Seven Massachusetts banks have asked a federal judge to block enforcement of local ordinances in Lynn and Worcester aimed at mitigating some of the fallout from the foreclosure crisis.
In the complaint, filed Monday with the U.S. District Court in Massachusetts, the banks take issue with Lynn’s "Bill of Rights for Homeowners" and Worcester’s "Ordinance to Repair the Impact of the Foreclosure Crisis."
Those ordinances would require lenders to keep up and maintain abandoned, foreclosed or foreclosing properties and to participate in a mandatory mediation program as part of the foreclosure process. The local ordinances would also require banks to post a substantial cash bond – $5,000 in Worcester and $10,000 in Lynn – for each property on which they initiate foreclosure proceedings.
The banks, all of which make or have made mortgages in Lynn or Worcester, asked that the ordinances be declared invalid and unconstitutional and that the court enjoin those cities from enforcing the ordinances until the First Circuit issues a finding on a similar ordinance enacted in Springfield a few years ago.
The ordinances add another layer of rules and regulations on top of homeowner protections enacted at the state level, including the 150 day right to cure and the right to a loan modification.
In some cases, for instance, when the homeowner is still living in the house when foreclosure proceedings are initiated, the maintenance requirement would actually require lenders to trespass on the property, said Jon K. Skarin, senior vice president of legislative and regulatory policy at the Massachusetts Bankers Association.
"I don’t think any of our banks are arguing that we are not responsible if we do take possession, but prior to taking possession, we have real concerns about where that puts the lenders or local agents… in the position where they basically would have to trespass on these properties when there are still residents and homeowners living in them," he said.
On the matter of the bond to be posted for each property being foreclosed upon, Skarin said, "There’s very little accounting of where that money’s going to go and how you might get that money back if you ultimately sell that property to a third party."
Tani E. Sapirstein is representing the plaintiffs, which include Hometown Bank, Country Bank for Savings, Eastern Bank, Avidia Bank, North Brookfield Savings Bank, Rollstone Bank and Southbridge Savings Bank.
In the Springfield case, the city enacted two local foreclosure ordinances, one mandating mediation and another imposing a host of new upkeep requirements on abandoned or foreclosing properties.
A group of local banks filed suit against the city in state superior court and it was ultimately moved to federal court, where a decision is still pending. In the meantime, however, a federal appeals court issued an injunction against the city, blocking enforcement of either ordinance until a decision is reached.
