Thousands of foreclosures are pending, Many of them involve families with children. Imagine living with the fear of being brought before a judge who must rule that “the law” will enforce agreements you signed in hope and in ignorance nurtured by salesmen working on commission. You must leave your home and find somewhere else to live at the very time you may be temporarily out of work. That scenario fits my definition of cruelty and of preventable harm.
In this context the law is of little help. In individual cases the law may of course be a life-saver, assuming what is in fact unlikely to happen, namely that the homeowner is represented by experienced counsel, someone who is familiar with not only foreclosure law but also with other law that may provide a defense or the basis for a valid counterclaim. But for the vast majority of homeowners against whom a foreclosure suit is filed the outcome of the process is inevitable and anguishing and, to rub salt into the raw wound, expensive for the soon to be dispossessed homeowner and her family.
Under these circumstances – by any measure a crisis – business as usual will just make things worse. There are alternatives that could serve both the lenders and the borrowers interests. After all, even though it is easy to forget, borrowers and lenders have this in common: neither benefits from default and foreclosure. The harm to the homeowner is obvious. So too is the harm to the lender. Lenders want – absolutely need – a stream of income from each mortgage. The prospect of strong returns on investment from those streams of income was behind the urge to lend.
Foreclosure stops those streams of income. The foreclosure process diverts value from lenders and from property values to pay for the foreclosure process. To that extent, neither homeowner nor lender benefit. There are other costs. Lenders must pay to insure, maintain, market and sell the now devalued real estate. Everyone knows that property sold at foreclosure is a “steal.” Long before that point, homeowners have “lost everything.” Lenders are trying desperately to cut their losses. So far, lender and borrower have this in common: they have suffered losses, much greater for families than for investors to be sure.
Then one imagines the speculators – real estate speculators this time – will come in but only if they can buy cheap, really cheap. They will know the market …. much, much better than the guys on Wall Street who confidently and to their great personal advantage created the strategies that led to the sub-prime crisis. (Is there something about the word “sub-prime” that is difficult to grasp?)
The speculators will need financing. The cycle will start again. The stream of income from each property will, eventually, start up again. But at what cost? Is the cost worth it? Isn’t there a better strategy for the lenders who have brought all these foreclosure suits? Isn’t it at least worth the effort to try to come up with a different strategy, one that avoids the foreclosure process altogether and focuses on determining whether it is likely that the existing borrowers will be able to keep the income stream flowing. Which is likely to be more profitable for existing lenders: restructuring existing debt (assuming the borrowers have the ability to pay something) or stopping the stream of income, paying for the foreclosure process (the cost will come off the foreclosure sale price), causing a reduction in the already depressed value of the property and selling the property at a loss?
I imagine that there is a herd mentality among the lenders who have brought all the foreclosures. Everyone has panicked. Get the loans off our books! Fast. Anything is better than the situation we’re in! Sure there is talk about alternatives. But no guts. No leadership by the people who, however unintentionally, created this mess. Apparently there is Just fear and resignation and maybe a new job. The herd is in charge. Business as usual is in charge. There must be people in positions of real power who can help solve the problem or at least try.
Maybe that’s right. But maybe it’s not. Here are some brainstorming ideas offered in the hope of stimulating others to come up and try to implement solutions to this cruel crisis:
1. The solution lies outside the legal process.
2. Maybe the really, really smart guys (meaning women as well as men) who helped create this problem and reverse engineer it. Why not ask them to help figure out a way to get the most value out of the current mess in a way that uses the existing homeowners as resources, as assets, rather than discarding them? (Note: I say “really, really smart” without sarcasm but believing that they bear a significant measure of responsibility for undoing the harm that they, however inadvertently, helped to cause.)
3. The mortgage brokers who were so eager to sell sub-prime loans should now offer, free of charge, to help borrower and lender restructure. This is a program that should be created and directed by each lender using the services of mortgage brokers on a pro bono basis.
4. A role for the CTLA: The one group that has the wherewithal and the expertise and resources to battle the lenders is the group of “big-time” plaintiffs’ lawyers. Of course a battle is not what’s needed. It will make things worse. On the other hand, it sometimes takes the power – and it is real power – of the big time plaintiffs’ lawyers to get the attention of big business.
5. Can anything be learned from the Vioxx case? Thousands of plaintiffs. A settlement process was fashioned relying on information provided by plaintiffs’ counsel about their clients. Could something like that be done with the big-time plaintiffs’ lawyers representing borrowers in, for example, class actions or other types of litigation that brings into play the federal procedure for handling of mass litigation?
6. A role for the judiciary? In conjunction with the lenders efforts to come up with an alternate way of dealing with the crisis, impose a freeze on all foreclosures or if not on all then on those in which there is any reason to believe the debt could be restructured. Details to be worked out.
7. A role for elected representatives. Chris Dodd comes to mind first. So do Governor Rell, Attorney General Blumenthal, Congresswoman Rosa DeLauro, and every other state and federal elected official. Collectively they have a great deal of power, in some cases they have great power individually. Get together, across party lines and TALK.
8. A role for Presidential candidates. Huge opportunity for both of them. How about Obama and McCain working together to help deal with the foreclosure crisis in an EFFECTIVE, boots on the ground way? Wishful thinking? So what? Why not?
9. A role for the press. Devote space on a daily basis to the foreclosure crisis. There is an opportunity for good writing to make a difference. Use pictures only with permission. There is no need to sensationalize. The facts themselves, if well reported, will take care of that. Be respectful of those involved.
10. A role for you, the reader. If you have something to offer, offer it. Everyone could do at least two things: 1. contact your elected representatives as well as each Presidential candidate. Tell them, respectfully, that business as usual won’t work; that it will just make things worse; that there is an opportunity to make history and to do good by helping to CREATE A NEW SOLUTION. 2. Support the Connecticut Fair Housing Center. You make make a donation here. If there is anyone in Fairfield County (or elsewhere) who is very wealthy and who would like to make a contribution that of say $100,000 to the Connecticut Fair Housing Center, please, please do. Every day the out-manned staff at the Fair Housing Center fields calls from people who are desperate. The human toll on the people being foreclosed and on those in the front lines who are trying to help them is enormous. Contributions of any amount will, I am sure, be gratefully received and put to direct, efficient use. (Note: I am making this plea on my own. The Connecticut Fair Housing Center knows nothing about this.)
11. A role for the Connecticut Bar Association. The CBA is already trying to help by creating a panel of lawyers willing to work on a pro bono basis. This is an important and valuable step. But I have something else in mind, something that a Bar Association may not be expected to do. Would it be useful for the President of the Bar Association, acting with the approval of the Board of Delegates, to speak out on the foreclosure issue by saying that the legal process – in the context of the foreclosure crisis – is not the solution. This would in no way be a criticism of the legal process or of the Judiciary. Rather it would be an acknowledgement that the legal process was never meant to handle this kind of wholesale problem and a call for lawyers and the Judiciary and others to “think outside the box.”
Please feel free to add to this list and to pass it on to anyone you think might be able to help in some way.