Homeowner Representation in the Foreclosure Crisis

Abstract

The dramatic increase in the number of homeowners entering the foreclosure process over the past decade has been well documented. While some of these cases end in foreclosure, many homeowners are able to secure alternate outcomes. There is reason to believe that legal representation may help homeowners to achieve more favorable outcomes. However, other aspects of the foreclosure process, particularly those instituted to increase court oversight and homeowner participation, may circumscribe the benefits of legal representation. In this article, I investigate whether homeowners with legal representation are more likely to avoid foreclosure than those who are unrepresented, taking into account procedural reforms that might shape the effectiveness of legal representation. Using a representative sample of residential foreclosure cases initiated in New York City between 2007 and 2011, I find that cases where the homeowner has legal representation less frequently end in foreclosure. However, after accounting for the enactment of reforms to the foreclosure process, the probability of foreclosure is not significantly different for cases where the homeowner has legal representation. The results suggest that the characteristics of the foreclosure process may be consequential for the resolution of foreclosure cases and the benefit of legal representation. This research contributes to scholarship on the use and effect of lawyers by considering the role of legal representation for homeowners facing foreclosure in the context of the rapid social and economic changes of the Great Recession.