Unfortunately, the legal remedies under existing anti-predatory lending
laws are often not strong enough to save defrauded homeowners from
losing their homes. In many cases the amount of money that homeowners
owe on their mortgage outweighs whatever damages they may be entitled
to. In others, the statutes of limitations may have run out by the time
the violation is detected.
According to a recent report from the Brennan Center for Justice at New
York University Law School, "Foreclosures: A Crisis in Legal
Representation," the crisis is exacerbating an already existing crisis
in legal representation that is disproportionately hitting the poor.
Low-income people ought to be able to find help through the Legal
Services Corporation, which has 137 federally funded programs and 918
offices spread throughout the country. The LSC's mission is to serve the
growing number of Americans who live below 125 percent of the poverty
line (an income of $27,563 for a family of four). Currently,
approximately 54 million people fall into that bracket.
But the increasing number of low-income homeowners seeking help is
swamping the LSC, which has been plagued by severe funding shortages
since 1996, when, seeking to fulfill the agenda of Newt Gingrich's
Contract With America, Congress slashed almost a third of the
corporation's budget and imposed restrictions that severely curtailed
its operations. A year later LSC was serving 1 million fewer people.
Under the restrictions dating from the Gingrich-era assault--which, with
the exception of the recently overturned ban on collecting statutory
attorneys' fees, have been reapproved in every subsequent appropriations
cycle of Congress--LSC lawyers are prohibited from engaging in many
basic legal activities that are open to all other lawyers, such as
lobbying for legislative changes before government officials and filing
class-action lawsuits. There is even a poison pill that prohibits LSC
offices receiving federal funds from using money they raise elsewhere to
engage in any of the prohibited activities or services [see Peter
Edelman, "...And a Law for Poor People," August 3/10, 2009].
Currently the LSC is able to serve less than half of the low-income
people who contact its member programs seeking help. Of those it is able
to help, most get only general legal advice, not full representation.
And for the handful of predatory lending cases an LSC attorney is able
to litigate at any one time, "winning" generally means years in court
followed by a sealed out-of-court settlement, which simply becomes a
cost of doing business for major financial institutions.
"Of the number of clients we intake, we are probably able to accept a
third of them. Not all of the ones we reject have strong legal claims,
but most of the loans we see are subprime loans with abusive terms,"
says Meghan Faux, co-director of the Foreclosure Prevention Project at
South Brooklyn Legal Services. "There are a lot of homeowners we cannot
represent who have valid claims against their originating lender."
This past summer Faux won a sealed out-of-court settlement for a
homeowner facing foreclosure after a major lawsuit that lasted nearly
four years and included charges against Credit Suisse for aiding and
abetting a fraudulent scheme. She says her office has won other
settlements against large banks on behalf of individual homeowners.
However, the LSC restrictions, especially the ones on class-action suits
and attorneys' fees, have hampered the ability of her office to win
widespread relief for victims of predatory lending and
mortgage-servicing abuses. "Without the threat of having to pay our
attorneys' fees, there is not a lot of incentive for the defendants to
settle early or really settle, because their liability isn't
increasing," she said in an interview conducted before the restriction
on attorneys' fees was overturned.
