Meet the Nation's Toughest New Foreclosure Protection Law
Vacant, foreclosed homes are a particularly illogical problem. The former owners who likely could have paid rent to stay in them have been kicked out. The banks that booted them make no money on all that empty space as it winds through the lengthy foreclosure process. And when neither the banks nor the former owners are around to maintain things, the grass grows high, and the cracks appear, and whole neighborhoods suffer.
It would make much more sense if everyone involved found a way to keep people in their homes, to keep communities intact, to keep as little home value from going to waste as possible. But this rarely happens. Witness, instead, pockmarked blocks of abandoned properties in cities like Chicago and Cleveland.
So what would a solution look like, from both the point of view of the foreclosed owners, and the cities that can't afford to keep this up?
This week, the city of Lynn, Massachusetts, northeast of Boston, began to implement what may be the strongest foreclosure ordinance in the country. For starters – as is already the case across some states, but not Massachusetts – banks must engage in pre-foreclosure mediation with homeowners attempting to find a "commercially reasonable alternative" to foreclosure. This means that if banks would lose less money modifying a loan than foreclosing on the property, they need to consider that option.
The other two elements of the law are more radical. At the start of the foreclosure process, the bank must put up a $10,000 cash bond to the city. If the bank maintains the property, it gets that money back when a new owner finally takes over the home. If the bank looks away while the roof caves in, the city can spend down that cash keeping foreclosed homes from becoming civic eyesores. A federal court has already upheld a similar bond requirement in Springfield, Massachusetts.
The last part? Massachusetts and other states already have a law in place requiring banks to let renters stay in a foreclosed home until it's sold to a new owner. The new Lynn ordinance goes one step further: Banks must now allow the foreclosed homeowners themselves to become renters at a reasonable market rate, if they can afford it.
"And in most cases they would," says Grace Ross, coordinator of the Massachusetts Alliance Against Predatory Lending, which advocated for the ordinance. "Most folks, in our experience, could afford to pay their mortgage if their mortgage was based on the present-day value of the home."
The homeowners-turned-renters will still have to leave if and when a new owner is found. But this keeps the properties occupied, and it solves the problem that occurs when whole communities have both evicted families and empty homes and no way to connect them.
"The overall package they put together is fabulous," Ross says. The ordinance was unanimously passed last month by the city council. It was vetoed by the mayor but overridden. "There's really no reason in the world why it shouldn’t be replicated in other cities across the country."
Top image from a foreclosed home in Los Angeles: Mario Anzuoni/Reuters