The Chicago City Council has passed a local statute that will make lenders liable for the upkeep of vacant homes even when the borrower still holds the title.

The ordinance was approved unanimously by council members and has the backing of Chicago Mayor Rahm Emanuel.

“With this ordinance, Chicago is leading the way in protecting residents, neighborhoods, and communities from the devastating impact of foreclosures,” said Mayor Rahm Emanuel. “I am proud of this strong piece of legislation requiring banks to be good neighbors and maintain the foreclosed-upon properties.”

But the new ordinance applies to homes even before they are foreclosed, meaning lenders are now required to maintain the property if the homeowner abandons it while the bank is still trying to collect payments due, devise a resolution for the delinquency, or waiting on the local courts to complete the foreclosure.

The ordinance amends the definition of a “property owner” in the municipal code to include an entity who holds a mortgage on the property.

Lenders are now required to perform routine maintenance on vacant homes for which they hold the mortgage, such as making repairs, boarding up entrances and windows, cutting grass, shoveling snow, and removing rubbish. They are also required to maintain the insurance on the home.

Tom Deutsch, executive director of the American Securitization Forum says while well-intentioned, the legislation is “misguided and contrary to established property law nationwide.”

He says the proposed definition of “owner” conflicts directly with Illinois state law and will likely trigger unintended consequences that will further limit mortgage financing options for the residents of Chicago.

According to Deutsch, a lender may be precluded from fulfilling their obligations under the new law by trespass laws, borrower bankruptcy protections, or redemption rights from asserting control over a property prior to completion of foreclosure and conveyance of legal title.

The Illinois-based law firm of Freedman Anselmo Lindberg LLC says the fines that are set forth in the ordinance “are not insignificant” and described the change to the municipal code as “disturbing for our lender clients.”

Mayor Rahm Emanuel’s office says vacant homes have become a financial burden on the city of Chicago. In 2010, the city spent more than $15 million to deal with vacant buildings, including general upkeep and demolition.