Brooke Overby, 1960-2009

I just received word that our fellow blogger, and my fellow AALS Commercial and Related Consumer Law executive committee member, Brooke Overby died suddenly yesterday evening in Fort Walton Beach, Florida. (Thanks to Brooke's colleague Mark Wessman for passing along the news.) I'll provide more details when they become available.

UPDATE: Elizabeth Nowicki, Brooke's colleague at Tulane, posted her personal tribute on the Concurring Opinions blog. It has attracted additional remembrances from some of Brooke's former professors, classmates, students, other Tulane colleagues, and fellow commercial law professors and scholars.

UPDATE: Tulane Law School posted this memorial today (Aug. 12th). The school is planning a service on Sept. 10th.

Teaching Real Estate Wearing Commercial Law Glasses

When I was a new professor, eager to meet any and all institutional needs, I agreed to teach Real Estate Transactions, a common law class in a civil law state. It really is a property course properly within the property curriculum, but inadequate staffing there (apparently few property profs want to teach real property these days, the rage being IP) pushed it my direction as the junior person. And that is how I became a real estate teacher. I run hot and cold on the course, but teaching it this semester has been wildly fun with the economic/mortgage crisis. When I am left to the traditional commercial law curriculum, the time is rare when the subject for the day is all over the papers and television, nearly every day. Now I know how my Con Law colleagues feel, talking about this new development or that new case.

Interestingly, I have found that the class, and the task of mastering real estate law, have broadened significantly my perspective on general commercial law. First, you realize what a truly grand and amazing achievement the UCC in fact is. Property law is scattered all over the place--radical disuniformity at the common law, disparate state perspectives and approaches, periodic interventions of federalization, but there is nothing, no statutory supplement or code, that you can pick up and wave with any sort of authority and state "this is the law you must know." The students love this, as you might imagine. Nearly every NCCUSL foray into real property areas has crashed and burned, which makes me less uptight--and almost pragmatic--about the impending failure of the Revised Article 2 project. I have spent the last couple of weeks on state statutory redemption and anti-deficiency laws, and the chaos in that area of mortgage law elevates Grant Gilmore from "Great" to "Bodhisattva who walked among us once" in my pantheon of Commercial Law idols. Mucking through the mess that is real property secured transactions law, you can truly appreciate the amazing accomplishment that is Article 9.

Another interesting thing about a tour of duty in Real Estate is that you see how the doctrine of good faith purchase permeates all of commercial law. You see it with transfers of deeds, foreclosure sales, recording acts. No property casebook does this doctrine to my satisfaction, and I always end up rephrasing things to put them into my Article 3/4 framework. I now see holder in due course less as an Article 3 anachronism to be viewed in isolation, but rather as simply the UCC's play on a comprehensive commercial law doctrine that extends throughout all of transactional law.

In semesters such as these where I am doing a Code class and Real Estate the same day, there is an exciting juxtaposition. In the mornings there is the precision and clarity of the UCC for my Article 2 class, followed up by the chaos and indeterminacy of mortgage law. I would like to say that each legal approach makes me appreciate the other more, but I have to admit that each foray into the regulation of real estate makes me admire and understand the whole enterprise that is the UCC just a bit more.

In Defense of the Debit Card

Jason beat me to the punch by blogging on charging fees for debit cards loaded with unemployment insurance benefits. Like Jason, I have always been puzzled by the use of debit cards given their high fee structure. Indeed, I wandered all around Midtown Manhattan last month in search of a proprietary ATM which I could use without being levied with those annoying charges, which hover around $4 per withdrawal lately. Nor is the EFTA approach toward losses due to fraudulent debit card use something that really survives any critical evaluation, in my view. So Jason and I agree there, I would bet.

I have found two super-fantastic uses for the debit card, and thus I must beg to differ with Jason that the payment device is all evil. They are:

1. Cash back at the merchant: You can use this (add on cash to your store purchase) to circumvent the nasty fees that the banks charge for simply withdrawing at a non-proprietary ATM. I survived a whole semester in South Bend, Indiana a few years ago without paying any fees using this debit card function, which with my bank is free. I would bet sooner or later this loophole will be closed. In the meantime I find it sweet to be cleverly manipulating my knowledge of the payment system to deprive my bank of $1.50 in fee revenue, which makes cash-back transactions even more delightful.

2. Foreign Exchange when Traveling Abroad: Any serious traveler who remembers the old days and trips to the American Express office abroad can tell you that this is the most amazing thing: Local currency is available with any Cirrus or Maestro-branded ATM with just a swipe of the debit card. True, you have to pay a fee, but generally it is no worse than those fees (and the bad exchange rates) for USD or traveler's checks. I have used ATMs from Kathmandu to Kunming, Prague to Perth, and each time I get local currency I swear it is the best payment systems invention in the last 50 years. My only advice is that before you leave, check the exchange rate and find out the local currency equivalent of the dollar amount you want to withdraw. That saves some jet-lagged confusion at arrival at the destination, trying to figure out exactly how much in local currency you should withdraw.

So, in every evil there is some good.

Great Video: "The Crisis of Credit Visualized"

Can be found here (courtesy of one of my Real Estate students). The way in which the video conceptualizes how mortgage-backed securities lose value due to the foreclosure crisis is absolutely amazing in its lucidity.

The Blame Game

Time magazine this week has a great, enjoyable piece on "25 People to Blame" for the financial crisis, a sort of media perp walk of the notables of the financial crisis, led by Angelo Mozilo, the founder of Countrywide. Readers' rankings of the relative culpability of the slate of suspects can be found here. Advocating deregulation seems to be an important component of being considered for this list, as the Phil Gramm (#2), Alan Greenspan (#3), Bill Clinton (#13), and George W. Bush (#14) nominations demonstrate. The Era of Deregulation continues to wane.

It is interesting how high "American Consumers" ranked on the blame list (#5 on Time's list, although they are ranked much lower in responsibility by readers). And, the addition of the programming director at HGTV seems a bit of a stretch, at least for a top 25 list. If a critical component of the crisis was deregulation (and in my view that is accurate), placing such high culpability on consumers for taking out loans that really ought to have been regulated, if not banned, in the first instance seems at rough glance to be misplaced, or perhaps exaggerated, blame.

David Brooks on Economic Theory

David Brooks of the New York Times has of late been a big advocate of behavioral economics, as this column from October initially laid out. Last week, Brooks again raised his argument that the economic collapse has irreversibly exposed the flaws in classical economic theory:

Once, classical economics dominated policy thinking. The classical models presumed a certain sort of orderly human makeup. Inside each person, reason rides the passions the way a rider sits atop a horse. Sometimes people do stupid things, but generally the rider makes deliberative decisions, and the market rewards rational behavior.

While the classical model is hardly the quaint ancient history that Brooks' rhetoric suggests, I do agree with Brooks that the current crisis can be traced in part to a fantastical belief about both the nature of persons and of markets. It is also nice to see that others are moving toward acceptance that there may be a significant role for government and law to play in market regulation. It would have been much nicer to see that move occur prior to the complete meltdown of the economy, the destruction people's lives and livelihoods, etc. That's an argument for ex ante versus ex post regulation, I guess.

Even if the King is dead, I am less certain than Brooks seems to be that the natural successor to the throne is behavioral law & economics. Such a move could be seen as simply a mere substitute of a new mode of "mechanistic thinking" (to paraphrase Brooks' criticism) to address the problem. I guess it could be argued that the crisis has exposed the weaknesses not of one economic model for regulation, but of all economic models for regulation. But, if that is the case what are we left with? In any event, we are no doubt in the midst of a major shift in attitudes toward legal intervention into markets, and it will be interesting to see what insights behavioral economics has regarding solutions to the problems.

2009 AALS Commercial and Related Consumer Law Section Officers

At last week's AALS annual meeting in San Diego, those attending the AALS Section on Commercial and Related Consumer Law's Friday business meeting voted our own Keith A. Rowley (UNLV) to be the section's chair-elect and fellow blogger A. Brooke Overby (Tulane) to be an at-large member of the section's executive committee. Amelia H. Boss (Drexel) is the new section chair and immediate past chair Kevin E. Davis (NYU) and at-large members Neil B. Cohen (Brooklyn) and Gregory E. Maggs (GWU) round out the executive committee.

UPDATE: The AALS informed us that Amy Boss was ineligible to serve this year because Drexel is not yet a member school. Consequently, Keith Rowley becomes chair a year earlier than planned, Greg Maggs is the chair-elect, and Emily E. Kadens (Texas) is our new at-large member.

Mandated Financial Counseling--Some Initial Empirical Results

In 2005, as a response to concerns over predatory lending, Illinois began to require financial counseling for a very limited number of high-risk mortgage applicants (generally those with a FICO score of less than 620) in a limited number of Chicago zip codes. Although the pilot program was quickly suspended, there was the opportunity to test the program's effect, as Sumit Agarwal et al. do in a new paper just released on SSRN, here.

The study concludes that counseled borrowers appeared to take on less risky mortgage obligations than non-counseled borrowers. Although counseling appeared to reduce the supply of credit and demand for credit among affected borrowers, property values increased and lower foreclosure rates were documented in affected areas. What is especially interesting to me is that, of the borrowers receiving counseling, "an overwhelming majority" of borrowers did not understand that their ARM rate, often a teaser rate, was not fixed over the period of the loan (p. 6) and that over half of applicants received a recommendation from the counselor that they could not afford the loan under consideration (p.7). Albeit limited, the results do illuminate the extreme informational deficit that likely characterized some high risk borrowing in the last few years, and the limits to disclosure as a consumer protection mechanism. While mandated counseling raises a host of other legal & policy concerns (paternalism, discrimination, costs of implementation, just to name a few), the study does present some data that it at least does lead to better-informed borrowers.

Margaret Atwood's "Payback"

Commercial law scholars looking for a fascinating literary diversion should consider picking up Margaret Atwood's new book "Payback: Debt and the Shadow Side of Wealth". This short book is a free-ranging (indeed sometimes annoyingly meandering) exploration of the concept of debt in religion, literature, and society, interspersed with frequent references and allusions to the modern realities of debt and the current credit crisis, for example when Atwood observes that "Hell is like an infernal maxed-out credit card that multiplies the charges endlessly." (p. 168). The essays are a nice reminder of the fact that, at a basic level and throughout history, debt is a very human enterprise. Going through it also provides a handy recommended reading list for distracted commercial lawyers, transforming Thackeray's Vanity Fair and Marlowe's Tragical History of Doctor Faustus into, in many odd respects, payments books.

Toxic Debt Holders in Due Course

I had the opportunity to hear Christopher Peterson (Utah) speak last week at Loyola (New Orleans) on Predatory Structured Finance. His talk on the causes of the subprime crisis encompassed one issue that was hotly contested in the last few years: the potential exposure of assignees of mortgages to defenses and claims of debtors arising out of the origination of the mortgages. It is at a basic point a classic holder in due course question. Kurt Eggert has discussed at length the defense-stripping effect of the hdc doctrine in the context of predatory lending. In a related vein, efforts by states to place liability on secondary market assignees of mortgage notes for violations of state predatory lending statutes were met with, charitably, strong resistance, as this Business Week article on the political struggles between the states and the federal government pre-crisis recounts.

In the end, the issue of assignee liability boils down to a bread and butter holder in due course/doctrine of bona fide purchase question. HDC status for secondary market assignees promotes liquidity to be sure. And, liquidity of subprime loans, that we certainly got. On the other hand, stripping of hdc status forces assignees/secondary market purchasers to exert more care over the practices of the origination market. As government turns to the reform stage of the crisis, one of the more interesting commercial paper questions will be whether to continue to insulate the secondary market from abuses at the origination level through application of principles of good faith purchase, or whether to move in the other direction, for example by extending the FTC HDC regulations to encompass all or a larger portion of mortgage loans.

Doctrinal UCC Scholarship: A Guilty Pleasure

I would like to thank Jennifer Martin for inviting me to guest blog here at Commercial Law. As Jason and Jennifer's entries mention, I have been spending a bit of my research time in the last few years on a comprehensive review of the fraud cases decided under revised Articles 3 and 4. It is a bit insane to be doing commercial paper doctrine in the waning days of the check, but--to report back--it has been a tremendous amount of fun. Although it sometimes seems as if doctrinal scholarship is the current bete noire of legal scholarship, I found the experience of wading through 100s of fraud cases to be analytically rigorous, challenging, and rewarding. Writing in a style that includes judges and lawyers as part of the discussion takes a certain amount of craftsmanship. The doctrinal project also has produced huge dividends in teaching the UCC and, in my experience, has significantly informed and even changed my prior views about the UCC fraud loss provisions.

Without meaning at all to impugn theory or empiricism, it is wildly fun to take a long, close look at the Code in action.