Banks ask court to block Worcester, Lynn foreclosure regs

Nick Kotsopoulos TELEGRAM & GAZETTE STAFF

WORCESTER — Six Central Massachusetts banks are among seven in the state asking a federal court to block foreclosure ordinances enacted earlier this year by city councils in Worcester and Lynn.

The seven banks joined forces here Monday in filing a motion in U.S. District Court, seeking a preliminary injunction to prevent the two cities from implementing the ordinances until the fate of a similar ordinance in Springfield can been decided by the court system.

The six area banks that are plaintiffs in the suit are: Hometown Bank, Country Bank for Savings, Avidia Bank, North Brookfield Savings Bank, Rollstone Bank & Trust and Southbridge Savings Bank.

The seventh bank is Boston-based Eastern Bank.

Jon Skarin, senior vice president at the Massachusetts Bankers Association, said Tuesday the court action seeks to temporarily block both cities' recently approved foreclosure mediation ordinance and ordinances that require lenders to post a $5,000 bond with Worcester, or a $10,000 bond with Lynn, when lenders initiate foreclosure proceedings.

The purpose of the bond is to give the city the financial wherewithal to maintain properties that fall into disrepair.

Mr. Skarin said banking industry officials had been in communication with city officials in both Worcester and Lynn during the past two months, asking them to hold off on implementing their foreclosure ordinances until a determination is made on the Springfield ordinance.

He said when it appeared that both cities were going to go ahead and implement the ordinances, the banks decided to file suit.

"It was felt this was the only way to get their attention," Mr. Skarin said in a telephone interview. "It was an action of last resort because the banks were hoping these cities would voluntarily put this aside for the time being, but it was clear that wasn't going to happen."

City Manager Edward M. Augustus Jr. said Tuesday the city had not yet been served with the legal papers and he could not comment on the particulars of the suit. But he added the suit was not unexpected.

"We knew, based on what happened in Springfield, we could be facing a challenge on this ordinance," Mr. Augustus said. "But faced by the heartbreaking problems surrounding foreclosure confronting residents of Worcester and so many other cities, the City Council felt it was necessary to act."

Mayor Joseph M. Petty, meanwhile, said while the foreclosure problem may have left the headlines, it has not left the community. He said city officials learned Tuesday that Worcester County saw more foreclosure activity in the first five months of 2014 than any other Massachusetts county, according to the Warren Group.

"The city of Worcester is committed to taking whatever steps necessary to protect its citizens," Mr. Petty said.

Springfield adopted two foreclosure ordinances about 2½ years ago — one that deals with foreclosure mediation and one that deals with foreclosure of residential properties. The legality of those ordinances were subsequently challenged in the courts by a group of banks in that region.

In December, the U.S. First Circuit Court of Appeals issued a stay, preventing Springfield from implementing the two ordinances.

The First Circuit Court is hearing the case on appeal from a decision of the U.S. District Court in Springfield, which upheld the two ordinances in that city.

The crux of the case pending before the First Circuit Court is whether the Springfield ordinances are preempted, in part or in whole, by any state laws and regulations; and whether the foreclosure ordinance imposes an unlawful tax in violation of the state constitution by requiring banks to post a $5,000 bond.

Mr. Skarin pointed out that lenders are not allowed under law to go onto properties to maintain or fix them early in the foreclosure process.

He added that lenders do not receive an explanation or accounting as to how money from the bond is spent.

"This ordinance tries to get banks to take responsibility for these properties even before they have possession of them," Mr. Skarin said. "In many cases, people are still living in those homes. We appreciate that cities are trying to deal with (housing) abandonment issues, but these ordinances create all sorts of gray areas."

He added that cities have historically not gotten involved in foreclosure issues because it has mainly been a state issue. He said the state should be the only party regulating foreclosure issues.

"If you leave it to municipalities to regulate foreclosures, then it makes doing business for us much more difficult and time-consuming," he said. "Each community could potentially have their own set of regulations. We always said all along that this should be a state-regulated issue."

Contact Nick Kotsopoulos at nicholas.kotsopoulos@telegram.com. Follow him on Twitter @NCKotsopoulos