Interesting Legal Tidbits

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Which States Will Face a Subprime Litigation Firestorm?
Kerri Panchuk | 12.10.07
A new report says a confluence of factors may contribute to a slew of subprime litigation cases popping up in certain states, while other states facing foreclosure troubles will remain litigation-wary and less likely to experience a surge in error and omissions (E&O) lawsuits related to the subprime lending debacle.

The report, titled "What's the State of Your State?" was composed by Guy Carpenter, a global risk specialist, who evaluated the likelihood of each state facing subprime-related E&O cases by measuring certain risk factors in each state.

Those risk factors include a state's percentage of loans in foreclosure, its percentage of subprime loans in delinquency, the number of litigation attorneys per mortgage industry professional, the frequency of truth in lending lawsuits filed in the state per household through the third quarter of 2006, the frequency of banking-related lawsuits for the same period, and the extent to which the state is described as “plaintiff-friendly.”

Carpenter's survey says ranking high in one of these categories does not mean a state is automatically at-risk of facing a slew of E&O-subprime related lawsuits.

"Arizona, for example, has one of the highest foreclosure rates in the country and still maintains a subprime Guy Carpenter E&O Subprime E&O Litigation Index of 'Very Low,' " the report says. Meanwhile, Nevada, which has the highest foreclosure rate in the country, is listed at medium risk because the "subprime risk environments are still stable."

But, in Massachusetts, it's a different story. The state has a confluence of "perfect storm" type factors working against it, which could make the climate prime for E&O-subprime related lawsuits. Carpenter's survey says the Bay State is above or slightly above average in most risk categories, which means litigation is more likely within the state.

The report concludes that while Illinois, Michigan, and Massachusetts are the most at-risk states when it comes to subprime-related litigation, they are followed closely by Mississippi, Indiana and Ohio.