Major Lenders' May Violate Due Process by Enforcing One-Sided Arbitration Contracts to Avoid Borrowers' Defenses to Foreclosure


ARTICLE SUMMARY: Many major, contemporary players in the huge sub-prime U.S. mortgage lending market require their borrowers to execute loan agreement riders requiring arbitration of all disputes with regard to the loan transaction, but with the significant exception of the lender’s right to foreclose. While such agreements have frequently been challenged on unconscionability grounds, enforcement of the ex parte aspects of such contracts also raises concerns about compliance with procedural aspects of the Due Process Clause, when either lender enforcement of the loan agreement itself or foreclosure is sought through the courts. Foreclosure normally occurs more promptly than arbitration, and borrowers may be unable to raise significant defenses during foreclosure, whenever the agreement requires all defenses be adjudicated in the more leisurely arbitration proceeding. Court enforcement of such non-reciprocal riders may risk an erroneous deprivation of a borrower’s substantial property interest.


Consumer Protection Law

Date of this Version

February 2005