City council in Springfield, Mass., puts pressure on lenders
Lenders who fail to conduct mediation sessions with distressed borrowers living in Springfield, Mass., could face penalties as high as $30,000 under ordinances passed by the city council this week. The updated code requires lenders to conduct mediation sessions with distressed Springfield borrowers within 45 days of the homeowner receiving a right-to-cure notice in the mail. A financial institution that fails to comply with this mandate faces a $300 fine per occurrence per day, with fines kicking in after the initial 45-day period. "If they don't negotiate in the first 45 days, the process stretches out to 150 days," explained Springfield City Councilor Amaad Rivera, who proposed the ordinance. A failure to mediate within the 150-day period easily amounts to $31,500 in fines, with the offender having to pay $300 per day after the initial 45-day period. Springfield's city council also approved an ordinance requiring lenders to post $10,000 bonds on all vacant properties registered with the city. The bond becomes an insurance policy, giving the city additional funds when forced to cover maintenance costs on the vacant property. Once a property is no longer vacant, the city will return the bond with $500 subtracted for administrative fees. Springfield's mayor has to review the new code before it takes effect. Tom Deutsch, executive director of the American Securitization Forum, has been studying controversial city codes and their impact on lending institutions and the securitization process. Earlier this year, he sounded the alarm on a Chicago ordinance, saying it forces lenders to cover property expenses before a home is legally back in the lender's hands. After studying the Springfield ordinance he noted similar issues. "I think this is subject to the same potential legal challenges as the Chicago ordinance," Deutsch told HousingWire. "It requires a mortgage holder to be deemed an owner as if they have taken full possessory rights through the foreclosure process even though they have not done so." Rivera said Wednesday the council remains confident the codes can survive a legal challenge. Write to: Kerri Panchuk.