A new Las Vegas ordinance was approved to make banks take responsibility for blight stemming from the housing market crash.
But if a federal court strikes down a similar ordinance in Chicago, Las Vegas' plan could be in jeopardy.
A lawsuit filed in federal court in Illinois seeks to block the city of Chicago's foreclosure registry and maintenance ordinance.
The lawsuit by the Federal Housing Finance Agency, the agency charged with regulating mortgage giants Fannie Mae and Freddie Mac, calls Chicago's ordinance an unlawful attack on its power and argues that unless the ordinance is blocked, the taxpayer-backed corporations face "massive financial sanctions."
A spokeswoman for the housing finance agency said that though it hasn't yet challenged the Las Vegas ordinance, the agency is scrutinizing it with similar rules approved elsewhere.
"FHFA is familiar with the Las Vegas ordinance, which does contain provisions similar to those adopted by the city of Chicago," spokeswoman Stefanie Johnson wrote in an email. "FHFA is currently reviewing ordinances promulgated in other jurisdictions."
Both the Chicago and Las Vegas ordinances would launch a registry where mortgage or deed of trust holders, such as banks and other lending institutions, would pay to list vacant, distressed properties.
Once properties are on the Las Vegas list, the note holders are responsible for maintaining them by repairing broken glass, maintaining the landscaping, removing graffiti and cleaning pools.
In Las Vegas, where a city report estimates there are more than 4,000 bank-owned residential properties and thousands more in distress, lenders who fail to maintain properties under the ordinance face an escalating series of fines and the prospect of misdemeanor charges that carry the possibility of jail sentences.
Complaints about the Las Vegas ordinance from the Nevada Bankers Association and others echo those in the agency's Chicago lawsuit.
Namely, the opponents in Las Vegas say banks don't truly own the properties until the foreclosure process is complete, meaning that in the months between a borrower leaving and the legal takeover by the lender, the bank doesn't have the right to order work on the property.
Bill Uffelman, president of the Nevada Bankers Association, said the Las Vegas ordinance is less costly to comply with than the one in Chicago but suffers from the same requirement that lenders be responsible for property they don't yet own.
"What's the common thread? What they all require you to do is trespass," Uffelman said. "If you have got to trespass to comply, it could raise issues."
He said pressuring banks or their representatives to enter properties before a foreclosure is complete puts people in jeopardy of encountering irate borrowers or illegal squatters who could lash out, putting people at risk.
He said landscaping requirements are troublesome because it could pressure lenders to maintain water and power to empty homes, which can make the houses targets for parties, vandalism or squatters.
Uffelman said he hasn't heard Nevada banks demand a court challenge, but he acknowledged the agency might pick up the baton for them.
"I'm waiting to see what the members want to do," he said. "Of course a third party, the FHFA, could do that."
If the housing finance agency were to successfully challenge the Las Vegas ordinance, it would send city officials back to where they started in terms of dealing with the fallout of the housing crisis. That is, watching vacant properties deteriorate while inspectors levy fines and order cleanups at taxpayer expense while hoping to recover the money when the property is sold.
Councilman Steve Ross, who sponsored the ordinance, said he doesn't want to see it rolled back.
"I was fully aware of legal challenges that might come up," Ross said. "What we do want is an open dialogue to maintain these properties so we are not spending taxpayer money doing that."
In Chicago and elsewhere, however, the housing finance agency has shown little interest in cooperating with local authorities, said Reno attorney Bob Hager, who represents homeowners and has clashed with the agency and private lenders.
Hager, who has argued lending litigation in Nevada and around the nation, said the agency is known for seeking to use the courts to fend off regulations, even if it means going beyond the scope of its duties as a federal agency.
"What these scumbags want is to skirt their local responsibilities and hurt our neighborhoods or towns," Hager said. "They should just do the right thing instead of coming up with arguments why they don't have to do the right thing."
Hager said the housing finance agency's status as a conservator for private lenders Fannie Mae and Freddie Mac means its job begins and ends with making sure those lenders make good on their obligations.
Instead, Hager argues, the agency is adopting an activist role by challenging ordinances like the one in Chicago that seeks to force Fannie, Freddie and others to maintain distressed properties.
By doing so, it seeks to give Fannie and Freddie, which are private companies that keep profits but receive taxpayer subsidies to cover losses, the protection of being a federal agency, he said.
"The FHFA has no business bringing an action on behalf of Fannie Mae and Freddie Mac as a conservator," Hager said. "It is an intentional misrepresentation of FHFA's powers."
And, if the housing finance agency is successful, it would be aiding other private banks by blocking local governments' efforts to reduce blight, he said.
Also, Hager said, if local governments are stopped from enforcing rules against Fannie, Freddie and other note holders it means those lenders have even less incentive to work with borrowers to prevent homes and businesses from ever falling into foreclosure.
He said Congress has the power to rein in the housing finance agency but hasn't, which means, he suspects, the agency will continue to challenge local efforts to tackle neighborhood problems such as rampant blight.
"I don't see any indication Congress is monitoring its litigation activities," Hager said. "It is very serious, not just for the city of Chicago."