Category: Property Law

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Sidebar Publishes Essay on Reforming the American Land Title Recording System

The Columbia Law Review Sidebar is pleased to announce the publication of Foreclosures and the Failure of the American Land Title Recording System, by Professor Tanya D. Marsh of Wake Forest Law School.

In her essay, Professor Marsh argues that the current mortgage crisis should serve as a wake-up call for an overdue modernization of the American land title recording system.  The essay describes how the current public land title recording system is lacking and suggests how it can be improved to lessen the chance of such problems in the future.  The essay goes beyond other recent proposals for the modernization of the American system of land title recording by proposing a radical solution:  the gradual federalization of land title records.

A2K Symposium: Owning the Stars

I heard Lawrence Liang give a terrific talk at the Open Video conference in New York last Fall. His contributions to the A2K volume are also thought-provoking. Here is the conclusion from one of them:

I end this piece with a small parable that many of us will have read while we were children. The story is from Antoine de Saint Exupéry’s tale The Little Prince. The Little Prince visits a number of planets and encounters a range of different characters. On the fourth planet, he meets a businessman who owns millions of stars, and the reason why he owns them is because he was the first one to think of owning the stars.

The Little Prince is perplexed, because he can’t seem to find a reason for owning the stars beyond the fact that they can be put in a bank to enable the businessman to buy more stars. The Little Prince tells the businessman that “I own a flower myself, which I water every day. I own three volcanoes, which I rake out every week. I even rake out the extinct one. You never know. So it’s of some use to my volcanoes, and it’s useful to my flower, that I own them. But you’re not useful to the stars.”

Liang’s parable in turn made me think of ownership as an obligation, not (just) an opportunity for exploitation.

A2K As a a Statement of Progressive Intellectual Property?

In a special issue of the Cornell Law Review, four noted professors of property law wrote a brief series of propositions they identified as “A Statement of Progressive Property.” I found the following propositions particularly compelling:
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On Feudalism

My colleague Tom Wilson, who just did a sabbatical in Scotland, told me an interesting fact today.  Feudalism was the law there until 2000.  The Abolition of Feudal Tenure Act ended vassal status and entail except for lands owned by the Crown.  This makes Scotland the last European region to get rid of feudalism.  England did so in 1290, though there were earlier attempts at reform.

Hockett on the Financial Crisis

There is a growing consensus that our mortgage markets are fundamentally broken. In a recent article in The American Prospect, Robert Kuttner surveys a number of leading legal academics’ prescriptions for the foreclosure crisis:

Katherine Porter, a law professor at the University of Iowa and an expert in mortgage servicing, recently testified to the Congressional Oversight Panel for the Troubled Asset Relief Program (TARP) that according to lawyers for both home-owners and banks, “a very large number (perhaps virtually all) securitized loans made in the boom period in the mid-2000s contain serious paperwork flaws, did not meet underwriting or other requirements of the trust, and have not been serviced properly as to default and foreclosure.” . . . .

One remedy, proposed by professor Adam Levitin of the Georgetown Law Center, would create a new chapter of the bankruptcy code and allow a home-owner to come before a bankruptcy judge and get the mortgage reduced to the present value of the home. The process would also clear the title. Another proposal, by professor Howell Jackson of Harvard Law School, would use government’s power of eminent domain to take securitized mortgages, compensate the holder at the securities’ (much reduced) fair market value, and use the savings to turn the paper back into whole mortgages with steep reductions in interest and principal. This would also allow millions of people to keep their home and help stem the broad decline in housing values.

I think each of these ideas is valuable. I’d also like to see them complement a broad set of proposals articulated by Robert Hockett in a recent piece in the Washington University Law Review. Hockett’s proposals are worth quoting at length, since he keenly grasps the historical dimensions of this crisis:
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Liar Loans: White-Out & Scotch Tape at the Subprime Art Department

Doug Henwood has a good eye for the best of recent business analysis. Henwood’s interview with Michael W. Hudson (about Hudson’s new book, “The Monster”) is a must-hear for those interested in the subprime mess. From the book website:

This book tells the story of . . . subprime by chronicling the rise and fall of two corporate empires: Ameriquest and Lehman Brothers. . . . By the height of the nation’s mortgage boom, Orange County was home to four of the nation’s six biggest subprime lenders. Together, these four lenders—Ameriquest, Option One, Fremont Investment & Loan, and New Century—accounted for nearly a third of the subprime market. . . .

Under its pugnacious CEO, Richard Fuld, Lehman helped bankroll many of the nation’s shadiest subprime lenders, including Ameriquest. “Lehman never saw a subprime lender they didn’t like,” one consumer lawyer who fought the industry’s abuses said. Lehman and other Wall Street powers provided the financial backing and sheen of respectability that transformed subprime from a tiny corner of the mortgage market into an economic behemoth capable of triggering the worst economic crisis since the Great Depression. . . .

[Helped by Lehman,] Ameriquest Mortgage unleashed an army of salespeople on America. They numbered in the thousands. They were young, hungry, and relentless in their drive to sell loans and earn big commissions. One Ameriquest manager summed things up in an e-mail to his sales force: “We are all here to make as much f****** money as possible. Bottom line. Nothing else matters.” [This activity] helped fuel the mortgage empire that in 2004 produced $1.3 billion in profits [for Ameriquest's CEO].

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Foreclosures and the Rule of Law

Is the US becoming a third world nation? Arianna Huffington’s recent book makes the case, arguing that crumbling infrastructure and vast inequality herald a new era of unaccountable elites. She argues that “our financial system [has] become a bad carnival game where the rich always get the grand prize and the average American walks away empty-handed.”

Matt Taibbi directly connects financialization with the decline of common infrastructure in his new book, Griftopia. He describes a litany of roads and bridges “already leased or set to be leased for fifty or seventy-five years or more in exchange for one-off lump sum payments of a few billion bucks at best, usually just to help patch a hole or two in a single budget year.” Taibbi says the process is “stripping wealth out of the heart of the country,” reminiscent of the extractive industries of Nigeria or Equatorial Guinea. Even the New York Times‘s moderates are finding the US uncomfortably close to a “banana republic,” with Nicholas Kristof concluding that “You no longer need to travel to distant and dangerous countries to observe . . . rapacious inequality. We now have it right here at home.”*

Attorneys have a difficult time coming to grips with this new political economy. Many wholeheartedly believe that today’s chief executives deserve to make four or five hundred times the average worker’s wages (rather than the roughly fifty-fold multiple prevalent in 1980 America, and elsewhere in the world today). Perhaps the nation’s richest 1 percent in some sense deserves to have captured 80% of the increase in income from 1980 to 2005. These are moral claims that cannot be conclusively proven or disproven.

But we as attorneys can at least insist on a common rule of law for all. And that’s what our legal system has grievously failed to provide during the foreclosure crisis. As the indisputably pro-market Jonathan Macey notes, “the banks have created significant legal exposure for themselves ‘by committing fraud upon the courts.'” And yet the first thing our Congress could think to do was to endorse legal cover for them, as eagerly as it retroactively immunized warrantless wiretapping.
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The American Dream and Federal Foreclosure

Friends of ordinary people urge them to walk away from mortgage contracts if they want and protest mishandling documents as a defense to resulting foreclosure proceedings. Champions of institutional interests counter that it’s morally wrong for people to walk away from mortgage obligations and detect opportunism in challenges to the technical sufficiency of the paperwork.

Writers on both sides discern a double standard in the other. Consumer advocates accuse lenders and their backers of insisting on the sanctity of contracts to reject strategic default, yet excuse their own failure to handle contract documents with requisite care, sometimes deliberately mishandling them. Lenders and their backers complain that deadbeats are trying to game the system, backing out of contracts then using technical legal process as a disguise to enable staying in homes.

Many get overheated in staking out positions. It’s easy to understand such heated lapses, though. After all, the mortgage meltdown and foreclosure furor make enticing platforms for ideological chanting. Stoking the passions is burbling anger inflamed by the mid-term election campaigns.

Yet narrators on both sides vastly oversimplify the reality. It’s also easy to understand that, aside from the political motivations. After all, more than 10 million individuals in the country faced the prospect of mortgage default and/or foreclosure, each with a personal story; scores of lenders were involved on the other side of those deals. The related contracts and foreclosure processes are governed by the laws of the 50 states and other localities, each varying substantially. Any meta-narrative about such deeply-detailed realities will inevitably succumb to sweeping generalizations and hysterical finger-pointing.

Worth noting, though, is how the existing machinery is both handling the turmoil reasonably well and yet how we could take sober lessons from these stories. One concerns the value of tossing out the prevailing state-based system of mortgage foreclosure and replacing it with a single national standard.
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Where Have You Gone, Hernando de Soto?

Remember Randy “Duke” Cunningham’s “bribe list” pricing—“$50,000 for every $1 million in appropriated funds he would obtain?” There are now allegations that certain firms offered to “fabricat[e] documents out of whole cloth” to lubricate the foreclosure machine. For a mere $95, one could “recreate entire collateral file,” which is all “the documents the trustee (or the custodian as an agent of the trustee) needs to have pursuant to its obligations under the pooling and servicing agreement on behalf of the mortgage backed security holder [including] the original of the note (the borrower IOU), copies of the mortgage (the lien on the property), the securitization agreement, and title insurance.” Yves Smith draws some interesting implications:

Amar Bhide, in a 1994 Harvard Business Review article, said the US capital markets were the deepest and most liquid in major part because they were recognized around the world as being the fairest and best policed. As remarkable as it may seem now, his statement was seem as an obvious truth back then. In a mere decade, we managed to allow a “free markets” ideology on steroids to gut investor and borrower protection. The result is a train wreck in US residential mortgage securities, the biggest asset class in the world. The problems are too widespread for the authorities to pretend they don’t exist, and there is no obvious way to put this Humpty Dumpty back together.

Smith’s global perspective reminds me of two items. I once heard that, in the wake of Bush v. Gore, a representative of the OAS began a meeting by saying something along the lines of: “We are now to hear from a fragile democracy, one that has suffered severe strains but which looks capable of attaining legitimate procedures for governance. Would the United States representative please come to the dais?” And policymakers who prescribe the titling work of Hernando de Soto for Latin America might want to apply it a bit more carefully at home.

Foreclosure Mills Under Fire; A New Way Forward?

The early days of the financial crisis revealed megabanks indulging in sloppy and self-serving recordkeeping on the macro-scale. Now we see the devastation and disorder that happens when that same profit-at-all-costs mentality is inflicted on individuals. As has recently been reported, foreclosure horror stories include “a man who was foreclosed on when he didn’t have a mortgage and paid cash for the home; a home that had two foreclosure suits against it because both servicers claimed ownership of the title; and a couple foreclosed on over a contested $75 late fee.”

Reform groups like A New Way Forward are gaining strength and members because large financial institutions are increasingly untrustworthy. They no longer appear to be unitary “actors” at all, but rather shadowy and unstable ensembles of desks and divisions whose main goal is slipping by whatever bonus-maximizing scheme won’t set off alarms among risk managers and regulators. As Satyajit Das memorably puts it in his book Traders, Guns, and Money, “no trader making $1 million + a year is going to take questions from an auditor making $50,000 a year” (144).

Given this grim landscape, I wanted to highlight two hopeful items. First, this Monday the Roosevelt Institute will host a conference on the future of financial reform, featuring some of the most credible and compelling voices in the field (including Jennifer Taub, Mike Konczal, Richard Carnell, Sen. Jeff Merkley, and Michael Greenberger). Read More

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Money Matters in Ongoing Marriage Law

Married life is characterized by a sharing norm. As I described in an earlier post, spouses commit to and in fact engage deeply in sharing behavior, including a shared family economy. Overwhelmingly, spouses pool economic resources, including labor, and decide together how to allocate them to benefit the family as a whole.

In addition to its affects in the paid labor market (see my last post), sharing money matters inside a functioning marriage.  It shapes the couple relationship as well as each partner individually. Research shows that in an ongoing marriage, money is a relational tool. For example, making money a communal asset is a way to demonstrate intimacy and commitment, and that can nurture a couple’s bond. Yet, in some circumstances, an assignment of resources to just one spouse can also be understood (by both partners) to be appropriate and deserved—a recognition of the individual within a sharing framework. Conversely, it is also possible that spouses’ monetary dealings can undermine individual autonomy and the relationship as well. For example, one person might exercise authority over money in a way that disregards the other. Accordingly, power to influence financial resource allocation within the family is important for individual spouses and for togetherness.

It becomes a special concern then, that sharing patterns in marriage are gendered.  As highlighted in my previous post, role specialization remains a part of modern intimate partner relations. Particularly true for married couples, men continue to perform more as breadwinners, and women more as caregivers. As a result, women tend to have reduced earning power in the market. How does this market asymmetry translate into economic power at home? Happily, in a significant departure from the past, a majority of couples report that they share financial decisionmaking power roughly equally. Indeed, most married couples today endorse gender equality as an important value in their relationship. However, in a significant minority of marriages, spouses agree that husbands have more economic power. For some couples then, a husband’s breadwinning role and/or perhaps his gender, confers authority in contentious money matters.

How should law governing an ongoing marriage respond to these sharing dynamics? Consider this hypothetical fact situation. A husband has a stock account from which he plans to make a gift to his sister who he feels really needs the money. The husband suspects that his wife would not approve of the gift. Even though the wife too loves the sister, she believes the sister is irresponsible with money. Let’s assume that the money in that stock account was acquired while the parties were married, and that it came from the market wages of one or both of the spouses earned during marriage. It was a product of the couple’s shared life. Does contemporary law allow the husband to give his sister the gift without her consent? Without even telling her? How should legal power over the money be allocated?

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