Report: “Foreclosures: A Crisis in Legal Representation”

New from the Brennan Center for Justice at NYU Law: Melanca Clark with Maggie Barron, Foreclosures: A Crisis in Legal Representation (2009). Executive summary here. From the Brennan Center’s page on the report:

The nation’s massive foreclosure crisis is also, at its heart, a legal crisis. Many homeowners are losing their homes because they lack the ability to navigate the landscape of our lending laws. The Legal Services Corporation (“LSC”), the major federal source of funding for civil representation for the poor, reports that nonprofit legal services programs across the nation are “besieged with requests for foreclosure assistance.” Too few people are ever able to obtain qualified legal guidance. According to our findings:

In Connecticut, over 60 percent of defendants facing property foreclosure in 2007-08 did not have counsel.

In New York, 84 percent of defendants in proceedings in Queens County involving foreclosures on “subprime,” “high cost” or “non-traditional” mortgages (which are mortgages disproportionately targeted to low-income and minority homeowners) proceeded without full legal representation. In Richmond County (Staten Island), 91 percent of such defendants were unrepresented, and in Nassau county, 92 percent were unrepresented.

In Stark County, Ohio, heavily impacted by foreclosures, data suggests that 86 percent of defendants facing property foreclosure did not have counsel in 2008.

Why Having a Lawyer Matters

Foreclosures may be inevitable for many individuals, but not for all. Legal representation can help many homeowners save their homes and, more broadly, help to stabilize neighborhoods at risk.

Many people have legitimate legal defenses that can halt foreclosure actions, or help open the door to alternative solutions, such as mortgage refinancing. But few homeowners and tenants are aware of their legal defenses. Among other important interventions, lawyers can identify violations of state and federal laws, enforce consumer protection laws, and advance defenses that can either inspire lenders to agree on sustainable loan terms, or slow foreclosure proceedings enough to create time in which to obtain alternative housing.

Barriers to Representation

Our nation’s civil legal aid system is ill-equipped to deal with increased demand for legal services. Civil legal aid, always underfunded, has suffered from acute shortages since federal funds were cut by one-third in 1996. Moreover, just as the need for legal representation has reached its apex, the recession has forced state and local governments and private charities to cut their support for legal services.

Further compounding the problem, federal restrictions imposed by the Congress on the Legal Services Corporation as an outgrowth of Newt Gingrich’s “Contract with America,” have undercut homeowners’ efforts to obtain protection from predatory lenders. Abusive lenders enjoy a full arsenal of legal tools, while homeowners relying on restricted legal aid attorneys are barred from joining class actions, claiming attorneys’ fee awards, or relying on their attorneys to advocate before legislatures and administrative bodies. Congress, through the 2008 Housing and Economic Recovery Act, provided one-time funding for lawyers to help foreclosure victims, but then explicitly prohibited the lawyers it had funded from engaging in any litigation.

Our underfunded and restricted civil legal aid system is critically important for African-American and Latino communities, which are more likely than other communities to be injured by predatory lending practices and to require the assistance of publicly funded counsel. Insufficient legal resources exacerbates the wealth divide between these communities and the rest of the nation and undermines the legitimacy of our justice system by perpetuating two systems of justice, one for people with means and another, inferior system for the poor.

Recommendations

The Brennan Center offers the following recommendations:

1. Increase funding for foreclosure legal representation – Additional state and federal dollars should be dedicated to foreclosure legal assistance and directed to the hardest hit areas, often the areas with predominantly minority resident populations.

2. Remove funding restrictions that undercut effective legal advocacy for homeowners and tenants – Lifting the LSC funding restrictions, a cost-free fix, is among the easiest and most cost-effective ways to improve legal representation for foreclosure victims.

3. Expand access to the courts and to other dispute resolution mechanisms for homeowners facing foreclosure proceedings – States that allow foreclosures to proceed without according homeowners a day in court need reform. In every state, lenders should be required to participate in a mediation conference with homeowners before a foreclosure is permitted to proceed.

4. Recognize a right to consult with a trained housing counselor and, as necessary, a lawyer – Foreclosure proceedings should be deferred until the homeowner has consulted with either a trained housing counselor, or, where lending violations are suspected, a lawyer.