A recent decision by the state’s Supreme Judicial Court (SJC) has dealt a blow to local municipalities’ attempts to bring lenders to heel, reversing two local ordinances that imposed additional restrictions and requirements on lenders attempting to foreclose on homes in Springfield.
“It’s a big win for the banks,” said Joel Stein, a Norwell-based attorney who co-chairs the Real Estate Bar Association’s title insurance committee.
The case, Easthampton Savings Bank v. City of Springfield was brought by a consortium of banks and dealt with two ordinances in Springfield. Though the case is being pursued in federal court, the First Circuit had asked the SJC to provide its interpretation of Massachusetts law on the issue, which will inform the federal court’s ruling in the case.
Springfield was particularly hard hit by the housing crash, leading the state for the highest number of homes foreclosed per town from 2005-2007 and again in 2010, according to data provided by The Warren Group, publisher of Banker & Tradesman.
Passed in 2011, the first of the Springfield ordinances required lenders to go through a foreclosure mediation process, meeting with homeowners face-to-face and attempting to negotiate a deal, before they could complete a foreclosure. The second required lenders to register distressed properties with the city and pledge to maintain vacant properties they were in the process of foreclosing on. They were also required to post a $10,000 bond; if city inspectors found a distressed home that required repairs or maintenance to avoid it falling into disrepair, they could draw upon the bond to cover those costs, if the city had to do the job, or fine the lender up to $300 per day that the problems were left unaddressed.
The ordinances drew national attention during the height of the crisis, with housing advocates hailing them as an attempt to fight back against neighborhood blight. However, local lenders worried that they might damage their ability to sell their loans on the secondary market. And larger lenders feared that if other towns and cities were inspired to pass their own bylaws, they’d face a crazy-quilt patchwork of local ordinances across the state’s 351 towns, which would drive up the compliance costs of completing a foreclosure.
SJC Says No-Go
The SJC’s opinion has struck down the laws, on two different but related grounds. Determining the steps banks must take to complete a foreclosure is a matter for the state legislature, the court wrote; since the legislature hadn’t required such a program when it amended the laws governing the foreclosure procedure in 2008 and again in 2011, Springfield didn’t have the authority to impose its own program.
The blight-fighting rule also overstepped, the court said, since some of the language included in the ordinance required banks to remove hazardous waste materials, a problem already addressed by existing state environmental protection laws. The more stringent requirements of the local ordinance imposed greater legal liabilities on lenders than the state law clearly intended, the court ruled.
But the court did provide some daylight which may allow local towns to get lenders’ attention, ruling that requiring the lenders to post a bond to cover possible repairs to decrepit properties was a “lawful fee.” But it suggested any further broad solutions would have to be provided at the state level.
“We recognize that the city of Springfield has attempted to address the serious problem of urban blight within its borders through these ordinances. Although we conclude that the city may not achieve its goal by ordinance as it has here attempted, a solution may be provided through the Legislature,” Justice Francis Spina wrote in the opinion.
Similar bylaws have been passed by Worcester, Lynn and Lawrence. These are also being challenged in the courts, and the SJC’s opinion in the Springfield case will establish an important precedent likely to determine their outcomes as well.
Statewide Efforts Not Doomed
Establishing a statewide foreclosure mediation program has been proposed before. Just such a proposal was made by Sen. Karen Spilka (D-Ashland), but the changes proposed in her bill failed to make it into the 2011 foreclosure reform bill, which extended the state’s right to cure period.
But the SJC’s ruling in the Easthampton case may inspire a renewed push by housing advocates for just such laws. Nadine Cohen, head of the consumer rights units at Greater Boston Legal Services, said her group has just helped file a new bill to create a statewide foreclosure mediation program, this time sponsored by Sen. Harriette Chandler (D-Worcester).
“Connecticut has an over 60 percent success rate [with their mediation program],” said Cohen. “We think it makes sense to have a statewide mediation program. It shouldn’t be that where you live determines what your rights are.”
But it’s not clear whether there will be enough oomph behind such efforts to see them enacted, as the worst of the crisis recedes. Mullen Sawyer, executive director of Oak Hill CDC in Worcester, helped worked on previous proposals to establish a mediation program, and still thinks they’re valuable. But the 2011 reforms are already having a significant impact on banks’ willingness to work with homeowners and offer principal reductions in certain cases.
“We’re fortunate in Massachusetts that we have a right to cure [law], and that protects our homeowners,” said Sawyer. “It’s allowed homeowners to have the time and do the due diligence to represent themselves properly. … I can tell you, when our counselors call the national servicers, as soon as they say they’re from Massachusetts, it gets bumped up to a supervisor.”
Email: csullivan@thewarrengroup.com
