Federal mortgage giants lay ground for restitution

May 1, 2012

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Lending giants Fannie Mae and Freddie Mac on Tuesday begin requiring the banks and servicers they work with to note that fees they pay to register vacant homes in Chicago are done “under protest.”

The government-sponsored entities believe that the revised city ordinance that introduced the $500 fees should not apply to them. Their government regulator, the Federal Housing Finance Agency, has filed a lawsuit against the city of Chicago on their behalf.

Chicago began charging lenders the one-time registration fee in November, when it introduced some changes to the city’s vacant housing ordinance. Previously, abandoned homes were the legal responsibility of only the homeowner. But the Chicago City Council expanded the ordinance to to require lenders to register, secure and maintain properties when homeowners fail to do so.

According to Chicago’s Department of Buildings, more than half of the 5,787 homes on the city’s official vacant property registry were added after the new rules went into effect in November.

City attorney Judith Frydland said the revised ordinance has made it much easier to respond to problems at abandoned properties.

“When a building is registered and we get a complaint through 311 that the building’s vacant and open, we go right to the registry, we find out which bank it is, we have their contact, we email them, and by that night the building is boarded,” said Frydland. “Otherwise the city would have had to do that.”

While Fannie Mae and Freddie Mac have told their on-the-ground partners to comply with Chicago’s new ordinance, their instruction to file the fees “under protest” lays the ground for restitution.

“This preserves the legal right to challenge the payment,” explained attorney Richard Gottlieb, Director of Dykema Gossett’s financial industry group. “If a party makes a payment without challenging it, it’s often difficult to recoup it,” he said.