The Foreclosure Crisis and the Anti-Fragmentation Principle in State Property Law

Abstract:     
Secured credit in homes has been divided and over-divided and spun into so many separate interests that economically rational, socially beneficial modifications of loans are impossible. The mortgage story is a new one but the excessive fragmentation of property and the creation of waste and inefficiency is not new. And our legal tradition of state property law has an answer, in the form of an anti-fragmentation principle. Consistent with this principle, federal government trustees should be authorized to review mortgages and, where modification would yield greater total return than foreclosure, modify the loans. Blind trustee review, moreover, can be achieved without formal condemnations of property interests or the creation of government liability for regulatory takings.

Keywords: mortgages, housing, takings

JEL Classifications: K11, K30

Accepted Paper Series