Contractual Inequality

Most individuals strive to satisfy every obligation laid out in standard form contracts such as mortgages, insurance plans, or credit agreements. Sophisticated parties, however, adapt and modify their obligations during contract performance by negotiating for lenient treatment taking advantage of unclear terms. The common law explicitly authorizes variance from standardized terms performance. When the same create value sophisticated destroy others, result is contractual inequality. Contractual inequality has grown without scrutiny courts scholars, enabling regressive redistribution resources creating economic inefficiency sowing distrust markets consumer contracts. To document magnitude inequality, this Article provides novel empirical evidence a case study residential mortgage Data large nationwide sample show that many servicers choose not utilize power foreclose on borrower default, with more than one-third nonpaying borrowers avoiding foreclosure. Servicers disproportionately poor neighborhoods, regressively redistributing over $500 million wealth high-income communities each year. Moreover, servicers’ unfettered freedom who undergoes foreclosure may have reduced mortgages consumers, increasing market inefficiency. Courts regulators need turn blind eye allowing private forces determine exercise rights. This argues lawmakers should gather information about inequalities disseminate data public enforcement authorities. By bringing these light, can take first step toward efficient equal society.