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Federal District Court Holds Fannie Mae, Freddie Mac Exempt From Chicago’s Property Maintenance Ordinance

August 30, 2013

On August 23, the U.S. District Court for the Northern District of Illinois held that Fannie Mae and Freddie Mac are exempt from a 2011 ordinance that established new requirements for mortgagees and their agents regarding the maintenance of vacant property. FHFA v. City of Chicago, No. 11-8795, 2013 WL 4505413 (N.D. Ill. Aug. 23, 2013). The FHFA, as conservator of Fannie Mae and Freddie Mac, sued the city over the ordinance, which requires mortgagees to register vacant properties and pay a $500 registration fee per property. The ordinance also imposes maintenance and other obligations on mortgagees and their agents (including servicers, Fannie Mae and Freddie Mac), regardless of whether the properties are foreclosed upon, and mandates fines for non-compliance. The court granted summary judgment for the FHFA, holding that the statute that created the FHFA—the Housing and Economic Recovery Act of 2008 (HERA)—preempts the local ordinance. The court reasoned that although HERA does not expressly preempt local laws, Congress intended for the FHFA to be the only entity responsible for operating Fannie Mae’s and Freddie Mac’s business and could not have intended to allow thousands of municipalities to impose varying obligations on the FHFA. On those grounds, the court granted the FHFA’s motion for summary judgment. The court also held in the alternative “for purposes of completeness” that the registration fees imposed on Fannie and Freddie by the ordinance would constitute an impermissible tax on the FHFA in violation of the federal government’s immunity from taxation.