Several readers suggested a topic on where the legal chips may fall in a housing downturn. "Who holds the Real Estate legal hot potato(es)? So many fingers in the real estate industrial complex pie."

"As the bubble breaks, lawsuits from upset buyers, money lenders and the like would seem to become inevitable. Who is most culpable? Are all players sufficiently shielded from a legal perspective such that R/E lawsuits will be fruitless? Will an uptick in legal actions slow or speed up the bust?"

"For example, how about collusion between loan orginators and appraisers? Provable? Actionable? Yet another example, buyers overstating income on stated income loans. Will lenders go after such individuals?"

"Another example, from yesterday, posted on this blog: 'resale experts are saying that builders are messing up their market by dumping so many built-but-not-sold homes on the market with outsize buying incentives.' Could recent homebuyers recover damages from a builder who is currently underselling the very same product?"

One reader replied, "I think our legal system needs to be VERY selective about what truly warrants a lawsuit in regards to housing. All out criminal activity; I’ll grant that. But 'steering' or 'false promises' (i.e. a realtor says, 'Oh this home will double in value in 3 years!', etc. are IMO unethical, but not illegal. If the false promises are not put in writing, it’s 'he said, she said' and would NOT warrant a lawsuit."

"People need to be responsible for their own actions rather then be allowed to continually play the victim role."

Another said, "Unfortunately, in a major housing bust there would be very little 'wealth' to be redistributed through legal action. Builders learned long ago to use small sub-corporations for every development they ever create. The small sub-corporations go bust, file for bankruptcy or just dissolve, so even if you win a judgment it usually turns up empty."

"Appraisers are generally covered by insurance, but if they used legitimate comps, they are fairly well insulated."

"Any real litigation will probably take place between the MBS investors and the loan originators on the grounds of breach of contract, fraud, lack of due diligence, etc. There may also be shareholder or investor suits against the MBS entities for their failures to exercise due diligence and there may be a large number of actions seeking recourse (to return the loans) to the original lenders."

"There will be an enormous number of prosecutions sought for mortgage fraud. What number of these will be accepted by the states and prosecutors is unknown."

Another added, "Get ready for BK filings to stave off all the potential lawsuits. This is standard business practice."

One agreed, "Yep. This is what happened here in the South Bay (LA) back in the mid 90s. This area is made up of mostly smaller mom & pop type builders. In 1997, we were looking for a builder to partner up with. We wanted to build on our Hermosa Beach property. We interviewed at least 5 'reputable' builders. But we also did background checks on these guys too. 4 of the 5 had filed BK at some point in the 90’s."

"But of course it did not stop them from starting up again. Most of these guys have made a ton of $$ in this latest boom but most are highly highly leveraged today."

And another, "Here’s another major misrepresentation on the part of the mortgage industry and borrowers; many people bought investment properties and said they were going to live there. They misrepresented that it was an owner-occupied transaction. Underwriting for investment properties is much stricter."

And finally this, "I know folks at several large consumer plaintiff law firms. (west coast) I have had conversations with all of them months ago about getting up to speed on the potential real estate problems that may arise."

"Topics tossed around were title companies and mortgage brokers that have in any way participated in offering hints as to how to show financial information in a better light. The worst may revolve around filling out blank tax return forms with information that is different from information on the returns filed with the IRS."

"Appraisers may have issues to deal with regarding valuing a house to the loan amount requested."

"There is also a possibility of a case of collusion amongst banks and agents/brokers with regards to steering buyers to preferred lenders and whether or not there were kickbacks for those referrals. I worked in the legal field for 10 years. Have no doubt that there will be some very large scale litigation if prices drop much more."