Chicago's City Council published an ordinance Thursday that would require banks, mortgage servicers and institutional investors to maintain vacant properties before the homes have gone through foreclosure.
The ordinance, which goes into effect Sept. 18, would require securitization trustees to assume liability for the maintenance, security, and upkeep of properties in their trusts within 30 days of a property becoming vacant.
Tom Deutsch, executive director of the American Securitization Forum, called the ordinance "illegal," because it does not require that a borrower be in default or foreclosure as a condition of vacancy. Rather, the banks, mortgage servicers and investors will now be responsible for determining if a property is vacant even if a borrower is not delinquent or has not been foreclosed upon, he said. ASF is a trade group that represents investors and servicers.
"This ordinance is not enforceable and it creates a conflict of interest with trespassing and property laws," Deutsch said. "The city should have to track down the actual person who owns the home."
The ordinance states that an "owner" includes "a mortgagee who holds a mortgage on the property, or is an assignee or agent of the mortgagee."
Foreclosures have become such a blight on neighborhoods that several cities have passed similar ordinances, though none are quite as stringent as Chicago's.
The city council took action, in part, after the Chicago-based Woodstock Institute published a report in January that identified 18,320 vacant properties in Chicago.
Of those, 12,674 had been in the process of foreclosure for more than a year. Some properties had a foreclosure filed as long ago as 2006 but the bank failed to complete the foreclosure process and take title to the property, the report found.
"For such vacant properties, particularly those that have been in the foreclosure process for many years, there are concerns that the servicer has chosen to walk away from the property leaving no clear accountable party for problems that may arise there," the report said.
Tom Feltner, a vice president at the Woodstock Institute, said the ordinance simply changes servicers' obligations during the foreclosure process.
"This levels the playing field between servicers that are taking responsibility and those that are shirking their stewardship responsibilities and not taking title because it isn't in the investors' best economic interests."
Chicago also has another 2,558 lender-owned single-family homes that are vacant but have not been registered with the city, the report found.
Deutsch said there is no legal requirement for a mortgage lender to foreclose on a home or take back a property.