Despite stiff opposition from the real estate industry, Boston City Council unanimously approved a measure to protect tenants living in foreclosed properties.
The council last week passed a home rule petition that would prevent lenders from evicting tenants unless a “just cause,” such as nonpayment of rent, existed.
The proposed legislation would hinder the sale of foreclosed properties because buyers would be reluctant to purchase tenant-occupied homes, according to Realtors and property owners.
“The likely result will be that they remain on the market for long periods of time, with lenders who are not prepared to be ‘owners’ forced into operating and managing properties. That scenario does not benefit tenants. What sounds like a solution on paper will turn into a disaster to administer,” Greater Boston Real Estate Board Chief Executive Officer Gregory P. Vasil said in a written statement to the City Council.
The petition is heading to Mayor Thomas M. Menino. If he approves it, state lawmakers must vote on the measure. A call to Menino’s office seeking comment on whether the mayor supports the measure was not returned.
The council’s action came the same week that state lawmakers heard testimony on a trio of foreclosure-related bills, including a similar tenant protection measure and a proposal for a six-month moratorium on foreclosures.
Critics of the bills say it’s premature to enact additional legislation so soon after the state passed a comprehensive foreclosure prevention measure. In November, Gov. Deval Patrick signed legislation that takes several steps to stem foreclosures, including requiring the licensing of loan originators and granting tenants living in foreclosed properties rights as tenants at will.
The law also includes a provision, which went into effect May 1, giving borrowers 90 days to cure any defaults before their lender can initiate a foreclosure.
Jon Skarin, director of federal regulatory and legislative policy for the Massachusetts Bankers Association, told legislators on Tuesday that the proposals were too broadly written and would add significant regulatory burdens and costs to lenders.
“Unfortunately these costs will be borne by borrowers in the form of higher interest rates and higher fees on loans made in Massachusetts,” Skarin told the Legislature’s Judiciary Committee.
‘Real Costs’
The committee heard testimony at a hearing lasting more than four hours on the bills, which are supported by the Massachusetts Alliance Against Predatory Lending, a coalition of over 30 organizations.
One of the bills would place a temporary 180-day moratorium on foreclosures resulting from certain subprime loans. But opponents say the bill, if passed, also would affect traditional mortgage products, including all types of adjustable-rate mortgages.
Skarin said the proposal also prohibits lenders from charging fees and interest during the six-month moratorium. That would leave lenders paying insurance, condo fees and other costs of sustaining loans during the six months. “How do you rationalize giving people six months of no fees, no interest, when there are real costs of sustaining that loan for that period of time?” Skarin said.
Another bill would enable borrowers to contest a foreclosure in court. According to supporters, 29 other states have a similar law. They say it would benefit homeowners who have been misled by unscrupulous brokers and lenders.
Borrowers facing foreclosure can file for bankruptcy or file a legal injunction in court to stop the process, but advocates say it’s time-consuming and costly to do so.
Opponents argue that the courts don’t have the funding and resources to handle such cases. Requiring judicial review of foreclosures would further slow the process and add considerable cost to banks trying to protect their assets, they said. The Legislature has rejected similar proposals in the past, according to Skarin.
Daniel Crane, undersecretary of the Office of Consumer Affairs and Business Regulation, said the Patrick administration has not taken a position on the judicial review proposal. But Crane testified in support of a bill that would prohibit lending institutions from evicting tenants living in foreclosed properties unless “a just cause” existed.
Critics say the bill would give even borrowers who default the ability to stay in the property indefinitely.
Still, supporters urged legislators to take further action. Judith Liben, a housing attorney with the Massachusetts Law Reform Institute, said the law passed in the fall treats tenants living in foreclosed homes as tenants at will, meaning they can be evicted for no reason. Lenders are forcing out tenants with very little notice, she said.
“People are told to leave and they leave,” she said.
Sen. Dianne Wilkerson, a lead sponsor of the bills, said thousands of people are being affected. “This is not just about a bunch of people in Roxbury and Dorchester who made bad decisions. This is about the whole state,” Wilkerson said.
