A Stitch in Haste

"A provision of the Constitution, it is hardly necessary to say, does not admit of two distinctly opposite interpretations. It does not mean one thing at one time and an entirely different thing at another time."
--Home Building & Loan Assn. v. Blaisdell, 290 U.S. 398 (1933) (Sutherland, J., dissenting)

If this doesn't violate the Contracts Clause, then nothing ever does:

Warning that America is experiencing a "housing emergency," six Boston city councilors want to force lenders who foreclose on Hub properties to rent seized houses and apartments back to occupants.
...
The proposal would order lenders to lease foreclosed properties back to ex-owners or tenants at market rates until either third parties buy the homes or the measure expires in 2014. Violators would face fines of at least $10,000.
...
Ross said the measure aims to primarily help tenants who've paid rent on time but face eviction anyway because their landlords fell into foreclosure. However, the measure would also cover individual homeowners who fell behind on their own mortgages.

That was a trick observation, incidentally: It doesn't violate the Contracts Clause because, under current Supreme Court precedent, nothing ever does.

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There are two distinct issues here that need to be disentangled.

As a common law principle (individual jurisdictions may of course have their own nuances), renters are already insulated from any and all changes in title to the property they rent (with one huge exception — eminent domain). If I own a house and rent it to you, then (absent mutually agreed-to provisions to the contrary) your lease is binding on any future owners of the land during the period of the tenancy. Even if I sell the house, gift it, die — or default on my mortgage — the lease is the lease and you are protected by it while it remains in effect.

These activist legislators are, therefore, offering you a protection that you already have. Don't you feel "indebted" to them?

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I as the owner facing foreclosure, on the other hand, am screwed. As I should be, given that I'm a defaulter who failed to meet my voluntarily-entered-into obligations. Maybe I was the victim of circumstance, maybe I was reckless in my finances, maybe I was a predatory borrower. It doesn't really matter which. I defaulted on a debt, I breached a contract, my counterparty has both a legal and equitable remedy.

And, under the Constitution, there ought not be a damned thing either I or these hack politicians could do about it:

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

The Contracts Clause (Article I, Section 10, Clause 1) is one of the least appreciated libertarian aspects of the Constitution. The fact that it applies only to states and not the federal government is, one could plausibly argue, the single worst flaw in the original 1787 document.

But it is still there and still wholly applicable to this fact pattern. A mortgage is unarguably a "contract," the requirement to surrender to a valid foreclosure is unarguably an "obligation" and requiring lenders to lease to defaulters is unarguably an "impairment." Q.E.D.

Or not: Essentially the exact same law was enacted in Minnesota in 1933 and the same five Supreme Court Justices who would later finish off the last traces of economic liberty in America* also killed off economic substantive due process — and an entire clause of the Constitution as collateral damage — in the nightmarish case, Home Building & Loan Assn. v. Blaisdell.

The policy of protecting contracts against impairment presupposes the maintenance of a government by virtue of which contractual relations are worthwhile — a government which retains adequate authority to secure the peace and good order of society. This principle of harmonizing the constitutional prohibition with the necessary residuum of state power has had progressive recognition in the decisions of this Court.

In other words, a state's "police power" (a grant of power that appears only implicitly in the Tenth Amendment) can summarily trump the Contracts Clause (a limitation of power that appears explicitly in Article I), whenever "the peace and good order of society" require it (i.e., whenever activist legislators feel like it).

I'm surprised the Bush Administration never cited to Blaisdell in the War on Terror. The decision's twisted "police powers" reasoning makes John Yoo's memos seem like ACLU briefs.**

It is sad to have to repeat such a axiomatic statement, but it is precisely during emergencies that we need constitutional limitations on government power the most. It is precisely during emergencies that the more vague elements of constitutional law (e.g., "police power" or "executive authority") must yield to the less vague (e.g., "no impairment of contracts" or "no suspension of habeas corpus"). It is precisely when the government wants to act the most that it needs to be constrained the most.

(Incidentally, who but the most opportunistic malcontents would dare suggest that the current housing "crisis" rises to the level of the Great Depression — or the War on Terror? Note that the hack politicians in Boston were quite careful to label their proposal a "housing emergency" measure and to give it a specific expiration date — precisely as the Blaisdell court suggested was necessary to survive a Contracts Clause challenge. Someone on their staff certainly did their homework.)

If I were to expand my list of the Ten Worst Supreme Court Cases to twenty or even fifteen, Blaisdell would definitely make the cut.

More thoughts from Cato.

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*Via Nebbia v. New York, 291 U.S. 502 (1934), impliedly overturning Lochner v. New York, 198 U.S. 45 (1905).

**But, cf., this oft-quoted passage from Blaisdell:

Emergency does not create power. Emergency does not increase granted power or remove or diminish the restrictions imposed upon power granted or reserved. The Constitution was adopted in a period of grave emergency. Its grants of power to the Federal Government and its limitations of the power of the States were determined in the light of emergency, and they are not altered by emergency. What power was thus granted and what limitations were thus imposed are questions which have always been, and always will be, the subject of close examination under our constitutional system.

How the Blaisdell majority gymnastically went from that to actually upholding the "no foreclosures" law remains one of the great embarrassments of Supreme Court jurisprudence.