The inability of many working-class families to afford legal services is making the protections of the due process clause of the constitution elusive to a growing segment of American citizens . This is not an abstract theory. It has become the vivid reality in the recent foreclosure crisis. Thousands of families may have been removed from their homes based on the negligent behavior and fraudulent representations of mortgage servicers and some lawyers who represent them.
Recent news reports tell a scary story about outrageous tactics by mortgage servicers, banks , investment trusts, and their lawyers seeking to foreclose on homeowners by presenting fraudulent documents and affidavits to courts to justify their complaints. The majority of the homeowners affected lack the legal expertise to raise the questions necessary to stop the fraud and cannot afford to hire lawyers who can.
Here is how the problem has developed. During the mortgage boom of the past decade, banks and mortgage brokers aggressively solicited new mortgage loans from new homeowners and millions of middle and working-class families who were convinced to refinance their homes. Those loans were then sold, often multiple times, and most were ultimately sold to trusts that were created for the purpose of securitizing the notes. The risk was passed on to bond holders, and the lucrative servicing rights maintained by the bond trust. Massive demand developed on Wall Street to create the bonds backed by these mortgage trusts. This demand created pressure on the brokers and banks supplying the newly generated notes and mortgages to rush, and many ultimately become careless with the paperwork necessary to support the transfer of these notes.
In Ohio and many other states, contracts involving real estate must be in writing and many of them need to be recorded with county officials. Further exacerbating the problem is the fact that since the meltdown of the market for mortgages, many of the companies that generated or sold these notes and mortgages have gone out of business. Lenders and their lawyers who wish to foreclose on homeowners who have allegedly fallen behind on their mortgages are required to provide proof to the court not only that the mortgage is unpaid, but that the entity seeking to foreclose has actual ownership of the note and mortgage in question.
As a result, written assignments of mortgages, notes, and affidavits verifying their transfers have been generated by lenders and collection law firms to persuade courts that the proper party is before the court seeking foreclosure. The allegation in the “robo-signing” of affidavits and other documents is that the banks and lawyers have employees sign these assignments and affidavits without having actual knowledge of the facts that they are verifying, or in the case of several who have testified in depositions, even looking to see whether company records support the allegations that they are verifying under oath.
While the conduct of some banks and lawyers in this scenario has been unconscionable, I can’t help but think that this problem would never have existed at all had working-class citizens in this country had better access to legal services.
Due process of law becomes worthless when litigants do not have meaningful access to legal services. Alleged holders of mortgages have essentially banked on the fact that most homeowners who have been sued for foreclosure in this country either do not have access to lawyers or choose not to hire them. In an adversarial legal system, the allegations made by these law firms and their clients (some of which are presently being exposed as false) simply go unchallenged when the homeowner does not seek or obtain legal representation.
In New York State, for example, where aggressive efforts have been made to establish protections for homeowners facing foreclosure, a recent study reveals that 63% of homeowners who had the gumption to reach out to the court in response to a foreclosure complaint and were participating in the pre-judgment foreclosure conferences established in that state continued to be unrepresented by counsel.
The tragedy of this scenario is how easy it often is (or would be) for lawyers to challenge false allegations such as those being documented recently. The first thing any decent lawyer does in defending any lawsuit is to systematically determine whether or not the plaintiff in that lawsuit had standing to bring the case to begin with. In the case of the robo-signed assignments and affidavits, revealing a problem is often as simple as creating an ownership timeline and matching dates to the documents that are attached to foreclosure complaints. When affidavits are proffered, it would be virtually automatic for defending lawyers to take the deposition of those who claim personal knowledge of transactions that involved bankrupt companies, took place long in the in the past or that necessarily took place in different states.
Yet even these minimal steps require the expenditure of potentially thousands of dollars in legal fees, money that working-class families facing foreclosures simply don’t have. Legal Aid Services are generally available only to families at 125% of the Federal Poverty Guidelines or less. ($27,525 for a family of 4). Programs mobilizing pro bono lawyers continue to be focused on those below the legal services poverty guidelines. The open marketplace for legal services leaves working-class people with nowhere to turn for protection.
That’s why Congress and state legislatures should consider either incorporating foreclosure proceedings under federal bankruptcy provisions or making state foreclosure processes more like federal bankruptcy actions. In Chapter 13 proceedings in particular, the United States Trustee is charged with protecting not just the creditors or the debtor, but the fair operation of the system as a whole. Bankruptcy courts make sensible provisions (and set reasonable limits) for the payment of legal fees for debtors and if appropriate the shifting of legal fees in situations where a fraud is perpetrated on the court.
Right now, the U.S. Bankruptcy Trustee can only weigh in cases where the homeowner has sought the protection of the bankruptcy court and only to determine whether or not a lender should be allowed relief from that court’s automatic stay to proceed with foreclosure. Even in that narrow context, some U.S. Trustees are beginning to hold banks accountable to prove their right to collect and foreclose.
Expanding the access to the protection of the Bankruptcy court and the trustee, or establishing a trustee-like figure to participate in state foreclosure proceedings and allowing for more liberal fee shifting when fraud is perpetrated on the court may be one way to offer the benefits of the adversarial process to working-class homeowners facing foreclosure.
Or better yet, we can use this crisis to begin the conversation about how to provide better access for working-class families to basic legal representation in civil matters.
Marc Dann is a community affiliate of the Center for Working-Class Studies and a Cleveland lawyer specializing in labor and working-class issues.