The following is a summary of Cori
Harvey's article in the Missouri Law Review entitled “We Buy Houses”: Market Heroes or Criminals. The article discusses residential pre-foreclosure investing
in the specific context of “We Buy Houses” transactions and other residential
sale/leaseback/buyback (RSLB) transactions from the perspective of investors.[1]
The article calls for a retreat from the position that RSLB
transactions are “foreclosure rescue scams,” making both descriptive and
prescriptive claims.[2] The descriptive claims are as follows: the
transaction is a beneficial one and has valid, non-fraud raisons d’etre, and
the level of persecution of this transaction is escalating due to a combination
of social, political, and economic factors.[3]
The prescriptive claims are as follows: criminal regulation
creates more harm than it cures by eroding the institution of contracting and
by exacerbating the very market failure that gives rise to the transaction, and
that where there are problems with the transaction, there are better
alternatives to criminal regulation.[4]
The article is split into several parts. Part I explains the transaction and
introduces the homeowner and investor, examines case law that demonstrates the
escalation of RSLB charges, and spells out the benefits to homeowners in these
transactions.[5] Part II explores the means and justifications
for criminal regulation of this transaction.[6] Part III outlines several problems with
criminal regulation of ordinary economic behaviors.[7] Part IV suggests several alternatives to
criminal regulation.[8] The article concludes with Part V, which
details the case of Timothy Barnett, the first-ever white-collar defendant
sentenced to a potential life sentence under a three-strikes law in California.[9]
The article is interesting in that it discusses white-collar
criminals receiving “draconian” sentences for actions that may or may not be
illegal.[10] On one hand, I agree with the author that
RSLB transactions can serve a legitimate purpose by giving homeowners an
alternative to foreclosure. However, if an
investor is knowingly misleading homeowners into making RSLB transactions when
the investor knows the homeowner will be unable to make payments, the investor
shouldn’t be able to escape prosecution.
- Cole Cameron
