Chicago's City Council recently toned down the language of its abandoned building ordinance. As originally drafted, the ordinance would have considered mortgage lenders and servicers the owner of a property in foreclosure, even if a judicial sale had not yet been held and confirmed.
After the banking industry vowed to file a lawsuit to invalidate the ordinance, the City Council revisited the language and change the ordinance. It now requires that lenders and servicers board up abandoned buildings, cut the grass, and keept the property clear of refuse. The ordinance no longer tries to transform a lien-holder into a title-holder.
However, this does not mean that the changes make the ordinance bulletproof. Although Chicago does have home rule powers, its home rule authority may not extend as far as the ordinance hopes to extend it. A true solution may have to come from Springfield, in particular via a change to the existing provisions of the Illinois Mortgage Foreclosure Law (IMFL).
As it stands right now, there is no way to compel a bank to complete the foreclosure process in Illinois. This means that homes can end up in a state of limbo -- abandoned by the record owner, and unwanted by the foreclosing lender. However, changes to the IMFL could make lenders take responsibility for properties, regardless of the a property's foreclosure status.
The IMFL already provides for situations where the mortgagee (the lender) is put into possession of the property before the case is complete. This is generally done with commercial properties, and to a lesser extent, with multi-unit rental properties. It is very rare to see a lender move for an order of mortgagee in possession on a single-family residence.
The IMFL also provides for remedies that allow borrowers to return the property to the bank. The deed in lieu of foreclosure and the consent foreclosure are powerful remedies for Illinois homeowners, but only when the bank is willing to accept them.
It would seem that there is a middle ground here. If a homeowner seeks to abandon the property, allow for him to file a motion to put the mortgagee in possession of the property. This way, the lender is on the hook for property maintenance, property taxes, insurance, etc., and the homeowner is free to move on. This remedy would have to allow banks to pursue deficiency judgments after the fact -- forcing the bank to waive a deficiency would run into the same legal problems that foreclosure defense attorneys face when a bank won't agree to a deed in lieu or a consent foreclosure -- you cannot force the lender to give up its right to a deficiency, the lender must agree to it.
Such a remedy would allow homeowners to exit their properties well before the foreclosure is final, but afford them limited peace of mind as regards their remaining responsibilites to the vacated property. It would also give the lender an opportunity to rent out the property to a tenant, thus turning a potential eyesore into a revenue stream.
What other changes to the IMFL do you see as a viable method for solving the abandoned property problem? Let us know in the comments.