Foreclosure Mess: Do We Care About The Law?

One of the things that irks me most about the ongoing scandal over improper foreclosure efforts, and the apparent flagrant willful ignorance of the due process involved in it by the banks, is the implied contravention of property rights.

One of the bedrocks of American capitalism is the system of property rights it inherited from British law. The basic principle being that if you have clear title to something it cannot be taken from you arbitrarily. This principle is so settled it dates back over 400 years. Without it economies devolve quickly into chaos. Were there no clear property rights no one would know whether the buyers or sellers of things have the right to buy or sell. Transactions would grind to a halt.

The banks rely on this clarity all the time when they lend against security. They can only resort to using that security if they are safe that the borrower owned the asset in question and that the borrower assigned the rights to the security as part of the credit arrangement. The current foreclosure mess revolves not around the notion of who owns the property being foreclosed, but on whether there is a legally binding assignment. It is that assignment that gives the bank the right to seize a property due to non-payment of the loan. Without such evidence, there is no way anyone can tell whether the foreclosure is proper and legal. Improper seizure is anathema to capitalism.

Apparently the banks deem it inappropriate to have the necessary paperwork in hand when they start foreclosure proceedings.Those 400 years of property rights are thus tossed aside as so much lightweight garbage. The banks assert that they cannot be expected to process so many pieces of paper – how tiresome that must be – and so are trying to stampede us into ignoring what is one of our most settled pieces of law.

This is horrific.

It may be that processing legal paperwork is costly and tedious. Guess what? It’s the law. It has been for a while now. That the banks think they are above such menial tasks is just one more reason to distrust them. Clearly boring paperwork is for the little people and not for the gods of high finance. The stories surfacing about the absolute disregard for due process are stunning. Even worse are the stories that long lost paperwork magically appears overnight when a judge has the temerity to ask for it. It’s as if the banks are running a printing press to produce paper on demand. Surely that’s not happening, is it?

Meanwhile, in the face of this assault on our cherished rights, our leaders have decided that keeping the banking and real estate industries churning is more important. We are told we cannot stop foreclosures until we have sorted the mess out because the effects would be too damaging. To the profits of the banks that is. And to the ability of people to snap up foreclosed property at bargain prices. We need to clear the backlog of bad loans, so we must chug on manfully in the full knowledge that some people will be turned out of their homes despite the lack of proper paperwork. But what’s the sacrifice of a few little people in the face of the need to keep the big banks happy. And let’s not get all hung up over the details of the law. After all we have to worry about the “system”.

It makes me sick to see how easy it is for our leadership to side with the folks in the wrong when they have decided that the “system” must not be rocked. That would be the financial system. Apparently rocking the legal system is just fine.

This is just one more example of how easy it has become for us to walk away from our ideals in the face of pressure. Civil rights trampled on because of terrorism. Now property rights because of the banks ineptitude. Rather than do the right thing we do the expedient thing. That’s the sure road to mediocrity. And we’re on it.