As bad as America's foreclosure crisis is -- and it's very bad, with over 300,000 homes receiving a foreclosure filing every month -- it's being made even more devastating by the lack of legal assistance available to beleaguered homeowners.
According to a new study by the Brennan Center for Justice, set to be released tomorrow, "the nation's massive foreclosure crisis is also, at its heart, a legal crisis" -- with the vast majority of homeowners facing foreclosure doing so without legal counsel.
For example, in New York's Nassau County, in foreclosures involving subprime or non-traditional mortgages (which disproportionately are targeted at minorities), 92 percent of the homeowners did not have a lawyer.
Having legal help can be the difference between people keeping their homes and being evicted. A lawyer can stop foreclosure proceedings or put enough pressure on lenders to get them to rework the terms of the loan. A lawyer can also intervene in other ways, such as enforcing consumer protection laws or spotting legal violations by banks and lenders.
According to the report, the barriers keeping homeowners from obtaining proper legal representation are twofold. The first, not surprisingly, is funding.
In 1996, the Legal Services Corporation, the primary agency that provides help for low-income Americans in civil cases, had its budget cut by one-third. At this point, to match the funding level the Legal Services Corporation received in 1981 would require an increase of $753 million. If Goldman Sachs or Bank of America needed that kind of cash (or even 10 times that kind of cash), Washington wouldn't think twice. But low-income homeowners have no clout in DC. No wonder the Brennan Center found that legal service programs for the poor are currently "besieged with requests for foreclosure assistance."
The second barrier is that restrictions to adequate legal help have been deliberately built into the system. Remember the "Contract With America"? It turns out one of its provisions severely limited the ability of homeowners to get legal protection from predatory lenders. For instance, homeowners represented by the Legal Services Corporation are barred from bringing class action suits. Nor are they able to make the other side pay attorneys' fees even when the law would normally allow it. As the report states, "the possibility of having to pay attorneys' fees provides a critical incentive to help ensure that a better funded legal adversary does not drag out proceedings in an attempt to exhaust the indigent client's resources."
The Obama administration has called on Congress to remove many of these limitations, but its $789 billion stimulus plan didn't contain a single dollar for foreclosure-related legal help. That's about as "shovel ready" a program as one could ask for, but it somehow didn't make the cut.
I've written before how foreclosures are a gateway calamity, with every foreclosed home creating a whole other set of crises. The Brennan study backs this up with cold hard statistics. According to the report, an estimated 40 million homes are located next door to a foreclosed property. The value of these homes drops an average of $8,667 following a foreclosure. This translates into a total property value loss of $352 billion. And vacant properties take a heavy toll on already strapped local governments: an estimated $20,000 per foreclosure (California is estimated to have lost approximately $4 billion in tax revenue in 2008).
And the negative impact of a foreclosed home can affect the entire community: a one percent increase in foreclosures translates into a 2.3 percent rise in violent crimes.
But even though the collateral damage of the foreclosure crisis is widespread, the crisis continues to get short shrift by the media and by Washington. And as the Brennan Center study powerfully demonstrates, the legal deck is utterly stacked against struggling homeowners. It's time to do the right thing and give at-risk homeowners -- especially those who have been the victims of discriminatory lending practices -- access to at least a tiny fraction of the legal tools at the disposal of the banks forcing them into foreclosure.
To read the full report in pdf format, click on "Full Report" on the Brennan Center's website.