Six Banks Fighting Springfield, MA Foreclosure Rules
On November 5, the Boston Business Journal posted a blog titled Six Banks Fight Springfield Foreclosure Rules.
Six banks fight Springfield foreclosure rules
Judges on the U.S. Court of Appeals on Monday aired a lawsuit by six banks in Western Massachusetts seeking to invalidate two ordinances in Springfield that aim to control and maintain foreclosed and vacant properties.
During a hearing in U.S. District Court in Boston, lawyers for the banks and the city squared off in front of a panel of three judges.
The hearing was held after the banks appealed a decision last year by a judge in U.S. District Court in Springfield who upheld the 2011 ordinances. The city approved the ordinances after the financial crisis of 2008 helped leave Springfield with nearly 5,000 vacant and abandoned homes that contributed to blight in some neighborhoods.
Tani Sapirstein of Springfield, lawyer for the banks, told the judges that the ordinances conflict with several state laws and regulations and are unconstitutional.
She criticized a provision in one of the ordinances that would require banks to post a bond of $10,000 on certain properties under foreclosure to assure they comply with provisions to keep the properties clean, secure and in good shape. The city would keep an administrative fee from each bond estimated at about $500 to $1,000, but Sapirstein questioned if the banks would receive any special benefits in return for posting the bond.
“It’s not a fee, it’s a tax,” she said, making the bond requirement illegal since the city would need the approval of the state Legislature for a new tax.
The city’s lawyer, Associate City Solicitor Thomas Moore, said the bond would help create a regulatory system that would assist the banks.
Moore said the ordinances should help enforcement, make neighborhoods safe and preserve the value of properties.
“The district court got this right,” he said of the decision in July of last year by Judge Michael Ponsor in Springfield federal court.
Appeals Court Judge Norman Stahl questioned if the ordinance might be so onerous that it could discourage banks from lending to homeowners in certain areas.
“A lender could look at a neighborhood and say, ‘We’re not going to touch this neighborhood,’ ” said Judge Norman Stahl.
Chief Appeals Court Judge Sandra Lynch said no one denies the social consequences of the 2008 foreclosure crisis, but the dispute raises questions about the sharing of powers between municipalities and the state.
Lynch said the lawsuit might better be settled by the state Supreme Judicial Court. She suggested the Appeals Court might send the case to the state’s highest court.
She gave Sapirstein and Moore a week to file briefs about possibly sending the lawsuit to the state court.
The 2011 ordinances cover vacant residential properties and properties in the process of foreclosure.
A focus of the dispute is an ordinance mandating that owners of such residential buildings and land — including banks moving to foreclose on someone failing to make certain mortgage payments — post a minimum $10,000 bond.
Another ordinance requires a city-approved mediation process for a lender that attempts to foreclose on an owner-occupied residential property.
The case is drawing statewide attention, with the Massachusetts Bankers Association filing a brief in support of the six local banks and organizations such as the Harvard Legal Aid Bureau and the National Consumer Law Center submitting a brief to back the city.
In March, the Springfield City Council voted to stand behind the two anti- foreclosure ordinances instead of accepting a negotiated settlement of the lawsuit.
The banks , in the proposed mediated settlement, had offered to drop the suit and appeal if the $10,000 bond requirement was removed. The city could use the bond to clean up and protect properties if the banks failed to control them.
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Safeguard Properties is the largest mortgage field services company in the U.S. Founded in 1990 by Robert Klein and based in Valley View, Ohio, the company inspects and maintains defaulted and foreclosed properties for mortgage servicers, lenders, and other financial institutions. Safeguard employs approximately 1,700 people, in addition to a network of thousands of contractors nationally. Website: www.safeguardproperties.com.