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Reckless abandon: vacant property ordinances create legal uncertainties
Business Lawyer. 68.2 (Feb. 2013): p669+.
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Municipalities bear significant financial costs when properties become vacant or abandoned due to foreclosure. (1) Following the 2008 foreclosure crisis, cities sued major mortgage servicers, alleging that they were responsible for vacant and abandoned properties that caused a public nuisance that encouraged crime, caused personal injuries, and led to an overall loss of property tax revenue. (2) Such litigation has had very limited success. (3)

Separately from these efforts, municipalities have attempted to shift the cost of maintaining abandoned properties to mortgage lenders (4) more directly by making them subject to the requirements of vacant property ordinances whether or not they complete foreclosure or take possession. This survey will review recent vacant property ordinances and the legal issues they raise. It will then discuss the issues that have been raised in litigation challenging one such ordinance in Chicago. The survey concludes with a brief discussion of how some of these issues may be resolved without litigation.


In contrast to municipal litigation efforts, municipalities face fewer roadblocks when they pass ordinances that deal with vacant property and seek to enforce them. City ordinances are generally presumed to be constitutional, (5) making challenges difficult, and penalties may be imposed on a strict liability basis. (6) Given this, it is not surprising that challenges are rare. (7) However, these ordinances raise several troubling questions.


Mortgage lenders should not find anything surprising about municipalities enforcing building codes against them as to abandoned properties and fining them after they become the owners at a foreclosure sale, and such matters often involve complicated (and expensive) administrative proceedings. (8) However, the legal basis for imposing maintenance costs on lenders that have not yet achieved a right to possession, and might never do so, remains murky. Although mortgages typically include a provision that allows a mortgage lender to take possession following a default, some statutes and ordinances give effect to such provisions, (9) while other states limit their effectiveness. (10) Under these provisions, the mortgagor is usually deemed the "owner," (11) even in "title theory" states in which title technically legally resides with the mortgagee. (12) In lien states--the majority of jurisdictions (13)--mortgage lenders usually possess neither legal nor equitable title, nor any right to possession, until after foreclosure and sale or a deed in lieu of foreclosure. (14)

The Restatement of the Law (Third) Property (Mortgages) permits a lender to enter the property following abandonment, but it does not appear to contemplate a duty to do so. (15) Furthermore, the lender may well not want to take possession because doing so can subject it to tort suits like any other property owner. (16) Several states also provide judicial procedures for the mortgage lender to take possession where a receiver might be appointed. (17) It makes little sense for such procedures to exist if lenders were deemed responsible as "owners" prior to foreclosure by application of a vacant property ordinance.


Several hundred municipalities have enacted some type of vacant property ordinance, (18) with one database listing 548 of them as of March 2011. (19) Major cities with vacant property ordinances include Los Angeles, (20) Boston, (21) Chicago, (22) and Las Vegas. (23) County-level rules may overlap with municipal requirements. (24) For these reasons, simply identifying and tracking the ordinances are Herculean tasks.

Major mortgage servicers generally track state law developments based on services that provide updates, (25) and must comply with fifty-one state-level foreclosure schemes. Ensuring compliance with local ordinances, however, is a far more difficult process. Systems like AllRegs, (26) while useful for learning new state law developments, may not fare as well for tracking new local ordinances in a comprehensive manner. According to the servicing industry, the lack of uniformity in vacant property ordinances substantially raises compliance costs. (27)

Although there is a great deal of variability, and little uniformity, among their specific requirements, the ordinances generally have the following features: the mortgage lender must register with a vacant property or existing housing commission at some point in the foreclosure process; the lender must pay a fee to register the vacant property, typically ranging from $10 to $500; (28) the lender must inspect the property early in the foreclosure process to determine vacancy; and the lender must maintain the vacant property during the foreclosure process. Fees for non-compliance may be high (29) and there may be criminal penalties. (30)


Some vacant property ordinances appear to require a mortgage lender to trespass in order to comply with their requirements. (31) Depending on the provisions of applicable state law, a lender might have a quasi-possessory right prior to foreclosure in some jurisdictions, (32) but in others, it might be flatly prohibited from taking possession until a final sale of the property. (33) Thus, it may not be possible for mortgage lenders and servicers in some jurisdictions to comply with both the municipal ordinance and state law where a vacant property ordinance would require them to enter the property.


As a practical matter, major mortgage lenders outsource maintenance functions to property preservation companies. But as a legal matter, the ordinances often make the lenders or other parties directly responsible for the fines. (34) For example, the ordinance enacted by Bayport, Minnesota provides that the mortgage lender's "nominee" has "a joint obligation for compliance" along with the homeowner and the lender, (35) which could be deemed to include Mortgage Electronic Registration Systems ("MERS"). (36) Aurora, Colorado applies its requirements to anyone with "legal or equitable title or any interest in" the property including servicers and investors. (37) The Boston ordinance's requirements apply to mortgagees defined to include "the creditor, including[,] but not limited to, service companies and lenders, in a mortgage agreement," (38) which likewise could be deemed to cover almost anyone involved in the mortgage securitization process, even the originator.


Municipal vacant property ordinances typically focus on requiring vacant properties to be maintained. But what does "vacant" mean? Vacancy has some tell-tale signs, such as uncollected mail, lack of furniture, lack of cars in the driveway, and a myriad of other factors, but the ordinances generally lack clear definitions. For example, the Chicago ordinance defines "vacant" as "where the structure is empty or otherwise uninhabited by persons and the structure or lot is in need of maintenance, repair or securing" and one of several other conditions exists, including lack of construction activity, broken windows, doors continuously unlocked, complaints to the police of trespassing, or turned off utilities. (39) In addition, the determination of vacancy "may be made by communication with the mortgagor, a visual inspection of the real estate, or other means reasonably calculated to determine if the building is vacant," (40) but without suggesting what the "other means" might be.

Under such unclear definitions, the lender's property inspector will have to make a judgment call, perhaps in conjunction with the servicer's call notes, for example, where the borrower said in a phone call that he would abandon the property. But, even if the mortgage lender or servicer correctly determines that the property is vacant, the borrower ordinarily has the right to reoccupy the property at any time unless and until the lender takes possession through foreclosure. Borrowers have reportedly filed lawsuits against lenders that entered supposedly abandoned properties to maintain them, claiming that their property was not abandoned. (41)


Assuming that the responsible party can be identified, what do vacant property ordinances require lenders to do to maintain the property in question? The obligations can be very broad. Los Angeles, for example, requires the lender to abide by its entire building and safety code. (42) Some ordinances require property "maintenance" but speak in general terms, leading to vagueness concerns. (43) The lender is also sometimes directed to comply with additional regulations issued by a local housing board or director of code enforcement. (44)


The City of Chicago amended its municipal ordinance on vacant buildings on July 28, 2011, to expand the definition of "owner" of a property to include mortgagees, assignees, and agents of mortgagees. (45) Following objections from mortgage lenders concerning the constitutionality of the ordinance, (46) the ordinance was revised. The definition of mortgagees as "owners" was taken out because banks cannot be owners before they legally take title under state law, the registration fee schedule was changed to a one-time charge instead of frequent renewals, and the requirement that servicers had to evict squatters was deleted. (47)

Shortly afterward, however, the Federal Housing Finance Agency ("FHFA") filed suit in federal court, seeking declaratory and injunctive relief to declare the ordinance invalid on numerous grounds. (48) Among other things, the FHFA alleged that the ordinance required it to pay "onerous" registration fees for each "vacant" building where it, Freddie Mac, or Fannie Mae held the mortgage and imposed duties on them to maintain the buildings even if they never foreclosed on them, with a penalty of as much as a $1,000 per day fine for non-compliance. (49) This allegedly violated the preempting provisions of the Housing and Economic Recovery Act of 2008, (50) and otherwise impinged on the FHFA's federal regulatory authority and unlawfully subjected it to state and local taxation. (51) The FHFA also alleged that the ordinance was impermissibly vague in terms of determining whether a property is vacant, (52) an issue of more general application to all mortgage lenders although no specific prayer for relief was tied to this problem. (53)

As of this writing, the court has not ruled on either the city's motion to dismiss (54) or the FHFA's cross-motion for summary judgment. (55) Although many of the FHFA's arguments are specific to it as a federal governmental agency, a decision by the court that invalidates all or a part of the ordinance could have an impact on cities and lenders across the country, (56) particularly given that the FHFA represents 90 percent of the residential mortgage market. (57)


Some municipalities have partnered with major servicers to try to craft sensible ordinances that simultaneously meet the municipality's objective of transferring maintenance costs to mortgage lenders while minimizing mortgagee liability exposure in doing so. Las Vegas's ordinance, for example, gives lenders an opt-out if they can prove to the local housing commissioner that the borrower is likely to sue for trespass if they enter the property. (58) The Las Vegas ordinance also specifically exempts lenders from liability to the extent they fail to maintain the property due to an applicable automatic stay in bankruptcy. (59) Many states also hold that municipal ordinances can create a duty of care, (60) but Las Vegas's ordinance specifically states it is not creating any such duty. (61)

Another promising solution is Chicago's "Vacant and Abandoned Building Foreclosure Call" that was created with its vacant property ordinance. (62) The special court call significantly reduces the time it typically takes to foreclose a vacant property from approximately twenty-four months to less than six months so that foreclosing lenders can more quickly take title to vacant properties to restore them to ownership and occupancy. (63)

Maryland created a Foreclosure Task Force in 2011 that has recommended enacting a fast-track foreclosure process similar to Chicago's, as well as starting a statewide foreclosed property registry to help "facilitate the notification process when a property incurs a code violation" so that "code enforcement officials and servicers" can more quickly connect to address violations in a timely manner. (64) This step toward making ordinances more uniform on a statewide basis so that servicers can more easily comply is consistent with calls from the mortgage industry for fast-tracking foreclosures for vacant properties and for greater uniformity in property preservation requirements, something that will benefit both municipalities and consumers.

(1.) See generally Julie A. Tappendorf & Brien J. Sheahan, Dealing with Distressed Properties: Local Government Strategies to Mitigate the Impact of Foreclosures on Communities, ALI-ABA Continuing Legal Educ. (Aug. 13-16, 2008).

(2.) See generally Richard E. Gottlieb & Brett J. Natarelli, Update on Municipal Nuisance and Discrimination Litigation, 65 Bus. LAW. 665 (2010) (in the 2010 Annual Survey).

(3.) Litigation based on a nuisance theory has been uniformly rejected by the courts. See id. at 666-69.

(4.) The term "mortgage lenders" or "servicers" is used to refer to secured creditors that are engaged in the foreclosure process, recognizing that depending on state law they would more accurately be termed beneficiaries or lienholders. As a practical matter, the mortgage servicing company and its vendors will often handle pre-foreclosure property preservation issues regardless of the party in whose name title will vest after foreclosure.

(5.) See, e.g., Baird v. Lake Santee Reg'l Waste & Water Dist., 945 N.E.2d 711 (Ind. Ct. App. 2011) (rejecting constitutional challenge from property owner fined for not connecting his property to city sewer system).

(6.) See, e.g., LOS ANGELES MUN. CODE [section] 164.08 (Am. Legal Publ'g Corp. through Revision No. 40 dated Sept. 30, 2012) (Los Angeles Foreclosure Registry Program), available at nxt/gateway.dll?f=templates&fn=default.htm&vid=amlegal:lamc_ca.

(7.) There has only been one reported decision in such a case. Easthampton Sav. Bank v. City of Springfield, No. 11-cv-30280-MAP, 2012 WL 2577582 (D. Mass. July 3, 2012).

(8.) For an example of how complicated administrative proceedings involving code issues can be, regardless of whether they involve a foreclosure, see City of Live Oak v. Oliveira, No. C063700, 2011 WL 2749638, at *2-4 (Cal. Ct. App. July 15, 2011).

(9.) See, e.g., KAN. STAT. ANN. [section] 58-2301 (West, Westlaw through 2012 Reg. Sess.) (mortgagor retains possession unless mortgage says otherwise); IOWA STAT. ANN. [section] 557.14 (West, Westlaw through 2012 Reg. Sess.) (same).

(10.) RESTATEMENT OF THE LAW (THIRD) PROPERTY (MORTGAGES) [section] 4.1 reporter's note (1997).

(11.) See, e.g., IOWA STAT. ANN. [section] 557.14.

(12.) RESTATEMENT OF THE LAW (THIRD) PROPERTY (MORTGAGES) [section] 4.1 cmt. A(1) ("[T]itle jurisdictions differ in only a few respects from their lien theory counterparts. Such states recognize that mortgagees hold title for security purposes only, and for both practical and theoretical purposes they usually view the mortgagor as the owner of the land.'). This contrasts with "lien theory" states in which title technically resides with the mortgagor, with the mortgagee retaining a right of entry upon default. See id. [section] 4.1 cmt. a(2).

(13.) Id. [section] 4.1 cmt. a(1), (2).

(14.) Id.

(15.) See id. [section] 4.1(c)(2).

(16.) See GRANT NELSON & DALE WHITMAN, REAL ESTATE FINANCE LAW [section] 4.26 (5th ed. 2010) (discussing imposing tort liability on mortgagees as owners of property without regard to whether they caused any injury); BAXTER DUNAWAY, LAW OF DISTRESSED REAL ESTATE [section] 52:14 (2012) (tort liability is imposed upon possession, regardless of whether possession has a legal basis).

(17.) See Alvin Arnold, Receivers: Mortgagee's Right to Appoint, 40-MAY REAL ESTATE L. REP. 5 (May 2011).

(18.) See Michael Halpern, Property Registration Updates, REOMAC UPDATE, 13 (1Q 2012),

(19.) Vacant Property Registration Ordinances, SAFEGUARD PROPS. (Mar. 2, 2011),

(20.) See Los ANGELES MUN. CODE [section][section] 164.00-.9 (Am. Legal Publ'g Corp. through Revision No. 40 dated Sept. 30, 2012).

(21.) BOSTON MUN. CODE [section][section] 16-52.1 to 16-52.12 (2010) (Am. Legal Publ'g Corp. through Ord. 211, c. 17, passed 12-28-11), available at chapterxviprohibitionspenaltiesandpermit?f=templates$fn=default.htm$3.0$vid=amlegal:boston_ma$anc=JD_16-52.

(22.) CHICAGO MUN. CODE [section] 13-11-010 (Am. Legal Publ'g Corp. through Council Journal of June 27, 2012), available at f=templates$fn=default.htm$3.0$vid=amlegal:chicago_il.

(23.) LAS VEGAS MUN. CODE [section][section] 16.33.010-16.33.090 (Municode through Ordinance No. 6203, passed Aug. 1, 2012 (Supp. No. 12)), available at 14787&stateId=28&stateName=Nevada.

(24.) Compare RIVERSIDE COUNTY [CAL.] CODE [section] 15.88.010-.090 (Municode through Ordinance No. 659.11, passed Oct. 2, 2012 (Supp. No. 45, Update No. 3)), available at http://library.municode. com/index.aspx?clientID=16320&stateID=5&statename=California, with PALM SPRINGS [CAL.] MUN. CODE [section][section] 8.80.010-8.80.090 (2008), available at ShowDocument.aspx?documentid=3968.

(25.) See, e.g., National Mortgage Servicer's Reference Directory, USFN.ORG, Content/NavigationMenu/PUBLICATIONSANDPRODUCTS/TheNMSRDNationalMortgageServicers ReferenceDirectory/default.htm (last visited Dec. 30, 2012) (a subscription service that tracks state statutory requirements for foreclosure and related topics).

(26.) See Your Mortgage Industry Resource for ..., ALLREGS, (last visited Dec. 30, 2012) (describing its service as "Your mortgage industry resource for state and federal compliance" (emphasis added)).

(27.) Robert Klein, An Outbreak of Ordinances, MORTGAGE BANKING, Aug. 1, 2008, at 46, 2008 WLNR 16577456.

(28.) Most of the fees are set at a flat rate, but the Dallas vacant buildings ordinance charges $75 plus a variable amount based on building square footage. DALLAS CITY CODE [section] 48B-8 (Am. Legal Publ'g Corp. through 2/12 Supplement, current through Ordinance 28565, passed 2-22-12), available at$fn=default. htm$3.0$vid=amlegal:dallas_tx.

(29.) See, e.g., CHICAGO MUN. CODE [section] 13-12-890 (Am. Legal Publ'g Corp. through Council Journal of June 27, 2012) ($500 per day fine).

(30.) See, e.g., YOUNGSTOWN [OHIO] MUN. CODE [section] 546.06(d) (Walter H. Drane Co. as amended through Feb. 1, 2012), available at fn=main-h.htm&2.0.

(31.) See CBA Regulatory Compliance Bulletin: Oakland to Require Lenders to Maintain Pre-Foreclosure Property, CAL. BANKERS ASS'N (June 15, 2012), oakland-require-lenders-maintain-pre-foreclosure-property.

(32.) See, e.g., Farmers Bank of Sunbury v. City of Elizabeth City, 282 S.E.2d 580, 584 (1981) (prior to completing foreclosure, mortgagee had standing to sue others for trespass).

(33.) Martyn v. First Fed. Sav. & Loan Ass'n of West Palm Beach, 257 So. 2d 576, 577 (Fla. Dist. Ct. App. 1971) ("A mortgagee has no right to possession, until purchase at a foreclosure sale.").

(34.) See, e.g., AURORA [COLO.] MUN. CODE [section] 22-641 (Municode through Ordinance No. 2012-30, enacted July 9, 2012 (Supp. No. 52)), available at Id=10331; ANN ARBOR [MICH.] CODE [section] 8:500(22) (Municode through Ordinance No. 12-25, adopted Sept. 4, 2012 (Supp. No. 36, Update 1)), available at

level2/TITVIIIBURE_CH105HOCO.html#TITVIIIBURE_CH105HOCO_8_517REOWPR (defining "owner" as "[a]ny person who, alone or with others, has legal or equitable title").

(35.) BAYPORT [MINN.] MUN. CODE [section] 18-51 (2010), available at

(36.) In connection with MERS's status as a nominee of mortgage lenders under Minnesota law, see, for example, Jackson v. Mortgage Electronic Registration Systems, Inc., 770 N.W.2d 487, 490-91 (Minn. 2009).

(37.) See supra note 34.

(38.) See BOSTON MUN. CODE [section] 16-52.2 (Am. Legal Publ'g Corp. through Ord. 211, c. 17, passed 12-28-11).

(39.) CHICAGO MUN. CODE [section] 13-12-126(e)(5) (Am. Legal Publ'g Corp. through Council Journal of June 27, 2012).

(40.) Id. [section] 13-12-127(b).

(41.) See Odette Yousef, Should Banks Maintain Abandoned Properties?, NAT'L PUB. RADIO (May 2, 2012, 3:21 AM),

(42.) See LOS ANGELES MUN. CODE [section] 164.05 (Am. Legal Publ'g Corp. through Revision No. 40 dated Sept. 30, 2012).

(43.) See AURORA [COLO] MUN. CODE [section] 22-641(c) (Municode through Ordinance No. 2012-30, enacted July 9, 2012 (Supp. No. 52)) ("Properties subject to this section shall be, in comparison to the neighborhood standard, kept free of ... trash, junk, debris ... or any other items that give the appearance that the property is abandoned.").

(44.) See, e.g., id. [section] 22-641(a) ("Securing means such measures as may be directed by the director of neighborhood services or his designee....").

(45.) See CHICAGO MUN. CODE [section][section] 13-12-125, 13-12-135 (Am. Legal Publ'g Corp. through Council Journal of June 27, 2012) (amended July 6, 2011).

(46.) See Kerri Ann Panchuk, Chicago's Vacant Property Ordinance Likely to Face Constitutional Challenge, HOUSINGWIRE (Aug. 8, 2011, 1:34 PM), constitutional-challenge; Will Guzzardi, Chicago Vacant Buildings Ordinance: Foreclosure Fighters Take on Banks Over Decaying Properties, HUFFINGTON POST (Oct. 10, 2011, 6:12 AM EST),

(47.) See CHICAGO MUN. CODE [section] 13-12-125 (Am. Legal Publ'g Corp. through Council Journal of June 27, 2012); see also Megan Cottrell, New Vacant Property Ordinance: Will It Be Effective in Chicago Neighborhoods?, CHI. REP. (Nov. 3, 2011), available at effective-chicago-neighborhoods.

(48.) Complaint, Fed. Housing Fin. Agency v. City of Chicago, No. 11-cv-8795 (N.D. Ill. Dec. 12, 2011).

(49.) Id. at 2.

(50.) Id. at 3 (citing 12 U.S.C. [section] 4617(a)).

(51.) Id. at 3-4.

(52.) Id. at 5.

(53.) See id. at 19-21.

(54.) See Motion to Dismiss, Fed. Housing Fin. Agency v. City of Chicago, No. 11-cv-8795 (N.D. Ill. Mar. 12, 2012).

(55.) See Motion for Summary Judgment, Fed. Housing Fin. Agency v. City of Chicago, No. 11-cv-8795 (N.D. Ill. Mar. 23, 2012).

(56.) Mary Ellen Podmolik, Feds Look to Dispose of Vacant Property Ordinance Quickly, CHI. TRIB. (Jan. 18, 2012), quickly-20120118_1_ordinance-filing-twitter-mepodmolik.

(57.) Deborah Solomon, Fannie and Freddie: The Walking Dead, BLOOMBERG (Aug. 17, 2012, 2:02 PM CST),

(58.) LAS VEGAS MUN. CODE [section] 16.33.070 (Municode through Ordinance No. 6203, passed Aug. 1, 2012 (Supp. No. 12)).

(59.) Id. [section] 16.33.090.

(60.) See, e.g., Holland v. Chase Home Fin., LLC, No. 2:11-cv-223, 2011 WL 4025220, at *5 (E.D. Va. Sept. 9, 2011) ("[A] 'statute is not necessary to establish the duty of ordinary care. Such duty may arise from statute, from a municipal ordinance, or from the relation of the parties.'" ((quoting Perlin v. Chappell, 96 S.E.2d 805, 808 (Va. 1957))).

(61.) LAS VEGAS MUN. CODE [section] 16.33.090 (Municode through Ordinance No. 6203, passed Aug. 1, 2012 (Supp. No. 12)).

(62.) Press Release, Office of Chi. Mayor, Mayor Daley Attends Opening of Inspiration Kitchens in Garfield Park as Part of Neighborhood Appreciation Tour, Also Announces Vacant Property Agreement with Bank of America (May 11, 2011), available at depts/mayor/Press%20Room/Press%20Releases/2011/May/2011.05.11.InspirationKitchens.pdf.

(63.) Dahleen Glanton, City Council to Weigh Vacant Property Ordinance, CHI. TRIB. (Oct. 5, 2011), mortgage-servicers-foreclosure-crisis-vacant-buildings.

(64.) Michael Halpern, Vacant Property Registration Ordinances, SAFEGUARD PROPS. (Apr. 26, 2012), Vacant_Property_Registration_Ordinances.aspx.

By Richard E. Gottlieb, Margaret J. Rhiew, and Brett J. Natarelli *

* Richard E. Gottlieb, Margaret J. Rhiew, and Brett J. Natarelli are attorneys in the Chicago office of Dykema Gossett PLLC. The views expressed in this survey are solely those of the authors and are not intended to represent the views of their firm or its clients.

Source Citation   (MLA 8th Edition)
Gottlieb, Richard E., et al. "Reckless abandon: vacant property ordinances create legal uncertainties." Business Lawyer, Feb. 2013, p. 669+. Academic OneFile, Accessed 18 July 2018.

Gale Document Number: GALE|A328656799