Over the past several years, the cities of Lynn, Lawrence, Springfield, and Worcester in Massachusetts have passed various ordinances to protect homeowners facing foreclosure. The ordinances require the foreclosing lender to participate in pre-foreclosure mediation and specify minimum maintenance requirements, as well require the lender to post a cash bond at the beginning of a foreclosure to ensure that an empty home is taken care of during the process.
Recently, however, the Massachusetts Supreme Judicial Court (the highest court in the state of Massachusetts) struck down the foreclosure ordinances in the city of Springfield. Read on to learn more about the history of the ordinances (including how ordinances in these cities were designed to help homeowners avoid foreclosure), what the Supreme Judicial Court's decision means for Springfield, as well as how the court's decision will impact the other cities that have similar ordinances. (To learn more about foreclosure in Massachusetts, read our Summary of Massachusetts' Foreclosure Laws.)
Homeowners are not always given a fair chance when it comes to working out an alternative to foreclosure such as a loan modification, forbearance, or payment plan with their lender. (To get information about these and other options to avoid foreclosure, see our Alternatives to Foreclosure area.) Additionally, banks sometimes are not the best neighbors when it comes to maintaining properties after they take over foreclosed homes, often letting the homes fall into disrepair.
The goal of the city ordinances was to:
The ordinances in Lynn, Lawrence, and Springfield alll have two major components: mandatory mediation and property preservation.
Under the city ordinances, banks are required to participate in a face-to-face mediation with homeowners to attempt to find a way to avoid foreclosure.
Foreclosure mediation is a process that is used to help homeowners avoid foreclosure by coming up with an alternate solution that benefits both the borrowers and the lender. Mediation consists of a meeting between:
At the meeting, the parties discuss the borrowers’ financial situation and try to negotiate a way for the homeowner to keep the home or give up the property without going through a foreclosure.
To be eligible for mediation, the property being foreclosed generally must be:
(Learn more about foreclosure mediation in our State Mediation Programs area.)
Vacant properties going through foreclosure often have a negative impact on the entire neighborhood. They can present a danger to the safety and welfare of public safety officers, the public, and occupants, and, as such, constitute a public nuisance. Unsecured and unmaintained vacant properties also tend to attract vandals and thieves, thereby bringing down the value of nearby properties. (To learn the ins and outs of the foreclosure process, visit our Foreclosure Center.)
To avoid the fallout associated with vacant properties in the foreclosure process, the ordinances in Lynn, Lawrence, and Springfield require that banks put up a $10,000 cash bond to the city at the start of a foreclosure to ensure that the vacant property is taken care of during the process.
Per the ordinances, if the bank maintains the property, it gets that money back when a new owner purchases the home. On the other hand, if the bank lets the home deteriorate, then the city can use that money to pay for the upkeep.
After foreclosure, banks frequently evict families, displacing them from their homes. (To learn more about eviction, visit our Evictions and Terminations area.) As mentioned earlier, this leaves the property vacant and often neglected.
The Lynn ordinances have a special provision to address this issue and prevent unnecessary vacancies. If the bank is the purchaser of the property at the foreclosure sale, the bank must allow the former owners to become rent-paying tenants at a reasonable market rate (if they can afford it) until a new owner purchases the property.
While the Springfield City Council passed its foreclosure ordinances in 2011, the city did not begin enforcing the bond ordinance until October 2013 (and the foreclosure mediation ordinance was not implemented). The similar bond ordinances in Lynn and Lawrence were implemented sooner.
In Lynn, officials began enforcing the mediation rules by signing a contract with a dispute resolution firm to handle mediations and some small banks are engaging in mediations. Lawrence has not implemented mediation.
Like the other cities' ordinances, Worcester's ordinances require lenders to maintain abandoned, foreclosed or foreclosing properties. Banks must also negotiate alternatives with delinquent homeowners through a formal mediation process and obtain a certificate from a neutral arbitrator before they're allowed to foreclose.
Several banks filed a lawsuit in federal district court in 2014 fighting the ordinances in Lynn and Worcester. In the meantime, Worcester is not enforcing them until the case is resolved in court.
In November 2013, the U.S. Court of Appeals heard a lawsuit filed by six banks contesting Springfield's foreclosure ordiances, which focused mainly on the bond requirement. (The banks appealed the decision of a U.S. District Court in Springfield that upheld the 2011 ordinances.) Of the $10,000 bond required by the ordinance, the city planned to keep an administrative fee from each bond estimated at about $500 to $1,000. The banks argued that this constitues a tax, which makes the bond requirement illegal since the city would need the approval of the state legislature for a new tax.
The U.S. Court of Appeals, while keeping jurisdiction, decided on November 22, 2013, that the Massachusetts Supreme Judicial Court (the highest court in Massachusetts) should review the matter. The U.S. Court of Appeals ordered Springfield to hold off on implementing the anti-foreclosure ordinances while the matter was pending.
On December 19, 2014, the Supreme Judicial Court issued its opinion on the matter. The court decided that the ordinances requiring the lender to participate in pre-foreclosure mediation with the borrower and maintain the home were preempted by state law. Ultimately, the court determined that foreclosure is a matter for the state to regulate, not cities. (The court also determined that the requirement that the lender pay a certain amount at the start of the foreclosure process to register the property with the city was indeed a fee, not a tax. Worcester is now in the process of changing the bond requirement to a fee, hoping that it's maintenance ordinance will now comply with the court's ruling.)
What all this really means for homeowners facing foreclosure in Springfield is that the lender will not have to participate in mediation.
In view of the Massachusetts Supreme Judicial Court's ruling that the Springfield mediation and maintenance ordinances are preempted by various state laws, the validity of other similar ordinances in Lynn, Lawrence, and Worcester is very questionable. In the Springfield case, the Supreme Judicial Court clearly decided that state law overrules the local authorities when it comes to foreclosures. Although the decision does not immediately void any of the other ordinances, this ruling will be on the mind of any judge reviewing arguments against the ordinances in Lynn, Lawrence, and Worcester.
And, even though the mediation program in Lynn is up and running, that will probably not make a difference since the city's ordinance is substantially similar to that of the Springfield mediation ordinance, which was invalidated. if Lynn does not voluntarily end its mediation program, the federal district court in the pending case will likely follow the Supreme Judicial Court's holding and invalidate the city's ordinance, and the foreclosure mediation program will end. (In early 2015, several banks sought a preliminary injunction based on the Supreme Judicial Court decision, arguing that since Massachusetts' highest court recently ruled against the similar statute in the Springfield case, the federal court should rule against the Lynn mediation ordinance, as well as the maintenance ordinance.)
To find the City of Lynn Charter and Ordinances, go to www.ci.lynn.ma.us and select “City Hall,” then “City Departments,” then “City Clerk,” and finally “City Information” to find a link that will take you to the ordinances. However, the ordinance is so new that it has not been added to the online site as of yet.
To find the Lawrence ordinances, go to www.cityoflawrence.com and click on “Lawrence Municipal Code.” Then go to Title 8 (“Health and Safety”), and Chapter 8.28 (“Regulating the Maintenance of Abandoned and Foreclosing Residential Properties”). The ordinance for the mediation program, which will be contained in a new Chapter 8.30 called “Mediation of Foreclosures of Owner-Occupied Residential Properties,” has not yet been added online.
To find the Springfield ordinances, go to www3.springfield-ma.gov/law and click on “City Ordinances.” Then go to Chapter 182 (“Foreclosures”), Article I (“Mediation of Foreclosures of Owner-Occupied Residential Properties”) and Chapter 285 (“Property Maintenance”), Article II (“Vacant or Foreclosing Residential Property.”)
To find the Worcester ordinances, go to www.worcesterma.gov/city-clerk/ordinances-regulations. Click on “Revised Ordinances of 2008 Part One - as Amended Through October 14, 2014.” Then look at Chapter 9.