City Council panel OKs protections for renters after foreclosure

May 1, 2013

A proposal aimed at protecting renters in foreclosed buildings won the backing of a Chicago City Council panel on Wednesday, but not without a few sparks.

The council’s Housing and Real Estate Committee passed the measure in a voice vote after about 90 minutes of debate.

Ald. Matthew O’Shea (19th), who said he supported an earlier version, decried provisions that would require the foreclosing banks to pay tenants a “relocation assistance” fee of $12,000 per unit or offer them rent-controlled leases until selling the building.

“Making foreclosed properties considerably more expensive to hold will further drive down their price at sale or auction,” said O’Shea, the only alderman who voiced opposition to the measure. “We are in essence reducing the value of all surrounding properties.”

Other aldermen, including Walter Burnett Jr. (27th), said what’s dragging down home prices in their wards is the abandonment of properties after foreclosure. “How many people are sitting in their house every night, worried about if there’s going to be a fire next door to them because [banks] made the people who were renting there move out and leave the building vacant?” Burnett asked.

The earlier version, introduced by Ald. Richard Mell (33rd) and dubbed “Keep Chicago Renting,” would have banned post-foreclosure evictions except under limited circumstances such as the tenant’s failure to pay rent.

Mayor Rahm Emanuel’s administration said it agreed with the goal — keeping renters in their homes — but raised legal concerns. Months of negotiations between city officials and tenant advocates led to the version now in the council.

Before the hearing, members of 11 community groups behind the measure donned orange T-shirts and rallied outside the council chambers. The groups included the Lawyers’ Committee for Better Housing, which brandished new research showing crime in abandoned buildings and vacant lots is up nearly 48 percent since 2005.

At the rally, Mell responded to an Illinois Mortgage Bankers Association claim that the ordinance would lead to litigation and congest a court system already struggling with a huge backlog of foreclosure cases. “Why would it clog it up if the banks go along with it?” Mell asked.

The most detailed testimony against the plan came from Brian Bernardoni, senior director of government affairs and public policy for the Chicago Association of Realtors. “This ordinance is bad for the market and bad for transfer-tax revenues,” he said.

Bernardoni claimed that forcing lenders to renew leases would amount to an unconstitutional “taking,” a legal term describing government acquisition of private property without fair compensation. “Landlords have the right to evict a tenant at the expiration of a lease,” he said.

An Emanuel administration representative at the hearing said Chicago officials considered such claims while developing the legislation. “If that’s the lawsuit, we’ll take that one on,” Rose Kelly, senior counsel in the city’s law department, told the aldermen.

No mortgage lenders addressed the committee but some voiced opposition to the measure Wednesday.

“If a lender is compelled by the ordinance to provide relocation assistance of $12,000, it may opt to release its lien and walk away from the property — thereby causing more, not less, building abandonments,” James E. Trausch, general counsel of the mortgage bankers association, wrote Wednesday in a message to WBEZ.

“Chicago will become an unfriendly lending environment as more lenders simply pass on lending in the city because it is not worthy of the investment,” Trausch wrote.

The Illinois Bankers Association and the Chicagoland Apartment Association also indicated opposition.

Ald. Ray Suárez (31st), the committee chairman, said he would not refer the measure to the full council until June 5. He said the delay would allow more time to hear from the legislation’s opponents.

Chip Mitchell is WBEZ’s West Side bureau reporter. Follow him on Twitter @ChipMitchell1 and @WBEZoutloud, and connect with him through Facebook and LinkedIn.