A Law to Protect Debtors — or Scare Off Every Lender?
Washington's legislature passed the 'judgment deficiency bill' to shield mortgage debtors from ruinous foreclosures. The Portland Oregonian read it as a recipe for a credit freeze, and begged the governor to veto it.
Portland Oregonian.
The Washington legislature has passed a bill to prevent extension of mortgage loans in that state and to encourage foreclosure of every mortgage debt as soon as due. It is what is called the judgment deficiency bill, and it seeks to give the debtor advantages not now enjoyed, by providing for an appraisement before sale under execution, which shall not be less than the amount of the loan, and by giving the debtor possession of the property until the period of redemption shall expire in certain cases. Of course, persons lending money under this law would take ample precautions against loss, and of course it cannot apply to loans already made. Therefore, every existing mortgage would be foreclosed when due, and borrowers would have to pay roundly in interest and security for new loans. The bill would bring great distress to debtors. The governor still has opportunity to veto it.
“The bill would bring great distress to debtors. The governor still has opportunity to veto it.”
Then as now, the fight over mortgage debt pits homeowner protection against lenders' willingness to lend. Washington lawmakers tried to guarantee an independent appraisal before any forced sale and to let families stay in their homes through the redemption period — a 19th-century version of the foreclosure-moratorium and appraisal-rights debates that resurface every time credit tightens.
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