Perhaps the most disappointing aspect of the Obama Presidency so far as been the passive role his administration has taken concerning the primary cause of the Great Recession, the collapse of the housing bubble. The HAMP program has been an unqualified failure, at least from the perspective of enabling financially-shaken borrowers an opportunity to modify their loans at rates closer to the current value of their properties; the recent revelation that the Administration was more concerned about creating a program that would stall the inevitable foreclosures for a period of time long enough for banks to get a breather indicates that the lowly consumer was not at the top of Obama’s agenda.

In other areas, too, the Obama Administration has acted in a manner more consistent with being the allies of the banks that gave out the bad loans than trying to aid the borrowers unlucky enough to have been saddled with them. There is nothing to indicate that those banks (I’m talking to you, IndyMac and Aurora) that have been least interested in modifying delinquent mortgages are being made to pay a price for their coldheartedness. Of course, it’s not just the executive branch that has chosen to do nothing; so-called conservatives and libertarians, hearing their master’s voice, fought against restoring free market principles when it meant ending the cramdown prohibition to residential property in bankruptcy. If anything, the policy that the brunt of the housing bubble collapse should be borne by the homeowner has been bipartisan.

Seemingly, with no support coming from either side, and with the cavalry nowhere to be found, middle class homeowners have to fend for themselves, either coming up with funds they don’t have to cure huge arrearages on modest homes they can no longer afford, or losing their homestead to foreclosure. However, as we all learned in school, nature abhors a vacuum, and with bankruptcy an ineffectual option in most cases, more enterprising solutions are being found by the one group with a financial interest in exploiting this situation: lawyers for consumer debtors.

This New York Times article, about an attempt in Florida to clear a backlog in foreclosures, shows what the future holds in store for banks that would rather swallow up homes than negotiate:

Florida’s foreclosure mess is made murkier by what analysts and lawyers involved in the process say are questionable practices by some law firms that are representing banks. Such tactics, these people say, have drawn out the process significantly, making it extremely lucrative for the lawyers and more draining for troubled homeowners.

Doctored or dubious records presented in court as proof of a bank’s ownership have become such a problem that Bill McCollum, the Florida attorney general, announced last month that his office was investigating the state’s three largest foreclosure law firms representing lenders.

(snip)

To be sure, adjudicating foreclosure cases is difficult, complicated by multiple transfers of mortgages and notes when a loan is sold, bewildering paperwork submitted by loan servicers and shoddy record-keeping by the many institutions that touched the mortgages during the byzantine securitization process that fueled the housing boom.

Nevertheless, Florida law requires that before a financial institution can foreclose on a borrower, it must prove to the court that it actually has the standing to do so. In other words, it has to show that it is truly the owner. And this is done by demonstrating ownership of the note underlying the mortgage.

Borrowers’ lawyers say they confront dubious practices, often involving false documentation “proving” who owns the note on a given property. Typically, they say, this involves questionable affidavits asserting ownership of a note because the actual document has been lost or cannot be produced. Because the affidavits are often signed by bank representatives who have a stake in the outcome, they should not be allowed as evidence, borrowers’ lawyers say.

Although the article focuses on the difficulties the Florida system has given those who represent homeowners in foreclosure litigation, perhaps the more telling issue, a lede buried in the article, is the fact that increasingly in states like Florida and California (which uses a non-judicial system of foreclosure), homeowners are aggressively using the courts to fight foreclosures. This phenomenum, which was almost unheard of a decade ago, has proven to be a godsend to struggling borrowers, who can now use the same shortcuts the banks developed to save money when it was bundling high-risk loans during the heyday of the Housing Bubble against the banks.

Challenging the lender's standing to foreclose has opened up a new front in the housing wars, a transition away from bankruptcy as the last recourse for the Forgotten American trying to stop foreclosures. Since litigation, real or threatened, can be more expensive to institutional lenders than negotiating an equitable modification of a loan, especially since the resale of foreclosed homes becomes more problematic when there is a lis pendens attached, this gambit holds the promise of being a more efficient way of saving your home, while at the same time being less expensive to the consumer than a bankruptcy filing or a HAMP agreement.