Yesterday (September 19, 2012), the Business Bank of St. Louis filed a putative class action lawsuit on behalf of 272 commercial banks challenging a new foreclosure mediation requirement ordinance in St. Louis County. The new ordinance, passed last month by the St. Louis County Council, requires lenders to participate in and pay for a mediation session upon request of a borrower before initiating a foreclosure. The ordinance further requires lenders to provide borrowers with a notice of meditation and pay a $100 fee to a mediation coordinator. If the borrower requests a mediation, then the lender is required not only to participate in the meditation, but also to pay $350 for the mediation. The lawsuit contends that the ordinance "bears a price tag of an annual direct cost to lenders of more than $1 million - which will be paid to a private contractor on a no-bid contract - and indirect costs of millions more in compliance." The borrowers, who defaulted on the loan, are not required to pay anything for the mediation. The ordinance also imposes a $1,000 fine on the lender, but not the borrower, for violating the ordinance, e.g., by failing to participate in the mediation process.
The class action complaint alleges that the ordinance is an "effort to deny to Plaintiff and others similarly situated the right to choose when and how to exercise a lawful foreclosure remedy granted by the Missouri Legislature to stated chartered banks." Missouri is a non-judicial foreclosure state, and most foreclosures occur during a timeline of 60 days. This ordinance, the bank argues, attempts to circumvent Missouri’s foreclosure process and to slow foreclosures in St. Louis County, in violation of Missouri law. As the bank puts it: "Missouri counties, expressly, may only pass and enforce laws that are 'consistent' with state law and regulations governing state chartered banks. 362.109, RSMo. Counties, expressly, may not pass laws 'more restrictive than state laws and regulations governing [state chartered bank] lending.' 362.109, RSMo."
States have had mixed results with mediation programs. Florida recently ended its court-mandated meditation program, declaring it a flop. Florida Supreme Court Chief Justice Charles T. Canady stated that, based on the results of the program, he could not "justify continuation of the program." During the program, only 3.6 percent of cases referred to mediation resulted in a written settlement agreement between the lender and homeowner.