Like hundreds of cities across the country, Chicago is trying to tackle the issue of too many foreclosed and vacant homes. The city is now requiring lenders to ensure that those abandoned properties are secured and maintained. Other cities have similar laws.

But the federal government is suing Chicago over its new rules in what's seen as a test case that could affect whether any city would be allowed to keep lenders on the hook for abandoned properties.

Chicago's old rules put the burden of securing and maintaining vacant homes solely on the shoulders of their owners. But a big increase of foreclosures has highlighted the limits of that approach. In Chicago, thousands of homes have been abandoned and their owners have disappeared. So when the homes became dangerous or fell into disrepair, Judy Frydland, an attorney for Chicago, says the city picked up the slack.

"We can't leave the property vacant and open, so that meant the city had to secure it," she says. "So the taxpayers were paying to secure the building, in essence."

And it's not cheap. One estimate puts the cost to Chicago taxpayers at $36 million in 2010 alone. Frydland says that's just not fair.

"The city wasn't a part of this transaction; we weren't part of that mortgage," she says. "The owner and the lender made an agreement. So why should the taxpayers be the one to come in and have to pay for an agreement that went south?"

So in November, Chicago started making lenders responsible, too. Now, if an owner is up to 45 days delinquent on the mortgage, the lender has to check if the home has been abandoned. If it has, the lender then has to secure it and register it with the city for a $500 fee.

After that, the lender has to keep it up to city code or risk hefty daily fines. But Richard Gottlieb, who directs the financial industry group for the law firm Dykema, says this is now creating more problems.

"How does one know that property is vacant?" Gottlieb asks. He says the cities that have enacted similar ordinances are putting lenders in an impossible position.

"Lawsuits are being brought by the dozen by borrowers claiming that their property wasn't really abandoned, and that the lender or servicer went in without permission," Gottlieb says. "And judges all throughout are looking at those cases very seriously because that is a trespass."

That's also part of what the federal government argues in a lawsuit challenging Chicago's new rules. The Federal Housing Finance Agency sued on behalf of the two lenders that it regulates: Fannie Mae and Freddie Mac, which own more than 250,000 mortgages in Chicago alone. For now, they are complying with the city's ordinance. But they say Chicago unfairly makes them act like an owner before the property is legally theirs. They also argue that Congress made the FHFA their sole regulator, so they shouldn't have to answer to the city of Chicago.

While what happens here could affect cities across the country, for Ruben DeSantiago, this is a very local issue. DeSantiago lives on Chicago's South Side.

"I live across the street [from a vacant home] and I see a lot of gang activity in this house," DeSantiago says. "I mean, I called the police a couple of times, and there's kids that go in, they go out, there's a guy that parks his trucks in the back, and I got kids, so ..."

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