Saturday, August 11, 2012

Can Eminent Domain Solve the Mortgage Crisis?

There has been some discussion over the past couple of months over an innovative proposal to have governments use the eminent domain power to take ownership of underwater mortgages, to decrease the risk of default and then refinance the obligations, all to promote the common good.  Here are some links to give you a sense of the major points of this debate.

The launch of this idea comes from a proposal by Law Professor Robert C. Hockett (Cornell) in his piece It Takes a Village: Municipal Condemnation Proceedings and Public/Private Partnerships for Mortgage Loan Modification, Value Preservation, and Local Economic Recovery.  The abstract:

Respected real estate analysts now forecast that the U.S. is poised to experience a renewed round of home mortgage foreclosures over the coming 6 years. Up to 11 million underwater mortgages will be affected. Neither our families, our neighborhoods, nor our state and national economies can bear a resumption of crisis on this order of magnitude.

I argue that ongoing and self-worsening slump in the primary and secondary mortgage markets is rooted in a host of recursive collective action challenges structurally akin to those that brought on the real estate bubble and bust themselves. Collective action problems of this sort require duly authorized collective agents for their solution. At present, the optimally situated such agents for purposes of mortgage market clearing are municipal governments exercising their traditional eminent domain authority.

I sketch a plan pursuant to which municipalities, in partnership with investors, can condemn underwater mortgage notes, pay mortgagees fair market value for the same, and systematically write down principal. Because in so doing they will be doing what parties themselves would do voluntarily were they not challenged by structural impediments to collective action, municipalities acting on this plan will be rendering all better off. They will also be leading the urgently necessary project of eliminating debt overhang nationwide and thereby at last ending our ongoing debt deflation.

Professor Hockett's idea was then promoted in the media by, among others, Prof. Robert J. Shiller (Yale--Economics & Finance), in the New York Times Piece Reviving Real Estate Requires Collective Action.  As the title indicates, Schiller theorizes the mortgage crisis as in part a collective action problem that can be addressed by Hockett's proposal to use eminent domain to seize underwater mortgages. 

But eminent domain law needn’t be restricted to real estate. It could be applied to mortgages as well. Governments could seize underwater mortgages, paying investors fair market value for them. This is common sense too. The true fair market value for these mortgages is arguably far below their face value, given the likelihood of default, with its attendant costs.

Professor Hockett argues that a government, whether federal, state or local, can start doing just this right now, using large databases of information about mortgage pools and homeowner credit scores. After a market analysis, it seizes the mortgages. Then it can pay them off at fair value, or a little over that, with money from new investors, issuing new mortgages with smaller balances to the homeowners.

Yesterday in The Atlantic Cities, Amanda Erickson published an excellent overview story about the proposal, Can Eminent Domain Solve our Mortgage Woes?.  Of note to us are the comments by the eminent eminent domain expert (that's not a typo) Prof. Thomas Merrill (Columbia). 

It's a clever idea. But is it legal? "It's very unusual," says Thomas W. Merrill, a law professor at Columbia University who specializes in property law. But, he notes, "this doesn't mean it's unconstitutional."

Before the landmark 2005 Kelo vs. New London decision, Merrill says, there's little doubt that the courts have upheld this kind of law. "Before Kelo, courts took a hands-off approach," Merrill says. In the 1984 case Hawaii Housing Authority vs. Midkiff, the Supreme Court ruled that the Hawaiian legislature could take a property controlled by landlords and sell it back to leasees. "Condemning a landlord's interest in property to transfer to a tenant is not too different," Merrill says.

But Kelo changed that. In that case, the Supreme Court ruled that cities could use eminent domain to transfer land from one private owner to another, and that doing so for economic development purposes constitutes a public use. "At this point, I guess you'd have to say all bets are off in terms of what is and isn't eminent domain," Merrill says.

And finally for now, Prof. Richard Epstein is critical of the idea. From More Nonsense on the Home Mortgage Front: Don't Let Municipal Governments Condemn Mortgages at Bargain Rates:

The idea has already been rightly panned by the Wall Street Journal. But the entire proposal needs still further consideration. First off, Hockett and his group insist that there is a huge collective action problem that prevents the rationalization of mortgage matters. And there is. It is called local government regulations that have blocked the foreclosure measures set out above. Handle those and the externalities to which they refer disappear. No longer do we have owners neglecting property or clogging the courts with endless motions.

Again, this post is just to give you some links to look at the arguments.  From my perspective, these are some fascinating arguments that illuminate not only the mortgage crisis but also the general debate over eminent domain. 

Matt Festa

August 11, 2012 in Constitutional Law, Eminent Domain, Finance, Housing, Local Government, Mortgage Crisis, Mortgages, Politics, Property Theory, Real Estate Transactions, Scholarship, Takings | Permalink | Comments (1) | TrackBack (0)

Friday, August 10, 2012

National Trust for Historic Preservation Annual Conference in Spokane - Oct 31 - Nov 3

Following up on Matt's post about the rise of historic preservation in land use planning, and also the excellent new casebook by Bronin and Byrne on the subject, I thought it was worth noting that the NTHPNational Trust for Historic Preservation annual conference will be in Spokane, Washington, this October 31 - November 3.  While this is typically a "practitioners" conference, I don't see why we shouldn't have more professors in the mix there, too.  (And for those of us in the inland Northwest, like myself, this will be a rare chance to catch this conference on our home turf.)  To wit, I will be moderating a panel at the conference on Thursday, November 1 at 1:30 entitled "Bridging Preservation & Environmentalism."  Here is the session description:

This session will offer tools to resolve gaps and conflicts between preservation and conservation. From the local level, panelist Hillary Gitelman, Planning Director of Napa County (CA), will discuss an issue in Napa involving landmarks on agricultural lands that were destined to demolition by neglect due to restrictive zoning. The issue created a conflict between preservationists, who supported narrowly crafted ordinances that allow reasonable reuse of the landmarks, and some environmentalists, who were concerned with development on rural lands. Attorney Sara K. Hayden, who represented Napa County Landmarks, a non-profit preservation group that supported the ordinances, will discuss legal aspects of the matter, and of other case studies from across the United States where communities, through effective ordinances and policies, resolved apparent conflicts between preservation and conservation. Earthjustice attorney Melanie Kay will provide a federal view on bridging the gap between Section 106 and NEPA reviews and compliance. Stephen R. Miller, associate professor of law at the University of Idaho, College of Law, will moderate.

There are many other interesting panels that I think land use lawyers would enjoy, practitioner and professor alike, so check out the schedule at the link above.  Registration is much cheaper now than if you wait till later, which is another reason I'm posting about this now.  

Incidentally, if you go, I hear you MUST stay at the historic Davenport.  Hope to see you there!

Stephen R. Miller

August 10, 2012 in Historic Preservation | Permalink | Comments (0) | TrackBack (0)

Thursday, August 9, 2012

Bronin & Byrne Casebook on Historic Preservation Law

Bronin byrne HPSara C. Bronin (Connecticut) and J. Peter Byrne (Georgetown) recently published a new casebook called Historic Preservation Law, Foundation Press 2012.  HP is quickly becoming a central part of land use planning, as the authors make clear in this excerpt from the Preface:

This book was written for anyone interested in the increasingly important area of historic preservation law.  With this book, we hope to advance and encourage the teaching of preservation law, shape the way the field is conceived, and create a practical resource that will be consulted by attorneys and other preservation professionals. 

Our approach to the subject is reasonably straightforward.  We present the most significant legal issues in preservation and place them in a contemporary context, identifying contested questions and areas of reform.  The format of the book is traditional: edited leading cases with notes that provide explanation, extension, and issues for discussion.  Given the interdisciplinary nature of the field, we belive that the legal issues can only be understood in light of historical, aesthetic, political, and administrative issues that make up the larger realm of preservation.  Accordingly, we provide secondary materials, both legal and non-legal.

Because we focus on preservation of buildings and sites, we present preservation as part of land use or urban development law.  Thus, we provide extensive treatment of local preservation law, which regulates private property, as well as relevant issues in real estate finance and project development.  We also provide comprehensive treatment of federal law, including the National Historical Preservation Act and related statutes.  In addition, we explore federal laws that address preservation vis-a-vis cultural property issues, particularly regarding Native American and archaelogical sites.  Preservation has also generated important and interesting constitutional questions related to takings, religious freedoms, and free speech rights, which we address.

This is the first, or at least the most recent, major casebook on the law of historic preservation that I know of.  Professors Bronin and Byrne, who are also accomplished scholars in the land use field generally, have provided us a major contribution with this book, which looks to be *the* significant text in HP law.  Land use scholars and professionals should definitely have this one on their shelves.

Matt Festa

August 9, 2012 in Constitutional Law, Development, Federal Government, Historic Preservation, History, Local Government, Property, Real Estate Transactions, Scholarship, Teaching | Permalink | Comments (0) | TrackBack (0)

Strahilevitz on Absolute and Relative Preferences in Property Law

Lior Strahilevitz (Chicago) has posted Absolute Preferences and Relative Preferences in Property Law, 160 University of Pennsylvania Law Review (2012).  The abstract:

This article suggests that the population is roughly divided between individuals primarily oriented toward absolute gains and losses, and those oriented toward relative gains and losses. That is, some people consistently care more about the absolute size of the pie slice they are eating, and others care more about how their percentage of the pie stacks up against their peers’ portions. This article examines how property law deals with that heterogeneity in relative and absolute preferences. It focuses initially on inheritance law, particularly cases in which a decedent with living children has adopted her grandchild or someone else within the bloodstream, engendering results that might be acceptable to an heir with absolute preferences but unacceptable to an heir with relative preferences. The article then shows how similar controversies play out in takings law and the law of easements. In many of these cases vehement disagreements between majority opinions and dissents can be understood as clashes between jurists who are focused on absolute resources and those who are focused on relative resources. The article then hypothesizes that some relatively low-stakes disputes explode into contentious lawsuits precisely because a landowner oriented towards absolute gains and losses is incapable of understanding a conflict from the perspective of his neighbor, for whom relative preferences are decisive. The article concludes by referencing examples from takings law and the law of waste, in which divergent assumptions about the prevalence of relative and absolute preferences render property doctrines ambiguous, tenuous, or incoherent.

In addition to being an important piece on property theory generally, Prof. Strahilevitz specifically examines the land use topics of takings and easements.  I think this analysis could also be extended to the debate over housing and urban form.  A must-read.

Matt Festa

August 9, 2012 in Property Theory, Scholarship, Servitudes, Takings | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 8, 2012

Pew Center Report on Rise of Residential Segregation by Income

The Pew Research Center published a report this month that found an increase in residential segregation by income across the U.S. over the past three decades.  Twenty-seven of the 30 largest major metropolitan areas in the county saw a rise in residential segregation.  The report's overview links the increase n residential segregation to broader increases in income inequality and notes that segregation by income is still "less pervasive than residential segregation by race."  Although it briefly notes the potential relevance of local housing policies, zoning laws, and real estate practices, the report does not explore in detail the causes of the differences found among metro areas.

In addition to the report, the Pew website has maps of residential income segregation in the ten largest U.S. metro areas.

John Infranca

August 8, 2012 in Housing | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 7, 2012

More Buffalo Boosting: Artfarms!

I just can't enough of Buffalo these days. Yesterday, I posted about our "zombieness" and today I learned of something fun being done with some of our vacant land (up to 20% of the land in the city of Buffalo is vacant -- no that is not the same thing as open space). Some Brooklyn-based architects are suggesting we turn the land into artfarms. Never heard of artfarms? Me neither. The architects describe them as sculptures that serve as agricultural grow structures. Urban farming meets local artists.

"These above-ground, vertically designed sculptures will provide a means to produce fruits, vegetables and flowers for the surrounding community, but they will also provide a creative basis for expansion. In essence, the concept of Artfarms is to create and erect devices that are not just aesthetically appealing, but that will serve a greater purpose by triggering redevelopment."

I hope they find some funding and support to make these happen. Nothing tastes better than a local ogranic tomato grown on a structure that belongs at Burning Man.

Jessie Owley

August 7, 2012 in Agriculture, Architecture, Development, Food, New Urbanism, Urbanism | Permalink | Comments (0) | TrackBack (0)

Monday, August 6, 2012

ABA Professor's Corner phone-in event features Land Use Prof Bloggers - this Wednesday!

Tune in this Wednesday as fellow bloggers Ken Stahl (Chapman), Troy Rule (Missouri), and I participate in the ABA Section of Real Property, Trust & Estate Law's monthly Professor's Corner phone-in event.  Professor James Durham (Dayton) will be moderating as we discuss some fun and challenging recent land use cases.  Special thanks go to Troy for his work in putting this event together.  Details for participating, and cases to be covered, at the link here and below.

Committee Events
Legal Education and Uniform Laws Group Conference Call
August 8, 2012

12:30pm Eastern/11:30am Central/9:30am Pacific

Professors’ Corner is a monthly free teleconference sponsored by the ABA Real Property, Trust and Estate Law Section's Legal Education and Uniform Laws Group. Each month’s call features a panel of three law professors who discuss recent real property cases of interest to real estate practitioners and scholars.  

Wednesday, August 8, 2012
12:30 p.m. Eastern time (11:30 a.m. Central, 9:30 a..m. Pacific)
Call-in number: 866-646-6488
Passcode: 5577419753

August 2012’s teleconference, moderated by Professor James Geoffrey Durham of the University of Dayton School of Law, features three scholars discussing recent land use cases of interest:

Professor Stephen R. Miller, Associate Professor, University of Idaho College of Law.  Professor Miller will be discussing a pending California case, San Francisco Beautiful v. City and County of San Francisco, et al. (Case No. CPF-12-512217, S.F., Cal., Superior Court). The suit challenges the City’s settlement agreement with Metro Fuel, LLC (“Fuel”) that would have ended litigation initially brought by Fuel. The conversation will first focus on procedural challenges made by the San Francisco Beautiful petition, then turn to Fuel’s constitutional claims in this and other cases (Metro Fuel LLC v. City of San Francisco, C 07-6067 PJH, 2011 WL 900318 (N.D. Cal. 2011); Metro Lights LLC v. City of Los Angeles, 551 F.3d 898 (2009), cert denied, 130 S. Ct. 1014 (2009).), which have resulted in some of the most salient discussions of Metromedia’s legacy, and the constitutionality of advertising sign regulation generally, in recent years.

Professor Troy A. Rule, Associate Professor, University of Missouri School of Law.  Professor Rule will focus on SNPCO, Inc. v. City of Jefferson City, 2012 WL 987998, a recent Tennessee Supreme Court case analyzing a nonconforming use statute in the context of an annexation. In SNPCO, the court refuses to allow a fireworks store to continue operating as a preexisting nonconforming use when a city annexes the store property, holding that Tennessee’s nonconforming use statute applies only to zoning and that annexation is not a zoning matter under the statute. 

Professor Kenneth Stahl, Associate Professor and Director, Environmental, Land Use, and Real Estate Law Certificate Program, Chapman University School of Law. Professor Stahl will focus on Borough of Sayreville v. 35 Club, LLC, 33 A.3d 1200 (N.J. 2012), a recent New Jersey Supreme Court case discussing the constitutionality of municipal zoning regulations that restrict locations for adult businesses.   In 35 Club, the court held that in determining whether a municipality’s zoning ordinance restricting the location of adult businesses violates the first amendment, trial courts should look to whether adult businesses can find adequate locations elsewhere in the market area, including municipalities across state lines.

Stephen R. Miller

August 6, 2012 | Permalink | Comments (0) | TrackBack (0)

New Jersey Seeks to Take Back Affordable Housing Funds

An article in this Sunday's Philadelphia Inquirer discusses New Jersey Governor Chris Christie's demand that towns in New Jersey turn over to the state money that has been in their affordable-housing trust funds for more than four years, a total of $141.2 million.  A state law (N.J.S.A. 52:27D-329.2) requires that this money, which towns receive from fees paid by developers, be committed within four years. The state recently sent letters to 372 town outlining how much each one is being asked to transfer to the state's Affordable Housing Trust Fund.  (NJ's Fair Share Housing Center posted a copy of one of these letters.)

Christie's effort, as the Inquirer article notes, is just the latest episode in New Jersey's battles over zoning and affordable housing regulation, battles made famous by the Mount Laurel decision.  Christie previously sought to eliminate the state's Council on Affordable Housing (COAH), which enforces the judicial requirements regarding how much housing must be built in each town.  However, NJ's Supreme Court rejected his attempt.  (For an interesting perspective on Christie's "War Against the Mount Laurel Doctrine," see this piece by Rick Hills from a while back on PrawfsBlawg).

Now, critics claim Christie is seeking the money to fill holes in the state budget, while the Governor's camp responds that the money will be used for housing programs at the state level.  Local officials assert their failure to spend the money is largely due to the state's confusing guidelines, particularly regarding what it means to have, as the law requires, "committed" funds to fulfill their affordable housing obligations.

When Christie first announced his plans to seize the funds, the Fair Share Housing Center filed a motion seeking to enjoin the state's actions, arguing that COAH failed to promulgate standards outlining what municipalities must do to "commit" the funds.  The Appellate Division of the NJ Superior Court refused to issue an injunction, but did require that municipalities receive written notice of the amount they owed and how it was calculated.  This notice came in the form of the subsequent letters stating the amount due and demanding that towns transfer the funds - or dispute the amount calculated - by August 13, 2012.  The Fair Share Housing Center, joined by the NJ State League of Municipalities, now contend that the letter sent to municipalities fails to comply with the requirement that municipalities be informed regarding how the amount was calculated.  

To my mind, it seems the challenge to the state's actions will be an uphill battle for the municipalities. The statute the state is relying upon in seizing the funds states:

"The council shall establish a time by which all development fees collected within a calendar year shall be expended; provided, however, that all fees shall be committed for expenditure within four years from the date of collection. A municipality that fails to commit to expend the balance required in the development fee trust fund by the time set forth in this section shall be required by the council to transfer the remaining unspent balance at the end of the four-year period to the “New Jersey Affordable Housing Trust Fund" . . . to be used in the housing region of the transferring municipality for the authorized purposes of that fund."

In its Order denying the request for an injunction, the court declared that "[t]he ambiguity, if any, concerning the term commit has not precluded municipalities from seeking COAH's approval of particular housing projects on a case-by-case basis."  The court's chief concern, as noted, was that the municipalities receive notice and an opportunity to contest the transfer.  It is likely this battle will continue to drag out, largely focused on the process through which the state is seeking to take back the funds, but it seems difficult to envision a strong legal basis for the municipalities ultimately stopping the seizure of the funds.  It may be more likely that political pressure, from local municipalities and residents who will still need to fulfill their affordable housing obligations, but will be forced to find new sources of funding, may stop the state's efforts.

John Infranca  

August 6, 2012 in Affordable Housing, Local Government, State Government, Zoning | Permalink | Comments (0) | TrackBack (0)

Buffalo = A Haven for Zombies

A new article from the Journal of Urban Affairs has taught me a new term : Zombie Properties. Pretty much just a creepy way to say vacant property. I am not sure what zombie-like characteristics these zombies really have. There doesn't seem to be any brain eating and there is definitely a possibilty that they could be brought back to life. More disconcerting than the term however is the fact that 1 in 10 properties in Buffalo are zombies. Maybe if urban planners could call themselves zombie hunters or something exciting like that, we'd see a host of folks flocking to SUNY-Buffalo's new Ph.D. in planning program.

Here's the article abstract:

Silverman, Yin, and Patterson. Dawn of the Dead City: An Exploratory Analysis of Vacant Address in Buffalo, NY 2008-2010 in the Jounral of Urban Affairs (12 Jul 2012)

ABSTRACT: This article examines residential vacancy patterns in Buffalo, NY, using data from a unique data set. It includes variables from HUD Aggregate USPS Administrative Data on Address Vacancies, the American Community Survey (ACS) 5-year estimates for 2005–2009, housing choice voucher (HCV) records of local public housing agencies, and municipal in rem property records. Multiple regression is used to identify significant relationships between vacancy patterns, socioeconomic characteristics, and institutional factors. The findings from this analysis suggest that the percent of vacant residential properties increases in census tracts with elevated poverty rates, higher percentages of renters receiving rental assistance, and long-term vacancies. They also suggest that the percent of abandoned residential properties increases in census tracts with highly concentrated black populations, elevated poverty rates, long-term vacancies, and higher percentages of business addresses. We conclude that these relationships are unique to older core cities experiencing systemic population and job losses. These cities struggle with a distinct type of long-term vacant and abandoned structures, which we label zombie properties. They can be contrasted with vacant and abandoned properties in transitional or regenerating areas. We offer recommendations for further analysis of zombie properties in these urban settings.

Jessie Owley

August 6, 2012 | Permalink | Comments (0) | TrackBack (0)

Frischmann on Managing Congestion

Brett M. Frischmann (Cardozo) has posted Managing Congestion, which is a chapter from his book Infrastructure: The Social Value of Shared Resources, Oxford University Press, 2012.  The abstract:

This chapter considers partially (non)rival infrastructure and congestion. Specifically, it explains and analyzes congestions problems and solutions. It begins with the basic economic model of congestion, which assumes homogenous uses, and discusses various approaches to managing congestion. It turns to more complex congestion problems, involving heterogeneous uses and cross-crowding, and discusses management options. The chapter evaluates congestion management strategies for infrastructures as well as the relationship between commons management and congestion management.

The SSRN document also includes the book's Table of Contents, so you can view the larger outline for this valuable book. 

Matt Festa

August 6, 2012 in Comparative Land Use, Density, Planning, Property Theory, Scholarship, Urbanism | Permalink | Comments (0) | TrackBack (0)

Interesting Set of Interviews with Staff of New York City Planning, and a Note on Pruitt-Igoe

Over at Next American City there is a five-part series of interviews being conducted with staffers from New York City’s Department of City Planning, discussing changes to city zoning.  The first two installments provide some interesting insights into two innovations to the zoning code.

The first installment looks at the FRESH program, a combination of zoning and tax incentives that are intended to encourage the entry of grocery stores into underserved neighborhoods throughout the city.  The zoning incentives include a bonus allowing the construction of a larger mixed-use building if a developer includes a ground-floor grocery store as well as the easing of parking requirements.

The second installment looks at Zone Green, a set of changes to the zoning code that relax barriers to adding more environmentally friendly features to new and existing buildings.  Installing such features can often require lengthy approval processes to allow elements not permitted by the building code.  Both posts are worth checking out. 

On an unrelated note, following up on Stephen’s recommendation of the Pruitt-Igoe Myth, which I strongly second, I wanted to mention a proposed design for the current site, much of which remains empty, that I came across a while back.  It offers a neo-classical approach that tries to link the site back with the surrounding grid.  

John Infranca

August 6, 2012 in Economic Development, Environmentalism, New Urbanism, New York, Redevelopment, Zoning | Permalink | Comments (0) | TrackBack (0)

Sunday, August 5, 2012

Rain, Rain, Don't Go Away: Green Infrastructure in Buffalo

We had a torrential downpout here in Buffalo today. Many people were happy about the rain because it has been very hot here of late, and weeks without rain has led to the death of many lawns and gardens. I was excited for a different reason. It was the first big test of our new street! I am lucky enough to live on the first test block for porous asphalt in Buffalo. My neighbors and I are quite excited about it even though it took two months for them to install it. The difference was pretty awesome. My three year old and I ran around in the rain, and watcedh it all just seep into the street. Rumor has it that we will also be getting free rain barrels.

There are a lot of exciting green infrastructure projects around the country. Having lived through one of them, I think there is a lot of potential. But it took 2 months for them to do one block here in Buffalo. Wonder how much time and money it would take to do a significant part of the city?

Jessica Owley

August 5, 2012 in Local Government, Sustainability, Urbanism, Water | Permalink | Comments (1) | TrackBack (0)