NEW FORMALISM IN THE AFTERMATH OF THE
HOUSING CRISIS
NESTOR M. DAVIDSON
Professor, Fordham University School of Law
The housing crisis has left in its wake an ongoing legal crisis. After housing markets began to collapse across the country in 2007, foreclosures and housing-related bankruptcies surged significantly and have barely begun to abate more than six years later. As the legal system has confronted this aftermath, courts have increasingly accepted claims by borrowers that lenders and other entities involved in securitizing mortgages failed to follow requirements related to perfecting and transferring their security interests. These cases – which focus variously on issues such as standing, real party in interest, chains of assignment, the negotiability of mortgage notes, and the like – signal renewed formality in nearly every aspect of the resolution of mortgage distress.
This new formalism in the aftermath of the housing crisis represents
something of an ironic turn in the jurisprudence. From the earliest history of
the mortgage, lenders have had a tendency to invoke the clear, sharp edges of
law, while borrowers in distress have often resorted to equity for forbearance.
The post-crisis caselaw thus upends the historical valence of lender-side
formalism and borrower-side flexibility.
Building on this insight, this Article makes a normative and a theoretical
claim. Normatively, while scholars have largely embraced the new formalism
for the accountability it augurs, this consensus ignores the trend’s potential
negative consequences. Lenders have greater resources than consumers to
manage the technical aspects of mortgage distress litigation over the long run,
and focusing on formal requirements may distract from responding to deeper
substantive and structural questions that still remain largely unaddressed more
than a half decade into the crisis. Equally telling, from a theoretical
perspective, the new formalism sheds light on the perennial tension between
law’s supposed certainty and equity’s flexibility. The emerging jurisprudence
underscores the contingency of property and thus reinforces – again, ironically
– pluralist conceptions of property even in the crucible of hard-edged
formalism.
[ipaper docId=134822160 access_key=key-2kh49mfowela5bcvx5lo height=600 width=600 /]
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At the risk of abridging and condensing, the “law” is used as a weapon by the lenders, hence its purpose. No theory needed, their is widespread evidence of negative consequences. “Accountability it augurs” Good grief! This is pure sociopathy.