The United States Court of Appeals-First Circuit yesterday addressed the growing issue of how local communities should tackle the continuing after effects of the foreclosure crisis that stemmed from the Great Recession of 2007.
In the matter of Easthampton Savings Bank v. City of Springfield (USCA, No. 12-1917), the court was asked to determine by plaintiff banks whether Springfield violated the contracts clause of the U.S. Constitution or a number of state laws when the city passed two ordinances that required 1) property owners to maintain property during the foreclosure process and to provide a $10,000 cash bond per foreclosure to the city, and 2) require mortgagees to attempt a settlement through a new particular set of negotiation procedures.
The banks have taken pause when it comes to the definition of property owner, which appears to include them, even if they are not in physical possession of a property or someone is still residing in the property.
Springfield is the capital of Massachusetts and, according to the U.S. Census Bureau, has a population of 153,552 people. Just over half (50.7%) of Springfield’s residents own their homes, and the median value of owner-occupied units is $156,200. The median household income in Springfield is $35,603, which is significantly lower than the state average of $65,981. Twenty-seven percent of Springfield’s residents live below the poverty level compared with Massachusetts’ poverty level of 10.7%.
Reportedly, some 1,300 housing units are being impacted by the foreclosure process in Springfield, adding weight to the court’s acknowledgment that the City attempted to address the impact the housing collapse of 2008. Like all other cities dealing with the foreclosures, Springfield is particularly concerned with the threat to public safety that vacancies can cause. Vacancies attract criminal activity and squatters with no access to public utilities may cause fires.
The court struggled with whether the issue of the ordinances should be best addressed under state law and held back from making a contracts clause assessment under the U.S. Constitution.
Just how much leeway state statutes give to municipalities is also another concern, one that the court of appeals would prefer that the state’s supreme judicial court work out.
Specifically, the court of appeals has asked the supreme judicial court to address two questions:
1.Are Springfield’s municipal ordinances Chapter 285, Article II, “Vacant or Foreclosing Residential Property” (the Foreclosure Ordinance) or Chapter 182, Article I, “Mediation of Foreclosures of Owner-Occupied Residential Properties” (the Mediation Ordinance) preempted, in part or in whole, by those state laws and regulations identified by the plaintiffs?
2.Does the Foreclosure Ordinance impose an unlawful tax in violation of the Constitution of the Commonwealth of Massachusetts?
For municipalities following this case, more than likely they are hoping that state laws do not preempt Springfield’s efforts. I don’t see why a city would not want to exercise more autonomy regarding its economy. Urban blithe discourages potential new residents from moving to a city, reducing opportunities for income and commercial growth. Springfield’s ordinances, while increasing regulatory burdens on the banks, at least is not as intrusive as the property takings pursued by Richmond, California where that city wants to treat mortgages like condemned property by imposing eminent domain to buy them and reset mortgage terms.