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Testimony to the Task Force to Expand Access to Civil Legal Services in New York

Written testimony to New York State Chief Judge Jonathan Lippman’s Task Force to Expand Access to Civil Legal Services, highlighting the importance of investing in legal services to prevent foreclosure in New York.

  • Mark Ladov
  • Meghna Philip
Published: October 10, 2012

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Writ­ten Testi­mony of

Mark Ladov and Meghna Philip

The Bren­nan Center for Justice at NYU School of Law

to the

Task Force to Expand Access to Civil Legal Services in New York

Octo­ber 4, 2012

 

Thank you to Chief Judge Jonathan Lipp­man and the Task Force to Expand Access to Civil Legal Services in New York for the oppor­tun­ity to submit this testi­mony in support of expand­ing access to justice for all New York­ers.  We write on behalf of the Bren­nan Center for Justice, a non-partisan public policy insti­tute that works to secure our nation’s prom­ise of “equal justice for all.” The Bren­nan Center’s Justice Program works to achieve a justice system in which each person is treated fairly by the courts, its agen­cies, and actors regard­less of wealth, race, ethni­city, gender, immig­ra­tion status, or the community in which they live.

This Task Force has asked witnesses to eval­u­ate “[t]he costs and bene­fits, to the courts and to communit­ies, from the provi­sion of civil legal services in matters involving the ‘essen­tials of life.’”[1]  A strong record of evid­ence illus­trates the substan­tial economic bene­fits that civil legal aid brings to the state of New York.  We will focus in partic­u­lar on how legal repres­ent­a­tion assists New York­ers facing the loss of their homes to fore­clos­ure – and the economic bene­fits that fore­clos­ure preven­tion brings to New York State as a whole.

As Laura Abel of the National Center for Access to Justice at Cardozo Law School summar­ized in a recent fact sheet,[2] civil legal aid saves public money in a vari­ety of ways, includ­ing:

  • Redu­cing domestic viol­ence and help­ing victims get the support they need – thereby saving public health­care costs, redu­cing the need for police assist­ance and protect­ive orders, and help­ing victims of domestic viol­ence avoid lost jobs and wages.[3]
  • Help­ing chil­dren leave publicly-subsid­ized foster care more quickly.[4]
  • Prevent­ing evic­tions, saving $116 million in shel­ter costs in 2009–2010 in New York State alone.[5]
  • Improv­ing clients’ health, thereby redu­cing public spend­ing on health­care.[6]
  • Help­ing low-income clients parti­cip­ate in federal safety-net programs.[7]

These economic bene­fits are simil­arly true for fore­clos­ure preven­tion.  By help­ing famil­ies avoid the loss of their homes to fore­clos­ure, civil legal aid saves money for states and communit­ies. 

The Costs of the Fore­clos­ure Crisis – and the Bene­fits of Fore­clos­ure Preven­tion

The ongo­ing fore­clos­ure crisis hurts us all.[8]    Nobel prize-winning econom­ist and colum­nist Paul Krug­man recently explained that the “contin­ued weak­ness of the Amer­ican hous­ing market combined with a vast over­hang of house­hold debt” is the primary reason for the persist­ent slug­gish­ness of the national economic recov­ery.[9]  The Neigh­bor­hood Economic Devel­op­ment Advocacy Project (NEDAP) estim­ates that over 345,000 homes were at risk of fore­clos­ure in 2011 in New York State alone.[10]

A number of stud­ies have begun to quantify the costs gener­ated by this fore­clos­ure crisis – and the substan­tial economic returns from fore­clos­ure preven­tion.

  • Fore­clos­ures lower prop­erty values.  A study of fore­clos­ures in New York City found that homes within 250 feet of a fore­clos­ure filing lost 1.4% of their value.[11]  A home within 300 feet of three or more fore­closed prop­er­ties loses approx­im­ately 3% of its value. [12]  This means that a fore­closed home is not only losing its own value – it’s also drag­ging down neigh­bor­hood values by thou­sands of dollars. 
  • Lost prop­erty value leads directly to lost tax reven­ues and other public costs.  Using data from the Federal Reserve Bank of New York, the Empire Justice Center estim­ates that total losses in wealth for homeown­ers and losses in tax revenue for muni­cip­al­it­ies in New York State since 2008 add up to a stag­ger­ing $61 billion.[13]
  • Crime rates increase in neigh­bor­hood blocks with vacant, bank‐owned prop­er­ties. Just one vacant fore­closed home on a block can lead to a start­ling 5.7 percent increase in viol­ent crime.[14]
  • Fore­clos­ure preven­tion protects against costly disrup­tions in educa­tion that occur when famil­ies are dislo­cated.  In many cases, these moves force chil­dren to enroll in lower perform­ing schools.[15]

All of these costs are having a partic­u­larly devast­at­ing impact on communit­ies of color. Homeown­ers in communit­ies of color were more likely to be targeted for subprime loans through a process known as “reverse redlining.”  A 2006 report found that, within the subprime market, minor­ity borrow­ers were over 30 percent more likely to get higher-rate loans than whites, even after credit risk differ­ences were accoun­ted for.[16] By 2010, African Amer­ic­ans and Lati­nos were 47 percent and 45 percent more likely than whites to face fore­clos­ure.[17] And discrim­in­a­tion persists even after fore­clos­ure; the National Fair Hous­ing Alli­ance has docu­mented that bank-owned (REO) fore­clos­ure prop­er­ties are less likely to be main­tained or marketed prop­erly in communit­ies of color.[18]

Legal assist­ance is needed to help communit­ies address these prob­lems and avoid these costs.  Unfor­tu­nately, too many famil­ies facing fore­clos­ure lack legal coun­sel.  Since 2009, the Bren­nan Center has been docu­ment­ing the national crisis in fore­clos­ure legal repres­ent­a­tion.[19]  Over the past few years, we have gathered data from court systems across the coun­try and found that over­whelm­ingly, homeown­ers in fore­clos­ure face complex legal proceed­ings without an attor­ney at their side.  To ensure that these homeown­ers have a fair shot at justice – and every possible oppor­tun­ity to avoid fore­clos­ure – dedic­ated state fund­ing for fore­clos­ure assist­ance is crit­ical. 

Civil Legal Aid and Fore­clos­ure Preven­tion Coun­sel­ing is a Cost-Effect­ive Invest­ment for New York

New York’s Fore­clos­ure Preven­tion Services Program exem­pli­fies the value of civil legal assist­ance. Between 2008 and 2011, the Program assisted more than 80,000 homeown­ers and saved at least 14,000 homes from fore­clos­ure.  The Empire Justice Center estim­ates this invest­ment saved New York­ers at least $3.4 billion by prevent­ing famil­ies from slip­ping into home­less­ness, shor­ing up prop­erty values in strug­gling communit­ies and preserving our state’s prop­erty tax base.[20] This amounts to an estim­ated $68 return for every dollar spent on hous­ing coun­sel­ing and legal services.[21]

Legal services attor­neys and hous­ing coun­selors funded by this program help homeown­ers to defend their rights and nego­ti­ate more effect­ively with their lenders.  Research shows that skilled coun­sel­ing makes a signi­fic­ant differ­ence.  A 2010 study by the Urban Insti­tute found that homeown­ers in a federal loan coun­sel­ing program were 1.7 times more likely to avoid fore­clos­ure than those who were not.[22] Homeown­ers with a coun­selor also secured better results in nego­ti­at­ing a loan modi­fic­a­tion with their lender.  The study found that, on aver­age, clients with a hous­ing coun­selor lowered their monthly payments by $267 more than those who did not have a coun­selor.[23]   Docu­mented errors and abuses in the HAMP modi­fic­a­tion process further illus­trate why homeown­ers need effect­ive advoc­ates at their side press­ing for results from lenders.[24]

When homeown­ers are repres­en­ted, their attor­neys can make a signi­fic­ant differ­ence in their indi­vidual cases – and by doing so, reform the process more broadly, even for homeown­ers without legal coun­sel.  In Fore­clos­ures: A Crisis in Legal Repres­ent­a­tion, a national report docu­ment­ing the import­ance of legal assist­ance, the Bren­nan Center iden­ti­fied several ways in which lawyers assist homeown­ers: 

  • Rais­ing claims that protect homeown­ers from lenders and servicers who broke the law;
  • Help­ing homeown­ers rene­go­ti­ate their loans;
  • Help­ing ensure that the legal process is followed prop­erly;
  • Help­ing homeown­ers obtain protec­tion of the bank­ruptcy law;
  • Help­ing tenants when a land­lord’s prop­erty is fore­closed; and
  • Giving those affected by fore­clos­ure a voice in policy reform.[25]

Since that report, we have seen contin­ued evid­ence of the need to protect homeown­ers’ rights, and the oppor­tun­it­ies for abuse that arise when homeown­ers lack legal coun­sel. Govern­ment over­sight agen­cies, judges, and attor­neys general across the coun­try have issued harsh criti­cism of the prac­tices of lenders and fore­clos­ure law firms.  Perhaps most widely publi­cized was the nation­wide “robo-sign­ing” scan­dal, which revealed that many fore­clos­ure actions have been brought on the basis of false affi­davits and mislead­ing legal docu­ment­a­tion.[26]  The right to adequate coun­sel is import­ant in every litig­a­tion; it is only ampli­fied in fore­clos­ure cases by lenders’ attor­neys who often file cases in bulk and pay inad­equate atten­tion to the partic­u­lar facts and needs of each indi­vidual case.  The infamy surround­ing Steven J. Baum, P.C. – New York’s largest fore­clos­ure plaintiffs’ firm, which shut down last year after a string of complaints and contro­ver­sies includ­ing state and federal invest­ig­a­tions and a class action suit brought by MFY Legal Services – illus­trates the prob­lems that can go unchecked for unrep­res­en­ted homeown­ers.[27]

Moreover, the prob­lems with the fore­clos­ure process are deeply rooted in the risky and pred­at­ory prac­tices that led to our nation’s finan­cial crisis—­prob­lems exem­pli­fied by the lawsuit recently brought by Attor­ney General Schnei­der­man alleging fraud­u­lent secur­it­iz­a­tion of subprime mort­gages by Bear Stearns.[28]  Amid the frenzy to repack­age mort­gages into secur­it­ized assets that could be sold to investors, many mort­gages were bought and sold multiple times.[29]  The paper­work surround­ing those sales is often faulty.[30]  Further prob­lems are raised by the use of MERS, an opaque data­base set up by the mort­gage industry to avoid regis­tra­tion require­ments and filing fees.  As a result, it is not always clear that the party who claims to own a homeown­er’s loan really does; in legal parlance, this means that the lender may lack “stand­ing” to bring the fore­clos­ure.  Legal services are needed to ensure that only a party who actu­ally owns a mort­gage and note may bring a fore­clos­ure action to take away a family’s home.

As Attor­ney General Schnei­der­man test­i­fied to this task force, half of the people who were facing fore­clos­ure in New York when he was sworn in were forced to do so without speak­ing to a lawyer at any stage of the process.  Without a lawyer, a homeowner may not be able to defend his or her rights adequately.  As a New York judge stated in one case:

“It was only because this was one of the rare fore­clos­ure cases where the defend­ant was repres­en­ted by coun­sel that the fact that the Plaintiff did not own the note came to light.  The Court can only spec­u­late in how many other cases plaintiffs with no interest in mort­gages wrong­fully fore­close on them and collect proceeds to which they are not entitled.”[31]

Lenders have also acknow­ledged the ways in which repres­ent­a­tion improves the medi­ation process.  One bank repres­ent­at­ive, Michael Helfer, the General Coun­sel of Citig­roup, test­i­fied before this Task Force in 2010:

“We believe there is an import­ant role for lawyers to assist borrow­ers in avoid­ing fore­clos­ure in New York, espe­cially in the context of the mandat­ory medi­ation programs that have been insti­tuted in New York…law­yers can help facil­it­ate commu­nic­a­tion and guide borrow­ers through the process to work out solu­tions more quickly and without the need for repeated sessions.”[32]

Helfer noted that Citig­roup’s lawyers often have to resched­ule medi­ation sessions because unrep­res­en­ted homeown­ers are unaware of the docu­ments they need or the proced­ure for modi­fy­ing loans.  Lawyers for homeown­ers not only bene­fit homeown­ers, they also ensure the entire medi­ation process works effect­ively, Helfer explained: “[I]f we could get lawyers, to a greater extent, to be involved in this medi­ation or settle­ment confer­ence process…­col­lect­ively, the system would work a lot better.”[33]

And as noted above, fore­clos­ure preven­tion services are a good invest­ment for the State of New York.  Every indi­vidual homeowner should have a fair shot at saving her home, as a matter of basic justice.  But this fore­clos­ure crisis remains an enorm­ous barrier to our state and nation’s economic recov­ery.  Finan­cial analysts have sugges­ted that only a program of wide­spread mort­gage modi­fic­a­tions, includ­ing prin­cipal write-downs where appro­pri­ate, will stabil­ize our strug­gling hous­ing market.[34] Although the nation’s five largest mort­gage servicers have prom­ised to offer billions of dollars in prin­cipal reduc­tions as part of a Febru­ary 2012 national settle­ment agree­ment, it is unclear whether that relief is reach­ing the homeown­ers most in need of it – further evid­ence of the need for lawyers on the ground to monitor this situ­ation.[35]

*  *  *  *  *

Attor­ney General Schnei­der­man has dedic­ated $15 million from the national mort­gage settle­ment to save fore­clos­ure preven­tion services this year, and has commit­ted another $60 million from the settle­ment over the next three years to hous­ing coun­sel­ing and civil legal services to help famil­ies stay in their homes. New York must ensure that this commit­ment persists even after the national mort­gage settle­ment funds are spent down, so that homeown­ers facing fore­clos­ure continue to receive adequate coun­sel. We endorse the Attor­ney Gener­al’s call to separ­ate the issue of access to justice from the annual budget battles in Albany by identi­fy­ing a dedic­ated stream of revenue for all legal services.

Fore­clos­ure preven­tion is an import­ant invest­ment for the State of New York.  It saves famil­ies the extraordin­ary finan­cial and emotional costs of losing their home.  It saves communit­ies from declin­ing hous­ing values and rising crime.  And it saves our state money at a time of fiscal auster­ity. 

 


[1] Notice of Public Hear­ings, New York Courts (July 17, 2012), avail­able at http://www.nycourts.gov/ip/access-civil-legal-services/PDF/Public­Hear­ing_Civil­Leg­alS­r­vc­s2012.pdf

[2] Laura Abel, Economic Bene­fits of Civil Legal Aid, National Center for Access to Justice at Cardozo Law School (Sept. 4, 2012), avail­able at http://ncforaj.files.word­press.com/2012/09/final-economic-bene­fits-of-legal-aid-9–5–2012.pdf

[3] Id. (citing Laura Abel & Susan Vign­ola, Economic and Other Bene­fits Asso­ci­ated with the Provi­sion of Civil Legal Aid, 9 Seattle J. for Soc. Justice 139, 147–148 (2011))

[4] Id. (citing Mark E. Court­ney & Jennifer L. Hook, Eval­u­ation of the Impact of Enhanced Parental Legal Repres­ent­a­tion on the Timing Of Perman­ency Outcomes for Chil­dren in Foster Care, 34 Chil­dren & Youth Servs. Rev. 1337 (2012); Abel & Vign­ola, supra, at 150–54; Laura K. Abel, Keep­ing Famil­ies Together, Saving Money, and Other Motiv­a­tions Behind New Civil Right to Coun­sel Laws, 42 Loy. of L.A. L. Rev. 1087, 1110 (2009))

[5] Id. (citing Geeta Singh Ph.D., Testi­mony at the NY Chief Judge’s Hear­ing on Civil Legal Services (Oct. 18, 2011), avail­able at http://www.nlada.org/DMS/Docu­ments/1328113081.49/NY%20re­port%202011%20Ap­pen­dices.pdf.)

[6] Id. (citing Ariel Modrykamien et al., A Retro­spect­ive Analysis of the Effect of Envir­on­mental Improve­ment Brought About by Legal Inter­ven­tions in Poorly Controlled Inner-City Asth­mat­ics, CHEST (2006); Randye Retkin et al., Impact of Legal Inter­ven­tions on Cancer Surviv­ors (2007), pp. 2, 7)

[7] Id. (citing Russell Engler, Connect­ing Self-Repres­ent­a­tion to Civil Gideon: What Exist­ing Data Reveal About When Coun­sel Is Most Needed, 37 Ford­ham Urb. L.J. 37, 58–66 (2010))

[8] The Center for Respons­ible Lend­ing has estim­ated that the fore­clos­ure crisis is only halfway over.  See Center for Respons­ible Lend­ing, Lost Ground, 2011: Dispar­it­ies in Mort­gage Lend­ing and Fore­clos­ure, (2011) avail­able at http://www.respons­iblelend­ing.org/mort­gage-lend­ing/research-analysis/Lost-Ground-2011.pdf.

[9] Paul Krug­man, “The Optim­ism Cure”, The New York Times, (Sept. 23, 2012), avail­able at http://www.nytimes.com/2012/09/24/opin­ion/krug­man-the-optim­ism-cure.html

[10] Neigh­bor­hood Economic Devel­op­ment Advocacy Project, Fore­clos­ures in New York: What’s Really Going On, (Janu­ary 2012), avail­able at http://www.nedap.org/resources/docu­ments/NEDAP­Fore­clos­ures­inNYS_Whats­Goin­gOn.pdf

[11] Jenny Schuetz, Vicki Been and Ingrid Gould Ellen, Neigh­bor­hood effects on concen­trated mort­gage fore­clos­ure, 17 J. OF HOUS­ING ECON. 306, 314 (2008)

[12] John. P. Hard­ing et. al, The Conta­gion Effect of Fore­closed Prop­er­ties, Social Science Research Network Work­ing Paper 1160354, (2008)

[13] Empire Justice Testi­mony on Fore­clos­ure Fund­ing and Process: Hear­ing on Mort­gage Fore­clos­ures in New York Before the State Assembly Stand­ing Comm. on Hous­ing, Assembly Stand­ing Comm. on Judi­ciary, Assembly Stand­ing Comm. on Banks, 2011 Leg. 235th Sess.  (Nov. 7, 2011) (state­ment of Rebecca Case- Gram­matico)

[14] Ingrid Gould Ellen, Johanna Lacoe, and Claudia Ayanna Shary­gin, Do Fore­clos­ures Cause Crime?, Furman Center for Real Estate & Urban Policy (2011), avail­able at http://furman­cen­ter.org/files/public­a­tions/Ellen_Lacoe_Shary­gin_Fore­clos­ure­sCrime_June27_1.pdf

[15] Kath­ryn L.S. Pettit and Jennifer Comey, The Fore­clos­ure Crisis and Chil­dren: A Three City Study, Urban Insti­tute, (2009), avail­able at http://www.urban.org/Uploaded­PDF/412517-The-Fore­clos­ure-Crisis-and-Chil­dren-A-Three-City-Study.pdf 

[16] Debbie Gruen­stein Bocian, Keith S. Ernst, and Wei Li, Unfair Lend­ing: The Effect of Race and Ethni­city on the Price of Subprime Mort­gages, Center for Respons­ible Lend­ing, (May 31, 2006), avail­able at http://www.respons­iblelend­ing.org/mort­gage-lend­ing/tools-resources/rr011-Unfair_Lend­ing-0506.pdf

[17] Debbie Gruen­stein Bocian, Wei Li, and Keith S. Ernst, Fore­clos­ures by Race and Ethni­city: The Demo­graph­ics of a Crisis, Center for Respons­ible Lend­ing, (June 18, 2010), avail­able at http://www.respons­iblelend­ing.org/mort­gage-lend­ing/research-analysis/fore­clos­ures-by-race-and-ethni­city.pdf

[18] National Fair Hous­ing Alli­ance, The Banks Are Back – Our Neigh­bor­hoods Are Not: Discrim­in­a­tion in the Main­ten­ance and Market­ing of REO Prop­er­ties (2012), avail­able at http://www.mvfairhous­ing.com/pdfs/2012–04–04%20The%20Banks%20Are%20Back.PDF

[19] Melanca Clark with Maggie Baron, Fore­clos­ures: A Crisis In Legal Repres­ent­a­tion, Bren­nan Center for Justice (2009); Naban­ita Pal, Facing Fore­clos­ure Alone: The Continu­ing Crisis in Legal Repres­ent­a­tion, Bren­nan Center for Justice (2011)

[20] Empire Justice Testi­mony on Fore­clos­ure Fund­ing and Process: Hear­ing on Mort­gage Fore­clos­ures in New York Before the State Assembly Stand­ing Comm. on Hous­ing, Assembly Stand­ing Comm. on Judi­ciary, Assembly Stand­ing Comm. on Banks, 2011 Leg. 235th Sess.  (Nov. 7, 2011) (state­ment of Rebecca Case- Gram­matico)

[21] Id.

[22]  Neil Mayer et al., National Fore­clos­ure Mitig­a­tion Coun­sel­ing Program Eval­u­ation: Prelim­in­ary Analysis of Pro­­gram Effects Septem­ber 2010 Update, The Urban Insti­tute (2010), avail­able at http://www.nw.org/network/nfmcp/docu­ments/2010.12.14FI­NALM­od­el­in­gRe­port.pdf

[23] Id. at 3

[24] Office of the Special Inspector General for the Troubled Asset Relief Program, Quarterly Report to Congress, (Oct. 26, 2010), pp 172–75, avail­able at http://www.sigtarp.gov/reports/congress/2010/Octo­ber­2010_Quarterly_Report_to_Congress.pdf

[25] Melanca Clark and Maggie Baron, Fore­clos­ures: A Crisis in Legal Repres­ent­a­tion, Bren­nan Center for Justice (2009) pp 17–25, avail­able at http://bren­nan.3cdn.net/a5bf8a685cd0885f72_s8m6bevkx.pdf

[26] Federal Hous­ing Finance Agency Office of Inspector General, FHFA Over­sight of Fannie Mae’s Default-Related Legal Services (Sept. 30, 2011), avail­able at http://matt­weidner­law.com/blog/wp-content/uploads/2011/10/FHFAAUDIT.pdf

[27] Peer Lattman, “Fore­clos­ure Firm Steven J. Baum to Close Down”, New York Times (Nov. 21, 2011), avail­able at http://deal­book.nytimes.com/2011/11/21/fore­clos­ure-firm-steven-j-baum-to-close-down/ ; Andrew Kesh­ner, “Suit Targets Lenders’ Firm Over Fore­clos­ure Filing Require­ments”, New York Law Journal, (Aug. 11, 2011), avail­able at http://www.law.com/jsp/law/LawArticleFriendly.jsp?id=1202510824239

[28] Gretchen Morgen­son, “JPMor­gan Unit Is Sued Over Mort­gage Secur­it­ies Pools,” New York Times (Oct. 1, 2012), avail­able at

http://www.nytimes.com/2012/10/02/busi­ness/suit-accuses-jpmor­gan-unit-of-broad-miscon­duct-on-mort­gage-secur­it­ies.html

[29] Thomas J. Miller, Att’y Gen, Iowa, Hear­ing Before the S. Comm. On Bank­ing, Hous­ing and Urban Affairs, 111th Cong. 3 (Nov. 16, 2010) (tran­script avail­able at http://bank­ing.senate.gov/public/index.cfm?FuseAc­tion=Files.View&FileStore_id=1feca776–9009–4d40–87d4-bd8f679061b1)

[30] Diane E. Thompson, National Consumer Law Center., Before the S. Comm. On Bank­ing, Hous­ing and Urban Affairs, 111th Cong. 16 (Nov. 16, 2010) (tran­script avail­able at http://www.nclc.org/images/pdf/fore­clos­ure_mort­gage/mort­gage_servi­cing/testi­mony-senate-bank­ing.pdf)

[31] U.S. Bank v. Gonza­lez., No. 4137/2009, slip op. at 7 (Sup. Ct. Kings Cnty. June 8, 2010) 

[32] Michael Helfer, Gen. Coun­sel of Citig­roup, First Dep’t Civil Legal Servs. Hear­ing 27, 28 (Sept. 28, 2010) (tran­script avail­able at http://www.nycourts.gov/ip/access-civil-legal-services/PDF/1st-Dept-Hear­ing-Tran­script.pdf)

[33] Id. at 29

[34] Recent data suggests that 1 in 5 borrow­ers are at risk of fore­clos­ure without an ambi­tious policy response, includ­ing prin­ciple write-downs for under­wa­ter mort­gages.  See Laurie Good­man et. al, Amherst Secur­it­ies Group LP, Hous­ing Crisis: Sizing the Prob­lem, Propos­ing Solu­tions (2010)

[35] “Still No Justice for Mort­gage Abuses”,  New York Times edit­or­ial, (Septem­ber 1, 2012) avail­able at http://www.nytimes.com/2012/09/02/opin­ion/sunday/still-no-justice-for-mort­gage-abuses.html