Bending the Rule of Law to Help the Banks: Effort to Draft a National Foreclosure Statute Underway

There is a slow moving but nevertheless troubling effort underway to change foreclosure laws across the US. The Uniform Law Commission, the same body that created the Uniform Commercial Code, a model set of laws that sought to harmonize commercial laws in all 50 states, has had two full day public but not well publicized meeting of a “study group” on mortgage foreclosure. Note that it took over a decade to draft the first version of the UCC and a protracted period for it to be implemented by states (most states have adopted the updated version of the UCC, although certain articles of the new version have not been implemented in any states).

Given its august history, one would think the ULC would be above political influences. That would appear to be a naive assumption these days. The study committee’s public meetings meetings to solicit opinion from “stakeholders” on “problems” with foreclosures. Curiously enough, these “stakeholder” meetings had no representation of investors (Tom Deutsch of the American Securitization Forum would claim he played that role, but everyone in mortgage land knows the ASF is a sell side organization) and effectively no input from homeowners or consumer advocates (none at the first meeting, and only, at the second, in Washington last week).

I got reports from three people who attended the latest session, in Washington, last week, na all were disheartening. Tom Cox, the Maine attorney who broke the robosigning scandal, provided a memorandum that argues that the commission has effectively assumed that the “problems” require a legislative solution:

Before there can be a determination made as to whether there is a need for a new uniform act dealing with foreclosure issues, there must be an clear accounting of (1) what the problems are that cause legislation to be considered, (2) what has caused those problems to occur, and (3) only then, whether the problems lend themselves to a legislative solution that would be offered by a new uniform act. Unfortunately, it appears that the JEBURPA letter of May 30, 2011 and all of the subsequent steps leading to this stakeholders’ meeting have failed to conduct the step 2 analysis. Further, it appears that the assumption has been made that new legislation is the solution to the perceived problems without there having been analysis of whether other non-­‐legislative solutions might be more appropriate.

I suggest you read Cox’s memo in full:

Cox provided a detailed account of the January 13 meeting. Despite the fact that he and the academics present (including Kurt Eggert, Adam Levitin, and Alan White) all argued that the there is nothing wrong with existing laws, the problem is that they aren’t being followed, and a new statue won’t solve that. (Interestingly, the senior counsel of the American Bankers Association was the only other party present to speak against the initiative. Some participants, namely Judge Mize of the National Center for State Courts, and Dennis Ceuvas of the National Association of Attorneys General, said they were neutral).

The most disturbing part of Cox’s report is that this plan is NOT to develop a model statute, a la the UCC, which state legislatures would then have to approve, but that Professor William Breetz (the chairman) and member Barry Nekritz (the American Bar Association representative to the Committee) want to create an overlay statue. Moreover, he was apparently the only person in the room with any foreclosure experience, and a considerable amount of disiformation was conveyed by industry participants.

His comments were considerable more moderate than those of another observer, who wrote:

I wanted to vomit. I don’t think it’s going anywhere fast, but I wanted to scrub off the subtle corruption that permeated the area.

Cox also reported his understanding is that the Study Committee is making a recommendation that a uniform act drafting process begin and that ULC president Michael Houghton and executive director John Sebart are keen to see the project move forward.

Not only is it disheartening that this sort of effort is underway, but its slow timetable and largely invisible nature (until it is too late) will make it hard to organize against it. At a minimum, investors and consumer groups need to make their voices heard. The idea that elite attorneys from banks, financial services lobbying organizations, the Fed, and academia amount to “stakeholders” is offensive and absurd, particularly on an issue of importance to most citizens, the integrity of the laws protecting their biggest asset.