This month, by R.I. Superior Court Judge Jeffrey A. Lanphear partly voided a Providence city ordinance that required banks to mediate with homeowners facing foreclosure. Lanphear said the city could not prevent noncompliant banks from filing foreclosure deeds at City Hall. However, he let stand a provision that allowed the city to fine noncompliant banks.
William Farrell, a lawyer and lobbyist for the Rhode Island Bankers Association, recently spoke with Providence Business News about the decision.
PBN: How do you view the judge’s ruling and why?
FARRELL: I certainly feel better about the ruling after reading Judge Lanphear’s decision. The judge’s decision provided a thorough outline on the theory of state preemption and provided sound reasoning for upholding the need for uniformity in the application of state mortgage law.
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PBN: How does the ruling relate, or not relate, to existing state laws regarding foreclosure?
FARRELL: The state’s foreclosure law and recording statutes are quite specific and leave little room for variation. I am concerned that a more recent state law involving foreclosure counseling was not taken into consideration in the judge’s decision. R.I.G.L. 34-27-3.1, which became effective in March of 2010, requires lenders to notify borrowers, who are delinquent on their mortgage payment, of HUD-approved counseling.
The state counseling statute was adopted after the filing of the suit and, if one applies the line of reasoning adopted by the court regarding preemption of the recording ordinance, it would seem that the state statute governing foreclosure counseling would trump the municipality’s ability to enact foreclosure mediation.
PBN: Do you think the decision will set precedent, particularly for the two other Rhode Island communities – Cranston and Warwick – that have similar ordinances in place?
FARRELL: Absolutely.
PBN: I understand there are concerns in the banking industry about other recent foreclosure measures involving tenants. Can you speak a little about those and if the latest ruling could impact those concerns?
FARRELL: One has to remember that the relationship in a mortgage secured multi-family dwelling is between the lender and the landlord. To retroactively impose upon a lender an obligation that has no bearing on the bank/landlord relationship, contradicts decades of established law concerning the role and responsibility of a secured party. The impact in the national secondary mortgage market and its willingness to provide mortgage financing on multi-family housing as we go forward is something that should be of concern to the state’s housing policy officials.
PBN: In light of the recent decision, what’s the next step for the banking association and the industry as a whole?
FARRELL: One first has to recognize that the banking industry encompasses a wide variety of financial intermediaries. The member banks of the Rhode Island Bankers Association have worked with, and will continue to work with, housing agencies, community groups, advocacy groups and individual borrowers in hopes of avoiding the loss of one’s home due to foreclosure, and I think a close examination of the efforts of the banking industry here in Rhode Island will prove this out.
