11 Pages Posted: 27 Sep 2011
Date Written: October 22, 2009
I decided to make you familiar with an aspect of American property law. You may not realize that a formalistic approach is taken regarding the necessity of consent to form contracts often presented to consumers, including subprime mortgage borrowers who signed the notes (which are themselves contracts) and mortgage documents to transfer the property to lenders. Because many who give what is known as objective consent ie they sign the paper incorporating an agreement, but they do not understand the terms of the contract or the impact on them, I argue that the form contract may protect businesses that use these, but not the property of those consumers/borrowers.
These types of “take it or leave it” contracts are known as adhesion contracts. In subprime mortgages lenders offer borrowers form contracts (promissory notes) which the borrower must sign in order to obtain the loan. There is no negotiation of the terms of the note or the mortgage document.
A significant part of the subprime crisis in residential real estate in the United States is due to a lack of subjective consent to the contracts entered into regarding the subprime mortgage loans. Then, of course because of globalization of investments this economic crisis affected investors worldwide. As was presented at the meeting of the Italian Civil Law Notaries in Torino in January 2008, many of these global investors trusted the US regulators and U.S. ratings agencies only to learn that neither was working effectively or as investors believed.
Suggested Citation: Suggested Citation
Hammond, Celeste M., Global Legal Standards: Common Rules to Protect Property and Businesses (October 22, 2009). Available at SSRN: https://ssrn.com/abstract=1933949 or http://dx.doi.org/10.2139/ssrn.1933949