As I’ve mentioned before, the Federal Housing Finance Agency filed a lawsuit against Chicago last year arguing that foreclosed properties with mortgages backed by Freddie Mac and Fannie Mae are exempt from the city’s vacant property registration requirement. By one count, there are nearly 200 such properties in Chicago.
Last week, a federal district judge decided against Chicago, relying on two alternative reasons.
First, the judge determined that Chicago’s ordinance was “preempted” by federal law. “Preemption” is legal doctrine, based on the Supremacy Clause, that allows Congress to displace state and local law, either explicitly or implicitly. FHFA argued that Chicago’s ordinance is preempted by the Housing and Economic Recovery Act of 2008, which gives FHFA, acting as conservator of Freddie Mac and Fannie Mae, freedom from “the direction or supervision of any other agency of the United States or any State.” 12 U.S.C. § 4617(a)(7). Because the Act doesn’t mention “local government,” the judge ruled that it does not expressly preempt Chicago’s ordinance. But the preemption is implicit, the judge reasoned, because “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.” Moreover, the judge noted, Chicago’s ordinance conflicts with Congress’s clear intent “for FHFA to possess exclusive authority over Fannie Mae and Freddie Mac’s business operations—including their management of the homes in which they have a security interest.”
Alternatively, the judge concluded that Chicago’s ordinance impermissibly imposed a tax on FHFA, in violation of the “absolute federal immunity from state taxation.” United States v. New Mexico, 455 U.S 720, 730 (1982). The basic difference between taxes and fees is that fees are paid for services rendered and taxes aren’t, or a fee may be charged for costs incurred as part of regulating a core part of an entity’s industry. The judge thus decided that Chicago’s ordinance imposed a tax because “FHFA does not receive any service from the City in exchange for the registration fee, and . . . vacant property is not a necessary consequence of FHFA’s mortgage lending business.”
This ruling “has national implications,” notes Mary Ellen Podmolik in the Chicago Tribune, because of the many VPR ordinances nationwide, which the Tribune estimates at more than 1,000. An appeal seems likely: As one local attorney pointed out, the judge himself noted that “[t]his may not be the last court you’re in front of, once I rule.”