The Legal Infrastructure of Ex Post Consumer Debtor Protections
Jacoby, Melissa B., Fordham Urban Law Journal
Introduction I. Functional Categories of Ex Post Debtor Protection II. Channels of Production of Ex Post Debtor Protection III. Implications of the Legal Infrastructure A. Should Debtor Protections be Bundled or Unbundled? B. How Does Legal Infrastructure Hinder Effective Use of Intermediaries? Conclusion
On the first Tuesday of the month, a few dozen people stand staggered on the steps of the county courthouse. They appear to be reading aloud to themselves from a sheaf of papers. Passersby steal glances but often are unaware that these readings carry great legal significance: foreclosure auctions of homes. Those representing the mortgagees have neither podium nor microphone, let alone a gavel. Murmuring simultaneously, they don't take turns. As the law requires, these auctions likely have been advertised in small print in newspapers. But, for a variety of reasons, interested third-party bidders with the requisite cash, cashier's check, or wiring instructions are few and far between. Absent a higher third-party bidder, the mortgagee becomes the owner of the home in a matter of minutes. Absent a later challenge, the process is over. (1)
Just a few city blocks away, people with distressed mortgages file bankruptcy petitions in a federal courthouse. These filings will usually stop a scheduled foreclosure auction of their houses, at least temporarily. Many of these homeowners will propose repayment plans that will cure their mortgage arrears, although completion of those plans is far from certain.
These observations illustrate how bankruptcy and foreclosure systems address very similar legal and economic issues. But, as a formal matter, they are entirely distinct. Different judges, different lawyers, different rules. The division of debtor-creditor law among multiple legal systems has many perfectly reasonable explanations. Yet, the consequences for the delivery of consumer protection are too often overlooked and not yet well understood.
This Cooper-Walsh Colloquium contribution reviews the legal infrastructure of tools that protect debtors' assets or income, or that enable debtors to resolve secured credit problems during ordinary times (e.g., not specific crisis interventions). Part I divides consumer protection tools into functional categories: protection of assets and future income, and retention of property subject to a security interest in default. Part II identifies the location of similar tools in federal law, uniform state law, and non-uniform state law. Part III examines implications of this divided system, with a special focus on the bundling of debtor protections and the role of intermediaries. This discussion helps us imagine improvements to consumer protection whether or not new legal tools are added.
I. FUNCTIONAL CATEGORIES OF EX POST DEBTOR PROTECTION
In the traditional law school model, the concept of a remedy is equated with an action for money or injunctive relief in a lawsuit. Indeed, many federal and state statutes or common law doctrines offer these forms of relief to consumer debtors. (2) Damages might be compensatory, punitive, and/or include attorneys' fees for a prevailing debtor. (3) For example, section 9-625 of the Uniform Commercial Code (part of Article 9 governing secured transactions in personal property) explicitly authorizes damages to a defaulting debtor if a secured creditor fails to comply with Article 9's requirements, such as conducting a commercially reasonable foreclosure sale, providing reasonable notice of the sale, and not breaching the peace during any self-help repossession of collateral. (4)
Scholars and advocates have long recognized a variety of impediments to consumers' effective use of traditional litigation-based remedies. Many consumers with viable claims do not seek advice on pursuing such claims either offensively or defensively. (5) Or, if they do, they wait too long for such actions to be any use. …