The number of foreclosed properties has been rising in the region since the recession began, and more homes are getting stuck in the foreclosure process. In many communities, this is increasing the backlog of vacant, foreclosed homes that do not have a clear party responsible for maintenance and are in danger of deteriorating. A core recommendation of GO TO 2040 is to invest in our existing communities to create vibrant, livable places; maintaining assets like our existing housing stock is a key way to achieve this goal.

Municipalities, the State of Illinois, and the federal government have implemented a number of strategies to address this issue. Many initiatives have focused first on the goal of keeping homeowners in their homes, including the Illinois Hardest Hit Program and the Illinois Foreclosure Prevention Network. To reoccupy vacant foreclosed properties, the State has established a pilot program for down payment assistance. Additionally, municipalities in the region have partnered to form several housing collaboratives that, in the wake of the foreclosure crisis, are addressing needs across jurisdictions. Additionally, the Federal Reserve Bank just issued a policy statement providing guidelines for banks seeking to rent bank-owned residential properties rather than actively marketing them for sale.

However, further strategies are needed to address the maintenance of properties during and after the foreclosure process. Vacant, foreclosed properties can present a significant burden for communities in the form of increased service costs to monitor, clean, and secure them at the same time that they provide decreased property tax revenues. While mortgage servicers can enter and maintain a property before they have taken title through the foreclosure process, some are reluctant to do so because their entry onto the property may be considered trespassing or make them liable for damages. Homes that sit vacant can also deteriorate or be vandalized, requiring significant rehabilitation to return them to the market. While individual municipalities have established vacant property ordinances and recent legislation allowed municipalities to place liens to recoup the cost of maintaining vacant properties, significant work is still needed. Two recent bills in the Illinois state legislature propose strategies to clarify maintenance responsibilities and incentivize the sale and maintenance of vacant, foreclosed properties.

The first bill is currently in the House (SB 16) and outlines a framework for municipalities to pass vacant property ordinances that would require mortgage holders (mortgagees) to register a property that has been vacant for more than 30 days and to re-register the property every six months. The mortgage holder would also be required to secure and maintain the property, with fines ranging from $500 to $1,000 per day if requirements are not met. This is unique because it obligates mortgagees to maintain a vacant property before they take title in the foreclosure process. This bill has many similarities to ordinances recently passed in the City of Chicago and Cook County and would establish a standard across the state for fees, fines, and requirements related to maintenance of vacant properties during the foreclosure process. The bill has recently been amended to include language allowing some vacant properties undergoing the foreclosure process to be declared abandoned and to receive expedited processing, so they can be moved back onto the market more quickly. The bill has passed the Senate, but that version focused on providing foreclosure prevention counseling services.

If SB 16 passes, the ability of municipalities to fully implement it is unclear. The Federal Housing Finance Agency (FHFA) has sued the City of Chicago for its vacant building ordinance on the grounds that it "impermissibly encroaches upon FHFA's role as the sole regulator and supervisor of" Fannie Mae and Freddie Mac (the Enterprises). According to the Fourth Quarter of 2011 Quarterly Foreclosure Prevention & Refinance Report recently released by FHFA, the Enterprises service loans on approximately 74,000 Illinois residences that are delinquent on mortgage payments by 90 days or more. An additional approximately 12,500 Illinois residences are real estate owned (REO), meaning that they did not sell at a foreclosure auction and are now owned by one of the Enterprises. While many of these properties are occupied, this represents a significant portion of the both the State and the region's foreclosed homes.

The second bill, SB 3676, would reduce the assessed value of a vacant, foreclosed, residential property with six units or less to 10 percent of its prior equalized assessed value (EAV) if it is purchased and rehabilitated or secured and maintained. This reduced assessment can stay in place up to five years and is only available to a taxpayer who does not intend to live in the property. This bill has changed significantly since its original version, which created a one-year abatement of all property taxes on a vacant, foreclosed property that has less than 12 units and that has been recently purchased. This bill presents both opportunities and challenges. An assessment reduction may benefit communities as they seek to implement strategies for rehabilitating foreclosed housing and/or increasing their stock of high-quality affordable housing. Providing a range of housing options is a key recommendation of GO TO 2040. However, large numbers of reduced assessments may also have a negative impact in communities that have experienced large numbers of foreclosures and are already struggling with reduced revenues. The bill has passed the Senate with 54 in favor and none opposed.