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Springfield’s Attempt to Regulate Foreclosure-Related Urban Blight Invalidated

The Supreme Judicial Court has ruled on two questions certified to it in regard to ordinances passed by the city of Springfield in response to the wave of foreclosures triggered by the recent financial crisis and housing bubble.

Springfield passed the two ordinances, which applied to properties left vacant during or after the foreclosure process, in 2011 to 1) require mandatory mediation between mortgagors and mortgagees (“mediation ordinance”), and 2) to require owners of buildings that are vacant or undergoing foreclosure to register with the city (“foreclosure ordinance”).  The registered owners of buildings, broadly defined in the ordinance, were then required to maintain or restore the property to certain minimum standards set by the city, with penalties imposed for failure to comply.

Six banks challenged the municipal ordinances on the grounds that they were preempted by state law.  The SJC held that the mediation ordinance is preempted by G.L. c. 244, the foreclosure statute, which sets out a comprehensive process for foreclosure.  The SJC noted that “[m]ortgage foreclosure regulation traditionally has been a matter of State, and not local, concern.”

While the foreclosure statute does not preempt the foreclosure ordinance, the SJC held that G.L. c. 21E, the Oil and Hazardous Material Release Prevention Act (“OHMRPA”) does preempt it.  The foreclosure ordinance requires an “owner of a vacant and/or foreclosing property” to “[r]emove from the property, to the satisfaction of the fire commissioner, hazardous material as that term is defined in Massachusetts General Laws, chapter 21K, as that statute may be amended from time to time . . . .”  The broad definition of “owner” in the foreclosure ordinance conflicts with the exemption for secured lenders from the requirements of OHMRPA.  The SJC agreed with the banks’ argument that “the foreclosure ordinance forcibly exposes them to liability under the OHMRPA if, in complying with the mandate of the ordinance, they enter a property and become mortgagees in possession during or after which a release or threat of release of hazardous material occurs.”  Additionally, the state sanitary code, G.L. c. 111, §§ 127A-127N, and the regulations promulgated thereunder, 105 CMR § 400, preempt the foreclosure ordinance’s requirement that an owner post a bond.  As the SJC stated, “[g]iven the comprehensiveness of the code and the remedies provided therein, it is inconsistent with the code for a municipality to require a surety bond of an owner in situations where the code would require none.”

The banks argued that the foreclosure ordinance constituted an unlawful tax, a position the SJC did not agree with, deciding instead that it was a lawful fee.

The SJC in closing recognized the “the serious problem of urban blight” Springfield sought to ameliorate, but suggested that the Legislature is the appropriate body to take action.  Perhaps the Legislature will step in, as Springfield is certainly not the only Massachusetts community dealing with serious issues related to the ongoing fallout from the financial crisis.

For the full decision, see Easthampton Savings Bank v. City of Springfield