Northeastern University Law Journal, Vol. 2, No. 1, Spring 2010

Northeastern University Law Journal, Vol. 2, No. 1, Spring 2010

Northeastern University LAW JOURNAL VOL. 2, NO. 1 SPRING 2010 EDITORS’ INTRODUCTION 1 NOTES Regaining the Wonderful Life of Homeownership Post-Foreclosure 5 Meg Rehrauer ARTICLES A Judicial Response to the Subprime Lending Crisis 41 Robert A. Kubica Of Victims, Villains and Fairy Godmothers: Regnant Tales of Predatory Lending 71 Carolyn Grose Causes of the Subprime Foreclosure Crisis and the Availability of Class Action Responses 111 Gary Klein & Shennan Kavanagh Policy and Litigation Barriers to Fighting Predatory Lending 167 Deborah Goldstein & Matthew Brinegar Defending Foreclosure Actions by Bringing in Third Parties 195 Michelle Weinberg © 2010 Northeastern University Journal of Law Northeastern University LAW JOURNAL EDITOR-IN-CHIEF Laura Fauber ’10 Christine McCleney ’10 MANAGING EDITOR ARTICLES EDITOR Adrian Bispham ’10 Sarah Mitchell-Weed ’10 Ira Gant ’10 Alexandra Geiger ’10 PUBLICATION EDITOR SYMPOSIUM EDITOR Erin Kalwaic ’10 Deidre Delay ’10 Justin Mikowski ’10 Katie Hawkins ’10 FACULTY ADVISORS Professor Michael Meltsner Professor David Phillips Professor Sonia Rolland All works are copyright by their authors. JOURNAL STAFF 2009/2010 Senior Staff Kasey Baker ‘10 Vanessa Madge ‘10 Spencer Baldwin ‘10 Kevin Mulligan ‘10 Tayo Belle ‘10 Lindsey Palardy ‘10 Brett Gallagher ‘10 Tom Spera ‘10 Jeff Harris ‘10 Jacob Taylor ‘10 2009/2010 Staff Amerin Aborjaily ‘11 Vincent Enriquez ‘11 Jay Patel ‘11 Erin Albright ‘10 Hailey Ferber ‘11 Karishma Patel ‘10 Andrew Angely ‘11 Yana Garcia ‘11 Purvi Patel ‘10 Laila Atta ‘11 Sheila Giovannini ‘11 Nathaniel Paty ‘11 Mireille Azzi ‘11 Rachael Gramet ‘11 Abigail Putnam ‘10 Jordan Barringer ‘11 Michael Greenside ‘10 Jill Piccione ‘11 Robert Barry ‘11 Jasper Groner ‘11 Harsha Pulluru ‘10 Ryan Barry ‘11 Elisar Hares ‘11 Todd Roazen ‘10 Noah Becker ‘11 Laura Healey ‘11 Matt Rodgers ‘11 Robert Bench ‘10 Brian Hilburn ‘11 Rob Reutzel ‘11 Genia Blaser ‘11 James Hodge ‘11 Nancy Ryan ‘11 Adam Blechman ‘11 Hajra Khan ‘11 Laura Sannicandro ‘11 Alexis Bowie ‘11 Dan Klein ‘11 Adrian Santiago ‘11 Jeannie Bowker ‘11 Erin Kravitz ‘11 Sam Sawan ‘11 Meghann Burke ‘10 Asya Lakov ‘11 Matthew Schulz ‘11 Naureen Charania ‘11 Anthony Leone ‘11 Mike Serra ‘11 Seth Cohen ‘10 Lily Lockhart ‘11 Brandon Simpson ‘10 Jake Conte ‘11 Veronica Louie ‘11 Rupangini Singh ‘10 Austin Dana ‘11 Richard Louis ‘11 Alexis Smith ‘10 Liz Dedrick ‘11 Meghan MacKenzie ‘11 Chethan Srinivasa ‘11 Cleo Deschamps ‘11 Lorena Marez ‘11 Jane Sugarman ‘11 Elizabeth DiMarco ‘11 Liz McEvoy ‘11 Matt Thomson ‘11 Kristin Doeberl ‘11 Ryan Menard ‘11 Erica Virtue ‘11 Deirdre Donahue ‘11 Kate Millerick ‘11 Quentin Weld ‘11 Zoe Dowd ‘11 Paola Moll ‘11 Ryan White ‘10 An Duong ‘11 Graham Mowday ‘10 Chris Whitten ‘11 Natane Eaddy ‘11 Jonathan Nichols ‘11 Kaylin Whittingham ‘10 Alexandra Easley ‘11 Annie O’Connell ‘11 Nathan Wong ‘11 Seth Eckstein ‘11 Leigh O’Neil ‘11 Jason Elliott ‘11 Nick Ordway ‘10 Editors’ Introduction 1 The financial crisis that began in August 2007 has been the most severe of the post-World War II era and, very possibly – once one takes into account the global scope of the crisis, its broad effects on a range of markets and institutions, and the number of systemically critical financial institutions that failed or came close to failure – the worst in modern history. Although forceful responses by policymakers around the world avoided an utter collapse of the global financial system in the fall of 2008, the crisis was nevertheless sufficiently intense to spark a deep global recession from which we are only now beginning to recover. Ben S. Bernanke Address to the Annual Meeting of the American Economic Association January 3, 2010 The Northeastern University Law Journal is devoted to intellectual rigor and to enriching legal discourse. The Journal is unique, however, in that each issue is dedicated to a single topic and features articles regarding representation, advocacy, and legal strategy, as well as legal theory and analysis. Written by both academics and practicing attorneys, our articles meld legal theory with legal practice while addressing societal challenges and discussing progressive issues in the law. Northeastern University School of Law is often referred to as the nation’s premier public interest law school and the Journal shares the school’s focus on social justice, public service, and the practice of law in the public interest. This year we present a volume of the Journal focused on advocacy amidst the fallout of the subprime mortgage foreclosure crisis. When we selected this topic in late 2008, the United States was in one the deepest financial crises in its history. The mortgage foreclosure rate had increased more than eighty percent in one year, causing almost one million families to lose their homes.1 The fallout was not isolated to the United States 1 Stephanie Armour, 2008 Foreclosure Filings Set Record, USA Today, Feb. 3, 2009, http://www.usatoday.com/money/economy/housing/2009-01-14- foreclosure-record-filings_N.htm at 1, (citing RealtyTrac, 2008 Year-End Foreclosure Market Report (2009), http://www. realtytrac.com/ ContentManagement/RealtyTracLibrary.aspx?channelid=8&ItemID=5814). 2 NORTHEASTERN UNIVERSITY LAW JOURNAL Vol. 2, No. 1 residential mortgage lending market. What followed was the collapse of the global financial market that affected not only the residents on Main Street, but also crushed large established investment banks on Wall Street. The price gains in the United States housing market that eventually led to the subprime mortgage foreclosure crisis began over a decade ago. After years of slow growth, United States house prices rose more rapidly in the late 1990s.2 The most accelerated price gains were in the mid 2000s, when the annual rate of house price appreciation was between fifteen and seventeen percent.3 As the price of housing increased, a greater percentage of mortgage applications involved adjustable-rate mortgage products.4 The widespread issuance of variable-rate mortgages coupled with the belief by many borrowers and lenders that the price of real estate could only go up led to the demise of the housing market. The availability of these alternative mortgage products and the mistaken beliefs that the real estate markets would continue to soar is likely a key explanation of the housing bubble explosion that led to the current fallout.5 In addition to the alternative mortgage products, some believe that the deterioration in mortgage underwriting standards, which was exacerbated by practices such as the use of zero-money-down and no-documentation loans, led to the fallout.6 What remains of the United States housing market in the aftermath of the fallout is a very different landscape than what it has been over the past decade. As the economy begins to stabilize, lawyers and the court system must take leading roles to ensure that the mistakes of the past decade are not repeated. As a journal of legal practice, the Northeastern University Law Journal provided a forum for attorneys who are charting their course in the aftermath of the subprime mortgage foreclosure crisis to discuss the challenges they face. We were honored to host a symposium in the spring of 2009 at which legal practitioners from across the nation came together to share 2 Ben S. Bernanke, Chairman, Board of Governors of the Federal Reserve System, Address at the Annual Meeting of the American Economic Association: Monetary Policy and the Housing Bubble 12 (Jan. 3, 2010). 3 Id. 4 Id. at 14. 5 Id. at 16. 6 Stan Liebowitz, New Evidence on the Foreclosure Crisis, Wall St. J., July 3, 2009, at A13. Editors’ Introduction 3 ideas about the legal policies and practices that would best facilitate a successful emergence from the subprime mortgage foreclosure crisis. Following the symposium, we selected submissions for this issue of the Journal from Deborah Goldstein and Matthew Brinegar, Carolyn Grose, Gary Klein and Shennan Kavanagh, Robert Kubica, and Michelle Weinberg, as well as student comments from Meg Rehrauer. Although the subprime mortgage foreclosure crisis is subsiding, it is our belief that the articles in this issue will have profound and lasting value for both practitioners and policy makers. The articles focus on a wide range of topics from policy and litigation barriers to fighting predatory lending to defending foreclosure actions by bringing third party claims. Deborah Goldstein and Matthew Brinegar address the policy choices, laws, and judicial opinions that led to the subprime mortgage foreclosure crisis. The authors’ analysis of the Holder in Due Course doctrine, the preemption of state anti-predatory lending statutes, the Truth in Lending Act, and mortgage underwriting standards offer ideas for reform that could help strengthen the mortgage market and keep many borrowers in their homes. Carolyn Grose’s article offers practice tips for attorneys working with clients affected by predatory lending and encourages lawyers to work collectively with their clients to construct client narratives in which the client is recognized as more than a victim. This piece urges lawyers to seek a deeper understanding of their clients’ stories, with a goal toward creating new narratives that address their clients’ needs and concerns. Gary Klein and Shennan Kavanagh analyze the history and causes of the subprime mortgage foreclosure crisis and focus on class action litigation as a valuable mechanism for remedying the foreclosure crisis. Robert Kubica’s piece focuses on the judicial response to the subprime lending crisis by showing how the Commonwealth v. Fremont Investment & Loan7 decision in Massachusetts provides a framework for individuals examining mortgage loans to determine which loans qualify for restructuring. Michelle Weinberg’s article offers a wealth of practical information for attorneys defending foreclosure, as well as innovative ideas for clients’ potential third party claims. We believe that each article in this edition of the Journal offers unique insight into the subprime mortgage foreclosure crisis that can be 7 897 N.E.2d 548 (Mass.

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