December 16, 2020
I, along with 73 other law profs, signed a letter of support drafted by Professor Pamela Foohey (Indiana). It reads in part,
Congress enacted our current Bankruptcy Code in 1978. Much has changed since then. Even after adjusting for population growth and inflation, Federal Reserve data show that credit card debt has tripled. In 1978, student-loan debt was such a small part of household finances that the Federal Reserve did not even separately track it. Today, student-loan debt is the largest component of household debt except for home mortgages. In 1978, asset securitization was in its infancy. Mortgages and auto loans are now routinely bundled and sold to investors, separating the servicing of the loan from the financial institutions that own the loan. Advances in technology have made it easier for debt collectors to hound consumers even for debts that are decades old. In 1978, what we now think of as the Internet was a little-known research tool for academics instead of a global information revolution that has affected how Americans interact, including with consumer lenders, attorneys, and the court system. Given all these changes, it is little surprise that a forty-year-old bankruptcy law no longer serves our needs today.
The central piece of the Consumer Bankruptcy Reform Act is to create a new chapter 10 for individual bankruptcy filers. The Act also eliminates chapter 7 as an option for individual filers and repeals chapter 13. Individuals will remain able to file under chapter 11 (those with debts over $7.5 million will be required to use that chapter), but for most people, the new chapter 10 will be a single point of entry into the bankruptcy system.
The single point will substantially improve the consumer bankruptcy system by replacing the current structure where consumer debtors must choose between a chapter 7 liquidation bankruptcy or a chapter 13 repayment plan bankruptcy. There are substantial differences around the country in the rates at which people use chapter 7 and chapter 13. In 2019, only 9.6% of the bankruptcy cases in the District of Idaho were chapter 13 cases as compared to 81.0% of the cases in the Southern District of Georgia. The gaping disparity itself is an indictment of a federal system that the Constitution directs to be “uniform.”
October 5, 2020
US News & World Report quoted me in How to Buy a Foreclosed Home. It opens,
AS HOME PRICES SOAR IN many cities, buyers may look to foreclosures to land bargains on houses. Foreclosure happens when a borrower can no longer make mortgage payments, and the lender seizes and then sells the home to recover losses.
Foreclosed homes are often sold for less than their market value.
That discount could bring a home within reach, but the financing and the home’s condition could present challenges. Before you bid on a foreclosed home, make sure you know the risks and the limitations.
Is It A Good Idea To Buy A Foreclosure Home?
Buying a foreclosure can save you some cash, but it comes with risks. If you pursue a foreclosure, it helps to have a “stomach of steel,” says David Reiss, law professor and research director of the Center for Urban Business Entrepreneurship at Brooklyn Law School.
Expect a lot more ups and downs than the typical homebuying process, says b, whose work focuses on real estate finance and community development.
Homebuying, including financing, can be more complicated with a foreclosed home. Yet the lure of savings can be irresistible.
“It can be like a 15% discount on your neighboring houses,” Reiss says. “So, it can be significant.”
But your savings will depend on the local real estate market and the condition of the foreclosed home, says Vince Malta, a San Francisco Realtor and president of the National Association of Realtors. Properties that need a lot of work sell for less than market value because of their condition and lower demand.
Not every foreclosure is a “steal” or a very good deal, Malta says.
“The truth is, the bank doesn’t want to ‘give’ the house away or sell it for less than it’s worth,” he says. “Foreclosures generally sell for very close to the appraised value.”
How Do You Buy a Foreclosed Home?
Buyers can find foreclosures at auctions, on home search sites such as Zillow and from traditional real estate agents, to name a few sources. You can finance or use cash to pay for a foreclosed home, but the former can be tricky.
Will you need cash to buy a foreclosure? You don’t necessarily need a full cash payment, but when you think you might buy at auction, you should prepare. Have some cash ready to make an immediate down payment.
Ask the auctioneer how much you might need in cash and how long you have to pay in full. Many foreclosures close within 30 to 45 days.
If you plan to finance the foreclosure, you will want to obtain a preapproval from a mortgage lender before the auction and bring it with you.
If you’re buying a bank-owned foreclosure at auction, you might want to apply for a loan from the same bank to simplify matters. Just be sure the bank offers a competitive interest rate.
If you’re buying a foreclosure from a bank, you could get a loan from the same bank to make your purchase. It’s not required but could make the process easier. Still, be sure the bank offers a competitive interest rate, as even a slightly higher rate could cost you thousands over the life of the loan.
Fair warning: Some banks will not want to finance foreclosures or will require large down payments because they can be risky investments.
Government-backed loan programs from the Department of Veterans Affairs or the Federal Housing Administration may offer financing options, but the property will need to meet standards for approval. Fannie Mae’s HomePath program helps homebuyers purchase properties the government-sponsored mortgage buyer has foreclosed on, Reiss says.
The program provides up to 3% in closing cost assistance for buyers who complete a homeowner education course.
“I have seen Fannie Mae put a lot of money into properties to get them in the condition for an owner-occupant to purchase them,” Malta says. “But I’ve also seen properties that would only accept cash offers due to the overwhelming deferred maintenance and damage to the property.”
An FHA 203(k) loan could be another smart choice for foreclosures in disrepair. The 203(k) program allows borrowers to finance repairs and renovations into the mortgage.
What Are the Risks of Buying a Foreclosure?
Buyers can embrace the process with eyes wide open, knowing the risks involved. The biggest risks can stem from buying property sight unseen.
“The big, scary thing is that with a number of foreclosures, you can’t actually inspect the property before you actually bid,” Reiss says. “That’s in part why the prices are below the market.”
Even if you pay for a home inspection, you typically have to buy the foreclosure “as is.” This means that if you purchase the home, any problem that pops up and the cost of fixing it are yours.
You can end up with a lot more of these problems in a foreclosed home, depending on the circumstances. A frustrated family might strip the home of valuable fixtures and appliances before leaving the house.
“Or they kind of just beat it up because they were angry about having to go through the foreclosure,” Reiss says.
A home lost to foreclosure could indicate a home neglected, Malta adds. “(You) have no idea what the previous owner has done for maintenance, or in many cases, hasn’t done,” he says.
How Can You Reduce the Risks of Buying a Foreclosure?
You can take a few steps to reduce the risks of buying a foreclosed property.
Get an inspection. “Buyers should absolutely hire their own inspector and thoroughly inspect the property,” Malta says.
In most instances, the bank will disclose any defects in the house, but sometimes the bank doesn’t have these details, he adds.
Research public property records. If you aren’t allowed to inspect the property, which may sometimes be the case, Reiss recommends researching its publicly available history. A property record search can reveal information about sales, tax liens, changes to square footage and additions to the property.
You can check the county tax office, which may have records available online.
“Maybe you’ll see some good news, like a boiler was replaced two years ago,” Reiss says. “Or maybe you’ll see some scary news, like there’s all these permits, and you don’t know if the work was completed.”
Do some informal due diligence. Start by visiting the house and performing a “curbside inspection” of your own, Reiss says.
“Even if you can’t go inside the house, you want to look at the property,” he says. “If you can peek in the windows, you probably want to peek in the windows.”
Knock on the doors of neighbors and see if they can answer your questions about the foreclosure. Tell them you want to bid on the home but need to learn all you can about the previous owners, including how long they lived in the house and how well they maintained it.
Ask if the home has had squatters or recent break-ins.
“Try to get all that information,” Reiss says. “Neighbors are probably going to have a good sense of a lot of that, and I think that kind of informal due diligence can be helpful.”
September 8, 2020
The Association of American Law School Section on Real Estate Transactions and the Section on Academic Support are doing a call for Statements of Interest for those interested in presenting at an AALS panel meeting in January of next year. Panelists should be prepared to answer some or all of the following questions:
What real property law courses should law schools be teaching?
Who should be teaching these courses?
How should the courses be taught?
The Section on Real Estate Transactions and the Section on Academic Support seek to explore these questions and related issues at their joint online session during the 2021 AALS Annual Meeting, The Changing Architecture of Approaches to Legal Education: Real Estate Transactions as a Case Study.
Members of the legal academic community are invited to submit statements of interest in joining the panel of presenters who will discuss the following in the context of real property law and related courses (mortgage finance, securitization, commercial leasing, housing law, real estate development, etc.):
- Law schools’ curricular choices
- Course content and design
- Teaching and pedagogy application.
As explained more in the “Background” section below, the Sections are specifically looking to highlight issues related to course offerings, curricular design, and teaching methodologies that can better prepare students for modern practice and ensure student achievement of course objectives. Statements of interest (including a description/summary of your proposed presentation) should be emailed to Andrea Boyack at email@example.com by September 17, 2020.
There is no formal paper requirement associated with participation on the panel.
**Note that the AALS Annual Meeting in January 2021 will be held in a completely digital format, and individual registration fees will not be charged for participation in/attendance at the Annual Meeting.**
In the past decade, legal education has experienced a number of body blows from which it still struggles to recover. In 2007, Educating Lawyers: Preparation for the Profession of Law (more commonly known as the “Carnegie Report”) criticized the academy for insufficiently preparing students for legal practice. In the aftermath of the 2008 Financial Crisis and global recession, many attorneys (especially from Big Law) were laid off and new graduates faced fewer and fewer job prospects. Mainstream and social media spotlighted lawyer and law student discontent, worries about sustainability of legal careers and the high cost of legal education, schools skewing data to try to game US News rankings, and the growing number of for-profit institutions. Law firms and their clients started exhibiting an increasing hesitancy with respect to hiring and training inexperienced attorneys. Law school admission rates tumbled as college graduates changed their opinions about the value of a legal education, as the ABA began making new demands of law schools pertaining to skills training and assessments. The practice of law, in the meantime, has changed dramatically, with automation, internet resources, and contract attorneys (or non-attorneys) taking the place performing tasks lawyers once controlled. Furthermore, schools have struggled to adapt to different expectations of the Millennial and Gen-Z generations of law students. Then, in March 2020, legal academia and law practice suddenly shifted to operating (temporarily?), primarily in the digital/virtual realm. The world has changed over the past 15 years, the practice of law has changed, and law schools struggle to adapt quickly enough to stay relevant and valuable.
The evolving demands and expectations for law schools are not just issues to be addressed by deans and administrators. Nor can the task of preparing new lawyers be allocated exclusively to clinicians and adjunct instructors of specialized “skills” classes. Doctrinal professors may want to also change their approach in the classroom in response to new industry demands for practice competencies and evolving attorney roles in an ever-changing marketplace, but have our pedagogical approaches adequately adapted to this new world? And how has law schools’ increasing reliance on adjunct professors impacted the students’ experience and preparation for the bar and beyond? In short: In what ways do we need to rethink what we teach and how we teach it in order to remain optimally relevant to tomorrow’s lawyers.
Per AALS rules, faculty at fee-paid law schools, foreign faculty, adjunct and visiting faculty (without a full-time position at an AALS member law school), graduate students, fellows, and non-law school faculty are not eligible to submit a statement of interest.
July 29, 2020
The American Bar Association selected my short article, Insuring Sustainable Homeownership, as part of “The Best of ABA Sections”–a compilation of some of the best articles published by the ABA’s sections, forums, and divisions. It was published in the ABA’s journal, GPSolo and it is drawn from Insuring Sustainable Homeownership, published in 20 (March/April 2018). It opens,
The Federal Housing Administration (FHA) has suffered from many of the same unrealistic underwriting assumptions that did in so many lenders during the 2000s. It, too, was harmed by a housing market as bad as any seen since the Great Depression. As a result, the federal government announced in 2013 that the FHA would require the first bailout in its history. At the same time that it faced these financial challenges, the FHA came under attack for poor execution of some of its policies attempting to expand homeownership opportunities. This article examines the criticism that has been leveled at FHA and the goals the agency should pursue.
May 28, 2020
In many ways, COVID-19 has changed the way we live for both the immediate future and long-term. Brooklyn Law School Dean Michael Cahill has been sitting down with members of the Brooklyn Law School faculty to discuss the legal ramifications of our response to COVID-19 and what a post-pandemic world may look like. Here is the link to our discussion of the effect of the pandemic on the real estate market and beyond: https://youtu.be/j9DFBOsU3qw.
February 20, 2020
I just finished reading Money and Government by Robert Skidelsky (2018). It is a bit tough in parts for non-economists, but it is a great read for those trying to understand the appropriate relationship between economic theory and government policy. While that may sound dry indeed, it is of key importance to the design of a post-Financial Crisis world regulatory order.
The book delves into the the “Mysteries of Money,” providing a short history of a deceptively simple topic that I continue to find to be difficult to wrap my head around: what exactly is money and what can you do with it? The book then goes into some inside baseball analysis of the history of economic thought. I skimmed this section because it related some pretty technical debates among early economists to set up its more accessible discussion of Keynesian economics and its challenger, Milton Friedman-led Monetarism. The book then takes a look at how economic theory impacted governments’ responses to the Financial Crisis, for good and for ill.
I think readers of this blog would be most interested by Skidelsky’s insights in the final section, where he tries to sketch “A New Macroeconomics.” He asks and answers the question, “What Should Governments Do and Why?” He wants to make banking safe and address inequality.
Readers of this blog will be particularly interested in his analysis and recommendations for the mortgage market. He argues that the “main theoretical mistake behind securitization was the assumption that securities are always liquid: they can always be sold quickly and without (much) loss.” (328) The Financial Crisis demonstrated in spades that this was not true. He argues that “[c]ompelling banks to hold mortgages for a period of years” is the solution to this particular problem. (363) I do not think that I agree with this solution, but as he argues his point at a high level of generality, it probably is best to say that the devil will be in the details for any reform program in this sphere.
I found his analysis of populism compelling. He argues that the “political divide between right and left . . . is increasingly overshadowed by one between nationalism and globalism.” (372) I won’t go into the details here, but he has a very trenchant analysis of how the economist’s theoretical Homo economicus fails to account for important aspects of our humanity as individuals, as members of groups and as citizens of nation-states. He warns that we do that at our peril: citizens of democracies will punish their leaders for failing to take into account their complex need to flourish in all of those ways that economists can reduce down to one-dimensional units of measurement, such as “utility.”
Yale University Press says that the book is out of print, but Amazon has paperback copies available if you dig a bit on the book’s web page (and, of course, there are Kindle versions available for those so inclined). I recommend that you get yourself a copy.