Why not a national homestead law?

[drwex]

A homestead law is a specific exemption (read about MA's homestead law) protecting a person or family's primary residence against seizure for debt repayment. Enacted properly a homestead law could protect peoples' basic shelter needs from things like subprime mortgage foreclosures while denying protection to real estate speculators, who generally don't live in the speculated properties. Several states have such laws to varying degrees (some protect the house as a whole; some protect property up to a fixed limit, etc). I haven't been able to find a reliable data source on how many states already have such laws and how many do not.

Isn't protecting homes that people actually live in and want to continue to maintain a desirable outcome? Why is nobody talking about a national homestead law? It wouldn't prevent people from having massive debts and possibly having to declare bankruptcy, but it would prevent them from losing their homes while they get their financial feet back under them.

I'm wondering if there's some obvious disadvantage that I'm missing (other than to creditors who can't seize and resell negative-equity houses; I'm not crying a lot of tears over this just this moment).

Comments

[halleyscomet.livejournal.com]

"other than to creditors who can't seize and resell negative-equity houses"

Those creditors have money, clout and lobbyists.

[dpolicar]

Seems plausible to me.

[feste-sylvain.livejournal.com]

For the same reason we don't have a "national murder law".

It literally isn't a Federal case.

(Refers drwex to the 10^th amendment.)

[drwex]

I think it's a Federal matter in two respects: 1) insofar as we consider the ability to maintain one's home - even in the face of debt - as a necessary component of Life, Liberty, and the Pursuit...

Second, the Interstate Commerce Clause. The entities making the loans are operating across multiple state lines and in multiple separate jurisdictions. Therefore it seems appropriate for it to be Federally regulated.

We don't have a national murder law but when the crime crosses state lines the feds get involved.

[feste-sylvain.livejournal.com]

1) insofar as we consider the ability to maintain one's home - even in the face of debt - as a necessary component of Life, Liberty, and the Pursuit...

And as such, we are talking about the protection of the individual. But we are not talking about protection of the individual against the actions of the State, so it is not a Federal case.

Second, the Interstate Commerce Clause.

The most abused clause of the Constitution. At its inception, the Interstate Commerce Clause was supposed to keep the states from setting up inter-state tarriffs, and to facilitate free trade between the states. You are describing neither here.

California, for good demographical, geological and metereological reasons, has had tougher emissions standards for vehicles than other states. And yet it is mostly Michigan companies and Washington (state) based importers who bear the brunt of this. And yet the operation of these entities across state lines have had no problem dealing with the state law, nor have any successfully complained to the Feds that this state law was acting in restraint of trade. (Nor are they likely to, since it raises the barrier to any hopeful competitors.)

Likewise, Massachusetts is not the only state with "homestead" provisions in their lending laws, and the lenders have not been complaining about "restraint of trade" or even hardships there, either. (That I know of. Counter-examples grumblingly accepted.)

For yet another example, the next time you get one of those credit-card offers in the mail, check the back for the state-based set of conditions on the card. Financial instruments can deal with a plethora of diverse rules, and they don't call in the Feds to "clear things up".

[drwex]

we are not talking about protection of the individual against the actions of the State, so it is not a Federal case.

By that logic taking a kidnap victim across state lines shouldn't be a federal case. If you really think that then we're so far apart as not to have common discussion grounds. Do you really think that?

I'd agree that the ICC is widely abused (in part because it's overbroadly interpreted). But that doesn't explain why you think it doesn't permit the Feds to establish a baseline standard for homestead protection. States might enforce tougher standards (as CA does for vehicle emissions) but that doesn't say there can't be a Federal baseline.

Financial instruments can deal with a plethora of diverse rules, and they don't call in the Feds to "clear things up".

True, but not to the point, which is that we have a two-pronged crisis going on. Part 1 involves companies writing down billions in overvalued debt. Not a huge problem, except indirectly. Part 2 involves tens or maybe hundreds of thousands of people being tossed out of their homes. Problem, which 'financial instruments' aren't solving.

[feste-sylvain.livejournal.com]

By that logic taking a kidnap victim across state lines shouldn't be a federal case.

I dare say that the inter-state actions of criminals and the jurisdictional issues of extradition do not fall under the Interstate Commerce Clause.

But that doesn't explain why you think it doesn't permit the Feds to establish a baseline standard for homestead protection.

Again, jurisdiction. Who enforces this standard? In which court? To what end?

I have nothing in particular against state-level homestead acts, nor the motives that create them. I'm certain that some implementations are better than others. But I see no need for a Federal baseline, and I see real problems in the Feds enforcing one.

[ringrose.livejournal.com]

I could see this becoming a federal issue eventually simply because the credit agencies and banks are multi-state conglomerates. But my actual guess is that it hasn't come up because people don't know about it.

Credit agencies don't want more of it. People so deeply in debt that they need a homestead law don't have any clout to get one in place, because (regretfully) our current political environment is very money-driven.

I don't think it should be a federal issue, either. The different states have the right to choose different solutions to their problems. The place for federal laws is when the choices one state makes affect another.

[drwex]

See my reply to feste above. I think this is very much an interstate commerce matter.

[ceo]

Florida has a strong homestead law, to the point that moving to Florida is an excellent way to escape liability for legal judgments, no matter how well-deserved.

[rdhdsnippet.livejournal.com]

I don't understand how it protects someone from subprime mortgage foreclosure?

From the page you cited:

Remember that the Homestead Declaration protects a homeowner only from unsecured creditors. It will not offer protection from first or second mortgage lenders and/or equity lenders who possess a security interest in a home. If payments are not current on these types of secured credit, a homeowner runs the risk of losing the home to foreclosure proceedings.

[drwex]

Correct. MA's homestead law doesn't prevent mortgage foreclosures. TX and FL do, for a primary residence. The laws vary from state to state, which was part of my point. A national homestead act could enshrine a protection for a primary residence.

[rdhdsnippet.livejournal.com]

This is not something I've ever thought about before, overall, so bear with me.

I think that enacting such a thing is going to make mortgages a LOT harder to get for people like, say, my family, who really stretched ourselves to buy our first home and didn't have much down for it. On paper we weren't such a good risk, but in actuality because we were very dedicated to buying and keeping a home. I would NEVER have missed a mortgage payment because, you know... our HOUSE, no matter what else other than food that I might have had to go without. If you take away the ability to foreclose on a house, I would imagine that the default rate is going to skyrocket.

Do I have a logical fault here that I'm overlooking?

I'm not sure that I think you have a "right" to own a home if you can't pay for it.

Now... homestead tax exemption I am all for.

[drwex]

It could be the case that a homestead foreclosure exemption would make mortgages harder to get. That might also be a harder thing - part of the problem is that people who should never have taken on a mortgage were lured/pushed into their present precarious position.

When I lived in Texas there was an absolute homestead exemption - it didn't slow down the flow of mortgages. Just one data point.

Finally, the idea of a homestead is not that you get out of debt for free. You still have the debt and have to pay it off. You can be forced into bankruptcy and have your wages garnished or your car seized or whatever. It just says "you can't be forced out of your home". Homelessness tends to compound the problems, as it makes schooling for kids harder as well as getting a job that might let you pay off debts.

[drwex]

Err, what I meant to say was that having fewer people getting easy mortgages might be a GOOD thing. If someone's not ready for the responsibility then they ought not to get into overextended positions in the first place.

[c1.livejournal.com]

When I consider the implications shielding debtors from creditors (don't think this won't be ripe for abuse) could have on the banking industry, and view that against the impact that the current subprime mortgage cirisis is having on the economy at large, I don't get the sense that it's as good an idea in practice that it is on paper.
I see people defaulting on their mortgages with far more reckless abandon because the negative consequences won't be as acute. (Homelessness is a pretty big motivator to pay your bills on time.)
I'm sure there's a better way that's not as ripe for abuse.

[moechus.livejournal.com]

A couple of comments:

First, the homestead exemption is NOT a protection against foreclosure on a mortgage. If you pledge your home as security on a loan, the lender can take it if you default (provided the lender goes through the appropriate hoops). Homestead protects your home from being taken by unsecured lenders (e.g., credit cards, medical bills, etc.). It also does not protect against seizure to satisfy pre-existing debts.

Second, Congress undoubtedly has the power to enact a national homestead law, not only under the interstate commerce clause but under the bankruptcy clause which says that Congress can adopt "uniform laws" on bankruptcy. Congress has never seen fit to do this. The bankruptcy code piggybacks on state law in a number of ways, not least in what is protected.