Toward a Free Market in Lawyers; Consumers Can't Get Legal Help from Law Industry Trapped in the Past
Byline: Larry E. Ribstein, SPECIAL TO THE WASHINGTON TIMES
The mortgage boom has put unprecedented stress on our legal system. Mortgages were securitized on a massive scale but then had to be enforced at the micro level.
While the finance industry was mutating rapidly, the law has remained a cottage industry, with individual lawyers representing individual clients in individual claims. This contributed to shortcuts in documentation - law firms lacked a back office that could keep up with the flood of work. These problems came home to roost when the mortgage boom went bust and it came time to foreclose on the mortgages.
Now lawyers are trying to train their creaky business model to deal with the boom in bad-document claims. One approach has been for lawyers to take stakes in their clients' mortgages. Then lawyers become part of the foreclosure problem.
This still leaves many consumer debtors in court with small debts they cannot pay. Monday's Wall Street Journal reports that firms are buying lots of these debts and then flooding the courts with suits enforcing them. While the creditors have achieved economies of scale, there evidently are no similar economies in defending the suits. The claims on which the story focuses seem to be too small to attract the attention of contingent-fee lawyers looking for documentation problems, although the story suggests there are many documentation problems in these smaller claims.
The story discusses one debt purchaser (Midland) that filed 109 claims averaging $2,069 each on a single day in Bronx County Civil Court. Although Midland had lawyers, the story points out that [n]one of the borrowers sued that day had lawyers, and only 10 percent showed up in court at all. A Cook County, Ill., judge notes that he has heard as many as 400 cases a day, filed by debt buyers, debt collectors and their attorneys who have often lugged their filings to his courtroom in crates. Judges told the reporter: Roughly 94 percent of collection cases filed against borrowers result in default judgments in favor of the debt buyer, according to industry estimates. The majority of borrowers don't have a lawyer, some don't know they are even being sued, and others don't appear in court. …