In a recent case, The City of Chicago v. Federal National Mortgage Association, et al., 2017 Il App (1st) 162449, the Illinois Appellate Court, First District reversed a decision of the Circuit Court of Cook County which imposed a money judgment against Fannie Mae for demolition expenses incurred by the City.

In that case, the City filed a Housing Court case seeking to demolish the property under the Unsafe Property Act (65 ILCS 5/11-31-1 (a)) and the City's Public Nuisance Ordinance (Municipal Code of the City of Chicago Section 7 – 28 – 060). Fannie Mae was the certificate holder and subsequent title holder after a foreclosure sale by J.P. Morgan Chase. The City had named other prior owners as well as J.P. Morgan Chase, the mortgagee, in the housing case but for unknown reasons voluntarily dismissed all of the defendants except Fannie Mae. In addition, Fannie Mae sold the property to a third-party purchaser prior to the actual demolition of the property and two days after the order of demolition was entered.

The demolition occurred nearly two years after the entry of the order. The City then filed a motion in the demolition case seeking an in personam money judgment against Fannie Mae only. The Circuit Court entered an order awarding the City $27,042 against Fannie Mae. Although Fannie Mae did not participate in the case resulting in the order of demolition, Fannie Mae did respond and defended the motion seeking the demolition costs.

The City contended that it could seek recovery of the demolition costs by motion in the demolition case without resorting to a foreclosure of its lien or a separate action to collect the costs. Fannie Mae argued that the statutes and ordinances relied on by the City provided a mechanism for the recovery of the demolition costs only through either a new foreclosure action under the Illinois Mortgage Foreclosure Act or a separate collection action.

The court in essence, agreed that the filing of the motion in the demolition case was a violation of fundamental due process in that the ordinance and statute that the City sought relief under did not provide a process to allow a defendant to adequately challenge the imposition of the costs and the reasonableness of the costs of demolition and for obtaining a money judgment for demolition costs, but only an expedited process for review of the demolition or repair of unsafe and hazardous buildings. The Court found that the ordinance and act was an in rem proceeding only and that in order to collect its demolition costs, the City had to initiate a foreclosure of its lien or separate action to collect its costs.

This case was a matter of first impression in the First District and this ruling is significant as it upholds the due process rights of owners or prior owners of buildings and specifies the procedures available to the City to collect demolition costs. 

Left unanswered by the Court is the question of whether a municipality may impose personal liability for demolition costs on owners that did not cause the unsafe or hazardous building conditions and who owned the property prior to demolition but did not own the property either when it was demolished or when the municipality perfected its demolition lien.  Future rulings by the Court will be required to answer who can be held liable for the municipality's demolition costs.