Whether you’re dealing with a legal dispute over loan modifications, eminent domain or a pushback against foreclosures, the mortgage litigation storm is silently raising various constitutional arguments that relate to the legal concepts of fundamental fairness, contract law, equal protection and due process.
If we look deep enough, there may be even more Constitutional issues looming, but the list for now is relatively extensive.
On the surface, mortgage litigation has evolved into an area of law where the Constitution is often challenged, albeit silently.
So what does this mean for mortgage lenders and servicers? The bad news is the litigation storm is unlikely to subside anytime soon.
The good news: The Constitutional protections lean in the creditor's favor just as much as they lean in favor of other parties.
Sunny Hou, an attorney with Severson & Werson, told a crowd at Friday’s Residential Mortgage Litigation & Regulatory Enforcement Conference that borrowers’ ongoing attempts to modify principal amounts and dispute terms that they initially agreed upon violates the concept of “fundamental fairness.”
When borrowers challenge loan modifications or assume they should pay less on a contract, Hou believes excessive action to try and deflate the contract price is in essence upending the initial legal constraints of the agreed upon contract price.
Attorney Roland Reynolds, who serves Palmer, Lombardi & Donohue, brings up other issues, particularly all of the constitutional questions raised by the city of Richmond’s plan to use eminent domain to take over loans sitting in private securities to cram-down the principal.
The first Constitutional argument the mortgage industry has raised is that eminent domain in this context violates the Due Process Clause under the 14th Amendment.
Other issues raised fall under the dormant commerce clause, Reynolds noted.
With the city trying to address a perceived inefficiency in the market, they’re in effect “trying to interfer with the national market," Reynolds added. There's another argument that the intrusion violates "the contract clause of the Constitution," Reynolds added.
Contractual protections outlined in the Constitution as well as the Equal Protection Clause have also surfaced as possible challenges when it comes to eminent domain cases.