In a recent post (Judges: Not Dupes—TOTALLY In On It), we decided that when it comes to foreclosure cases, judges are not guileless, impartial innocents deceived by wily banks into throwing people into the street. No, the judges are (to admittedly varying degrees) willing to perform legal gymnastics if necessary (which they often are) to assure a favorable outcome for the banks, which almost always results in homelessness (temporarily, at least) and/or financial ruin for homeowners. This unfortunate situation has not escaped the recent notice of the Yale Law Journal, which published a Comment called “In Defense of ‘Free Houses’” in its February issue.
In the article, the authors point out that one of the maneuvers of legal gymnastics that judges often perform is to rule against the bank, but to do so “without prejudice” so that the bank can file the same suit again in the future if it wants to (which it often does). The article puts it like this:
“Recently, however, judges have avoided applying res judicata to foreclosure cases and have bent the rules to favor banks. For example, in Maine, where longstanding precedent established that a failed foreclosure bars any future attempt to collect on the debt,34 two trial courts recently refused to dismiss cases with prejudice, even after the cases were tried to completion and the banks had lost. The judges in those cases were explicit that they did so to allow any subsequent actions the banks might want to bring and to avoid giving the homeowners a windfall.35”
The result of such a ruling? The homeowner likely spent a small fortune prosecuting the case, even winning on the merits, but the bank can always come after the homeowner again, at which time the typical homeowner will not have the funds to mount yet another defense against the banks, since unlike banks, homeowners cannot create money out of nothing. In effect then, a “without prejudice” ruling in favor of the homeowner is really a return to the status quo ante, as though the case had never been tried at all. Such a ruling is ultimately a victory for the bank, and a waste of money and effort for the homeowner. The knowledge of this state of affairs can have the effect of a homeowner not even filing suit against a bank in the first place because of the very real possibility of such wasted effort and funds.
The remedy? Follow the law, of course
It’s fascinating that only now, some 10 or so years since the foreclosure crisis began in earnest, one of the top law schools in the country suggests what utterly exasperated homeowners have been saying all along: “Simply follow the damn law.” The article sums it up thusly (and they only count from 2008, or maybe late 2007):
“Eight years after the start of America’s housing crisis, state courts are increasingly confronting an unanticipated consequence: what happens when a bank brings a foreclosure suit and loses? Well-established legal principles seem to provide a clear answer: the homeowner keeps her house, and res judicata bars any future suit to foreclose on the home. Yet state courts around the country resist this outcome.
This Comment argues that this approach is misguided; courts should issue final judgments in favor of homeowners in cases where banks fail to prove the elements required for foreclosure. Furthermore, these judgments should have res judicata effect—thus giving homeowners “free houses.” This approach has several benefits: it is consistent with longstanding res judicata principles in other forms of civil litigation, it provides a necessary market-correcting incentive to promote greater responsibility among foreclosure litigators, and it alleviates the tremendous costs of successive foreclosure proceedings.”
“Well-established legal principles…provide a clear answer,” indeed. That’s all homeowners have ever argued and asked for—just have the courts follow “well-established” law, like Carpenter v. Longan, for example (after all, when precedent like Iqbal is invoked, for instance, the judges all fall right in line–not so with Carpenter). And don’t, as the Yale article—not me—put it: don’t bend the rules to favor banks. Those principles are all we’ve ever argued for here at Liberty Road Media, and indeed, those principles are among the main driving forces behind this blog. Yet that “clear answer” to foreclosure lawsuits has been overlooked and ignored by the courts for years now. Millions of foreclosures have been processed; millions of families have lost everything. While it’s nice to read a plea for sanity like this in the law review of an Ivy League law school, it still feels like too little, too late. An article like this might’ve done a world of good in say, 2009 or so. Printing it now reminds me of a comment made here at Liberty Road Media in May 2013 (5th Circuit Court Makes Mockery of Precedent):
“What is obviously happening is that the courts have bought into the crazy–yet mainstream–idea that all will return to normal once the “backlog” of foreclosures is “cleared.” So their goal is to “clear” the foreclosures without bringing the banks to their knees, because they have bought into the idea that the country would fall into ruin if the big banks were held accountable. Because, this meme goes, once the foreclosures–although unfortunate and maybe even mistaken and/or fraudulent as they may be–are all concluded and the banks are still intact, we’ll all be better off. They think they know what’s best for us.
Another way to look at it is this: the courts are mindlessly following a trend of displacing homeowners, just you know, because it’s cool. It’s trendy. Kind of like the trendy clothes people wear and then are horrified 20 years later when they see pictures of themselves wearing the once-trendy outfits. They think “How could I ever have let myself wear that?” And so it will be in 20 years or so that the law reviews and the blogs (or whatever media outlets exist by 2033) will lament the current smackdown of homeowners–“How could the courts have ever ruled this way? How could we have ever let the courts rule that way? How could we let the courts justify MERS?” As if we don’t know, right now as it’s happening, that the courts are not following the law.”
So, turns out it didn’t take 20 years for the first law review to start questioning the corruption of the courts regarding their handling of foreclosure cases. On the one hand, I’m glad that my above prediction turned out to be wrong. But on the other hand, what effect will this Yale article really have? Another prediction—pretty much none. I hope I’m wrong, though, because the behavior of judges described in the Yale article does nothing to inspire the home-owning public’s confidence in the impartiality and fairness of the courts. The behavior does nothing to stop “conspiracy theorists” (i.e., those who question known liars) from concocting “far-fetched” (i.e., completely reasonable) explanations for why judges would so blatantly–and in such great numbers–turn their backs on “well-established legal principles” that “provide a clear answer” to the foreclosure crisis.
At least there’s some cold comfort and bitter consolation that hey, we weren’t wrong when we noticed all that shady shit the courts were (and still are) doing.