By Amy Biegelsen

November 2, 2011

Raccoon infestations. Squatters. Fires. Drug dealers.

Second Ward Chicago Alderman Robert Fioretti has a lot of headaches thanks to vacant properties in his district. The foreclosure crisis has only compounded them.

The thing that really gets Fioretti, though, is how many of these headaches are minutes from schools. The Basil campus of the Chicago International Charter School, for instance, has 515 vacant houses in its immediate neighborhood, many of them bank-owned foreclosures. One mother in his ward told him she instructs her daughter to avoid one walking to school along one block that has boarded up buildings on both sides. “She sees lights on in the buildings at night,” he says. “I have heard that kind of thing over and over and over again.”

Last month, Fioretti co-sponsored a bill that would require owners of five or more buildings to post security guards from 8 a.m. to 4 p.m. at any vacant building within 1,000 yards of a public school. Those that don’t would face a penalty of $1,000 a day. Critically, the law would cover foreclosed properties owned by banks.

“It’s not a protest ordinance,” Fioretti says. “It’s an ordinance to hold those that are responsible for these properties accountable.” He says throughout the city, there are 23 schools with more than 400 vacant homes within 1,000 yards of campus.

This measure represents the second time the Chicago City Council has tried to force lenders to foot the bill for maintaining vacant properties.

In July, the council passed an ordinance expanding the definition of “property owner” to include “a mortgagee or its assignee or agent,”  thereby making mortgage lenders responsible for vacant properties. The measure also requires owners of more than five properties – including lenders – to post signs in front of vacancies with the owners’ contact information, maintain the exterior of the building and post security guards at night.

At the time, Chicago Mayor Rahm Emanuel released a statement praising the council for “requiring banks to be good neighbors and maintain the foreclosed-upon properties.” He said that in 2010, Chicago spent more than $15 million on keeping up, boarding up or demolishing vacant buildings.

The financial industry is, unsurprisingly, less delighted.

“This is just a gotcha moment for the city,” Richard Gottlieb, chair of Dykema’s Financial Industry Group, told Housing Wire back in August. “They are going to punish lenders in circumstances where the code violation is 100 percent out of their control.”

Another major concern for lenders is when they become responsible for vacant properties. Right now, the borrower technically owns a home until the foreclosure process is complete. However, in some cases, he or she will have defaulted and moved out months earlier. The new bill would make lenders responsible for maintenance during this time, but banks say entering the properties to do repairs would be trespassing.

Ten percent, or 1,896 of Chicago’s vacant homes are in this legal limbo, according to a January 2011 study from the progressive policy shop the Woodstock Institute. On October 5, another Chicago alderman introduced an ordinance to help plug that hole by defining the home owner as “mortgagee” until the foreclosure is completed.

Moody’s and the Federal Housing Finance Agency, which oversees loans securitized by Fannie Mae and Freddie Mac, both warned that the July ordinance would ultimately increase costs to borrowers.

Nevertheless, Fioretti remains optimistic. Since the latest bill’s introduction, Fioretti and co-sponsor Deborah Graham, Alderman for the 29th Ward, have signed on more than half of the city’s 50 aldermen. The Chicago Teachers Union has also backed the bill. “We got a lot of support for it,” Fioretti says. “Now, whether the administration is going to support it is another question.”

Ultimately, he says, “it’s just a responsibility thing.”

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