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Judge upholds St. Louis County foreclosure mediation ordinance

This article first appeared in the St. Louis Beacon, Nov. 14, 2012 - An associate circuit judge upheld a St. Louis County ordinance establishing a foreclosure mediation program for homeowners.

But the legal fight over the precedent-setting measure isn't likely over. The law, which the St. Louis County Council passed in August and amended earlier this fall, allows a homeowner facing foreclosure to enter mediation with the lender and servicer of a loan.

Mediation involves a homeowner, lender and servicer meeting with a third party such as U.S. Arbitration and Mediation. The ordinance, which makes lenders and servicers pay for the mediation, would impose penalties if lenders don’t participate.

The ordinance was strongly supported by St. Louis County Executive Charlie Dooley, a Democrat,  and organizations like Beyond Housing. But groups such as the Missouri Bankers Association decried the measure as an additional layer of regulation on lending institutions. Opponents – including the St. Louis Association of REALTORS – said the measure could have unintended consequences on real estate markets.

The MBA and Jonesburg State Bank sued to block implementation of the law. St. Louis County associate circuit Judge Brenda Stith Loftin issued temporary restraining orders that prohibited the ordinance from going into effect.

But on Wednesday, Loftin issued a ruling stating that St. Louis County had the authority to enact the ordinance. She wrote that there’s “a presumption of reasonableness” attached to ordinances “enacted pursuant to a municipality’s police powers.”

She then added that the test of whether an ordinance is “a legitimate exercise of police power is whether the expressed requirements of the ordinance have a substantial rational relationship to the health, safety, peace, comfort and general welfare of the inhabitants of a municipality.”

“In this case, the [ordinance’s] preamble states its objective clearly,” Loftin wrote. “It was enacted to mitigate the negative externalities related to properties vacated through foreclosure, including the safety and welfare of the public. Thus, a presumption of reasonableness applies. The next question is whether an effort to encourage mediation to mitigate vacant properties has a rational relationship to the health, safety, peace, comfort and general welfare of County inhabitants. The court finds that it does.”

Among other things, the lawsuit claimed that the ordinance was in conflict with various state statutes, Missouri's constitution and St. Louis County's charter. The plaintiffs in particular pointed to a state law stating “notwithstanding any law to the contrary, any order or ordinance by any political subdivision shall be consistent with and not more restrictive than state law and regulations governing lending or deposit taking entities regulated by the division of finance or division of credit unions.”

But among other things, Loftin wrote that the ordinance “does not directly conflict with the state’s regulation of the foreclosure process.”

“It enlarges on the provision of the statutes cited by Plaintiffs in a rational manner pursuant to the County’s police powers,” Loftin wrote. “Thus, this Court finds that the Ordinance creates no conflict with state law.”

St. Louis County counselor Pat Redington said in a telephone interview that she was “delighted” with Loftin’s ruling. While not giving a specific date, she added the county would be able to start enforcing the ordinance “pretty quickly.”

“We’re very happy to be putting this program into effect,” Redington said. “We’ve said all along it offered a lot of advantages for county residents. And we decided it was worth the effort, even knowing it would be challenged. We wanted to try to enforce it. [St. Louis County Councilwoman] Hazel Erby worked especially hard on this ordinance. County executive was supportive. And looks like we can start doing it now.”

MBA executive director Max Cook was out of the office when the decision came down late Wednesday afternoon. Jane Dueker – an attorney with Stinson Morrison Hecker representing the plaintiffs – told the Beacon the association would appeal the ruling.

“I can say for the record that there may be some procedural issues to discuss with the judge to make sure we have a final order,” Dueker said. “Also, the Missouri Bankers Association anticipated that no matter which way the circuit court ruled, this case would be appealed.  Thus, the Missouri Bankers Association will be appealing.” 

The litigation's end result could have ramifications beyond St. Louis County. Depending on the outcome, it could provide insight over whether local jurisdictions, especially counties with charter forms of government, can set up foreclosure mediation programs. St. Louis, for instance, is considering a similar initiative.

The ability for local entities to set up these types of programs is critical, since the Missouri General Assembly hasn’t moved on legislation to establish foreclosure mediation programs statewide.

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