Legal Help in the Subprime Crisis

As the nation continues to reel from the subprime mortgage crisis, all eyes are on Washington for much-needed relief. But federal responses will only go so far unless Congress addresses one persistent and confounding fact: most low- and moderate-income homeowners facing foreclosure simply can't obtain legal help to defend their homes.

Unlike a citizen charged with a crime, an American facing the loss of his home has no right to an attorney. As a result, the majority of foreclosure cases are uncontested. The lenders are almost always represented by counsel while the homeowners usually are not.

Legal aid programs, which provide free assistance to low-income Americans, report that they are flooded with homeowners seeking help. Units that specialize in foreclosure defense - from South Brooklyn Legal Services in New York to Jacksonville Area Legal Aid in Florida - have had to shut down intake because they could no longer keep up with the demand.

The shortage of lawyers to help families facing foreclosure is just part of a widespread shortage of legal help for families of modest means. Numerous bar association studies have shown that 80 percent of the legal needs of low-income individuals go unmet.

The result is lopsided justice. Because of lack of homeowner representation, lenders are rarely put to the test of meeting the most basic legal requirements for one of the courts' most extraordinary remedies--taking someone's home. As a federal judge in Cleveland recently wrote, the foreclosure process has become a "quasi-monopolistic system where financial institutions have traditionally controlled, and still control ... ."

Judge Christopher A. Boyko's statement was part of a recent ruling in which he ordered banks bringing foreclosure actions to show proof that they own the actual mortgage note. It's a simple requirement to fulfill the basic legal principle of "standing": when a party asks a court for relief, it must show that it is indeed the party who has suffered harm. Asking a court to award possession of the house without demonstrating ownership of the mortgage is like demanding a passport without presenting ID. Yet, this "take our word for it" approach was the pervasive practice used by companies that bought mortgages from the original lenders until a judge delved deeper.

Determining standing is one basic element of this crisis. Many of the defenses to foreclosures are more complicated. Predatory lending schemes often involve complex and deceptive lending practices - such as padding the mortgage with excessive and illegal fees - that homeowners are not in a position to challenge without legal help. And many of the victims are particularly vulnerable; predatory lenders often target elderly or disabled homeowners living on fixed incomes for their schemes.

Without a lawyer, asserting defenses as basic as standing and as complicated as interest-rate misrepresentation is simply not feasible. In contrast, studies have shown that having a lawyer, in general, can increase an individual's chances in a legal case by anywhere from 40 percent to 1380 percent.

To be sure, providing lawyers costs money. But an up-front investment in legal help is well worth it to prevent the spiraling societal costs of foreclosures. Each foreclosure causes communities to lose up to $20,000 in tax revenue, unpaid utility bills, and added costs of policing, maintenance and other services. Additional costs are borne by neighbors, whose property values fall when a nearby home is foreclosed.

Experts are estimating that up to 2 million Americans could lose their homes in the next several years. At the very least, let's give them a fighting chance.

Rebekah Diller is Deputy Director of the Justice Program at the Brennan Center for Justice at NYU School of Law.