United States District Court, N.D. Illinois
FEDERAL HOUSING FINANCING AGENCY, on its own behalf and as conservator of Fannie Mae and Freddie Mac, Plaintiff,
CITY OF CHICAGO, Defendant
[Copyrighted Material Omitted]
For Federal Housing Finance Agency, on Its Own Behalf and as Conservator of Fannie Mae and Freddie Mac, Plaintiff: Asim Varma, LEAD ATTORNEY, PRO HAC VICE, Arnold & Porter, Washington Dc, DC; David B Bergman, PRO HAC VICE, Arnold & Porter Llp, Washington, DC; Marissa Lynn Downs, Anthony C. Valiulis, Much Shelist, P.C., Chicago, IL; Matthew M. Kovalcik, Much Shelist, Chicago, IL; Robert Jerald Emanuel, Much Shelist Denenberg Ament & Rubenstein, PC, Chicago, IL.
For City Of Chicago, a municipal corporation, Defendant: Michael J. Dolesh, LEAD ATTORNEY, Grant Erwin Ullrich, Thomas Forgue, City of Chicago, Department of Law, Chicago, IL; David Arthur Graver, City of Chicago (30 N LS), Chicago, IL.
Honorable Thomas M. Durkin, United States District Judge.
Memorandum Opinion and Order
Plaintiff Federal Housing Financing Agency (" FHFA" ) brought this lawsuit on its own behalf and on behalf of the Federal National Mortgage Association (" Fannie Mae" ) and the Federal Home Loan Mortgage Corporation (" Freddie Mac" ) against Defendant City of Chicago. R. 1. FHFA alleges that an ordinance passed by the Chicago City Council in July 2011 unlawfully regulates FHFA, Fannie Mae, and Freddie Mac in their capacity as mortgage investors and mortgagees.  In particular, the ordinance requires FHFA to file a
registration statement with the City of Chicago's Department of Buildings for each " vacant" building for which FHFA is a mortgagee, and maintain the buildings in accordance with certain standards set forth in the ordinance. Two motions are presently before the Court: the City's motion to dismiss, R. 24, and FHFA's cross-motion for summary judgment. R. 34. The City's motion is denied, and FHFA's motion is granted, because the ordinance is preempted by the Housing and Economic Recovery Act, and, alternatively, violates FHFA's immunity from taxation.
FHFA is an independent federal agency created under the Housing and Economic Recovery Act of 2008 (" HERA" ), Pub. L. No. 110-289, 122 Stat. 2654,, codified at 12 U.S.C. § 4511, et seq. Fannie Mae is a corporation chartered by Congress to " establish secondary market facilities for residential mortgages," " provide stability in the secondary market for residential mortgages," and " promote access to mortgage credit throughout the Nation." 12 U.S.C. § 1716. Freddie Mac is also a corporation chartered by Congress for substantially the same purposes as Fannie Mae. Id. § 1451. " Fannie" and " Freddie," as they are commonly called, " buy residential mortgages from banks, repackage them for sale as mortgage-backed securities, and guarantee these securities by promising to make investors whole if borrowers default." Judicial Watch, Inc. v. FHFA, 646 F.3d 924, 925, 396 U.S. App. D.C. 200 (D.C. Cir. 2011) (citing Cong. Budget Office, " Fannie Mae, Freddie Mac, and the Federal Role in the Secondary Mortgage Market" (Dec. 2010) at viii). Fannie and Freddie " play an important role in the national housing market by making it easier for home buyers to obtain loans." Judicial Watch, 646 F.3d at 925.
In September 2008, FHFA exercised its power under HERA to place Fannie and Freddie into conservatorships " for the purpose of reorganizing, rehabilitating, or winding up [their] affairs." 12 U.S.C. § 4617(a)(2) (" [FHFA] may, at the discretion of the Director, be appointed conservator or receiver for the purpose of reorganizing, rehabilitating, or winding up the affairs of a regulated entity." ). FHFA was appointed conservator and, as such, succeeded " to all rights, titles, powers, and privileges of [Fannie and Freddie]." Id. § 4617(b)(2)(A)(i). As conservator, FHFA is authorized to " take over the assets of and operate [Fannie and Freddie] with all the powers of the shareholders, the directors, and the officers of [Fannie and Freddie]" and " preserve and conserve the assets and property of [Fannie and Freddie]." Id. § § 4617(b)(2)(A)(i), (B)(i), (B)(iv).
According to FHFA's complaint in this case, FHFA issued a directive to Fannie and Freddie in April 2011 to implement consistent mortgage loan servicing and delinquency management requirements. R. 1 ¶ 26.  Subject to the supervision of FHFA, Fannie and Freddie contract with numerous servicers who perform activities such as collecting and delivering principal and interest payments, administering escrow accounts, monitoring and reporting delinquencies, and performing default prevention activities. Id. ¶ 27. Servicers must comply with various requirements set forth in agreements they have with Fannie Mae and/or Freddie Mac. Id. ¶ 28.
In its complaint, FHFA cites a Fannie Mae Servicing Guide announcement dealing with property maintenance that was issued on September 2, 2011, shortly before this lawsuit was filed. Id. ¶ 29.  The announcement provides, for example, that if a mortgage loan is delinquent, the servicer must order a property inspection no later than the 45th day of delinquency, and the property must be inspected no later than the 60th day of delinquency. Pursuant to the announcement, the servicer must continue to obtain property inspections every 30 days as long as the mortgage loan remains delinquent for 45 days or more. Id. The Freddie Mac Servicing Guide imposes the same requirements. Id. FHFA attaches portions of Fannie and Freddie's Servicing Guides to its motion for summary judgment. See R. 36-4; R. 36-5. Both guides advise servicers to consult Fannie's and Freddie Mac's reimbursement provisions for the allowable amounts for property preservation work. Servicers are directed to " take whatever action is necessary to protect the value of the property" and perform property maintenance " [t]hroughout the foreclosure process." R. 36-4 § 108.
As of October 2011, Fannie and Freddie, combined, owned approximately 258,000 loans that are secured by properties located in the City of Chicago. Fannie Mae owned approximately 156,000 loans that are secured by properties in Chicago. R. 1 ¶ 30. Freddie Mac owned approximately 102,000 loans that are secured by properties in Chicago. Id. ¶ 31. Fannie and Freddie each use approximately 200 servicers in connection with those loans. Id. ¶ ¶ 30-31.
In July 2011, the Chicago City Council passed an ordinance that amended Chapter 13-12 of Chicago's Municipal Code regarding vacant buildings (the " Ordinance" ). Id. ¶ 18. The Ordinance, which became effective November 19, 2011, added a section requiring " mortgagees" to file a registration statement for each " vacant" building with Chicago's Department of Buildings 30 days after a property becomes vacant or 60 days after a default on a mortgage, whichever is later. Id. ¶ ¶ 18-19 (citing Municipal Code of Chicago § 13-12-126(a)(1)). Prior to the amendment, the Ordinance required only owners of vacant buildings to file a registration statement. Now the Ordinance requires " mortgagees" to register and pay the $500 base registration fee in the event the owner does not register the building.  The registration remains valid for six months from the date of registration.
The Ordinance defines " mortgagee" as " (A) the holder of an indebtedness or obligee of a non-monetary obligation secured by a mortgage or any person designated or authorized to act on behalf of such holder, (B) any person claiming through a mortgagee as successor, and (C) any person identified as such in a recorded document which has not been released, assigned, or superseded of record." Municipal Code of
Chicago § 13-12-126(e)(4). FHFA alleges that it qualifies as a " mortgagee" under the Ordinance. " Vacant" means both uninhabited and " in need of maintenance, repair or securing." Id. § 13-12-126(e)(5).
Once a vacant building is registered, the Ordinance requires the mortgagee to renew the registration for successive six-month periods as long as the building remains vacant. Id. § 13-12-126(a)(1). There is no fee for mortgagees to renew the registration. Id. The Ordinance also requires mortgagees of vacant buildings to secure and maintain the buildings in accordance with the standards set forth in the Ordinance. See id. § 13-12-126(b). For instance, the mortgagee is responsible for securing the building's doors and windows, maintaining all grass and weeds, clearing snow from the walkway and any public sidewalk adjoining the lot, and affixing a sign to the building that indicates the building's registration number and other information. Id. The Ordinance provides that violators shall be fined between $500 and $1,000 for each offense. Id. § 13-12-126(c).
FHFA seeks a declaratory judgment that it is exempt from the Ordinance, as well as an injunction against enforcement of the Ordinance against Fannie Mae, Freddie Mac, and/or those that are acting on their behalf ( e.g., FHFA). See R. 1. The City moved to dismiss the case pursuant to Federal Rules of Civil Procedure 12(b)(1), 12(b)(6), and 17. R. 24. FHFA filed a consolidated response to the City's motion and a cross-motion for summary judgment. R. 34. On June 19, 2013, the parties appeared for oral argument.
II. City of Chicago's Motion to Dismiss
The City raises four arguments in support of its motion to dismiss. R. 25-1 at 4. First, the City contends that FHFA's claims should be dismissed under Rule 12(b)(1) for lack of ripeness. Second, the City argues that the Court lacks subject matter jurisdiction over FHFA's complaint, and the complaint violates Rule 17 because only the Director of FHFA is authorized to initiate litigation and the current Acting Director of FHFA was not validly appointed. Third, the City contends that FHFA's claims should be dismissed under Rule 12(b)(6) because 12 U.S.C. § 4617, the statute on which FHFA relies for preemption, does not apply to municipalities and, even if it did, Congress did not intend for the federal statute to preempt local land use regulations such as the Ordinance. Finally, the City argues that FHFA's claim that the $500 registration fee violates its immunity to state and local taxation should be dismissed.
Because the City's first two arguments relate to whether this case is properly before the Court, the Court will address those issues first. The City's latter two arguments, which are also the subject of FHFA's motion for summary judgment, will be addressed in Part III of this opinion.
" Inquiries into ripeness generally address two factors: first, whether the relevant issues are sufficiently focused so as to permit judicial resolution without further factual development; and, second, whether the parties would suffer any hardship by the postponement of judicial action." Triple G Landfills, Inc. v. Bd. of Comm'rs of Fountain Cnty., 977 F.2d 287, 288-89 (7th Cir. 1992).
Here, the City argues that this case is not ripe for adjudication because FHFA's claims rest on a series of " 'contingent future events that may not occur as anticipated or, indeed, may not occur at all.'" R. 25-1 at 8 (quoting Texas v. United States, 523 U.S. 296, 300, 118 S.Ct. 1257, 140 ...