Bankruptcy

Unconscionability and Funky Mortgages

By Nathalie Martin

People have posted some comments to the funky mortgage story and I wondered if anyone had any experience using the doctrine of unconscionability to help ward off foreclosure and keep people in their homes.  As a contracts teacher, I know the doctrine is old and tired and disparaged, but it is still out there and was used with a least some success in the days of the phony home repairs/unfavorable mortgage refinancing schemes popular in the late 90's. See, e.g., Matthews v. New Century Mortgage Corp., 185 F. Supp. 2d 874 (S.D. Ohio 2002). The Restatement of Contracts includes one unconscionability factor that seems right on in these situations, namely that the stronger party had no reasonable believe that the weaker party would be able to receive substantial benefits under the contract, which I read to include situations where the weaker party has no chance of actually performing the contract. There also is language in the Restatement about how the weaker party is unable to reasonably protect his interests by reason of . . . ignorance, illiteracy, or inability to understand the language of the agreement.   Various state consumer protection statutes invite courts to weigh similar factors. Does any of this get us anywhere, or is this just wishful thinking?  Or, is this another one of those times where securitization will eliminate the defense because unconcionabilty cannot be asserted against a successor in interest? Do tell....

Full post as published by Credit Slips on May 28, 2008 (boomark / email).