Municipal Foreclosure Mediation Ordinances: Case Studies for Success?

Image Credit: Wikimedia Commons 

Vacant buildings and signs advertising home auctions are common sights in Springfield, a former industrial center (and birthplace of basketball) with a population of about 153,000 in Western Massachusetts. In many ways, small cities like Springfield have borne the brunt of the foreclosure crisis, with 165 foreclosure notices filed in the first quarter of 2012 alone. In response to this crisis, the City of Springfield enacted a Foreclosure Mediation Ordinance that requires any lenders who attempt to foreclose on owner-occupied residential properties to participate in a city-approved mediation program with the homeowners or face a $300-per-day fine. See Springfield, Mass. Rev. Ordinances ch. 7.60 (eff. Sept. 13, 2011). Springfield joins the small but growing number of municipalities that are turning away from more traditional statewide foreclosure regulation and passing ordinances or issuing administrative orders at the local levels in order to address foreclosure's negative effects on economic development. Since 2008, municipal mandatory foreclosure mediation ordinances have been enacted in four Rhode Island communities (Providence, Cranston, Warwick, and Warren) and Brookline, Mass. and voluntary mediation platforms, where the homeowner is notified of his or her eligibility but must affirmatively request mediation before being entered into the program, have been passed in Washington, D.C. and the City of St. Louis and St. Louis County, Mo. Additionally, Judges in Philadelphia, McLean County, Ill., and several Florida circuits have established mandatory judicial mediation programs through administrative orders. See e.g., Philadelphia Res. No. 080331. 

Supporters of these ordinances and administrative orders point to their 65-75% success rate in avoiding foreclosure and reaching an alternative that is mutually beneficial to the lender and borrower and view them as natural exercise of a municipality’s police power to ensure the community welfare, as foreclosures adversely affect the property tax bases of municipalities. However, opponents consider municipal ordinances to be encroachments on state power and believe that state legislatures should enact all programs related to foreclosure in order to promote uniformity throughout a particular state. See Rhode Island Cogeneration Assocs. v.City of E. Prov., 728 F.Supp. 828, 834, n. 12 (D. R.I. 1990). While the Springfield mediation program and its Rhode Island counterparts have survived legal challenges claiming the ordinances are pre-emptions of state power and violative of the Contracts Clause of the U.S. Constitution, a judge for the Eastern District of Missouri has granted the Missouri Bankers Association's request for temporary injunction on the St. Louis County ordinance until further court proceedings later this year. See Easthampton Sav. Bank v. City of Springfield, 874 F. Supp. 2d 25, 33 (D. Mass. 2012); Deutsche Bank Nat. Trust Co. v. Murphy, 2010 WL 2024917 (R.I. Super.). 

The vast majority of foreclosure mediation programs are still enacted at the state level- nearly two dozen states have implemented some form of voluntary or mandatory mediation scheme. However, a more localized approach to establishing foreclosure mediation programs may be more effective in stemming the tide of foreclosures in cities that were hit hard by the housing crisis but happen to be located in states that fared relatively well overall and therefore lack the political will to enforce mediation. Local foreclosure mediation programs may prove to be even more useful in the future, especially in nonjudicial states where foreclosure is a private matter that does not go through the courts.