A federal judge has ruled Chicago’s vacant building ordinance no longer applies to Fannie Mae and Freddie Mac as mortgagees. This decision comes as the city continues to struggle with thousands of foreclosed homes.

The Federal Housing Financing Agency argued Chicago can’t make a law on a federal agency nor could it tax the federal government. On Friday, the court agreed.

Under the city’s 2011 vacant building ordinance, owners and mortgagees have to pay $500 to register a vacant building. The servicer must maintain the building by city standards, including securing the property and cutting the grass. Each offense could mean a $500 to $1000 fine.

The FHFA filed a complaint in regards to how the law addresses mortgagees.

The agency said it will continue the upkeep of buildings based on their own standards.

Katie Buitrago, a senior policy associate at the Woodstock Institute, says this ruling could mean challenges to other cities that have similar laws.

“It’s great that FHFA has their own standards, but there needs to be an external accountability system in place, like a city’s vacant buildings ordinance, to make sure that there’s consequences when they don’t live up to their own standards,” she said.

As of fall 2011, Fannie and Freddie owned a combined 258,000 loans that are secured by properties in the city. FHFA could potentially request reimbursement from the city, but did not say whether it would.

Chicago could appeal the decision, but didn’t say whether it would pursue further action. It released this statement:

“This ruling will do little to stop the Mayor’s aggressive efforts to ensure that banks are responsible neighbors across Chicago, particularly in communities that have been hardest hit by the foreclosure crises. Vacant properties are a challenge for neighborhoods and a financial burden for the City, and while we are disappointed in the court’s decision, we will continue to hold financial institutions responsible for maintaining properties while protecting our residents and communities from the dangers vacant properties create. We hope that the lenders who have been cooperative and agreed to board up their buildings will continue to so and be good corporate citizens.”

Susie An is a WBEZ business reporter. Follow her @soosieon.