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Study: Foreclosure Crisis Worsened by Scarcity of Legal Assistance for Struggling Homeowners

StoryOctober 09, 2009
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A new study by the Brennan Center for Justice concludes the national foreclosure crisis is also “a legal crisis. Many homeowners are losing their homes because they lack the ability to navigate the landscape of our lending laws…and too few people are ever able to obtain qualified legal guidance.” We speak to report co-author and attorney Melanca Clark. [includes rush transcript]

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This is a rush transcript. Copy may not be in its final form.


We end today by looking at the nation’s housing crisis. A new study by the Brennan Center for Justice has found that, quote, “The nation’s massive foreclosure crisis is also, at its heart, a legal crisis. Many homeowners are losing their homes because they lack the ability to navigate the landscape of our lending laws…and too few people are ever able to obtain qualified legal guidance.”

Melanca Clark is the counsel in the Justice Program at the Brennan Center for Justice. She is one of the co-authors of the report. She joins us in the firehouse studio.

Welcome to Democracy Now!

MELANCA CLARK: Thank you, Juan.

JUAN GONZALEZ: Lay out the key conclusions of your report.

MELANCA CLARK: Sure. So, the dimensions of the foreclosure crisis are quite well known. By 2012, we’ll have — it’s projected that we’ll have eight million foreclosures. Less well known and documented is the fact that the majority of homeowners that are facing foreclosure have no legal assistance when doing so. So, in the jurisdictions that we examined, we found, for example, that in Connecticut, the state of Connecticut, 60 percent of homeowners — 60 percent, excuse me, of defendants in foreclosure proceedings did not have counsel. In Stark County, Ohio, which is one of the counties in Ohio that’s particularly hard hit, that number was 86 percent. And here in New York, where we were actually able to isolate those homeowners that have subprime mortgages and high-cost mortgages, so these are the mortgages that were targeted to low-income communities and predominately minority communities, we found that those numbers were as high as 80 and 90 percent.

JUAN GONZALEZ: Now, this is when they get into court and the battle over, for many people, the most valuable asset in their lives, their home.

MELANCA CLARK: Definitely.

JUAN GONZALEZ: Why are so few people having access to legal help?

MELANCA CLARK: Well, one thing to consider is that all of these numbers are against the backdrop of what we knew before, which is that 80 percent of the civil legal needs of the poor go unmet. So it’s not that the foreclosure crisis has created the need for legal assistance for the poor, but it has very much intensified the demand for that assistance. And we know — we have reports that, you know, for legal service providers, and those are the providers on the ground that are providing these services, they’re turning — for every person that they help, they have to turn at least another person away.

JUAN GONZALEZ: Well, the Legal Services Corporation, which is the main organization nationwide that provides civil assistance for low-income people, has seen dramatic cuts in its budgets in recent years, hasn’t it?

MELANCA CLARK: That’s absolutely right. So, back in ’96, the Newt Gingrich-led Congress — and you’ll recall the Contract with America and all that — there was an assault, in fact, on the Legal Services Corporation, where they actually were trying to eliminate the corporation. Instead, there was a compromise, and their budget was cut by a third.

But the other important thing that happened is that a series of restrictions were imposed on the use of those federal funds. So, for example, lawyers that are receiving — that are serving the poor that receive federal money cannot use those funds to bring class actions, for example. And you think about this in the lending context, where, you know, you could have a lender or broker that’s engaged in widespread abuse throughout a community, well, these lawyers essentially have one hand tied behind their back. They have to take individual case by individual case, which is obviously completely inefficient and is not the way to get widespread relief.

The other problem is that they’re not allowed to collect their attorneys’ fees. And this is an important tool for litigators, because in many of these consumer protection statutes, there — and this is also true in the civil rights regime — the prevailing party gets to collect their fees at the end of the case, if they win. Now, if these — you know, the damages that you might get from the case are not particularly large in many instances, but certainly, when you add in the fees, that becomes much larger, and it becomes an additional disincentive to engage in wrongdoing.

JUAN GONZALEZ: Well, the Obama administration reported just yesterday that they’ve had some success in terms of their program to assist homeowners facing foreclosure. They claim now that about 500,000 people have been able to get their mortgages adjusted. But it makes me wonder, listening to you, if a lot of those people did not have legal representation, just how good an adjustment program they were able to get on their mortgage.

MELANCA CLARK: Yeah, that’s a great point. It is welcome news, certainly, that there seems to be some progress, because when the program was first rolled out, of course, so few people were seeming able to take advantage of it. But, you know, in terms of — not all modifications are created equal. And one of the things that, you know, in our interviews with legal service providers on the ground, what we found is that while some folks were working with housing counselors and getting a modification, in many instances those modifications were increasing their payments, because they were having to include fees that accrued because of the late payments, and they weren’t sustainable. So, you get a modification, but, you know, it’s not one that matters, that’s going to matter for you ultimately.

If you’ve got valid legal claims, you need a lawyer to bring that leverage to bear in the negotiation with the bank. It is absolutely critical that that happens and that, you know, you get the relief that you deserve.

JUAN GONZALEZ: And in terms of the foreclosure crisis itself, obviously we’re getting more and more reports that the worst of the economic crisis is over, but the number of foreclosures continues to increase, doesn’t it? What’s the status now?

MELANCA CLARK: It depends on the jurisdiction that you’re looking on. I think what is happening now is the subprime market, which is where the crisis began, those mortgages — the incidents of those mortgages are now being replaced by folks that had, you know, more standard thirty-year mortgages. Because of the economic crisis, they’re losing their jobs, and then it’s more of a payment issue.

But one thing just to say about this fact that the problems did start in the subprime market, it’s certainly not the case that every subprime mortgage is illegal, but certainly those mortgages were the ones that had, to a large degree, predatory and abusive terms. And I think we really see, when we’ve got — and again, as I mentioned before, targeted to low-income communities. When we have a situation where low-income people cannot reasonably rely on the justice system to enforce and protect their rights, the situation here is completely emblematic of what happens. So, it’s not just bad for the homeowner who’s going to lose their home, but it’s been bad for the entire nation.

JUAN GONZALEZ: And the recommendations in your report, in terms of what the Congress could do to remedy the problem of lack of legal representation?

MELANCA CLARK: Sure. We have a series of recommendations. At the state and federal level, resources for these lawyers should be increased. But for Congress, it’s a no-cost fix. They need to eliminate these restrictions. President Obama has voiced his support for the elimination of certain of these restrictions, and Congress is considering that now.

JUAN GONZALEZ: And at the state levels, what can the states do?

MELANCA CLARK: The states, as I said, they can certainly increase the resources that they have available and also offer interventions. And some of the states are moving to do that, including with mediation programs and some offer of assistance so that people, at least in the — because there are so many — you may have heard of foreclosure rescue scams and the like, people who are vulnerable right now to being preyed upon, for people who are — who do not have their best interests in mind. And so, states need to be particularly vigilant in providing alternatives, so people don’t fall into that situation.

JUAN GONZALEZ: What about the foreclosure rescue scams? Because they have been mushrooming here. You hear the ads on radio, TV, the newspapers all the time.

MELANCA CLARK: Yeah. It’s an absolutely horrible situation, and it’s sort of a second wave of abuse for people that were abused in the first instance. What people need to do if they’re concerned, they should go to It’s a great website that provides information about the resources available in their jurisdiction.

JUAN GONZALEZ: OK, well, thank you very much. Melanca Clark is a counsel in the Justice Program at the Brennan Center for Justice. She’s one of the co-authors of the report. We will link to it at

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