The story of the foreclosure crisis, in Massachusetts and nationally, is the story of banks treating the law as a one-way street. Too often, banks have used strict adherence to foreclosure laws as a means of separating homeowners from their real estate, while bending laws on their own end and fighting new protections for homeowners. Banks shouldn’t fear laws that put homeowners on equal ground with the folks who own their mortgages. They shouldn’t fear common-sense consumer protection. But they do. And a legal battle that reached the state’s highest court last week shows banks still haven’t learned much in the seven years since the foreclosure crisis first exploded.
The entities entangled in foreclosure court cases usually belong to the country’s biggest banks. But last week, six small Massachusetts banks were the ones asking the Supreme Judicial Court to roll back protections for homeowners facing foreclosure. The banks — Easthampton Savings Bank, Chicopee Savings Bank, Hampden Bank, Monson Savings Bank, United Bank, and the Country Bank for Savings — want the SJC to toss two modest anti-foreclosure ordinances that Springfield enacted in 2011.
One of the laws requires banks to meet any homeowner they’re trying to foreclose on in mediation. The other requires banks to keep the property they seize in decent condition — to remove any hazardous waste on the property, to cut the grass and shovel the snow, to keep it up to code. The laws give homeowners a shot at avoiding foreclosure and some attention to blight prevention when banks do foreclose.
The modest nature of Springfield laws make the legal battle to overturn them seem especially tone deaf. The banks first sued Springfield to overturn the city laws days before they went into effect. A federal judge swatted aside the banks’ arguments that Springfield’s foreclosure ordinances were unconstitutional and illegal back-door taxes. Months later, the state passed a tough new anti-foreclosure law, which the six banks quickly held up as evidence that Springfield was trying to illegally preempt state foreclosure statutes. A federal appeals court kicked that argument over to the SJC, which heard arguments last Thursday.
Plenty of cities, including Boston, require banks to maintain the homes they foreclose on. That part of Springfield’s foreclosure law isn’t all that controversial. The real stick between the eyes, for the banking industry, appears to be Springfield’s insistence on mediation — requiring banks to meet face-to-face with the homeowners they’re trying to foreclose on. This shouldn’t be an enormous request — especially given banks’ well-documented habits of playing fast and loose with consumers facing foreclosure, paying lip service to restructured loans while fast-tracking foreclosure paperwork.
Banks have foreclosed on 62,000 Massachusetts homes since the foreclosure crisis began in earnest in 2007. The majority of them centered on poorer urban areas. These are communities where homeownership is most closely tied to wealth and economic mobility, where residents have been starved for mortgage credit, and where financial literacy is lowest. More than 3,300 of those homes are in Springfield. Rising home prices and the state’s 2012 foreclosure prevention law, which requires banks to restructure subprime loans if doing so would be less costly than foreclosing, have helped slow the pace of foreclosures. Still, even with that slower pace, more than 12,000 homeowners have been foreclosed on since the Springfield case hit the courts; nearly 600 have been in Springfield itself.
Foreclosure figures are falling, but they’re still too high — especially since it’s often in the best interests of both banks and homeowners to avoid foreclosure. All Springfield’s anti-foreclosure laws do is require banks to give struggling homeowners a fair shot. The fact that the banking industry is fighting so hard to avoid giving borrowers their due, in itself, shows why cities like Springfield need these laws in the first place.
Paul McMorrow is an associate editor at Commonwealth Magazine. His column appears regularly in the Globe.