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.
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
[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