If a foreclosing lender shirks his new responsibilities to the community, does a borrower who has been shouldering them until now have a right to carry on, even in default? Doomer greggparadiddle thinks so, and we’re happy to help him publicize his proposal for a new legal principle to make it so. Originally a Doom comment, we’ve taken the liberty of editing the text for clarity.
I would propose that people in the situation of "Op-Ed Friday: When even the bank doesn’t want the house" (August 14, 2009) could advance an as yet untried legal theory: Constructive Foreclosure. Essentially, if a lienholder has notified a borrower of a default and then does nothing about enforcing it there ought to be a point where law or equity will hold that the lienholder now has legal title and has started the "limitation period" clock ticking on adverse possession.
I would also suggest that States consider amending their laws on adverse possession to shorten the limitation period, and require that an adverse possessor pay the taxes for the limitation period (similar to what California does, but with an even shorter limitation period, say 3 years). A period of 20 years may have been fine for rural England, but modern cities cannot let properties sit for 20 years with a questionable title.
Say the homeowners in the video had been able to maintain a position of constructive foreclosure. Then after they lost title they might have been able to move back in and pay utilities and taxes. If the limitation period were changed to 3 years they might well have owned the house free and clear (adverse possession generally extinguishes all other claims except taxes). Even if the homeowners hadn’t gotten the property back, they would at least have been able to live in the home for the cost of utilities and taxes for the time they were there. And if these homeowners hadn’t moved back, perhaps someone else could have done the same thing and gotten a house for the same cost.
If the banks were faced with such a situation, I believe they might be a little more diligent in foreclosure situations. The cities would likely benefit too: either the bank forecloses and the house is sold or demolished, or at least the property might go to someone who would take care of it.
Notes and References: The Ways of Judgment (2005), by Oliver O’Donovan. Grand Rapids: Eerdmans. p. 278.
… All goods are destined for the common good; but the common good is not cared for adequately without particular agents to assume their own particular responsibilities. …