A federal court ruling has dealt a setback to Chicago's efforts, and to potentially those of municipalities around the country, to maintain some of the vacant properties caught in the limbo of the foreclosure process.

Chicago's ordinance, which took effect in November 2011, requires not only owners of vacant buildings but also mortgage holders to promptly register them, pay a $500 registration fee and maintain certain property standards. Violations of the ordinance incur fines of up to $1,000 for each infraction.

But with Fannie Mae and Freddie Mac as two of the biggest backers of home mortgages, the Federal Housing Finance Agency, which oversees them, challenged the city's law in December 2011. It argued that the law overreached and that the registration fee amounted to a tax on the federal government. On Friday, U.S. District Judge Thomas Durkin ruled that vacant properties backed by Fannie Mae and Freddie Mac were exempt from the ordinance.

In a large city that is trying to keep track of abandoned homes and fight off neighborhood blight, the decision, in effect, creates two classes of vacant property: those covered by the ordinance and those that are not.

Community groups worry that the ruling will undo what progress has been made in property preservation and neighborhood revitalization. Cook County, which adopted a similar rule, plans to evaluate the opinion to see if its ordinance needs to be amended, said Kristen Mack, a spokeswoman for Cook County Board President Toni Preckwinkle. Local governments elsewhere — more than 1,000 across the nation have some form of a vacant property ordinance — also will have to study the decision to determine whether their rules could pass a legal challenge.

"This will either scare off communities from passing ordinances that seek to hold mortgagees accountable or lead to further lawsuits," said Katie Buitrago, a senior policy associate at the Woodstock Institute, a Chicago-based research and public policy group. "Municipalities are the ones that are dealing with the fallout when financial institutions don't live up to good corporate responsibility standards."


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