UPDATE, 4pm: City of Greater Bendigo environmental health and local laws manager Susannah Milne said the council had responded to concerns raised by residents living nearby to 7 and 9 Harvey Street regarding untidy yards.
She said it had taken steps to reduce fire hazards by issuing fire prevention notices and undertaking fire prevention work.
Meanwhile, council organisational support director Marg Allan said satisfactory payment plans had been arranged with the owners to pay overdue rates on the properties.
"The agreed payments have been forthcoming," she said.
The council has no plans to sell the properties, as long as payments continue.
UPDATE, 10.25am: The City of Greater Bendigo had planned to sell the Harvey Street house that burnt overnight under the Local Government Act after its owners failed to pay rates.
Properties at numbers 7 and 9 Harvey Street were marked for sale if rates had not been paid by May 20.
Council organisational support director Marg Allan said in April that the owners had received a court order last year to pay their rates. "Extensive efforts have been made to achieve a satisfactory payment arrangement with the owners," she said at the time.
If the properties were sold at auction, the rates owing to the council would be paid first.
Remaining funds will be put towards a mortgage, if there is one, or distributed to the owner. Ms Allan said if no owner could be found, the money would be held in trust by the council.
Related coverage: Council takes action on rates
UPDATE, 9.15am: Next-door neighbours to a house which was gutted by fire in West Bendigo last night are counting their blessings that CFA members managed to save their home.
Ted and Lyn Parmenter have lived in their house for the past 50 years. Mrs Parmenter awoke to crackling sounds from the fire about 1.20am this morning and called the CFA.
Mr Parmenter, who was in Melbourne when the fire broke out, said he didn't think his wife realised how close their own house had been from igniting.
"The firefighters said it was seconds away from going 'poof'," he said.
Mr Parmenter said the side of his house was singed.
"There are broken windows and the gutters have melted," he said.
"It should be covered by insurance."
Mr Parmenter said the house that burnt and the house the other side of it had been vacant for the past 10 years and that squatters had moved in. He said there had been small fires before and that he had notified the City of Greater Bendigo about the hazard.
John McReynolds has lived across the road from the house that caught fire for his entire life.
He said he had fought for years to get something done about the two unmaintained houses and associated grass, fearing they were a fire risk.
"The houses are heritage listed and no one can do anything without the owners' permission," he said.
"The owners want to put units there."
Mr McReynolds said he had approached members of State Parliament and City of Greater Bendigo staff and councillors about the properties. But he said no one had accepted responsibility.
"Something needs to be done about the fire danger and the squatters," he said.
"It also lowers house prices in the street and everyone who lives here has had enough."
UPDATE, 8.10am: CFA crews were called back to the house Friday morning for a gas leak.
Bendigo Senior Constable Matt Fitzgibbon said the leak had been sealed off and the gas company notified.
Senior Constable Fitzgibbon also said no one was living at the house .
EARLIER: DETECTIVES and chemists are investigating the cause of a house fire overnight in Harvey Street, West Bendigo.
Bendigo Detective Senior Sergeant Rodney Stewart said he was waiting for arson chemists from Melbourne to arrive in Bendigo today to try to establish the fire's cause.
"It's sealed off at the moment," he said.
"We are unable to establish a cause at this stage."
Bendigo Country Fire Authority Senior Station Officer Mark Nevill said the fire broke about about 1.30am Friday morning.
"It was 75 per cent involved on arrival," he said.
"It took about 20 minutes to control, with three trucks from Bendigo attending."
Mr Nevill said the house was searched but no one was found.
"We believe no one was home," he said.
"There was a lot of radiant heat on the house next door so our first effort was to protect that neighbouring house.
"Quite a few people came out to see what was going on."