The American Dream and Federal Foreclosure
Friends of ordinary people urge them to walk away from mortgage contracts if they want and protest mishandling documents as a defense to resulting foreclosure proceedings. Champions of institutional interests counter that it’s morally wrong for people to walk away from mortgage obligations and detect opportunism in challenges to the technical sufficiency of the paperwork.
Writers on both sides discern a double standard in the other. Consumer advocates accuse lenders and their backers of insisting on the sanctity of contracts to reject strategic default, yet excuse their own failure to handle contract documents with requisite care, sometimes deliberately mishandling them. Lenders and their backers complain that deadbeats are trying to game the system, backing out of contracts then using technical legal process as a disguise to enable staying in homes.
Many get overheated in staking out positions. It’s easy to understand such heated lapses, though. After all, the mortgage meltdown and foreclosure furor make enticing platforms for ideological chanting. Stoking the passions is burbling anger inflamed by the mid-term election campaigns.
Yet narrators on both sides vastly oversimplify the reality. It’s also easy to understand that, aside from the political motivations. After all, more than 10 million individuals in the country faced the prospect of mortgage default and/or foreclosure, each with a personal story; scores of lenders were involved on the other side of those deals. The related contracts and foreclosure processes are governed by the laws of the 50 states and other localities, each varying substantially. Any meta-narrative about such deeply-detailed realities will inevitably succumb to sweeping generalizations and hysterical finger-pointing.
Worth noting, though, is how the existing machinery is both handling the turmoil reasonably well and yet how we could take sober lessons from these stories. One concerns the value of tossing out the prevailing state-based system of mortgage foreclosure and replacing it with a single national standard.
What’s working in the current system is that properly motivated lawyers on both sides are advancing rights and defending the discharge of duties, in an exercise that exposes problems. Many journalists properly report the discoveries. Lenders conduct internal examinations of the integrity of their processes. Hundreds of foreclosure actions have been withdrawn as a result.
Over the past three years, state judges from Ohio to Florida to Maine have dismissed foreclosure cases when found to rely on unreliable lender documentation. In the past ten days, judicial leaders, from New York, to Maryland, to Florida, toughened litigation rules to cure the defects detected in some cases. Valid cases are proceeding.
Meanwhile, federal authorities and state attorneys general are pursuing investigations. Though the machinery is grinding along, one thing those investigations should probe is how fragmented, ancient, and quaint is the US system of mortgage lending and enforcement. Its roots date back hundreds of years to a time when real property acquisition and finance were a local affair. The system is antiquated today when these are mostly national affairs.
Once the current fracas and furor fade, the new Congress, however constituted, would do well to consider adopting uniform federal law concerning the mortgage foreclosure process. Participants could begin by considering the proposal of law professor Grant Nelson published earlier this year. It’s not a perfect way to protect the American dream. But the state-based way has failed, as both dueling narratives attest.