At last Tuesday’s meeting, the Lowell City Council by a 5 to 4 vote rejected a joint motion by Bud Caulfield and Rita Mercier to “allow Sean Burke to address the City Council regarding a plan for vacant/foreclosed homes.” Today, both Gerry Nutter and the Lowell Sun editorial have written critically of the council majority for not allowing Burke to speak. Rather than commenting on that decision, I thought it might be helpful to provide some background on the underlying issue: whether the city’s foreclosure crisis presents a revenue-raising opportunity for the city.
To follow the issue, you first have to understand some of the intricacies of Massachusetts foreclosure law and practice. When a homeowner falls far enough behind in his monthly payments, his lender will initiate a foreclosure by filing a lawsuit in the Land Court under the Service Members Civil Relief Act, a statute that provides added protection against foreclosure to homeowners who are serving in the military. The only issue to be decided in this court case, therefore, is whether the property owner is in the military. Due process requires that the homeowner receive adequate notice of the lawsuit, so the Court issues an Order of Notice that must be (1) served on the homeowner, (2) published in the newspaper, and (3) recorded at the registry of deeds. Since the vast majority of homeowners are not serving in the military, these lawsuits almost always end with a judgment in favor of the lender which authorizes the lender to proceed with the foreclosure. This ends all judicial involvement in the foreclosure process.
It is important to understand that an Order of Notice does not guarantee a foreclosure. If the homeowner is able to work out a modification agreement with the lender, refinance, or sell the property, the Order of Notice becomes moot and no foreclosure auction is ever held. In most cases, the Order of Notice does ripen into a foreclosure auction. That auction typically occurs approximately 90 to 120 days after the Order of Notice is recorded at the registry of deeds. The auction occurs on the property that is the subject of the foreclosure and the property is sold to the high bidder. In 90% of all foreclosures, the high bidder is the same lender that is conducting the foreclosure. Since lenders are not in the business of owning real estate, they do put the property on the market. To enhance the prospects of a sale, the lender also evicts everyone from the house, leaving it vacant until a new owner is found. Unfortunately, the average foreclosed property remains on the market for 9 months until the sale to a new owner is consummated. During that lengthy period of vacancy (which is even longer if the homeowner/borrower abandoned the property prior to the auction), the house becomes a crime-magnet, dragging down the value of all other properties in the neighborhood.
In an effort to force lenders who become owners of foreclosed and vacant homes to keep the homes in good repair, the city council several years ago passed a “Vacant and Foreclosing Property” ordinance (part of Chapter 227 of the Code of City Ordinances). The purpose of the ordinance is:
A. It is the intent of this article to protect and preserve public safety, security, and quiet enjoyment of occupants, abutters, and neighborhoods by:
(1) Requiring all residential, commercial, and industrial property owners, including lenders, trustees, and service companies, to properly maintain vacant and/or foreclosing properties; and
(2) Regulating the maintenance of vacant and/or foreclosing residential, commercial, and industrial properties to prevent blighted and unsecured properties.
The ordinance requires that the property be registered with the city’s Building Commissioner within 7 days of the “initiation of the foreclosure process” which is defined as (1) taking possession; (2) Delivering mortgagee’s notice of intention to foreclose to borrower; or (3) Commencing “foreclosure action” in either Land Court or Middlesex Superior Court. In addition to registering with the Building Inspector, the ordinance requires the person responsible for the property to keep it up to code and to identify a local agent who can be contacted if any problems arise.
These requirements are backed up by fines:
A. Failure to register with the Commissioner shall be considered a violation of this article and is punishable by a fine of up to $300. Each week that such violation continues shall be considered a separate offense.
B. Failure to identify the local individual or local property management company shall be considered a violation of this article and is punishable by a fine of up to $300. Each week that such violation continues shall be considered a separate offense.
C. Failure to maintain the property shall be considered a violation of this article and is punishable by a fine of up to $300. Each week that such violation continues shall be considered a separate offense. Any expenses incurred by the City of Lowell relative to securing or maintaining property shall be recoverable by placing a lien on the property.
Lowell has had many foreclosures over the past few years. I don’t have the exact number handy, but I’d say it’s between 1500 and 2000. If even a fraction of those properties failed to register and you started calculating a fine of $300 per week per property continuing into the future, you would undoubtedly come up with a projected amount owed to the city in the seven-figure range. But the purpose of that ordinance is to prevent vacant-foreclosed properties from becoming a blight on the neighborhood, not to solve the city’s financial woes. A strict, technical enforcement of that ordinance, in fact, would likely worsen the problem of vacant homes. I’m acquainted with a number of instances where homeowners fell behind in their mortgage payments and received Orders of Notice. But in these cases, the homeowners were able to reach some type of forbearance agreement with their lenders that headed off a foreclosure auction allowing these folks to remain in their homes and recover from their temporary financial distress. At no point were these homes vacant. The homeowner s remained and kept them lived-in and in good repair. But if thousands of dollars in additional fines were tacked on, it’s likely that these deals would have fallen apart and the respective neighborhoods would suffer the consequences.
The underlying issue in this debate is strict enforcement of the ordinance versus smart enforcement of the ordinance.