Chicago City Council Committee Approves Proposed Amendments Regarding Lenders' Obligations to Maintain Vacant Properties

On October 17, 2011, the Chicago City Council's Committee on Housing and Real Estate approved amendments to ordinances passed in July 2011 that require lenders to maintain vacant properties located in Chicago, even though the lender may not hold title to the vacant property. The amendments, which certain lenders have supported, must still be approved by the full City Council.

By way of background, in July 2011, the City Council amended the definition of "owner" as used in various sections of the Municipal Code to include a "mortgagee who holds a mortgage on the property or is an assignee or agent of the mortgagee." The effect of this amendment is that lenders must maintain vacant properties pursuant to the same standards imposed on persons who have legal title to the property. Furthermore, a lender's obligation to maintain a vacant property exists even if the lender does not have legal title to the property. Various legal and industry groups have raised concerns that these sections of the Municipal Code require lenders to violate an owner's legal rights regarding the property and might not survive a court challenge by lenders.

In the amendments approved by the City Council's Committee on Housing and Real Estate, a lender who holds a mortgage on the vacant property is removed from the definition of "owner." However, the Committee's approved amendments would add new sections to Chicago's Municipal Code that place vacant-building maintenance obligations on lenders that do not have title to the property similar to those imposed by the current Municipal Code sections. If an owner does not register a building as vacant, the contemplated amendments require a lender to register the building as vacant within the later of 30 days after the building becomes vacant or 60 days after a default by the owner/borrower. Within the same time frame, the lender must also begin to maintain the vacant property. A lender's maintenance obligations include, among other things, securing the doors and windows, maintaining the lawn, clearing the vacant property of debris and snow, and winterizing the building, which includes cleaning the toilets and draining all plumbing systems. If enacted, the contemplated amendments provide for fines of up to $1,000 per day for each day that a violation exists.

Perhaps in response to concerns about the legality of the current Municipal Code sections requiring lenders to maintain vacant properties, the amendments approved by the City Council's Committee on Housing and Real Estate provide that a lender's actions in complying with its maintenance obligations shall not subject the lender to civil or criminal liability. Despite this liability limitation, the proposed amendments still may require a lender to violate an owner's legal rights, and it remains to be seen whether a court would uphold a municipality's attempt to alter existing state contract and tort law or enforce the proposed amendments if enacted.

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