But for those suffering under Hawaii's foreclosure system, the question is: Can there be any relief?
Suzanne Bonds is a Hawaii resident who was unbelievably exploited by the state's foreclosure process in 2004, but all her efforts to challenge what happened were rejected by Hawaii's courts. Now, her attorneys have asked the U.S. Supreme Court to intervene. Given the massive foreclosure tide swamping the nation, and the fact that the judiciary is regularly confronting fraud even in states where a judicial process is required for a lender to take a person's home, a hard look at the fairness of systems in the less-protective nonjudicial foreclosure states is crucial.
Bonds's petition was submitted on Jan. 22, 2011, and the other side has 30 days to file a brief urging the high court not to take the case. Gary Victor Dubin, Bonds's lawyer, doesn't expect the court to decide until late March whether or not it will take the case. If it does, a decision on the merits could be a year after that.
(Note: Unless otherwise linked, the information discussed below is drawn solely from the petition. No response brief has yet been filed.)
Hawaii's Foreclosure Statute in Action
Bonds was in her early 70s in 1998, when she inherited her Hawaii home from her husband. In 2001, she took out a mortgage with Ameriquest Home Mortgage, a notoriously predatory lender. By early 2004, Bonds was 78 and in terrible shape: Physically and mentally ill, she suffered from "heart failure, dementia and advanced state of senility, and psychotic and bipolar disorders" according to her physicians.
Nonetheless in May, 2004 she was sent a letter saying that her property had been sold at public auction a month earlier. In her condition, she took no action until a concerned "care-giving church official" reviewed the letter and helped her get a lawyer. To add insult to injury, the bank sold the property for $634,900, a price at best half of what it was worth, meaning that the purchaser made an immediate and massive profit, while Bonds was stripped of substantial equity.
Not coincidentally, the buyers of Bonds's home have made such purchases before: They seem to have a business model based in part on buying auctioned Hawaii properties for much less than they're worth. At the time, Hawaii's foreclosure law required purchasers to arrive at the auction with 100% of the purchase price, which made mortgage financing impossible. That tends to limit competitive bidding: Not many people or companies can come up with $600,000 cash on short notice.
This 100% down problem was theoretically fixed by a statute allowing buyers to pay 10% at auction. However, as interpreted by the federal court, the "fix" allows the auctioning lender to require the balance in 30 days or less, which again makes obtaining mortgage financing almost impossible. As a result, Dubin explained, foreclosure sales function as before, with little competition.
Making matters worse for Bonds, the auction notice for her house seemed screwy, suggesting that not all the potential competition was made aware of the impending sale. The brief says the property was listed with "a material misdescription, in virtually unreadable, blurred type."
Can't Challenge the Foreclosures
Bonds tried to challenge the foreclosure on many grounds: Her original mortgage violated the federal Truth in Lending Act (not surprising for an Ameriquest mortgage). The bank breached the mortgage contract because she never received the foreclosure notice it required. And, given her health, she was entitled to, but didn't get, protections under the federal and Hawaiian versions of the Americans with Disabilities Act.
All her efforts -- and her lawyers took the case to Hawaii's Supreme Court -- failed. Once title was transferred, the courts decided, nothing could be done. It didn't matter that the title was transferred before Bonds had a clue that a sale was scheduled, much less completed. It didn't matter that Bonds had a variety of state and federal claims arising from the mortgage and the foreclosure. Once the title had been transferred, it became too late. When the deed was done, the deed was done.
So her lawyers have filed a petition with the U.S. Supreme Court, asking it to decide whether or not Hawaii's nonjudicial foreclosure statute violated Bonds's due process rights and the Constitution's supremacy clause. The supremacy clause claim arises because the federal consumer protection laws her mortgage violated are in effect being trumped by the state foreclosure law.
How Much of the Foreclosure Is the State's Fault?
If the test of due process were purely fundamental fairness, then Bonds would surely win. But it's not: The Constitution only requires government to be fundamentally fair. Private citizens can exploit and cheat each other with impunity. So the big question raised by Bonds case is this: Does the state, whether Hawaii or the federal government, play a sufficiently large role in this story for the foreclosure to be considered "state action"?
The petition asserts that the way Hawaii mortgages are written, and the way foreclosures in Hawaii are conducted, is largely dictated by Fannie and Freddie, two government-sponsored enterprises. For example, most mortgages are made in forms Fannie and Freddie created, and both have instructed lenders to use nonjudicial foreclosures to save money, even though judicial foreclosures, with their attendant protections, are allowed under Hawaii law.
A Chance to Draw Boundaries
The Supreme Court ought to agree to hear this case. The abuses in the foreclosure fraud and mortgage mess playing out across the country are at their worst in nonjudicial foreclosure states. The Bonds case is an opportunity for the justices to lay down some basic boundaries of fairness in the foreclosure system. Moreover, it's an opportunity for the court to clarify its muddled state action doctrine, an opportunity the justices might appreciate.
And as Dubin explained to me, " The odds of Supreme Court review would greatly improve if other serious practitioners defending against nonjudicial foreclosures nationwide would seek leave of of court now to file amicus briefs in support, describing their clients' own contractual and due process violations and urging review."
Of course, if the court takes the case and finds there was no state action involved, ratifying what happened to Bonds, that would be a disaster for homeowners. But if it finds state action by the Hawaii court system, that will be great for borrowers in Hawaii, and potentially helpful elsewhere, depending on the court's reasoning.
However, if it finds state action through Fannie and Freddie, that would be most helpful of all, immediately giving borrowers a crucial precedent to challenge nonjudicial foreclosure procedures in California, Texas and 25 other "nonjudicial" states. That's a lot of Americans waiting to see how this case will play out.