Facing the Facts: An Empirical Study of the Fairness and Efficiency of Foreclosures and a Proposal for Reform

Abstract

Lenders view real estate foreclosures as too expensive and time consuming a process which needlessly increases the costs of making loans. Others complain that the foreclosure process fails to adequately protect the borrower's equity (the value of the property in excess of the debt secured by the property) in the mortgaged property.

This article tests these views by gathering new data on the fairness and efficiency of the foreclosure process. Based on the data collected (which confirms some assumptions but disproves others), the author proposes a reform of the foreclosure process to promote the interest of both lenders and borrowers. Under the proposal, the foreclosure process should take less time and cost less money, yet provide borrowers with a more meaningful opportunity to prevent the forfeiture of their equity in the mortgaged property. The author recommends that Congress and state legislatures consider the data from this study and enact this reform proposal in place of existing federal and state foreclosure laws to promote the seemingly contradictory goals of both efficiency and fairness.