Number: RL34369
Title: Constitutional Issues Relating to Proposals for Foreclosure Moratorium Legislation That Affects Existing Mortgages
Authors: David H. Carpenter, American Law Division 
Abstract: This report begins with an overview of Congress's authority pursuant to the Commerce and Bankruptcy Clauses to pass laws pertaining to foreclosures, and a review of Contract Clause, Substantive Due Process, and Takings Clause jurisprudence. After explaining why Contract Clause and Substantive Due Process claims appear less relevant to the question, the report considers the test a court would likely use in assessing whether a federal foreclosure moratorium would offend the Takings Clause, while pointing out that courts could apply a different test in this situation. It also suggests that courts' analyses could vary according to whether they focus on the impact that a foreclosure moratorium has on whole MBS trusts or specific investment tranches of those trusts. Where the focus is on tranches of mortgage-backed securitized trusts, a federal foreclosure moratorium, in a minority of cases, potentially could be considered a "taking" requiring just compensation for the purpose of the Fifth Amendment. Such a finding would be even less likely where the focus is on the impact to whole trusts.
Pages: 16
Date: June 10, 2008