This article first appeared in the St. Louis Beacon, Jan. 29, 2013 - Missouri's top banking association is supporting state legislation to eliminate St. Louis County’s foreclosure mediation ordinance – and prevent other jurisdictions from enacting similar programs.
But the Missouri Bankers Association’s legislative effort could run into complications in the Missouri Senate, since two of that chamber's newest members pushed for bills in the past to take similar mediation programs statewide.
The St. Louis County Council passed an ordinance last year allowing a homeowner facing foreclosure to enter into mediation with the lender and servicer of a loan. Mediation involves a homeowner, lender and servicer meeting with a third party such as United States Arbitration and Mediation. The ordinance, which makes lenders and servicers pay for the mediation, would impose penalties if lenders don’t participate.
Proponents say mediation could provide pathways to keep people in their homes – and potentially catch mistakes in Missouri’s quick foreclosure process. The St. Louis County bill doesn't guarantee that a foreclosure won't automatically go through.
But groups such as the MBA decried the ordinance as more regulation of lending institutions. And other opponents – including the St. Louis Association of REALTORS – said the measure could have a detrimental impact on real estate markets.
The MBA is the lead plaintiff in a lawsuit aimed at throwing the law. An appeals court judge recently issued an injunction against the county enforcing the law while the case is under deliberation.
In the meantime, the MBA is supporting state Rep. Stanley Cox’s bill that, among other things, specifies that the “enforcement and servicing of real estate loans secured by mortgage or deed of trust or other security instrument shall be pursuant only to state and federal law.” It says that no local law or ordinance “may add to, change, delay enforcement, or interfere with, any loan agreement, security instrument, mortgage or deed of trust.”
The crux of that language, Cox, R-Sedalia, said, would be to “pre-empt” foreclosure mediation programs in counties or cities.
“I would suspect that it never occurred to anyone until St. Louis County passed their ordinance or started working on their ordinance that those were not the subject of state law,” said Cox, referring to regulations involving foreclosures. “I understand that there’s litigation over that. But assuming litigation proves otherwise, we could very well have 115 different types of laws when it comes to financing homes and so forth. That would cause a great difficulty upon consumers.”
William Ratliff, the executive vice president of governmental relations for the Missouri Bankers' Association, said the bill is part of a two-pronged strategy against St. Louis County’s ordinance.
“We are continuing the lawsuit. As you know, there’s an injunction in the appeals court,” Ratliff said. “And this will probably go on to the Supreme Court, and we just don’t know how long that’s going to be. And we thought ‘whether we win or lose on the county level, this could keep going if we don’t stop this thing.’”
The St. Louis Board of Aldermen is deliberating legislation to implement a foreclosure mediation program in St. Louis. And Ratliff said without state legislation, “we could have 40 counties each with their own foreclosure law or 30 different cities that are slightly different from the county law.”
“Their bill is different from St. Louis County, which is the nightmare that we had,” said Ratliff, referring to St. Louis’ proposal. “And this is really as we see it the foot in the door. If they can get away with it on a banking bill, they could do it then on environmental bills or agricultural bills. You know: Why do you have a state legislature?”
The primary difference between the potential city program and the county's ordinance is the fine for noncompliance. The fine in the city of St. Louis would be $500, as opposed to $1,000 in St. Louis County.
Perhaps unsurprisingly, St. Louis County Executive Charlie Dooley has a cool reaction to Cox's bill. Dooley – a Democrat – strongly supported the foreclosure mediation ordinance, which passed last year with votes from all five Democratic members of the St. Louis County Council.
“It was the county’s intent in approving the mortgage foreclosure intervention code to protect the interests of homeowners and give them a fair shot at resolving their financial concerns," Dooley said in a statement to the Beacon. "But if the state of Missouri feels otherwise, maybe they and the banking interests can explain to our residents why this relatively inexpensive cost of mediation is unnecessary.”
But Cox’s bill may have more problems than Dooley’s disapproval.
The legislation will almost certainly encounter substantial resistance in the Missouri Senate, the chamber where opposition from a handful of legislators can stop a bill in its tracks.
At least two new members of that chamber – Sens. Gina Walsh, D-Bellefontaine Neighbors, and Jamilah Nasheed, D-St. Louis – either sponsored or expressed support for statewide foreclosure mediation programs.
When told about Cox’s legislation, Walsh said in an interview, “I would not support any bill like that.”
“I would hope that his legislation definitely doesn’t go anywhere,” Walsh said. “That is not a representation of the citizens of Missouri. It’s a representation of a special interest group.”
Walsh’s district takes in areas of north St. Louis County, which has suffered greatly from the foreclosure crisis. She supported then-Sen. Tim Green’s 2012 bill to allow the Division of Finance to establish a foreclosure mediation program. Nasheed -- who did not return a message from the Beacon -- carried a similar bill when she was in the Missouri House.
“I know we have to get moving and get something in,” Walsh said. “And if [Nasheed] doesn’t do it here soon, I will do it. But I wasn’t going to hijack her legislation because she’s worked just as hard on it when she was in the House. I want her to be able to continue her work with the folks she’s been working with because I’ve been out two years.
“The fact of the matter is, you know how long it takes to pass legislation around here,” she added. “So even if it doesn’t get traction, we still have to keep trying. I mean, it’s the right thing to do. You can’t not do it because it’s not going to go anywhere. I mean, why start?”
Asked about Nasheed and Walsh’s potential opposition to Cox’s bill, Ratliff said, “We haven’t talked to them about this yet, but of course we will.”
“At least they’re doing it the way it should be done,” said Ratliff, noting that the legislature is still in the process of getting organized. “If you’re going to try and change it, change it at the state law. Don’t try to do it county-by-county.”
Skepticism of Cox's bill isn't exclusive to new Democratic members of the Senate.
State Sen. Joe Keaveny -- a St. Louis Democrat whose district includes areas of St. Louis and St. Louis County -- said it's premature to consider state legislation while the county ordinance is being challenged in court.
"I don’t know why we want to precede a court ruling with a state statute," Keaveny said. "We ought to hear the merits of the case and see that the case follows its way through the courts. And then if there are any appeals, let’s hear the evidence that’s presented."
"I don’t know why there’s pressure to react to a county ordinance so quickly in state law," he added. "We have much more important things that we could be working on."
While Cox noted he would “never predict what the Senate is likely to do,” he said his bill is “pro-consumer” and beneficial to neighborhoods struggling with foreclosures.
“What is really good for the neighborhoods is to get that property back to somebody who can make the payments and protect the neighborhoods,” Cox said. “It tends to hurt a neighborhood when you have all these properties that are vacant. So this would I think bring more people into the market, which will help the communities as a whole. I’m not sure I convince everybody of that, but that’s what I believe.”
While Cox's bill is still early in the legislative process, Ratliff expects there to be a committee hearing on the measure in a couple of weeks.