Why Is Non-judicial Foreclosure “Unconstitutional”?
I was asked to write an article about why Washington’s Deed of Trusts Act, which allows lenders to take homes without having to go through some Court process was unconstitutional. The person who asked me to do this wanted me to keep the article to 500 words and “not sound like a lawyer.”
Unfortunately, I concluded that I could not sound like anything but a lawyer, because that is what I am. So I asked my paralegal, Michael Fasset (an Iraq veteran who has a knack for law and helps me with regard to my practice) to write an article for non-lawyers on why nonjudicial foreclosure is unconstitutional. Here is what he wrote.
I will follow up in a few weeks with another blog which will sound like it was written by me about why the DTA is unconstitutional and should be repealed.
I have been asked by Scott Stafne to explain why non-judicial foreclosure is constitutionally unsound without resorting to legalese; I have, however, included some footnotes which will be more technically challenging for those without a legal background.
I’ll start with a brief background on how non-judicial foreclosure came to Washington and how it has fared in the courts. I’ll then attempt to explain what it means for a law to be constitutional (because such things are decided by attorneys it’s not as clear cut as you might think). Finally I’ll explain why Washington’s Deeds of Trust Act’s, which I will refer to herein as “the Act”, fundamental unfairness makes it constitutionally unsound.
In 1965, lenders and financial institutions lobbied Washington’s Legislature to enact a law that would provide a method of foreclosure that would avoid the “burdens” of filing a suit in court. Washington’s Legislature did so and, for the first time ever in Washington, non-judicial foreclosure became available.
Only once has Washington’s Supreme Court ever ruled on the constitutionally of non-judicial foreclosure under the Act. The Court held it was constitutional. The Court was wrong.
In Kennebec v. Bank of the West, the Act was reviewed on due process grounds. Due process, at a minimum, requires that before “life liberty or property” be taken a person is entitled to a fair hearing before an unbiased tribunal. Washington’s Supreme Court held the Act, as it existed in 1965, did not violate due process because those requirements are only applicable to state actors, not private entities: “[p]rivate action is not to be attributed to the state…simply because the conduct is permitted by state law”.
Thirty six years later, a majority of the Court in Klem v. Washington Mutual Bank suggested, though the issue was not before the Court, that what the Kennebec Court deemed a “private taking” might be subject to due process because “neither due process nor equity will countenance a system that permits the theft of a person’s property by a lender…under the guise of a statutory nonjudicial foreclosure.”
When Is a Law Constitutional?
If asked to answer this question, many would likely respond by saying a law is constitutional when it does not violate the constitution. This is true enough but somewhat circular. How do we know when a law violates a constitution? The first and most obvious purpose of a constitution is to establish a government. Most people would recognize that constitutions, or at least American constitutions, also function to protect our rights. Asked how they do this, most would quickly point to a bill of rights embodied therein. Fewer recall that one of the means by which constitutions protect rights is by establishing a government whose function is to regulate conduct and resolve disputes in a just and equitable manner; they establish a fair and even field on which individuals play the game of life.
Kennebec and Klem illustrate a problem that arises when one contemplates constitutionality.
Kennebec takes a strict view of constitutions which, at least technically, only protect us from governments; individuals are free to act as they please within the bounds of the law. Kennebec considered what is called “state action”. A government cannot do indirectly that which it cannot do by direct means (the state can’t encourage a private party to act in a manner which the state cannot act). A state may however, and frequently must, permit individuals to act in a manner which the state itself would not or cannot. States must tolerate certain activities by, for instance, the klu klux klan, though it could never take the same actions or positions itself. (However, it should be noted that Washington’s constitution, unlike the United States constitution, includes provisions to protect people mot only from arbitrary governmental action, but also from abuses by banks, corporations, and the wealthy.)
Klem suggests a different tack that might be expressed by saying, as a people, we hold to the belief that certain rights are all but inviolate and can only be curtailed by resorting to action through the state, which must be an impassive and impartial in its protection and adjudication of those rights (the people’s power to act indirectly, through government, is limited to those goals which have a rational correlation to governmental purpose). This is why “consensual” slavery contracts, think 50 Shades of Grey, are not upheld in courts and “private enforcement” is illegal.
Non-Judicial Foreclosure Is Constitutionally Unsound as Inherently Unfair and Unjust
In democratic terms, the fundamental purpose of establishing government is to create a shield which protects each of us to a certain equal minimum. We establish order by acknowledging basic rights and agreeing to act in a manner consistent with the protection of each other’s basic rights. One of the greatest challenges in democratic states is avoiding a tyranny of the majority, or a well heeled and influential minority, which transforms government into a sword.
The Act is problematic because, while ostensibly neutral and non-discriminatory, its applicability is dictated by one’s economic situation. This is not particularly surprising when one considers it was written and proposed by bankers.
At present, the median home value in Washington is $287,700, the median income is $56,835 and less than ten percent of Washingtonians make more than $150,000. A relatively small percentage of Washingtonian’s are de facto exempt from non-judicial foreclosure because they need never borrow to buy a home.
In fact, the greater one’s economic disadvantage the greater the effect of the injustice. Those who have to borrow to finance a home but who fall between the median and the top ten percent of earners may at least be able to afford legal representation if faced with an unlawful foreclosure; those below the median are less and less likely, the further they fall below the median, to be able to prevent even the most grossly blatant theft of a family home “under the guise of a statutory nonjudicial foreclosure.”
But even if the Act were not essentially discriminatory, the whole point of non-judicial foreclosure is to deprive persons of property without involving the state. It’s a end-run on due process. If the state cannot sanction private slavery because it cannot permit a deprivation of the essential right of liberty, why and how can it sanction private deprivation of property? It may well be that a given borrower owes a lender money and it would be just and right to order the sale of their home to fulfill that obligation but under what conditions that should occur needs to be decided by an impartial party after a full and fair hearing. That’s why our constitutions created judicial branches embodied in our courts.
In Some Kind of Hearing, Judge Henry Friendly set forth a list of rights contemplated by due process under American jurisprudence which includes:
- An unbiased tribunal.
- Notice of the proposed action and the grounds asserted for it.
- Opportunity to present reasons why the proposed action should not be taken.
- The right to present evidence, including the right to call witnesses.
- The right to know opposing evidence.
- The right to cross-examine adverse witnesses.
- A decision based exclusively on the evidence presented.
- Opportunity to be represented by counsel.
- Requirement that the tribunal prepare a record of the evidence presented.
- Requirement that the tribunal prepare written findings of fact and reasons for its decision.
The Act does not guarantee an impartial trustee. The trustee is under no obligation to hear or respond to a borrower’s objections, take or review evidence; hear witnesses, hear argument from counsel, create a record or make findings of fact or law. Unless the borrower sues the lender no hearing of any kind will be provided. If the borrower does file suit, it is essentially an appeal from the trustee’s “decision” to proceed with foreclosure without a hearing. The borrower now bears the burden of proving, against a presumption arising without a hearing, evidence or testimony, that the trustee’s decision is contrary to law.
The Act flips justice on its head and assumes the lender should be entitled to take a borrower’s home. The borrower is no longer entitled to the protection of a fundamental right to property and due process to deprive the borrower of that right. The borrower must prove they are entitled to the property they own against any claim by a lender no matter how frivolous or unfounded.
Becauses Washington’s Constitution established government to ensure the fair treatment of its citizens natural rights by government, banks, corporations, and the wealthy the Act which allows it is not constitutional.