April 11, 2013
Nestor Davidson has posted a very useful article to SSRN, New Formalism in the Aftermath of the Housing Crisis. The article notes that as “borrower advocates have responded to [the] surge in mortgage distress, they have found success raising a series of largely procedural defenses to foreclosure and mortgage-related claims asserted in bankruptcy.” (391)
Davidson points out that this “renewed formalization in the mortgage distress system is a curious turn in the jurisprudence” because from “the earliest history of mortgage law, lenders have had a tendency to invoke the hard edges of law’s formal clarity, while borrowers have often resorted to equity to obtain a measure of substantive fairness in the face of such strictures.” (392)
What I particularly like about this article is that it takes the broad view on downstream (homeowner foreclosure and bankruptcy) litigation. Instead of painting a pointillistic portrait of all of this “mortgage distress” litigation (a standing case here, a chain-of-assignment case there), Davidson identifies a pattern of formalistic defenses being raised by homeowners and puts it into historical context.
Davidson warns of the potential unintended consequences of this development: “The borrower push to emphasize formalism in mortgage practice, however understandable, may thus give primacy to the set of judicial tools least amenable to claims of individual substantive justice.” (430)
I don’t think that I agree that this new formalism will bite homeowners in the end. As Davidson himself acknowledges, “formalism need not be equivalent on both sides . . ..” (430) But I do agree with his conclusion:
For those concerned about the long-term structural balance between procedural regularity and substantive fairness embodied in the traditional realms of law and equity, the brittleness that the new formalism may be ushering in is worth considering and, perhaps, cause for redoubling efforts to find structural solutions to a crisis that even now continues. (440)