Concerned about the continuing toll foreclosures are taking on their residents and neighborhoods, Lynn and Lawrence have adopted ordinances requiring banks to engage in face-to-face mediation with homeowners prior to foreclosure.
The new measures put the two cities at the forefront of Massachusetts communities in providing protection for homeowners in the foreclosure process. Springfield adopted similar rules in 2011.
Lynn and Lawrence also adopted the requirement that banks or other responsible parties maintain properties that are in the process or have been foreclosed. Lenders are required to post a $10,000 bond to ensure upkeep of the property.
The new rules in Lynn are part of an overall Homeowners Bill of Rights that was adopted unanimously by the City Council. Mayor Judith Flanagan Kennedy vetoed the measure in April, contending among other concerns that it should be addressed at the state and federal levels. But the council overrode the veto in May, again by a unanimous vote.
“We are really glad to see a local government standing with the people of the city instead of rolling over for Wall Street and the big banks,” said Isaac Simon Hodes, community organizer for Lynn United for Change, a residents group whose members turned out in large numbers at the council meetings to support the ordinance.
Hodes said the foreclosure problem remains acute in Lynn.
“We’ve seen a huge number of families struggling to keep up with loans that were often predatory, that were made during the housing bubble that was engineered by Wall Street. We see people doing everything they can to make their mortgage payments . . . using their savings, their retirement accounts, taking extra jobs.”
‘There are many cases where by sitting down with a representative of the bank, you can actually reach agreement.’
As of April 1, Lynn had 603 homes that were in the final stages of the foreclosure process or had been foreclosed and become bank-owned within the past two years, according to Hodes, citing figures from the Massachusetts Housing Partnership. He said that in 2011 and 2012, 1,123 foreclosure petitions were filed in Lynn.
City Council president Timothy Phelan, who cosponsored the ordinance with Ward 6 Councilor Peter Capano, said it is designed to address the difficulties many homeowners have experienced trying to work with large, out-of-state banks.
“People have expressed frustration because they had a plan to prevent foreclosure, but the banks would ignore them and just push the foreclosure,” he said.
The new ordinance “forces the bank to at least have a face-to-face mediation with the homeowner prior to foreclosure,” added Phelan, who is running to unseat Kennedy in this year’s mayoral election.
In the Lynn and Lawrence mediation programs, the cities designate moderators to sit in the meeting between the lender and the homeowner. The ordinances apply to owner-occupied homes of four units or less. While the cost of mediation will be assessed to lenders in Lynn, homeowners will pay up to 15 percent in Lawrence.
Hodes said the cost of hiring a mediator could range from $750 to $1,000 a day, but the city could line up a number of mediations to be held in succession to split the costs.
“If you look at the track record of pre-foreclosure mediation programs in other areas of the country, it really can prevent foreclosures,” Hodes said. “There are many cases where by sitting down with a representative of the bank, you can actually reach agreement.”
Phelan noted that should the mediation not succeed, banks can still foreclose on the home. Under the ordinance, banks that engage in good-faith mediation will receive a certificate that they can then use to have the foreclosure recorded at the Southern Essex Registry of Deeds.
The ordinance imposes fines on banks that do not comply. Adding further teeth to the measure, John L. O’Brien, the Southern Essex register of deeds, has said he will not record any foreclosure deed from Lynn if the bank does not have a certificate showing it has participated in mediation.
O’Brien, a Lynn resident, said he is happy to support the ordinance, because “a foreclosure doesn’t do anyone any good. It destroys neighborhoods, it destroys families, people’s property values go down.”
Kennedy, in her veto letter to the council, said, “Requirements of this type should not be introduced at the local level, but are rather the province of state and federal government,” noting that a state task force is currently exploring providing such protections on a statewide level.
Responded Phelan: “The federal government and the state government have not done anything on this issue since the time it happened, so if it falls to local government, we are going to address it.”
Kennedy also warned that the ordinance could lead to “lengthy and costly challenges in the courts.”
But Hodes said he was optimistic the ordinance would stand up in court, citing a federal judge’s ruling in July 2012 that rejected a challenge by banks to Springfield’s rules.
The Massachusetts Bankers Association expressed its strong objections to the ordinance in a letter the group’s executive vice president, Kevin F. Kiley, sent the City Council prior to its vote.
Kiley said that the measure would “place substantial new burdens on all banks making mortgage loans in the city, thereby reducing the availability of and increasing the cost of credit for all homebuyers.”
Ella Thomas, a member of Lynn United for Change, said the ordinance could have helped her avoid her home being foreclosed on last year. Thomas said that prior to the foreclosure, she tried unsuccessfully to work out a repayment plan with the bank.
“If an ordinance like this was instituted prior to that time, at least I wouldn’t be dealing with someone over the phone, not knowing who I was speaking to. They would have had to sit down and meet with me face to face,” said Thomas, who is currently fighting an eviction notice the bank had issued her after purchasing her home at auction.
The Lawrence City Council adopted similar rules in two ordinances passes in April.
The ordinances passed with strong support from the Merrimack Valley Project, a Lawrence-based advocacy organization that works on social and economic issues.
The Rev. Victor Jarvis, pastor of the Ebenezer Christian Church in Lawrence and president of the Merrimack Valley Project, said his group is pleased that banks will be required to engage in mediation.
“I know that this will help our people because when they are in mediation, generally people stay in their homes because they are able to have an agreement with the bank,” he said.