Three banks are taking the City of Providence to court in an attempt to ensure that they can quickly and efficiently foreclose on local homeowners. At issue is an ordinance that took effect last September. It requires any lender that plans to foreclose on a house in the city to make a good-faith effort to work with an independent mediator and to try to reach a settlement allowing the residents to stay. Any attempt to skirt this process could earn the lender a $2,000 fine.
The Providence Journal reported March 28 that lawyers for Deutsche Bank, Wells Fargo and Bank of New York Mellon are claiming that the measure is at odds with state law. Still, the city's case appears to have a decent chance in court. As a matter of policy, the law is on stronger footing — at least, for the time being. It's an important defense against the threat of blight in a vibrant but troubled city, though once the area gets through the current slump, it may become a barrier to progress and development. Mayor David Cicilline and his allies on the city council were right to create the law and they are right to fight for it. But if it survives its day in court they should consider taking it off the books when the city is in better shape.
The banks' legal case rests primarily on a state law that imposes a less stringent set of requirements. If the city's ordinance directly contradicted this legislation, it would be very difficult to defend in court. Instead, it mandates an additional process that still allows for execution of state requirements. For this reason, it may well survive the banks' challenge.
The law seems to have done some good already, and it could do much more if it remains in effect as Providence weathers the current economic storm. Banks are often powerful forces for economic recovery and development. And foreclosure, despite the hardship it entails, can be an important part of a broader rejuvenation, bringing in new homeowners with a better ability to pay their mortgages and prompting the previous residents to find an area better suited to their needs. But a high concentration of foreclosed, uninhabited houses sends property values plummeting and triggers a cycle of neglect and degradation that can hold an entire city back.
According to a March 26 story in the Providence Journal, some lenders may be all too ready to take that risk. City Councilman Kevin Jackson, one of the law's sponsors, claims that Deutsche Bank's strategy is essentially harmful speculation — accumulating foreclosed or underwater properties while making few long-term investments in Providence's well-being. While the slump drags on, the ordinance can help keep this problem in check without seriously impeding business. Mayor Cicilline has said that 22 of the 27 Providence residents who went through mediation in the law's first three months were able to adjust their mortgages and stay in their homes, according to the Journal.
But one of the unavoidable problems with the ordinance is that it can mire legitimate ownership transfers in paperwork and enable frivolous lawsuits disputing whether banks really acted in good faith; this in turn could decrease productive investment in Providence.
During dire economic times such as these, urban blight is a far greater threat. But as the city and the state recover, the legislation could become an appreciable barrier to prosperity. For the sake of this city, we hope to see the foreclosure law survive — but not too long.