City of Cleveland Passes a Pair of Emergency Ordinances that Impose Substantial Criminal and Financial Liability

By Gregory A. Anglewicz, Esq.

On November 14, 2011, the City of Cleveland, Ohio passed two emergency ordinances that will have a substantial impact on lenders and other entities that take title to real estate within the city.  These ordinances, which went into effect on November 16, 2011, created criminal liability for entities not registered with the State of Ohio and extended financial liability for nuisance abatement beyond the sale of a property.

The first ordinance, Ordinance 1519-11 (Cleveland Codified Ordinances Sections 367.08 and 3103.09) addresses the cost and liability related to nuisance abatement in the City of Cleveland.  The ordinance makes any party in the chain of title, from the time of the service of the notice of condemnation, “joint and severally” liable for any costs associated with the demolition of the property. Under this provision, the city may seek the full cost of demolition, along with expenses for prosecution and collection.

This ordinance also identifies a wide range of fees including “attorneys (sic) fees, costs of inspection, administrative staff and support staff, property maintenance costs, court costs, title search fees, process server fees, skip tracing expenses, and costs of collection or prosecution, including discovery and deposition expenses” as the type of expenses that can be included in those charged to the property owner for failing to demolish, repair, alter, secure or board, or otherwise abate any other nuisance.  It is, however, unclear as to whether those costs not associated with the demolition of a property may be assessed to a prior party in title.

A statement of the above mentioned costs now can be made either to the last known address of the owner or to the tax mailing address listed with Cuyahoga County.  No actual service or receipt of this statement is required by the ordinance.

Once the statement is sent, the owner has thirty (30) days to make payment.  Should the owner fail to do so, these costs can be certified as a tax assessment against the property.  In addition, the ordinance gives the City Law Director the authority to take any action deemed, in his/her sole discretion, as necessary to recover these costs.  Charges for these actions, including fees for outside counsel for collection actions, civil actions, and post judgment execution, will also be charged to the owner or other responsible party.

This ordinance expands the scope of the type of fees the city may recoup and extends its reach back beyond a sale to a third party.  It is recommended that property conditions and indemnifications be taken into account when acquiring and disposing of real estate within the City of Cleveland.

The second ordinance, Ordinance 1520-11 (Cleveland Codified Ordinances Sections 3103.092 and 367.131) creates a prohibition against business entities not registered with the Secretary of State from owning, buying, selling or transferring real estate in the City of Cleveland.

Under this ordinance, the failure of a domestic or foreign corporation, partnership, limited-liability company, or other business entity to make the proper filings with the Ohio Secretary of State, including the identification of a statutory agent, is now a first-degree misdemeanor. The ordinance goes on to extend criminal liability to any officer transacting business on behalf of the business entity.  Under this provision, the officer who executes documentation to further the purchase, sale ownership or transfer of real estate would also be guilty of a first-degree misdemeanor. Finally, this ordinance makes each property bought, sold, owned, or transferred a separate criminal offense.

The ordinance creates substantial criminal liability for lenders and their officers who acquire, own, or dispose of real estate in the City of Cleveland.  A first-degree misdemeanor is punishable by imprisonment up to six months and/or up to a $1,000 fine.

Beyond the risk to the business entity and its officers, there may be a potential risk of criminal liability for other parties for aiding and abetting a crime by facilitating the sale, purchase, ownership or transfer of real estate in the City of Cleveland.

It is strongly recommended that a thorough review for full compliance with the registration, organization and/or incorporation laws of Ohio be performed for any entity that will hold title to real estate in the City of Cleveland.

To view the content of Cleveland Codified Ordinances 3103.09 and 3103.092 and Cleveland Codified Ordinances 367.08 and 367.131, go here.

If you have any questions on this matter, please contact Mr. Gregory A. Anglewicz, Esq. Greg practices in the Real Estate Default Group, concentrating on title work and REO closing services in the Cleveland and Chicago offices as the supervising attorney of Thoroughbred Title Agency, Inc., a division of Weltman, Weinberg & Reis Co., LPA. Greg can be reached at 216.685.1137 and ganglewicz@weltman.com.

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