesome vacant building in your neighborhood use this ordinance to put the squeeze on the owner.
But, as I said, the owner usually doesn’t have any money so the politicians have further decided that the lenders should take on responsibility for these vacant properties even before they have foreclosed upon them. And that’s where they opened a real can of worms – or at least a legal quagmire. How in the heck are the banks supposed to maintain properties they don’t own? Are they supposed to trespass? Make modifications to a property that someone else technically owns? And if lenders are going to incur these higher costs are they going to start charging more for mortgages in Chicago or abandon the market all together?
Predictably this is creating a huge problem, which has now culminated in the Federal Housing Finance Agency suing the city of Chicago on behalf of Fannie Mae and Freddie Mac. Here are some of the objections they are raising: 1) Fannie and Freddie can’t be expected to maintain properties they don’t own and 2) “the city’s ordinance impermissibly encroaches upon FHFA’s role as the sole regulator and supervisor of the GSEs” and 3) “the registration fee represents a tax on the Enterprises and the Conservator that is expressly precluded by long-standing congressional directive.”
I can’t say for sure what the right solution is for this problem except holding the lenders accountable for maintaining someone else’s property doesn’t seem to be the right solution. Maybe the city should have the right to bulldoze the building and take possession of the land. If you have a better suggestion let me know.