Massachusetts Federal Court Upholds Local Foreclosure Laws

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On July 3, the U.S. District Court for the District of Massachusetts dismissed several banks’ challenge to a Massachusetts city’s foreclosure-related ordinances. Easthampton Savings Bank v. City of Springfield, No. 11-30280, 2012 WL 2577582 (D. Mass. Jul. 3, 2012). The banks sued to enjoin the City of Springfield from enforcing two local ordinances related to foreclosures: one that regulates the maintenance of vacant properties and properties in the foreclosure process, and another that requires mediation prior to foreclosures. The banks argued that (i) state law preempts both ordinances, (ii) the vacant property ordinance violates the Contracts Clause of the U.S. Constitution, and (iii) a provision of the vacant property ordinance that requires a cash bond constitutes a tax prohibited by state law. The court in ruling for the city held that the ordinances are not preempted by state law because neither significantly alters the foreclosure process or the mortgagee-mortgagor relationship established by state law, and the imposition of additional duties does not create a conflict with state law. With regard to the federal constitutional challenge, the court held that the vacant property ordinance does not violate the Contracts Clause because any impairment of the banks’ contracts under the ordinances is minor, and even if substantial, the ordinance falls within the city’s police powers, is appropriately tailored to protect a basic societal interest, and imposes reasonable conditions on mortgagors. Finally, the court allowed the bond requirements of the vacant property ordinance to stand, reasoning that it is a regulatory fee and not a tax because the portion of the bond retained by the city is reasonably designed to compensate the city for regulatory expenses.

 

Published In: Civil Procedure Updates, Constitutional Law Updates, Finance & Banking Updates, Residential Real Estate Updates, Zoning, Planning & Land Use Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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