First They Came for the Deadbeats . . .
To me the star of the Banking Committee Mortgage Servicing hearing was Adam Levitin. Here he explains eloquently in his written testimony why those who would love to sweep the banking fraud crimes under the carpet because these unfortunate homeowners “deserved” to be foreclosed are just flat out wrong.
Written Testimony of Adam J. Levitin, Associate Professor of Law
Georgetown University Law Center
Before the Senate Committee on Banking, Housing, and Urban Affairs
“Problems in Mortgage Servicing from Modification to Foreclosure”
November 16, 2010
IV. YES, BUT WHO CARES? THESE ARE ALL DEADBEATS
A common response from banks about the problems in the securitization and foreclosure process is that it doesn’t matter as the borrower still owes on the loan and has defaulted. This “No Harm, No Foul” argument is that homeowners being foreclosed on are all a bunch of deadbeats, so who really cares about due process? As JP Morgan Chase’s CEO Jamie Dimon put it “for the most part by the time you get to the end of the process we’re not evicting people who deserve to stay in their house.”
Mr. Dimon’s logic condones vigilante foreclosures: so long as the debtor is delinquent, it does not matter who evicts him or how. But that is not how the legal system works.
A homeowner who defaults on a mortgage doesn’t have a right to stay in the home if the proper mortgagee forecloses, but any old stranger cannot take the law into his own hands and kick a family out of its home. That right is reserved solely for the proven mortgagee.
Irrespective of whether a debt is owed, there are rules about who can collect that debt and how. The rules of real estate transfers and foreclosures have some of the oldest pedigrees of any laws. They are the product of centuries of common law wisdom, balancing equities between borrowers and lenders, ensuring procedural fairness and protecting against fraud.
The most basic rule of real estate law is that only the mortgagee may foreclosure. Evidence and process in foreclosures are not mere technicalities nor are they just symbols of rule of law. They are a paid-for part of the bargain between banks and homeowners. Mortgages in states with judicial foreclosures cost more than mortgages in states without judicial oversight of the foreclosure process.89 This means that homeowners in judicial foreclosure states are buying procedural protection along with their homes, and the banks are being compensated for it with higher interest rates. Banks and homeowners bargained for legal process, and rule of law, which is the bedrock upon which markets are built function, demands that the deal be honored.
Ultimately the “No Harm, No Foul,” argument is a claim that rule of law should yield to banks’ convenience. To argue that problems in the foreclosure process are irrelevant because the homeowner owes someone a debt is to declare that the banks are above the law.
Funny how we keep coming back to that old Rule of Law stuff time after time. Our country went on a trip down a strange and twisted path the day it was decided that laws are not enforceable if they involve mess, inconvenience and upheaval or discomfit the Powers That Be.