Fannie Mae And Freddie Mac Are Exempt From Chicago’s Vacant Property Registration Requirements

The U.S. District for the Northern District of Illinois granted the Federal Housing Financing Agency’s (FHFA), motion for summary judgment against the City of Chicago in Federal Housing Financial Agency v. City of Chicago, 11 C 8795. (N.D. Ill. Aug. 23, 2013). FHFA brought the suit on its own behalf and on behalf of Fannie Mae and Freddie Mac (collectively Plaintiffs). The suit alleged that a City ordinance unlawfully regulates Plaintiffs in their capacity as mortgage investors and mortgagees. The ordinance requires Plaintiffs to file a registration statement with the City, along with a fee, for each vacant building for which Plaintiffs are a mortgagee, and maintain the buildings in accordance with ordinance standards. The court held that the express preemption found in Section 4617(a)(7) of the Housing and Economic Recovery Act of 2008 (HERA) does not apply because it reads that Plaintiffs shall not be subject to the direction and supervision of any other agency of the United States or any State. It does not mention local municipalities. However, the court did find that the ordinance was preempted under both field preemption and conflict preemption. HERA’s provisions make it clear that Congress intended FHFA to assume complete control of Fannie Mae and the Freddie Mac and take such action as may be necessary to put the regulated entity in a sound and solvent condition. Thus, with respect to the maintenance of Fannie Mae’s and the Freddie Mac’s collateral – homes on which they hold mortgage – HERA plainly occupies the field. The court rejected the argument that the ordinance is a local land use law authorized by traditional police powers of which there is a presumption against finding preemption. The ordinance clearly encroaches on an area of regulation that Congress reserved exclusively for FHFA because it regulates how FHFA manages its collateral and how this collateral should be preserved. In enacting HERA, Congress could not have intended to preclude other federal agencies and states from regulating FHFA’s operations, but permit thousands of municipalities all over the country to impose varying ordinances and obligations on FHFA. Such a result would invite chaos, as FHFA would be subject to a variety of potentially conflicting ordinances, raising the expenses of FHFA in not only complying with those ordinances, but in simply monitoring the various requirements. Also, because the ordinance obstructs Congress’s intent to have FHFA take action to preserve and conserve the assets of Fannie Mae and Freddie Mac, without being subject to the direction or supervision of any other agency of the United States or any State, conflict preemption also applies to bar the ordinance. Finally, the court found that the registration fee is an impermissible tax because the City does not provide a service to FHFA for paying the fee, but is an action the City undertakes to benefit City residents in general. Further, FHFA’s existence does not cause properties to be vacant, and vacant properties are not a necessary aspect of FHFA’s participation in the mortgage market.