Lenders Continue to Be Targeted in the Chicago Area With New Requirements

Chicago Amends Its Ordinance to Require Lenders Act on Vacant Residential Properties – Cook County Adopts a Similar Measure

The City of Chicago previously proposed adopting ordinances that required lenders to become caretakers of any “vacant” property. The ordinance passed in September 2011 treated mortgagees the same as the mortgagor by defining “owner” to include any entity with a “legal or equitable interest in any building, including a mortgagee or its assignee or agent.” The City of Chicago amended that ordinance in October 2011.

Chicago’s Amended Ordinance

The earlier ordinance imposed the burdens of “ownership” upon lenders for any building. The amended ordinance repealed the offending definition of “owner,” and narrowed the lender’s responsibility to “residential buildings.” Currently, a “mortgagee” is defined as the holder of an indebtedness or a successor. (Municipal Code § 13-12-126(e)(3). The amended ordinance requires that 30 days after the residence becomes vacant or 60 days after a default, whichever is later, the lender must, among other things, register the building with the City of Chicago and take steps to secure the building and keep it clean. (Municipal Code § 13-12-126.) A lender is also required to inspect residential real estate monthly, starting 45 days after default, to determine if it is vacant. (Municipal Code § 13-12-127.) While the narrowing of the ordinance is an improvement, the amended ordinance still requires a lender to enter upon and perform acts on the property before the lender has been authorized to take those actions by a court.

Cook County Enacts A Similar Ordinance

Cook County, which encompasses Chicago and the surrounding suburbs, enacted a similarly worded ordinance on December 14, 2011. The Cook County ordinance applies to property that is located in the “unincorporated” portions of the county (outside municipal boundaries). Similar to Chicago, Cook County requires that within 30 days after a residence becomes vacant or 60 days after a default, whichever is later, the lender, among other things, must register the building and take steps to secure the building and keep it clean. (County Code §§ 102-19.) The ordinance also requires a lender to inspect the real estate starting 45 days after default. (County Code §§ 102- 20.) The Cook County ordinance defines “default” as failing to pay the mortgage for 60 days (if the building has four or fewer units) or 90 days for buildings with more units. Unlike the Chicago ordinance, the Cook County ordinance, however, makes exceptions to compliance where the lender is precluded from acting due to a bankruptcy stay, the lender is not the senior lender, a receiver has been appointed by the court, or if the owner/mortgagor is contesting the foreclosure by filing defense. (County Code § 102-19(c)(2).)

Both the Chicago and Cook County ordinances provide for fines between $500 and $1,000, and consider each day a separate and distinct offense, and both ordinances authorize the filing of enforcement proceedings. As the number of foreclosures ticks-up slightly, both units of local government are likely to continue aggressively enforcing these ordinances. Lenders should be aware of the requirements and either take steps to comply or engage knowledgeable counsel to contest the application of the ordinances.