Alert July 10, 2012

Massachusetts Federal Court Upholds City Foreclosure Ordinances

The United States District Court for the District of Massachusetts, Springfield Division, rejected a challenge to two ordinances enacted by the city of Springfield, Massachusetts that require mediation prior to foreclosing on residential properties and require foreclosing lenders to maintain vacant properties, including posting a $10,000 bond to reimburse the city for any maintenance work that it may have to perform to keep the property in compliance with the local housing code while it remains in foreclosure. 

The Court found plaintiffs state and federal law challenges to the mediation ordinance unpersuasive, holding that no “sharp conflict” existed between Massachusetts foreclosure law and the mediation ordinances because the Massachusetts state foreclosure statute does not prohibit local municipalities from regulating the conduct of foreclosures. The Court rejected plaintiffs’ contract clause challenge on the grounds that  the city’s imposition of a mediation requirement did not unconstitutionally interfere with the terms of mortgage contracts between borrowers and lenders, noting that plaintiffs should have expected “the possibility of changes similar to those contained in the ordinances when entering into the mortgage contracts.”

The Court also dismissed the plaintiffs’ argument that the property maintenance ordinance violated Massachusetts law, finding that the posting of a bond was not an unlawful tax, but a legally permissible regulatory fee.  The Court also noted that widespread foreclosures are “an issue of serious public concern to municipalities,” holding that the city’s ordinance represented an appropriately measured effort that imposes “reasonable conditions” upon foreclosure practices.  If upheld or applied elsewhere, the Court’s ruling could open the door for other localities to impose additional requirements and limitations on the conduct of foreclosures.