The Consumer Debt Crisis: What Can Law Schools Do?

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1 The Consumer Debt Crisis: What Can Law Schools Do? Professor Peggy Maisel Director of the Clinical Program Florida International University College of Law University Park; RDB 1010; Miami, FL Phone:

2 Introduction In the past three years there has been a growing crisis in the US There has been an enormous increase in joblessness People have been unable to pay their mortgages, often based on subprime loans, and face foreclosure of their homes People have sometimes resorted to credit cards to pay for essentials, but have been unable also to repay this debt 2

3 Introduction Assistance has been available for large institutions, such as banks and insurance companies There has been little relief for lowincome communities Some law schools have responded by starting clinics or expanding existing clinics to address mortgage and other consumer credit issues. 3

4 Topics of Discussion The response of clinical programs to the debt crisis How different clinical models have been used successfully to help individuals and communities clinics addressing mortgage foreclosure issues clinics assisting consumers in debt through bankruptcy clinics addressing other consumer debt issues, such as predatory lending and fraud. 4

5 Topics of Discussion What type of model is most useful? How the clinical work has benefited law schools students Difficulties of mobilizing a clinical response and how they have been overcome What lessons can be learned 5

6 Overview of Clinics 71 law school clinics in the US on consumer-related issues: 17 bankruptcy clinics 4 clinics addressing foreclosure issues 4 clinics dedicated to predatory lending 13 consumer law clinics 26 general civil law clinics 9 elder law clinics 3 consumer mediation clinics 4 pro bono assistance and consumer education clinics NOTE: some clinics appear in more than one category 6

7 Foreclosure Related Clinics Five Models: Fellowships for new graduates to work in foreclosure defense Mortgage Foreclosure Defense (combined with bankruptcy) General civil and consumer law clinics representing victims of predatory mortgage lending Representation at Foreclosure Mediation Policy development and community partnership 7

8 Foreclosure Defense Fellowships University of Miami School of Law law.miami.edu/ Example: University of Miami School of Law Miami, Florida THE PROBLEM : South Florida has been ground zero Between April 2009 and March 2010, in Miami-Dade County 57,143 homes were in foreclosure In January 2010, one in every 212 homes were into default in Miami-Dade and 4,628 foreclosures were filed. In the same period, Broward County had 105 homes in default and 7,677 new foreclosures were filed, the highest foreclosure rate in the state of Florida Counting initial foreclosure filings, auction notices, and bank repossessions, the total number of homes affected in South Florida in the first six months of 2010 comes to almost 100,000 8

9 Foreclosure Defense Fellowships cont d THE PROBLEM : An estimated 1/3 of foreclosed homes are owner-occupied Homeowners are unaware of legal defenses that can stop or prevent foreclosures As many as 86% of homeowners in foreclosure in hard-hit areas don t have a lawyer. Homeowners who cannot pay their mortgages cannot pay for attorneys Legal aid organizations can only assist the poorest of the poor have capacity for only a fraction of those cases 9

10 Foreclosure Defense Fellowships cont d WHAT THE LAW SCHOOL DID: In October 2009 Created a paid fellowship for 8 recent graduates so that they could work parttime for 27 weeks with local legal services organizations defending foreclosures Created an LL.M. clinic externship with The Foreclosure Project, a local organization providing pro bono representation in foreclosures, providing 50% tuition remission for the 3 participants 10

11 Foreclosure Defense Fellowships cont d THE RESULTS: Legal services organizations handled a significant larger number of cases Legal Services of Greater Miami increased their intake by 60% during the fellowship Fellows negotiated loan modifications and defended foreclosure cases The Foreclosure Project LL.M. students assisted with over 300 cases, including one class action. None of those represented lost their homes. The organization gained credibility with judges because of support from the UM School of Law, providing better outcomes 11

12 Foreclosure Defense Fellowships cont d SUGGESTIONS FOR IMPROVEMENT: Make the fellowships full-time to increase the effectiveness and to reduce financial hardship on the fellows Create a traditional law school foreclosure clinic or externship More law schools should fund similar fellowships to emphasize the value of public service 12

13 Mortgage Foreclosure Defense & Bankruptcy Example: Touro Law Center Central Islip, New York Touro Law Center Opened in January 2010 because community groups saw need and provided funding Provides a place for desperate homeowners to get information about how the process works and what their options are Represents clients in mortgage foreclosures and bankruptcy Negotiates to modify clients mortgages Uses filing for bankruptcy as a strategy to save client s homes 13

14 Chapter 7 Bankruptcy The most common type of bankruptcy in the US Discharges most unsecured debt providing immediate relief from debt. certain types of debt, such as student loans used to pay for education, remain non-dischargeable A court-appointed trustee is assigned to sell, or liquidate, the individual s property to pay off creditors. a certain amount of property, the value of which varies by state, is exempt from sale; the individual is allowed to keep the exempt property. It can be contested by the creditor, but the grounds for doing this are narrow and are construed against the party contesting the bankruptcy 14

15 Chapter 13 Bankruptcy Also called a wage earner's plan Does not discharge the debt Enables individuals with regular income to develop a plan to repay all or part of their debts over three or five years Allows homeowner to save homes from foreclosure. Filing stops foreclosure proceedings and permits delinquent mortgage payments to be cured over time. Contains a special automatic stay provision that protects co-debtors 15

16 Mortgage Foreclosure Defense & Bankruptcy cont d Touro Law Center Bankruptcy Foreclosure Strategy File Chapter 7 bankruptcy to clear the client s debts, temporarily staying the foreclosure procedure and sometimes enabling them to qualify for mortgage modifications File Chapter 13 for those who can afford to continue payments 16

17 General Civil and Consumer Law Clinics Sandra Day O Connor College of Law Northwestern University College of Law Notre Dame Law School law.nd.edu Seton Hall Law law.shu.edu Florida Coastal Law Examples of clinics providing foreclosure representation Equity skimming or foreclosure release scams: Sandra Day O Connor College of Law Predatory lending: Northwestern University School of Law, Notre Dame Law School,, Sandra Day O Connor College of Law, Seton Hall Law Property fraud: Notre Dame Law School General foreclosure defense: Florida Coastal Law Policy development: Notre Dame Law School 17

18 Representation at Foreclosure Mediation University of Wisconsin School of Law law.wisc.edu Example: Foreclosure Mediation Clinic, University of Wisconsin School of Law Madison, Wisconsin Opened January 2010 as a response to the increasing number of foreclosures Represents approximately 1/3 of homeowners in foreclosure during the mediation process Have succeeded in Negotiating loan terms that allow owner to keep the home Negotiating agreeable arrangements for homeowners to give up the homes 18

19 Policy Development and Community Partnership Yale Law School law.yale.edu Example: Yale Law School and the ROOF Project New Haven, Connecticut THE PROBLEM: Foreclosures increased 700% between 2007 and 2009 The foreclosure rate in the city in 2009 was close to 5% and it had the third highest number of subprime loans in the state Neighborhood blight began to develop because homeowners and renters were evicted by the banks, leaving homes vacant and subject to disrepair and vandalism, further dropping property values 19

20 Policy Development and Community Partnership cont d WHAT THE LAW SCHOOL DID: The Community & Economic Development Clinic became a leader of a community task force set up by the mayor of New Haven Real Options Overcoming Foreclosure (ROOF) assists homeowners at risk of foreclosure and renters living in foreclosed homes stabilizes neighborhoods Students Designed an outreach program for homeowners at risk of foreclosure Conducted policy research about the problem of evicted renters, convincing some banks to stop the practice Conducted research to assist in determining which neighborhoods would benefit more from the Neighborhood Stabilization Project 20

21 Other Consumer Issues THE PROBLEM: Unemployment rates are currently at 9.5%, up from 4.4% in 2006 US consumers owed $830.8 billion dollars of revolving debt, consisting almost entirely of credit card debt, in May 2010 Unemployment can cause situations where borrowers cannot pay down their debts. in fact this might cause them to use credit cards to pay for basic expenses 378,990 bankruptcies were filed in the US in the first quarter of 2010 it is estimated that more than 1.6 million consumers will file for bankruptcy by the end of

22 Bankruptcy Clinics Brooklyn Law Florida International University College of Law law.fiu.edu Touro Law Center Pacific McGeorge School of Law University of Miami School of Law University of Minnesota Models for bankruptcy clinics are very similar Most only assist in filing Chapter 7 bankruptcies; a minority also assist in Chapter 13 filings They receive referrals from organizations serving the poor in the community 7 are in-house clinics, 4 are externships One clinic uses 3Ls as directors supervising 2Ls who do the bulk of the work 22

23 Bankruptcy Clinics cont d Clinics are overwhelmed by the demand for their services Typical issues seen include non-dischargeable debt sporadic employment and unemployment inadequate support, reliance on public benefits the use of credit cards to bridge the gap between income and living expenses 23

24 Florida International University Bankruptcy Clinic THE PROBLEM: Florida International University College of Law law.fiu.edu 29,072 NEW bankruptcy cases filed in South Florida in ,672 Chapter 7 7,109 Chapter 13 This constitutes % increase over % increase over ,529 bankruptcy cases were filed in South Florida in June ,572 Chapter Chapter 13 3,374 were filed by consumers Bankruptcies Filed in South Florida 24

25 Florida International University Bankruptcy Clinic cont d WHAT THE LAW SCHOOL DID: Opened the clinic as an externship program in the Fall 2009 Clients are referred by the Bankruptcy Court and the Southern District of Florida Bankruptcy Bar Students Are supervised by attorneys working on pro bono cases through Put Something Back assist clients in filing Chapter 7 or Chapter 13 bankruptcies In , 6 students assisted 8 clients in filing for bankruptcy litigated for one client who contested the discharge of a friend s debt 25

26 Consumer Law and General Civil Practice Clinics Florida Coastal Law Notre Dame Law School law.nd.edu Sandra Day O Connor College of Law Santa Clara Law Law.scu.edu Make up the majority of clinics addressing consumer needs Representation includes issues such as mortgage foreclosure and foreclosure rescue scams (already discussed) predatory lending land contract scams fraud debt collection issues abusive debt collection practices improperly or illegally garnished wages credit reporting issues auto fraud Representation ranges from brief procedures to litigation, including some class action Some clinics conduct consumer education and a small minority also conduct policy work 26

27 cont d Consumer Law and General Civil Practice Clinics Models for these types of clinics vary 26 General Civil Law Clinics, include one or more of these: Consumer law 19 clinics Bankruptcy 6 clinics Debt collection defense 5 clinics Fraud 4 clinics Predatory Lending 3 clinics Foreclosure 2 clinics 13 Consumer Law Clinics 4 pro bono education and assistance clinics 27

28 Useful Clinical Models for Addressing Consumer Debt Crisis To determine the best model must define clinic goals and community needs Traditional clinic models Examples: FIU Bankruptcy Clinic, Northwestern University College of Law Legal work individual client representation or individual mediation Educational Benefits learn client representation and problem solving interviewing counseling Mediation, negotiation and litigation skills 28

29 Useful Clinical Models for Addressing Consumer Debt Crisis cont d Community Development Clinic Model MODEL 1: Legal work transactional work; community education entrepreneurial identifying community needs and crafting solutions promotes better economics for the poor emphasizes group representation often interdisciplinary Educational benefits students learn poverty law with a different perspective transactional skills group and individual representation multi-disciplinary practice 29

30 Useful Clinical Models for Addressing Consumer Debt Crisis cont d Community Development Clinic Model MODEL 2: Legal work promote multiracial coalitions to help create greater equity for vulnerable workers promote economic justice over market expansion Educational benefits students learn different approach to poverty law group representation transactional skills organizing skills 30

31 Useful Clinical Models for Addressing Consumer Debt Crisis cont d Community Development Clinic Model MODEL 3: ROOF approach to mortgage foreclosure crisis Legal work no client forms collaboratives for broader economic reform and justice includes collaboration with local government to solve problems Educational benefits exposes students to expanded lawyering roles students learn complex questions of law, finance, economics, regulation, and policy necessary to assist low- and moderate-income clients legislative advocacy, lobbying, corporate law, regulatory compliance, drafting agreements and contracts, negotiation, community education and litigation 31

32 What Can Law Schools Do? Issues and Lessons Redirect resources quickly Example: University of Miami Innovative/Entrepreneurial Programs Example: ROOF Spring Break Programs Example: TPS response pro bono efforts Leadership who will respond 32

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