Consumer Law & Policy Blog

Elizabeth Renuart on Non-Judicial Foreclosures

 

Elizabeth Renuart

 of Albany has written Towrd a More Equitable Balance: Homeowner and Purchaser Tensions in Non-Judicial Foreclosure States, 24 Loyola Consumer Law Journal 562 (2012).  Here's the abstract: 

We are now facing the fifth year of the fallout from the subprime mortgage meltdown. The economic crisis gripping the United States began when large numbers of homeowners defaulted on poorly underwritten subprime mortgage loans. Through securitization, the process of utilizing mortgage loans to back investment instruments, Wall Street funded subprime originations in excess of $480 billion in each of the peak years—2005 and 2006, thereby fueling the potential hazards should the underlying loans tank.

There is growing evidence that the parties to securitization deals handle and transfer the legally important documents that secure the resulting investments—the loan notes and mortgages—in a careless and, at times, fraudulent manner. Consequently, the foreclosing parties frequently do not possess the right to foreclose and the resulting sales may be unlawful. Defective sales harm homeowners when they lose their homes to the wrong party. Moreover, they could use the extra time afforded by a delayed or jettisoned foreclosure to find another solution, such as a loan modification or short sale. Wrongful foreclosures affect another important group, the purchasers. If title to the property is flawed as a result, those parties potentially buy nothing and can transfer nothing. Clear title to real property in the United States may be in jeopardy. The problem is most acute in non-judicial foreclosure states because doctrines of finality do not apply and state law may permit post-sale challenges.

In another article, Property Title Trouble in Non-Judicial Foreclosure States: The Ibanez Time Bomb?, 4 Wm. & Mary Bus. L. Rev. ___(2013) (forthcoming), I analyzed recent decisions from the Massachusetts Supreme Judicial Court in which the court voided sales where the foreclosing party did not possess a valid assignment of the mortgage. I summarized the foreclosure law of Massachusetts and compared it to the law in four other non-judicial foreclosure states to assess whether these opinions might be persuasive to courts in those states. I then drew conclusions as to the probability of post-sale title defects and challenges to title that purchasers could face.

In this article, I continue that discussion by exploring the rights and interests of homeowners and purchasers. I suggest specific legislative solutions that more evenly balance the interests of homeowners, purchasers, and the property recordation system

Anti-Cooling-Off Period Advocacy

by Jeff Sovern

In the course of researching cooling-off periods for my article Written Notice of Cooling-Off Periods: A Forty-Year Natural Experiment in Illusory Consumer Protection and the Relative Effectiveness of Oral and Written Disclosure, I came across some over-heated comments by opponents of the rules.  Here is an excerpt quoting some (in the interests of brevity, I'm omitting the footnotes here, but if you want to know the sources and read fuller quotes, you can go to the article):

[S]ome complained that cooling-off periods were “contrary to fundamental business concepts,” “designed to undermine the foundation of the law of contracts,” “discriminatory in the worst way and probably unconstitutional,” would make contracts “a mere illusion,” “leave [consumers] in greater jeopardy than the 10 percent of our society that is out to take [consumers]” would “invite bad faith contracts,” and that cooling-off period rules were “class legislation.”[7]  It was said that cooling-off periods would occasion “agony” for consumers.  Byron D. Sher, a contemporaneous observe, summarized the economic arguments against the FTC rule as follows:

 [D]irect sellers also argue that giving buyers a right to cancel will have a disastrous effect on their business.  Their main contention is that the cooling-off period amounts to an “invitation to cancel” that will interfere with the “decision-making” process and frustrate the efforts of salesmen to facilitate the process.  * * *

But by 2009, industry views had shifted dramatically.  Another excerpt:

Periodically, the FTC solicits comments on its rules to see if they should be retained or revised.  It did so most recently for the Cooling-Off Period Rule in 2009.  The FTC’s Request elicited only six comments. One trade organization, the Direct Selling Association expressed the view “that the Rule serves a valuable purpose for consumers.”  The only merchant objection to the Rule came from a seller of fresh fish that complained that the Rule permitted buyers to cancel sales; by the time that seller could reclaim the fish, several weeks would have passed and so buyers could keep the fish for free.

What had changed?  For that, you should read the article. But in the meantime, perhaps this offers a lesson about how seriously to take critics of consumer protection rules.  Of course, as the rules seem not to have done much for consumers, the article is also a cautionary tale for consumer advocates.

Paper on Written Notice of Cooling-Off Periods and the Relative Effectiveness of Oral and Written Disclosures

by Jeff Sovern

I've just posted to SSRN a draft of a paper titled Written Notice of Cooling-Off Periods: A Forty-Year Natural Experiment in Illusory Consumer Protection and the Relative Effectiveness of Oral and Written Disclosures.  Yes, I know: the title rolls trippingly off the tongue.  Anyway, it's very much a work-in-progress, so I would love to hear comments. Here's the abstract:

For more than forty years, a standard tool in the consumer protection tool box has been the cooling off period. Federal statutes, state statutes, and federal regulations all oblige merchants to give consumers three days to rescind certain contracts. This paper reports on a survey of businesses subject to such cooling-off periods. The study has two principal findings. First, the respondents indicated that few consumers rescind their purchases. Thus, the study raises doubts about whether cooling-off periods benefit consumers or whether they provide only illusory consumer protection.

Second, the study found that consumers who receive both oral and written notice of their rights are more likely to avail themselves of those rights than those who receive only written notices, and that the differences are statistically significant. Fifty-three percent of the Sellers who gave only a written notice and did not speak of the buyer’s right to cancel said buyers never cancelled, nearly double the percentage for sellers who did tell buyers (27%). Businesses that provided both oral in-person and written notices of the right to rescind were more than twice as likely to report that more than 1% of their customers cancelled contracts as those that provided only written notices. The article offers speculations about why cooling-off periods have been of such little value to consumers, and why oral and written notice combined have been more effective than written alone.

Finally, the survey asked respondents about the cost of cooling-off periods. More than four-fifths of the respondents who answered the question reported that the right to cancel had cost them either nothing or very little. This contrasts with the vehement opposition of opponents of such rules when they were first adopted in the 1960s and 1970s.

Times Pieces

by Jeff Sovern

Yesterday the Times ran a piece, New Agency Plans to Make Over Mortgage Market, about some things going on at the CFPB as it approaches its first anniversary.  Last Sunday, the Times printed a letter repeating the usual right-wing canard that government regulation, including the Community Reinvestment Act, contributed to the subprime crisis.  My reply in the Times appears here, but Alan White provided a more complete refutation here. 

Joshua Fairfield: Is Do-Not-Track Enforceable In Contract?

 

Joshua Fairfield

 of Washington and Lee has written 'Do-Not-Track' as Contract,14 Vanderbilt Journal of Entertainment and Technology Law 101 (2012).  Here's the abstract:

Support for enforcement of a do-not-track option in browsers has been gathering steam. Such an option presents a simple method for consumers to protect their privacy. The problem is how to enforce this choice. The Federal Trade Commission (FTC) could enforce a do-not-track option in a consumer browser under its section 5 powers. The FTC, however, currently appears to lack the political will to do so. Moreover, the FTC cannot follow the model of its successful do-not-call list since the majority of Internet service providers (ISPs) assign Internet addresses dynamically — telephone numbers do not change, whereas Internet protocol (IP) addresses may vary.

This Article explores whether, as a matter of contract law, a browser do-not-track option is enforceable against a corporation, and concludes that it is. The emerging standard of online consent has been whether a party proceeds with a transaction after the counterparty informs the party of the terms of the contract. Adhesion contracts in electronic contexts have bound consumers for over a quarter century in precisely this manner.

This Article argues that what applies to consumers should apply to corporations. When a consumer expresses her preference, in the very first exchange between the consumer and corporate computers, for the corporation not to track her information, the company is free to refuse the transaction if it does not wish to continue on the consumer’s terms. This Article therefore proceeds in three broad parts. Part I introduces the current methods of corporate surveillance of consumers, which have reached dizzying heights. Part II discusses the law of e-commercial and mass-market contracts, which courts have held to bind consumers even on the merest fig leaf of a legal theory of consent. Part III proposes a solution: the answer is not to continue making consumers read more privacy policies on various websites, but instead to enforce the simple preferences that the consumer expresses once.

Whittington & Hoofnagle Paper: Unpacking Privacy's Price

 

Jan Whittington

 of the Department of Urban Design and Planning, University of Washington and

Chris Jay Hoofnagle

 of Berkeley Unpacking Privacy's Price, 90 North Carolina Law Review 1327 (2012).  Here's the abstract:

This article introduces a transaction cost economic framework for interpreting the roles consumers play in social networking services (“SNSs”). It explains why the exchange between consumers and SNSs is not simple and discrete, but rather a continuous transaction with atypical attributes. These exchanges are difficult for consumers to understand and come with costs that are significant and unanticipated. Under current structures of governance, there is no exit for consumers who wish to leave an SNS. In other contexts, similar transactions are bounded by tailored consumer protections. This article explains the need for tailored consumer protection in the SNS context. Specifically, we argue that a consumer right to rescind enrollment in an SNS, triggering a deletion of and ability to export information shared with the service, is appropriate given the skewed aspects of personal information transactions.

Paper on Predatory Lending and the Subprime Crisis

 

Sumit Agarwal

 of the National University of Singapore and the Federal Reserve Bank of Chicago,

Itzhak Ben-David

 of Ohio State's Fisher College of Business,

Gene Amromin

 of the Chicago Fed,

Souphala Chomsisengphet

 of the Office of the Comptroller of the Currency (OCC

Douglas D. Evanoff

 of the Chicago Fed have written Predatory Lending and the Subprime Crisis.   Here's the abstract:

It is typically argued that predatory lending generated significant social costs and played a central role in creating the subprime crisis. However, there are few estimates of its true effect. We estimate the effect of predatory lending on the residential mortgage default rate using an anti-predatory program implemented in Chicago in 2006. Under the legislation, risky borrowers and risky mortgages triggered mandatory counseling. Following the legislation, market activity decreased by about 35%, where risky borrowers, risky products, and lenders who typically made riskier loans were most affected. Despite the sharp decline in market activity, 18- and 36-month default rates in the treated group exhibited a relative improvement of 12% and 7%, respectively. We estimate that predatory loans have a 6-7% higher default rate than nonpredatory loans. Our results suggest that predatory lending may have not been instrumental in precipitating the financial crisis as often believed.

Robert Hockett Paper on Using Eminent Domain to Solve the Mortgage Overhang

 

Robert C. Hockett

 of Cornell has written It Takes a Village: Municipal Condemnation Proceedings and Public/Private Partnerships for Mortgage Loan Modification, Value Preservation, and Local Economic Recovery. The paper was also discussed in Robert J. Shiller's Economic View column in the Sunday Times.  Here's the paper's abstract:

Respected real estate analysts now forecast that the U.S. is poised to experience a renewed round of home mortgage foreclosures over the coming 6 years. Up to 11 million underwater mortgages will be affected. Neither our families, our neighborhoods, nor our state and national economies can bear a resumption of crisis on this order of magnitude.

I argue that ongoing and self-worsening slump in the primary and secondary mortgage markets is rooted in a host of recursive collective action challenges structurally akin to those that brought on the real estate bubble and bust themselves. Collective action problems of this sort require duly authorized collective agents for their solution. At present, the optimally situated such agents for purposes of mortgage market clearing are municipal governments exercising their traditional eminent domain authority.

I sketch a plan pursuant to which municipalities, in partnership with investors, can condemn underwater mortgage notes, pay mortgagees fair market value for the same, and systematically write down principal. Because in so doing they will be doing what parties themselves would do voluntarily were they not challenged by structural impediments to collective action, municipalities acting on this plan will be rendering all better off. They will also be leading the urgently necessary project of eliminating debt overhang nationwide and thereby at last ending our ongoing debt deflation.

Hoofnagle, Urban, and Li on Mobile Payment Benefits and Privacy Concerns

Chris Jay Hoofnagle,

 

Jennifer M. Urban

 and

Su Li

, all of Berkeley have written Mobile Payments: Consumer Benefits & New Privacy Concerns.  Here's the abstract:

 

 

Payment systems that allow people to pay using their mobile phones are promised to reduce transaction fees, increase convenience, and enhance payment security. New mobile payment systems also are likely to make it easier for businesses to identify consumers, to collect more information about consumers, and to share more information about consumers’ purchases among more businesses. While many studies have reported security concerns as a barrier to adoption of mobile payment technologies, the privacy implications of these technologies have been under examined. To better understand Americans’ attitudes towards privacy in new transaction systems, we commissioned a nationwide, telephonic (wireline and wireless) survey of 1,200 households, focusing upon the ways that mobile payment systems are likely to share information about consumers’ purchases.

We found that Americans overwhelmingly oppose the revelation of contact information (phone number, email address, and home address) to merchants when making purchases with mobile payment systems. Furthermore, an even higher level of opposition exists to systems that track consumers’ movements through their mobile phones.

We explain some advantages of mobile payment systems, some challenges to their adoption in the United States, and then turn to our main finding: Americans overwhelming reject mobile payment systems that track their movements or share identification information with retailers. We then suggest a possible remedy for such information sharing: adapting provisions of California’s Song-Beverly Credit Card Act, which prohibits merchants from requesting personal information at the register when a consumer pays with a credit card, to mobile payments systems. Our survey results suggest that consumers would support limitations on information collection and transfer. Song-Beverly could be adopted to accommodate those who wish to share their transaction data.

 

Peter Holland on Junk-Debt-Buyer Lawsuits

Peter A. Holland of Maryland has written Defending Junk-Debt-Buyer Lawsuits, 46 Clearinghouse Review No. 1-2 (May/June 2012). Here is the abstract:

Junk debt buyer lawsuits have overwhelmed the courts all across the United States. These lawsuits wreak havoc on consumers and their families. Often overlooked is the fact that judgments against consumers which are based on junk debt are part of a zero sum game, where every bogus judgment deprives a legitimate creditor of the chance to get paid from scarce resources. Thus, the legitimate creditor to whom money is owed is materially harmed by the junk debt buyer who extracts money based on an illegitimate claim, or who causes someone to declare bankruptcy. Providing representation to this otherwise unrepresented population will not only help individual consumers. It could improve the entire U.S. economy, by preserving precious resources to pay what is legitimately owed, and avoiding paying for what is not. This article surveys the landscape of the junk debt buyer industry and provides advice for consumer advocates engaged in the battle against unscrupulous junk debt buyers.